Government Accounting

- Encompasses processes of analyzing, recording, classifying, summarizing and communicating all transactions involving the
receipt and disposition of government funds and property, interpreting the results thereof

Objectives:
(a) Produce information about past operations and present conditions
(b) Provide basis for guidance of future operations
(c) Provide control of the acts of public bodies and officers
(d) Report on the financial position and results of operations of government entities

Emphasis:
(a) Sources of government funds – main: taxes; borrowings, grants
(b) Utilization of government funds – expenditures on programs, projects
(c) Responsibility over government funds and property
 Head of government agency – directly responsible in implementing the policy (government resources should be utilized
efficiently and effectively accdg to law); primary responsible for resources entrusted to his agency
 Accountable officer – those entrusted w/ possession of resources; secondarily liable
(d) Accountability over government funds and property
 Accountable officer – responsible for safekeeping of such; should be properly bonded
 Transfer of funds from 1 officer to another – made only after authorization from COA (except if allowed by law); should
be documented in an invoice and receipt
(e) Liability over government funds and property
 Employee directly responsible for unlawful use of resources – personally liable
 Accountable officer – liable for losses from unlawful use or negligence in the safekeeping of resources; not relieved from
liability even if acted upon direction of a superior officer (unless he notifies, in writing, the superior officer before the act);
shall notify COA for any loss due to unforeseen events within 30 days (failure to notify will not relieve his liability)

Accounting Responsibilities
(1) Commission on Audit
- Has exclusive authority to promulgate accounting and auditing rules and regulations
- Keeps the general accounts of the government, supporting voucher and other docs
- Consolidates reports of agencies and submits it to president and congress
(2) Department of Budget and Management (DBM)
- Responsible for formulation and implementation of national budget
(3) Bureau of Treasury (BTr)
- Cash custodian of the government
- Authorized to receive and keep national funds and manage and control disbursement thereof
- Maintains accounts of financial transactions of all government entities
(4) Government entities
- Maintain accounting books (reconciled w/ cash records of BTr) and budget registries (reconciled w/ budget records of
DBM and COA)
- Accounting books are subject to audit by COA; submits reports to COA for consolidation

GAM (Government Accounting Manual) for NGAS

- In harmony w/ IPSAS (based on IFRS); incorporates PPSAS
- Promulgated by COA (legal basis: Philippine Constitution)

Coverage: used by all NGAs (National Government Agencies) in the:

a. Preparation of general purpose FS
b. Reporting of budget, revenue and expenditure
Objectives: aims to update the following:
a. Standards, policies, guidelines, and procedures in accounting for government funds and property
b. Coding structure and accounts; and
c. Accounting books, registries, records, forms, reports and financial statements
Basic Accounting and Budget Reporting Principles
1. PPSAS
2. Accrual basis of accounting
3. Budget basis for presentation of budget information
4. Revised chart of accounts prescribed by COA
5. Double entry bookkeeping
6. FS based on accounting and budgetary records
7. Fund cluster accounting

01 Regular Agency Fund

01 Foreign Assisted Projects Fund
03 Special Account-Locally Funded
04 Special Account-Foreign Assisted
05 Internally Generated Funds
06 Business Related Funds
07 Trust Receipts

Budget Process
Government Budget – is the financial plan of a government for a given period, usually for a fiscal year, which shows what its resources are,
and how they will be generated and used over the fiscal period; refers to the income, expenditures and sources of borrowings of the National
Government (NG) that are used to achieve national objectives, strategies and programs.

Budget Cycle:
(1) Preparation
a. Budget Call – DBM issues budget call to all agencies; contains next fiscal yr’s target, agency’s budget ceiling
b. Budget Hearings
c. Presentation to the Office of the President – after approval by pres, he shall submit proposed budget to congress w/in 30
days from opening of every regular session
 (2) Legislation
d. House Deliberations
e. Senate Deliberations
f. Bicameral Deliberations
g. President’s Enactment – General Appropriations Act (GAA) (when proposed budget is not enacted before fiscal yr starts, last
yr’s GAA shall be used in the current yr)

Approved Budget – is the expenditure authority derived from appropriation laws, government ordinances, and other decisions
related to the anticipated revenue or receipts for the budgetary period.
Original Budget – is the initial approved budget for the budget period usually the GAA; may include residual appropriated amounts
automatically carried over from prior years by law such as prior year commitments or possible future liabilities based on a current
contractual agreement.
Final Budget – is the original budget adjusted for all reserves, carry-over amounts, transfers, allocations and other authorized
legislative or similar authority changes applicable to the budget period.
Appropriation – is the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar
authority.
Automatic Appropriations – are the authorizations programmed annually or for some other period prescribed by law, by virtue
of outstanding legislation which does not require periodic action by Congress.
Continuing Appropriations – are the authorizations to support obligations for a specific purpose or project, such as multi-year
construction projects which require the incurrence of obligations even beyond the budget year.
Supplemental Appropriations – are additional appropriations authorized by law to augment the original appropriations which
proved to be insufficient for their intended purpose due to economic, political or social conditions supported by a Certification of
Availability of Funds (CAF) from the BTr.

(3) Execution
h. Release guidelines and BEDs
i. Allotment - is an authorization issued by the DBM to NGAs to incur obligations for specified amounts contained in a legislative
appropriation in the form of budget release documents; Obligational Authority.

Obligation – is an act of a duly authorized official which binds the government to the immediate or eventual payment of a
sum of money. Obligation maybe referred to as a commitment that encompasses possible future liabilities based on current
contractual agreement.
j. Incurrence of obligations
k. Disbursement authority – agencies gain access to government funds

Fund Release Documents:

(a) Allotments
 General Appropriations Act Release Document (GAARD) – serves as the obligational authority for the comprehensive release
of budgetary items appropriated in the GAA, categorized as For Comprehensive Release (FCR).
 Special Allotment Release Order (SARO) – covers budgetary items under For Later Release (FLR) (negative list) in the entity
submitted Budget Execution Documents (BEDs), subject to compliance of required documents/clearances.
 General Allotment Release Order (GARO) – is a comprehensive authority issued to all national government agencies, in
general, to incur obligations not exceeding an authorized amount during a specified period for the purpose indicated therein.
(b) Disbursement Authority
 Notice of Cash Allocation (NCA) – authority issued by the DBM to central, regional and provincial offices and operating units
to cover the cash requirements of the agencies;
 Non-Cash Availment Authority (NCAA) – authority issued by the DBM to agencies to cover the liquidation of their actual
obligations incurred against available allotments for availment of proceeds from loans/grants through supplier’s
credit/constructive cash;
 Cash Disbursement Ceiling (CDC) – authority issued by DBM to the Department of Foreign Affairs (DFA) and Department of
Labor and Employment (DOLE) to utilize their income collected/retained by their Foreign Service Posts (FSPs) to cover their
operating requirements, but not to exceed the released allotment to the said post; and
 Notice of Transfer of Allocation – authority issued by the Central Office to its regional and operating units to cover the latter’s
cash requirements.

(4) Accountability
l. Budget accountability reports
 Quarterly Physical Report of Operation (QPRO) – BAR No. 1
 Statement of Appropriations, Allotments, Obligations, Disbursements and Balances (SAAODB) – FAR No. 1
 Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by Object of Expenditures (SAAODBOE)
– FAR No. 1-A
 List of Allotments and Sub-Allotments (LASA) – FAR No. 1-B
 Statement of Approved Budget, Utilizations, Disbursements and Balances (SABUDB) – FAR No. 2 (for Off-Budget Fund)
 Summary of Approved Budget, Utilizations, Disbursements and Balances by Object of Expenditures (SABUDBOE) – FAR
No. 2-A (for Off-Budget Fund)
 Aging of Due and Demandable Obligations (ADDO) – FAR No. 3
 Monthly Report of Disbursements (MRD) – FAR No. 4
 Quarterly Report of Revenue and Other Receipts (QRROR) – FAR No. 5
m. Performance reviews – performed by DBM and COA and reported to the president
n. Audit

Responsibility Accounting – system of providing cost and revenue info over w/c a manager has direct control of

Book of Accounts and Registries

Journals
1. General Journal (Appendix 1)
2. Cash Receipts Journal (Appendix 2)
3. Cash Disbursements Journal (Appendix 3)
4. Check Disbursements Journal (Appendix 4)
Ledgers
1. General Ledgers (Appendix 5)
2. Subsidiary Ledgers (Appendix 6)

Registries
1. Registries of Revenue and Other Receipts (RROR) (Appendices 7, 7A, 7B, 7C and 7D)
2. Registry of Appropriations and Allotments (RAPAL) (Appendix 8)
3. Registries of Allotments, Obligations and Disbursements (RAOD)(Appendices 9A, 9B, 9C and 9D)
4. Registries of Budget, Utilization and Disbursements (RBUD)(Appendices 10A, 10B, 10C and 10D)

Government Accounting Process

1. Appropriation
2. Allotment
3. Incurrence of obligation
4. Disbursement authority – NCA
5. Disbursements
6. Billings, Collections and Remittances
7. Unadjusted TB
8. Adjusting entries
9. Closing entries
10. Preparation of FS

Assets of the Government Agencies

Key Features of Asset:
(1) Controlled by entity
(2) Result of past events
(3) Future economic benefits are expected to flow to the entity

Recognition:
(1) Probable that future economic benefits will flow
(2) Has cost that can be measure reliably

Financial asset
- Cash
- right to receive cash or other financial asset
- an equity instrument of another entity or contractual right to exchange financial instruments under potentially favorable condition.
Examples:
- Cash and cash equivalents
- Receivables
- Investments in debt and equity securities
- Derivative assets.

Cash (Cash on hand, cash in bank, cash treasury accounts)

Unreleased commercial checks – reverted back to cash
Cancelled checks (stale, voided, spoiled) – reverted back to cash

Current Year Prior Year

Dr. Cash – MDS Dr. Accum. Surplus(Deficit)
Cr. A/P Cr. A/P
Note: Cash – MDS account is zeroed out at year end for unused NCA

Petty Cash Fund

Guidelines:
- maintained using the imprest system.
- sufficient to defray recurring petty expenses for 1 month.
- PCF Custodian is bonded whenever the established fund exceeds P5,000.00
- used for disbursements not exceeding P15,000 per transaction.
- replenished as soon as disbursements reach at least 75% or as needed.
- A canvass from at least 3 suppliers is required for purchases amounting to P1,000 and above , except for purchases made while
on official travel
- PCF disbursements shall be supported by properly accomplished and approved PC vouchers, invoices, ORs or other evidence of
disbursement.
- At the end of the year, the PCF Custodian shall submit all unreplenished PC vouchers to the Accounting Unit for recording in the
books of account.
- The unused balance of the PCF shall not be closed at year-end (closed only upon: termination, separation, retirement or dismissal
of PCF custodian)

Cash shortage/overage
Shortage – liability of disbursing officer
Overage – forfeited in favor of the government

Dishonored checks – not accepted when presented for payment

Liable for dishonored checks – drawer
Guidelines:
- When check is dishonored, CO shall:
(a) issue a Notice of Dishonored Checks to drawer and any endorsee
(b) cancel related OR
- if CO fails to issue the notice, dishonored checks become his personal liability
- check refused by drawee bank when presented w/in 90 days from its date = prima facie evidence that drawer has knowledge of
insufficiency of funds
- dishonored check shall be settled by payment in cash/certified check; dishonored check will not be returned unless payor returns
first the previous OR
Bank Reconciliation
Bank Recon shall be prepared as internal control to ensure the correctness of cash records and as deterrent to fraud

Guidelines:
- The Chief Accountant or designated staff shall prepare separate bank recon for each bank account maintained by the entity within
10 days from receipt of the monthly bank statement
- monthly bank reconciliations using the adjusted balance method
- Bank Recon shall be prepared in 4 copies to be submitted within 20 days from receipt of bank statement to the following: COA
Auditor, Head of Agency, Accounting Division and Bank
- A Journal Entry Voucher (JEV) shall be prepared to record any reconciling items.

Cash equivalents - Only debt instruments acquired 3 months or less before their scheduled maturity date can qualify as cash equivalents.

Receivables
Initial measurement: fair value plus transaction costs
Subsequent measurement: amortized cost.

Summary of Measurement

Type of Financial Asset Examples Initial Measurement Subsequent Measurement

a. FA @ FVT Surplus or Investments in quoted stocks or FV FV; changes in FV are

Deficit bonds recognized in surplus/deficit

b. Held-to-maturity Investment I bonds and other FV plus transaction Costs Amortized cost (using EIR
debt securities to be held until method)
maturity

c. Loans and Receivable Accounts, Notes, Loans FV plus transaction Costs Amortized cost (using EIR
receivables method)

d. Available for sale FA Investments in stock or bonds not FV plus transaction Costs FV; changes in FV are
classified under a to c above recognized in equity

Investments in unquoted equity instruments (FV cannot be measured reliably) – measured at cost

Derivatives – financial instrument/other contract that derives its value from the changes in value of some other underlying asset/other
instrument
Purpose: risk management

Hedging – method of offsetting a potential financial loss or the structuring of a transaction to reduce risk involving financial instruments

Inventories
The inventories of government entities include the following:
- Inventory Held for Sale
- Inventory Held for Distribution (e.g., welfare goods held for distribution)
- Inventory Held for Manufacturing
- Inventory Held for Consumption (e.g., office supplies)
- Semi-Expendable Property (PPE-like items below the P15,000 capitalization threshold for PPE).
Initial measurement: cost
Subsequent measurement:
Held for sale – lower of cost and net realizable value
Held for distribution – lower of cost and current replacement cost

Cost formulas used by government entities: specific identification, weighted average cost
Recording system used: perpetual inventory system

Receipt of Inventories
(1) End users prepare the Purchase request (PR) form to request for the purchase of items not available on stock.
(2) The authorized official prepares the Purchase Order(PO)
(3) When the purchased items are delivered, the Property/Supply Division signs the “received” portion of the Delivery Receipt (DR)
and prepares the Inspection and Acceptance Report (IAR)
(4) The Property Inspector inspect the conformance of the delivered items with the specifications in both the PO and DR and indicates
the results of the inspection
(5) The Property/Supply Division, through the Stock Card Keeper, records the accepted deliveries in the Stock Card (SC)
(6) The Accounting Division records the accepted deliveries in the books of accounts and in the Supplies Ledger Card(SLC)
(7) The Property /Supply Division prepares the Disbursement Voucher (DV) then forwards it, together with the supporting docs, to
the Accounting Division for Processing of payment.

Disposition of Inventories
(1) End Users prepare the Requisition and Issue Slip(RIS) to request for the issuance of items available on stock.
(2) The Property/Supply Division prepares the Report of Supplies and Materials Issued(RSMI)
(3) The Accounting Division records the items issued in the books of accounts and updates the SLC.
(4) The following are other documents used in the disposition of inventories:
a. Waste Material Report- prepared by the property or supply custodian to report waste materials, such as destroyed spare
parts and other spoilage.
 b. Report on the Physical Count of Inventories- used in reporting the results of physical counts.
c. Report of Accountability for Accountable Forms- used to report the movement and status of accountable forms in the
possession of an officer.
d. Inventory Custodian Slip- prepares when issuing semi-expendable property.

Biological Asset - is a living animal or plant.

Agricultural Produce - is the harvested product of the entity's biological assets. An agricultural produce subjected to postharvest processing
is inventory.

Measurement:
Biological Assets – FV less costs to sell (if FV cannot be reliably determined – cost)
Agricultural Produce – FV less costs to sell at point of harvest

Fair value = Quoted price in an active market less Transport costs

(If there are more than one active markets, the entity shall use the price in the market expected to be used.)

Investment Property - is land and/or building held for rentals or capital appreciation.
Initial measurement: cost
Subsequent measurement: cost less accum. dep and accum. impairment losses (fair value model is not allowed for government entities)

Transfer
- Transfers to or from investment property shall be made only when there is a change in use.
- A government entity accounts for transfers to or from investment property at cost.
- Accordingly, no gain or loss shall arise from the transfer, except when the transferred asset is impaired.
-
Derecognition
Gain/Loss in Surplus(Deficit) = net disposal proceeds – CA of IP

Impairment
- An asset is impaired if its carrying amount exceeds its recoverable amount.
- Recoverable amount is the higher of an asset's fair value less costs to sell and value in use.
- The reversal of impairment shall not result to a carrying amount in excess of the asset's carrying amount had no impairment loss
been recognized in prior periods.

Property Plant and Equipment

For government entities, the capitalization threshold for PPE is P15,000
Threshold is applied on a per item basis except for:
a. Individual items below threshold but work together as a group of assets (if total cost is 15,000 or more)
b. Bulk acquisitions of small items (if aggregate cost is 15,000 or more)
Initial measurement: cost

Promotional items:
If the same, allocate total cost to all items acquired including the promotional item.
If different, assign the promotional item its fair value; the remainder to the other items acquired.

Acquisition by Construction:
(a) Through Construction Contract - cost is contract price.
(b) Construction by Administration - cost is sum of DM, DL, & OH. Construction costs are initially recorded in the "Construction
in Progress” account.

Acquisition through Exchange:

(a) With commercial substance
Asset received is measured at: FV of asset given up (+cash paid/-cash received); FV of asset received; CA of asset given up
((+cash paid/-cash received)
(b) No commercial substance - CA of given up ((+cash paid/-cash received)

Acquisition through Non-Exchange

Asset received is measured at fair value at the acquisition date.
No condition, recognized immediately as income.
With condition, initially recognized as liability.

Acquisition through Intra-agency or Inter-agency Transfers

Asset acquired is measured at the carrying amount of the asset received

Subsequent Expenditures on PPE – generally expensed (unless they meet recognition criteria and capitalization threshold)
(a) Repairs and Maintenance - minor, expensed; major, capitalized. (If not clear, treat as minor.)
(b) Replacement costs - charge carrying amount of old part as loss; capitalize new part. If carrying amount of old part is not
determinable, use the cost of new part as basis.
(c) Spare parts and servicing equipment - minor, expensed (inventory); major, capitalized. Those that can only be used in conjunction
with an item of PPE are accounted for as PPE.
(d) Betterments are capitalized (if they meet the recognition for PPE) and are subsequently depreciated:
over the extended useful life, if betterment extends useful life;
over remaining useful life, if betterment does not extend useful life
(e) Additions are modifications which increase the physical size function of the PPE. If the addition is a (an):
new unit - depreciate over its own useful life
expansion - depreciate over useful life of original asset.

Subsequent measurement of PPE: cost model (revaluation model is not allowed to be used by government)
- The straight line method of depreciation is used unless another method is more appropriate.
- Residual value is generally 5% of cost, unless an entity determines a more appropriate estimate, subject to the approval of COA
- Depreciation shall be recognized on a monthly basis.
Property, Plant and Equipment Estimated Useful Life

Infrastructure Asset 20 to 50 years

Buildings and Other Structures 30 to 50 years

Machinery and Equipment 5 to 15 years

Transportation Equipment

Motor Vehicles 5 to 15 years

Military Vehicles 3 to 20 years

Trains 10 to 20 years

Aircraft and Ground Equipment 10 to 20 years

Watercrafts 10 to 25 years

Furniture, Fixtures and Books 2 to 15 years

Leased assets, excluding land Useful life or lease term including extension period if renewal is expected
whichever is shorter

Leased Assets Improvements Useful life or lease term including extension period if renewal is expected
whichever is shorter

Service Concession Assets Useful life or service concession term including extension period if renewal
is expected whichever is shorter

Land Improvements Over the useful life of the asset to which the improvement was made or
the useful life if significantly shorter

Others 2 to 15 years

Impairment
Impairment Loss = excess of CA over recoverable amount (higher of FV less costs to sell and value in use)
Computation of value in use (VIU)
(a) Depreciated Replacement Cost Approach:
VIU (depreciated replacement cost) = Replacement cost less Accumulated depreciation based on the replacement
cost(cost of replacing or reproducing the asset whichever is lower)
(b) Restoration Cost Approach:
VIU = Depreciated replacement cost minus Estimated restoration cost.
(c) Service Units Approach
VIU = Depreciated replacement cost x (100% less % of reduction in service potential)

Heritage assets Not depreciated but subject to impairment.

Infrastructure assets Generally, no residual value.

 Reforestation projects Land improvement; not depreciated but subject to impairment

Idle PPE Not derecognized; continued to depreciated

Fully depreciated Not derecognized

Unserviceable property Derecognized

Lost PPE Derecognized (if total loss)

Receipt and Disposition of PPE

(1) Property Card- used by the supply/property division to record all movements in items of PPE.
(2) Property, Plant and Equipment Ledger Card- used by the Accounting Division to record all movement in items of PPE, both in
quantity and monetary amount.
(3) Property Acknowledgement Receipt- used by the Supply/Property Division to record the issuance of PPE to the end user.
(4) Report on the Physical Count of PPE- at the end of each year, the entity shall perform physical count of PPE and prepare this
report.
(5) Inventory and Inspection Report for Unserviceable Property- used to account for all unserviceable property subject to disposal.
(6) Report of Lost, Stolen, Damaged or Destroyed Property- used by the accountable officer to notify the concerned officials of
the lost, stolen, damaged or destroyed property.
(7) Property Transfer Report- used to record transfers of property from one accountable officer to another.

Borrowing costs
Recognition:
(a) expensed (Benchmark Treatment).
(b) capitalized, if related to the acquisition of a qualifying asset (Allowed Alternative Treatment).

Intangible Assets - are identifiable non-monetary assets without physical substance.

Initial and subsequent measurement: cost model
Amortization:
(a) finite life – amortized using SL method over 2-10 years (RV is assumed to be zero)
(b) indefinite life – not amortized

Internal generation:
Research cost - recognized as expense.
Development cost - capitalized only if all of the conditions listed in the GAM for NGAs are met.
(If it is not clear whether an expenditure is a research or a development cost, it is treated as research cost.)

Reinstatement of costs already expensed is prohibited.

Internally generated brands, mastheads, publishing titles, customer lists, and similar items are not recognized as intangible assets.

Liabilities
Key features:
1. present obligation
2. result of past events
3. settlement of w/c is expected to result in an outflow of economic benefits

Recognition:
a. The item meets the definition of a liability;
b. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
c. The obligation has a cost or value (e.g., fair value) that can be measured reliably.

Financial liabilities
Initial measurement: FV less transaction costs
Subsequent measurement: amortized cost
(except for financial liabilities at FV through surplus or deficit – TC are expensed and subsequently measured at FV)

Provision - is a liability of uncertain timing or amount.

Measurement: best estimate of the amount needed to settle the liability at the reporting date (If the effect of time value of money is material,
the provision is measured at present value)
Contingent liability - is one that meets some but not all of the liability recognition criteria; is not recognized but disclosed only if its occurrence
or settlement is reasonably possible; otherwise, it is ignored.
Contingent asset - is not recognized but disclosed only if its occurrence or realization is probable; otherwise it is ignored
Contingent Probable Possible Remote
Asset Disclose only Ignore Ignore
Liability Recognize and Disclose Disclose only Ignore

Leases – an agreement whereby the lessor conveys to the lessee, in return for a payment, the right to use and asset for an agreed period
of time
(a) Finance lease – a lease that transfers substantially all the risks and incidental to ownership of an asset
(b) Operating lease - a lease that does not transfer substantially all the risks and incidental to ownership of an asset
 Any of the following would lead to a finance lease classification:
1. Transfer of ownership
2. Bargain purchase option
3. The lease term is for the major part of the economic life the asset ("75% criterion”).
4. The PV of the lease payments is at least substantially all of the fair value of the leased asset ('90% criterion').
5. The leased asset is specialized in nature.

Inception of the lease – is the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions
of the lease. Classification and measurement are done on this date.

Commencement of the lease term – is the date from which the lessee is entitled to exercise its right to use the leased asset. Initial
recognition of any asset or liability is made on this date.

Accounting for Finance Lease by Lessees

At commencement date, lease asset and related liability is recognized at the lower of the
(1) FV of leased property at inception date; and
(2) PV of the minimum lease payments inception date
Minimum lease payments include:
(a) Rentals (excluding contingent rent, costs for services, taxes reimbursable to the lessor
(b) Bargain purchase option
(c) Guaranteed residual value
- Lease payments are discounted using the interest rate implicit in the lease, if this is determinable; if not, the lessee's
incremental borrowing rate is used.
Initial direct costs are generally capitalized.

Depreciation: shorter of the asset's useful life and the lease term (if there is no reasonable certainty that the lessee will obtain ownership
over the asset by the end of the lease term)

Accounting for Finance Lease by Lessors

Recognizes: finance lease receivable = gross investment in the lease; deferred finance lease revenue = excess of gross investment from
net investment
Initial direct costs – included in initial measurement of finance lease receivable and reduce the amount of revenue recognized over the lease
term

Operating Lease
A lessee (lessor) under an operating lease recognizes the payments as expense (income) on a straight line basis on lease term, unless
another systematic basis is more representative of the time pattern of the user's benefit.
Initial direct costs:
(a) Lessor – added to CA of leased asset and recognized as expense over lease term
(b) Lessee – treated as prepaid rent and recognized as expense on same basis as lease expense

Revenue – gross inflow of economic benefits during the period when those inflows result in an increase in net assets/equity, other than
increases from contributions of owners
Revenue funds – comprise all funds derived from the income of any agency of the government and available for appropriation or expenditure
in accordance with law. (Section 3, P.D. No. 1445)

Expenses – decreases in economic benefits during the period in the form of outflows or consumption of assets or incurrence of liabilities
that decrease net assets/equity, other than distribution to owners

Financial Statements
Entity's management, particularly the Head of the Entity jointly with the Head of Finance/Accounting – responsible over FS
Statement of Management Responsibility for FS – attached to FS as a cover letter

Qualitative Characteristics of Financial Reporting:

a. Understandability – users can reasonably comprehend its meaning; reasonable knowledge of entity’s activities and willingness to
study the information (info about complex matters is not excluded simply because it may be too difficult to understand)
b. Relevance – assist users in evaluating past, present or future events or in confirming or correcting past evaluations (to be relevant,
must be timely)
c. Materiality – affects relevance of information; depends on nature or size of the item/error
d. Timeliness
e. Reliability – free from material error and bias; depended on by users
Note: if not timely-may be reliable but not relevant; there should be balance between relevance and reliability
f. Faithful representation
g. Substance over form
h. Neutrality
i. Prudence
j. Completeness – complete w/in the bounds of materiality and cost
k. Comparability

General Purpose FS – those intended to meet the needs of users who are not in a position to demands reports tailored to meet their
particular information needs

Complete set of general purpose FS:

1. Statement of Financial Position
2. Statement of Financial Performance
3. Statement of Changes in Net Assets/Equity
4. Statement of Cash Flows
5. Statement of Budget and Actual Amounts
6. Notes to the FS
 General Principles:
(1) Fair Representation
- faithful representation of the effects of transactions and other events in accordance w/ the definition and recognition criteria
in the PPSAS
- requires proper selection and application of accounting policies
(2) Compliance w/ PPSAS
- Those complying shall make explicit and unreserved statement of such compliance
- Compliance shall mean complying with all the requirements of PPSAS
- Inappropriate accounting policies are not rectified either by disclosure or by notes/explanatory material
(3) Departure from PPSAS
- If management strongly believes that compliance would result to misleading presentation, then entity may depart if framework
allows or otherwise does not prohibit
(4) Going concern
- FS are prepared in a going concern basis
(5) Consistency of presentation
(6) Materiality and aggregation
(7) Offsetting
- Assets and liabilities, and revenue and expenses shall not be offset unless:
(a) Required/permitted by a PPSAS; or
(b) When offsetting reflects the substance of the transaction/event
(8) Comparative information
- Included for narrative and descriptive information when it is relevant to and understanding of the current period’s FS

Reporting: at least annually

Disclosures if reporting is shorter/longer:
(a) Period covered by FS
(b) Reason for using shorter/longer period
(c) Fact that comparative amounts are not entirely comparable

 A peculiar financial statement of a government entity is the Statement of Comparison of Budget and Actual Amounts. This statement shows
the differences between budgeted amounts and actual results for a given reporting period.
 The statements of financial position and financial performance are presented in comparative, condensed and detailed formats.
 The statement of financial position of a government entity shows distinctions between current and noncurrent assets and liabilities.
 The following are recognized directly in equity, rather than through surplus or deficit:
(a) correction of prior period errors;
(b) effect of changes in accounting policies; and
 gains or losses on remeasuring available-for-sale financial assets
 Government entities present cash flows from operating activities using the direct method.
 Adjusting events – those that provide evidence of conditions that existed at the reporting date. Those that are indicative of conditions
that arose after the reporting date are non-adjusting events. Adjusting events are recognized.
 Non-adjusting events – disclosed only, if material.
 A change in accounting policy is accounted for using the following order of priority:
(a) transitional provision;
(b) retrospective application;
(c) prospective application.
 A change in accounting estimate is accounted for by prospective application.
The correction of a prior period error is accounted for by retrospective restatement.

Other Reports
In addition to the financial statements, government entities are also required to prepare and submit the following reports:
1. Trial Balances (Pre-closing and Post-closing)
2. Other schedules:
a. Regional Breakdown of Income
B. regional Breakdown of Expenses

Deadlines on submission of reports

*TBs(trial balances), SSs( supporting schedules); FSs(financial statements)

Provincial Offices and Operating Units:

Reports Deadline Submit to:

Monthly TBs & SSs 10 days after end of the month Auditor, Regional
Accountant

Quarterly FSs, TBs & SSs 10 days after the end of quarter

Yearend FSs, TBs & SSs On or before Jan 20 of the following year
Central/head/main office

Reports Deadline Submit to:

Monthly TBs & SSs 10 days after end of the month Regional Auditor, Central
Office Chief Accountant

Quarterly FSs, TBs & SSs 10 days after the end of quarter

Yearend FSs, TBs & SSs( Feb 14 of the Following year COA Auditor, DBM. COA-
combined CO, ROs & GAS(Gov’t Accountancy
OUs) Sector)

Regional/Branch Offices

Reports Deadline Submit to:

Monthly TBs &SSs 10 days after end of the month Regional Auditor, Central Office
Chief Accountant

Quarterly FSs, TBs &SSs 10 days after the end of quarter

Yearend FSs, TBs &SSs On or before Jan 31 of the following year