Chapter 4

Revenues and Other Receipts

Learning Objectives
1. State the sources of revenue of a government entity.
2. State the recognition and measurement of revenue.
Introduction
Revenue - is the gross inflow of economic benefits or service potential during the reporting
period when those inflows result in an increase in equity, other than increases relating to
contributions from owners.
Revenue includes only those that are received or receivable by the entity in its own
account. Receipts refer to actual cash collections from all sources during a period.
Fundamental Principles for Revenue
a. All revenues of an entity shall be remitted to the National Treasury and included in the
General Fund of the National Government, unless another law specifically allows otherwise
b. All moneys and property received by a public officer, acting in any capacity or upon any
occasion, shall be accounted for as government funds and government property, unless another
law specifically states otherwise.
c. Amounts received in trust and from business-type activities of the government may be
separately recorded and disbursed in accordance with relevant rules.
d. Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds, or Funds other
than the General Fund only when authorized by law.
e. A collecting officer shall immediately issue an official receipt (OR) upon collecting a payment
of any nature.
f. Where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash
receipts, the COA may approve, upon request, the exemption from the use of accountable forms.
g. Temporary receipts shall never be used to acknowledge the receipt of public funds.
h. Pre-numbered official receipts (ORS) shall be issued in strict numerical sequence. Duplicate
copies shall be the exact copies of the original.
i. A collecting officer shall accept payments to the government in the form checks, upon proper
endorsement and identification of the payee or endorsee. The collecting officer shall not use
government funds to encash private checks.
j. Receipts of government funds shall be acknowledged in accordance with the law - indicating
the date of receipt, from whom and on what account the fund was received.
Types of funds
  General fund -a fund which is available for any purpose other than those which other
funds have been designated to.
 Special fund - a fund designated for special purposes.
 Trust fund (Fiduciary fund) - fund held by a government agency or public officer
acting as trustee, agent, or administrator for the fulfillment of a condition
 Revenue fund - comprises all funds derived from the income of any government agency
and available for appropriation or expenditure in accordance with the law.
 Depository fund - fund held in an authorized depository bank over which the recipient
agency retains control for the lawful purposes for which the fund was received.
 Special Account in the General Fund (SAGF) - established to facilitate the funding of
priority activities of the government The SAGF is sourced from specific fees, grants and
donations, and other sources identified under the law. The following are relevant legal
provisions regarding the SAGE:
a. All income and collections for Special and Fiduciary Funds shall be remitted to the
Treasury and treated as SAGF.
b. The SAGF shall be considered as being automatically appropriated for purposes
authorized by law, except when the General Appropriations Act (GAA) provides
otherwise.
c. SAGF shall be released to government agencies subject to the approval of the
President.
 Special Purpose Funds (SPFS) - are "funds that the President allocates for special
programs and projects. Unlike for other funds, SPFs are not under the accountability of
any particular government agency/office or unit."

Relevant provision of law:

 All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the Government. (Art. VI, Sec. 29(3), Philippine Constitution)
Sources of Revenue
Revenues may arise from exchange and non-exchange transactions.
a. Exchange transactions (Reciprocal transfers) - are transactions in which one entity
receives assets or services, or has liabilities extinguished, and directly gives approximately
equal value to another entity in exchange. (PPSAS9.11) Examples: sale of goods and
rendering of services.
b. Non-exchange transactions (Non-reciprocal transfers) - are transactions in which an
entity either receives value from another entity without directly giving approximately equal
value in exchange, or gives value to another entity without directly receiving approximately
equal value in exchange. (PTSAS 9.11) Examples: tax revenue, fines and penalties and
donations.
 When the consideration transferred does not approximate the fair value of the resources
received, the entity determines whether the transaction includes a combination of exchange and
non-exchange transactions. Each component shall be recognized separately. (PPSAS 23.10).

If it is not immediately clear whether a transaction is an exchange or non-exchange transaction,

the substance of the transaction shall be examined to determine its type. For example, the sale of
goods is normally an exchange transaction. However, if the transaction price is subsidized, the
transaction falls within the definition of a non-exchange transaction.

The receipt of trade discounts, quantity discounts, or other reductions in price does not
necessarily mean that the transaction is a non-exchange transaction. (PPSAS 23.11)

Exchange Transaction (Reciprocal Transfers)

It refers to the transaction in which one entity receives assets or services, or has liabilities
extinguished, and directly gives approximately equal value to another entity in exchange.
Example: sale of goods and rendering of services

Revenues from exchange transactions arise from the following:

I. Sale of goods or Provisions of services to third parties or other government
entities
Examples
a.) Service Income
b.) Business Income
II. Used by other entity of assets yielding interest, royalties and dividends pr similar
distributions
Examples:
a.) Interest Income – charges for the use of cash or cash equivalents, or amount
due to the entity
b.) Royalties – fees paid for the use of the entity' assets
c.) Dividends – share of the National Government from the earnings of its
capital/equity investments in Government-Owned or Controlled Corporation
(GOCCs) and other entities.

Recognition of Revenue from Exchange Transaction

Sale of Goods:
Revenue from the sale of goods shall be recognized when all of the following conditions are
satisfied:
I.) Significant risks and rewards of ownership of the goods are transferred to the buyer;
 II.) The entities does not retain continuing managerial involvement or effective control
over the goods sold
III.) It is probable that economic benefits will flow to the entity;
IV.) Revenue can be measured reliably
V.) Cost relating to the transaction can be measured reliably
Rendering of Services:
Revenue from the supply of services is recognized on a straight line basis over the period the
services are rendered. However, revenue is recognized by reference to the stage of completion if
the outcome of all the transaction can be estimated reliably, such as when all of the following
conditions are satisfied:
I.) The stage of completion of the transaction at the reporting date can be measure
reliably;
II.) It is probable that economic benefits will flow to the entity;
III.) Revenue can be measured reliably;
IV.) Cost relating to the transaction can be measure reliably.
Interest, Royalties and Dividends
a. Interest – recognized on a time proportion basis that takes into account the
effective yield on the asset.
b. Royalties – recognized as they earned in accordance with the substance of the
relevant agreement; and
c. Dividend – are recognized when the entity's right to receive payment is
established.
Measurement of Revenue from Exchange Transactions
Revenue from exchange transactions are measured at a fair value of the consideration received or
receivable. Any trade discounts and volume rebates shall be taken into account.
Example:
Entity A sells goods with list price of P100, 000 on a account with the following credit terms
10%, 10% and 5%. Revenue is recognized as follows:
Dr. Accounts Receivable 7,695
Cr. Sales Revenue (10,000 x 90% x 90% x 95%) 7,695
Exchange of Goods or Services
Exchange of goods or Services with
a.) Similar nature and value do not give rise to revenue
b.) Dissimilar nature and value give rise to revenue measured using the following order of
priority:
I.) Fair Value of the goods or services received, adjusted by the amount of any
cash transferred.
 II.) Fair value of the goods and services given up, adjusted by the amount of any
cash transferred

Non-Exchange Transactions (Non-Reciprocal Transfers)

Non-exchange transactions are transactions in which an entity either receives value from another
entity without directly giving approximately equal value in exchange, or gives value to another
entity without directly receiving approximately equal value in exchange. (PPSAS 9.11)
Revenue from non-exchange transactions are derived mostly from taxes, fines and penalties,
gifts, donations and goods in-kind. These are received without directly providing something of
equal value in return.
 Taxes - are compulsory payments intended to provide revenue to the government. Taxes
do not include fines and penalties.
 Fines and Penalties - are monetary sanctions received as a consequence of breach of
laws.
 Gifts, Donations and Goods/Services In-Kind - are voluntary transfers of assets and
services that one entity makes to another, normally free from stipulations.

Recognition of Revenue from Non-exchange Transactions

Revenue from non-exchange transactions are recognized on a cash basis until a reliable
measurement model is developed. Accordingly, the asset and revenue or liability arising from a
non-exchange transactions are recognized when collected or when these are measurable and
legally collectible.
Tax Revenue

 Tax revenue is recognized at a gross amount and not reduced for expenses paid through
the tax system.

Expenses paid through the tax system are those expenses which should be paid
irrespective of whether the taxpayer pays taxes, or uses a particular mechanism to pay
taxes.

 Tax revenue shall not be grossed up for the amount of tax expenditures.

Tax expenditures are preferential provisions of the tax law that provide certain
taxpayers with concessions that are not available to others. Tax expenditures are
foregone revenue, not expenses.

Type of tax Taxable event

a. Income Tax  Earning of taxable income

b. Value added tax  Undertaking of taxable activity

c. Goods and services tax  Purchase or sale of taxable goods or

 services

d. Custom duty  Movement of dutiable goods or services

across the customs boundary

e. Death Duty  Death of the owner of the taxable

property.

f. Property Tax  Passage of the time period for which

the tax is levied.

Transfers

 Transfers are inflows of future economic benefits or service potential from non-exchange
transactions, other than taxes. (PPSAS 23).
Transfers includes fines, gifts, donations and goods and services in-kind, debt
forgiveness, bequests, and grants. All of these transactions transfer resources without
approximate equal value in exchange and are not taxes but some are with conditions.

Fines and Penalties

Fines and penalties are recognized as income in the year they are collected.
However, fines are recognized as revenue when the receivable meets the recognition criteria for
asset and are measured at the best estimate of inflow of resources to the entity. An entity
collecting fines in the capacity of an agent shall not treat those fines as revenue.
Gifts, Donations and Goods In-Kind
Gifts, donations and goods in-kind are recognized as revenue when it is probable that the future
economic benefits or service potential will flow to the entity. Those that received without
conditions are recognized immediately as revenue. Those with conditions are initially recognized
as liability and recognized as revenue only when the conditions are satisfied.
Service In-Kind
Services in-kind are not recognized as revenue due to the uncertainties affecting the entity’s
ability to control those services and measure them at fair value. Services in-kind may be
disclosed in the notes.
Examples: technical assistance from foreign bodies, community services rendered by persons
convicted of offenses, volunteer services, and the like.
Measurement
Assets, liabilities and revenue arising from a non-exchange transaction are measured as follows:
a. Assets - at acquisition-date fair value
b. Liabilities - at present value, when the effect of time value of money is material.
 c. Revenue - at the amount of increase in net assets. If the non-exchange transaction is
initially recognized as liability, the subsequent reduction in that liability (e.g, because the
condition is satisfied) is recognized as revenue.

Debt Forgiveness
When a lender cancels the debt of a government entity, the debtor recognizes revenue equal to
the carrying amount of the debt forgiven.
However, when a controlling entity cancels the debt of a wholly owned controlled entity,
the canceled debt is treated as contribution from owners and not revenue.
Bequests
Bequests are transfers made according to the provisions of a deceased person’s will. A bequest
that satisfies the recognition criteria for asset is recognized as revenue, measured at the fair value
of the resources received or receivable.

Grant with Condition

An asset received under a grant with condition is initially recognized as liability and recognized
as revenue only when the condition is satisfied.

Illustration:
The National Government (NG) received a foreign grant of 10M conditioned on the construction
of a flood control system which must be completed within the next 2 years, otherwise the grant
must be returned to the grantor. The Department of Public Works and Highways (DPWH) is the
implementing entity.

The journal entries are as follows:

a. Receipt of grant

Books of the NG-BTr Books of DPWH

Cash in Bank-Local Currency, Cash-Modified Disbursement
Bangko Sentral ng Pilipinas 10M System (MDS), Regular 10M
Other Deffered Credits Subsidy from NG 10M
10M
 b. Disbursement for materials and labor amounting to 10M

Books of the NG-BTr Books of DPWH

Subsidy from NG 10M Construction in Progress-
Cash in Bank-Local Currency Infrastructure Assets 10M
Bangko Sentral ng Pilipinas 10M Cash- Modified Disbursement
To recognize replenishment of System (MDS), Regular 10M
MDS checks issued for payment of the
materials and labor for the construction
of a flood control system.

c. Completion of the projects

Books of the NG-BTr Books of DPWH

Other Deferred Credits 10M Flood Control Systems 10M
Income from Grants and Construction in Progress-
Donation in Cash 10M Infrastructure Assets 10M

Pledges
Pledges are unenforceable undertakings to transfer assets to the recipient entity.
Pledges are not recognized as revenue because they do not meet the recognition criteria for
asset, i.e., at present, the entity has not yet obtained control over the item pledged.
If the pledged item is subsequently transferred to the recipient entity, it is recognized as a gift
or donation. Pledges may warrant disclosure as contingent assets.
Concessionary Loans
Loans received by an entity at below market terms.
The entity considers whether the difference between the transaction price (loan proceeds) and
the fair value of the loan on initial recognition is a non-exchange transaction. If it is so, the
difference is recognized as revenue, except if a present obligation exists, in which case the
difference is recognized as a liability and recognized as revenue only when the obligation is
satisfied.
Impairment Losses and Allowance for Impairment Losses
When an amount already recognized as revenue becomes uncollectible, it is recognized as
expense (impairment loss) rather than as an adjustment to the revenue originally recognized.
 Entities shall evaluate the collectability of accounts receivable on an ongoing basis based on
historical bad debts, customer/recipient credit-worthiness, current economic trends and changes
in payment activity. An allowance is provided for known and estimated bad debts.
Other Receipts
Other receipts include, but not limited to, the following:
a. Receipt of subsidy from the National Government (i.e, disbursement authority), such as
receipt of:
i. Notice of Cash Allocation (NCA)
ii. Tax Remittance Advice
iii. Non-Cash Availment Authority
iv. Cash Disbursement Ceiling

b. Receipts of subsidy or assistance from other government agencies, including LGUs and
GOCCs. The Collecting Officer shall issue an official receipt (OR) upon receipt of any of
these subsidies/assistance. The journal entries are as follows:

Date Cash-Collecting Officers 100,000

Subsidy from Other NGAs 60,000
Assistance from LGUs 30,000
Assistance from GOCCs 10,000
To recognize receipt of subsidy/assistance from other
government agencies
Date Cash-Treasury/Agency Deposit, Trust 100,000
Cash-Collecting Officers 100,000
To recognize remittance of collections to the BTr

c. Receipts of excess cash advance granted to officer and employees (e.g., receipts of excess
cash advance for travel).

d. Receipts of refund of overpayment of expenses.

Date Cash-Collecting Officers 10,000

Appropriate expense account 10,000
To recognize collection of refund of overpayment of
expenses
Date Cash-Treasury/Agency Deposit, (Regular, Special Account or 10,000
Trust) 10,000
Cash-Collecting Officers
To recognize remittance of collections to the BTr

e. Receipts of performance bond or security deposit.

 A performance bond id a security deposit required from a contractor or supplier to
guaranty the full and faithful performance of a contract. It may be in the form of cash or
certified check. The journal entries are as follows:

Date Cash-Collecting Officers 100,000

Guranty/Security Deposits Payable 100,000
To recognize collection of performance bond/security
deposits
Date Cash-Treasury/Agency Deposit, Trust 100,000
Cash-Collecting Officers 100,000
To recognize remittance of collections to the BTr

f. Collections made on behalf of another entity.

The collecting entity records the collection as a credit to the “Due to NGAs” account.
Upon receipt of remittance, the recipient entity records the collection as a credit to the
“Trust Liabilities” account.

g. Intra-agency and Inter-agency fund transfers.

 Intra-agency Fund Transfer (transfer within same agency)

Date Cash-Collecting Officers 100,000

Due to (Central Office, Regional Office, Operating Units 100,000
or Other Funds)
To recognize receipt of intra-entity fund transfer
Date Cash-Treasury/Agency Deposit, Trust 100,000
Cash-Collecting Officers 100,000
To recognize remittance of collections to the BTr

 Inter-agency Fund Transfer (transfers between different agencies):

Date Cash-Collecting Officers 100,000

Due to (NGAs, LGUs or GOCCs) 100,000
To recognize receipt of inter-entity fund transfer
Date Cash-Treasury/Agency Deposit, Trust 100,000
Cash-Collecting Officers 100,000
To recognize remittance of collections to the BTr