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Module No – Title : MO4 – Revenue and Other Receipts

Time Frame : 1 week – 3 hrs

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 GOVACC_REVENUE AND
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C. Gutierrez, CPA

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 GOVACC_REVENUE AND
Katrine OTHER
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C. Gutierrez, CPA

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Learning Objectives
 GOVACC_REVENUE AND
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 State the sources of revenue of a government entity.

 State the recognition and measurement of revenue.

Fundamental Principles for Revenue

Revenue is the gross inflow of economic benefits or service potential during the reporting period
when those inflows result in an increase in net assets/equity, other than increases relating to
contributions from owners. Revenue funds on the other hand comprise all funds derived from the
income of any agency of the government and available for appropriation or expenditure in
accordance with law.

All revenues accruing to the National Government Agencies (NGAs) shall be governed by the
following fundamental principles:
a. Unless otherwise provided by law, all revenues accruing to an entity by virtue of the provisions of
the existing law, orders and regulations shall be deposited/remitted in the National Treasury or in
any duly authorized government depository, and shall accrue to the General Fund (GF) of the
National Government (NG).
b. Except as otherwise be specifically provided by law or competent authority, all moneys and
property officially received by a public officer in any capacity or upon any occasion must be
accounted for as government funds & government property.
c. Amounts received in trust and from business-type of government may be separately recorded
and disbursed in accordance with such rules and regulations as may be determined by a
Permanent Committee composed of the Secretary of Finance as Chairman, and the Secretary of
Budget and Management and the Chairman, COA, as members.
d. Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds other than the GF, only
when authorized by law as implemented by rules and regulations issued by the Permanent
Committee.
e. No payment of any nature shall be received by a Collecting Officer (CO) without immediately
issuing an Official Receipt (OR) in acknowledgement thereof.
f. Where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash receipts,
the COA may approve, upon request, exemption from the use of accountable forms.
g. At no instance shall temporary receipts be issued to acknowledge the receipt of public funds.
h. Pre numbered ORs shall be issued in strict numerical sequence.
i. An officer charged with the collection of revenue or the receiving of moneys payable to the
government shall accept payment for taxes, dues or other indebtedness to the government in the
form of checks issued in payment of government obligations, upon proper endorsement and
identification of the payee or endorsee.
j. The Treasurer of the Philippines and all Authorized Government Depository Banks (AGDBs) shall
acknowledge receipt of all funds received by them, the acknowledgement bearing the date of
actual remittance or deposit indicating from whom and on what account it was received.

Accounting Standards for Revenue

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According to PPSAS 9, Revenue from Exchange Transactions; and PPSAS 23, Revenue from Non-
exchange Transactions, the following accounting standards shall apply for revenue and receipts of
government entities:

a. Revenue includes only the gross inflows of economic benefits or service potential received and
receivable by the entity in its own account.
b. Receipts/Collections shall refer to all cash actually received from all sources during a given
accounting period.
c. Fines shall include economic benefits or service potential received or receivable by a public sector
agency, as determined by a court or other law enforcement body, as a consequence of the breach
of laws or regulations.
d. Gifts and donations shall consist of voluntary transfers of assets including cash or other monetary
assets, goods in-kind, and services in-kind that one agency makes to another, normally free from
stipulations.
e. Goods in-kind are tangible assets transferred to an agency in a non-exchange transaction, without
charge, but may be subject to stipulations.
f. Taxes are economic benefits or service potentials compulsory paid or payable to public sector
agencies, in accordance with laws and or regulations, established to provide revenue to the
government.
g. Transfers are inflows of future economic benefits or service potential from non-exchange
transactions, other than taxes.

Sources of Revenue
Revenues may arise from exchange and non-exchange transactions.

EXCHANGE TRANSACTIONS
These are transactions in which one entity receives assets or services, or has liabilities extinguished,
and directly gives approximately equal value (primarily in the form of cash, goods, services, or use
of assets) to another entity in exchange. Examples are sale of goods and rendering of services.

Sale of Goods
Revenue from the sale of goods shall be recognized when all of the following conditions are
satisfied:
a. Significant risks and rewards of ownership of the goods are transferred to the buyer;
b. The entity does not retain continuing managerial involvement or effective control over the goods
sold;
c. It is probable that economic benefits will flow to the entity;
d. Revenue can be measured reliably; and
e. Costs relating to the transaction can be measured reliably. 

Rendering of Services
Revenue from rendering of services is recognized on a straight-line basis over the contact term.
However, revenue is recognized by reference to the stage of completion if the outcome of the
transaction can be estimated reliably, such as when all of the following conditions are satisfied:
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a. The stage of completion can be measured reliably;

b. It is probable that economic benefits will flow to the entity;
c. Revenue can be measured reliably; and
d. Costs relating to the transaction can be measured reliably.
When the outcome cannot be estimated reliably, revenue is recognized only to the extent of
recoverable costs.

Interest, Royalties and Dividends

• Interest is recognized on a time proportion basis that takes into account the effective yield on the
asset;
• Royalties is recognized as they are earned in accordance with the substance of the relevant
agreement; and
• Dividends are recognized when the entity’s right to receive payment is established.

Measurement of Revenue in Exchange Transactions

• Revenue from exchange transactions are measured at the fair value of the consideration received
or receivable.
• Any trade discounts and volume rebates shall be taken into account.
• When cash flows are deferred, the fair value of the consideration is the present value of the
consideration receivable.
• Similar – no revenue is recognized.
• Dissimilar – revenue is recognized, measured using the following order of priority:
• Fair value of the goods or services received, adjusted by the amount of any cash
transferred.
• Fair value of the goods or services given up, adjusted by the amount of any cash
transferred.

SERVICE INCOME
REVENUE
Permit fees, registration fees, registration plates,
tags and stickers fee, clearance and certification
fees, franchising fees and licensing fees.
Supervision and Regulation Enforcement Fees
Inspection Fees
Legal fees, Verification and Authentication Fees
REVENUE RECOGNITION POINT
When services are rendered or, if not
practicable, when fees are collected upon
issuance of the respective permits, certificates of
registration, plates, stickers, clearances,
certification, franchises and licenses.
When services are rendered or when tickets or
relevant document representing violation are
issued of, if not practicable, when fees are
collected.
When bills are rendered for the conduct of
inspection by authorized government official or,
if not practicable, when fees are collected.
When filing fees are billed or, if not practicable,
when fees are collected.
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Processing fees When fees are billed, or collected for the

processing of documents for securing
permits/applications.
Other service income When fees are billed or, if not practicable, when
fees are collected.

BUSINESS INCOME
REVENUE REVENUE RECOGNITION POINT
School fees, Affiliation fees, Examination fees, When fees are billed or, if not practicable, when
Seminar/Training fees fees are collected.
Rent/Lease Income, Communication Network When fees are billed for earned revenue from
Fees, Transportation System Fees, Road use of government property/facilities or, if not
Network Fees, Power Supply Fees, Seaport practicable, when fees are collected.
System Fees, etc.
Sales Revenue When the significant risks & rewards of
ownership have been transferred to the buyer
as indicated in the sales invoice.
Hospital Fees When fees are billed for hospital and related
services rendered or, if not practicable, when
fees are collected.
Other Business Income When earned or, if not practicable, when fees
are collected.

ILLUSTRATION 1:
Entity XYZ is authorized to print accounting manuals for sale to other NGAs. Assume that on July 16, 2020,
Entity XYZ sold accounting manuals on account with a list price of P500,000 less trade discounts of 10%,
10% and 5%. The invoice price of the merchandise is computed as follows:
List price P500,000
Less: 10% x P500,000 50,000
P450,000
Less: 10% x 450,000 45,000
P405,000
Less: 5% of P405,000 20,250
TOTAL P384,750

The journal entry shall be as follows:

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Accounts Receivable 10301010 00 P384,750.00
Sales Revenue 40202160 00 P384,750.00
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To recognize the sale of accounting manuals.

ILLUSTRATION 2:

Assume that on August 5, 2020, Entity XYZ received a 90-day, 6%, P50,000 promissory note from Entity
ABC for accounting manuals sold. On October 4, 2020, Entity ABC paid cash in settlement of its note.

The accounting entries shall be as follows:

On August 5
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Notes Receivable 10301020 00 P50,000.00
Sales Revenue 40202160 00 P50,000.00
To recognize the sale.

On October 4
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Cash-Collecting Officer 10101010 00 P50,750.00
Notes Receivable 10301020 00 P50,000.00
Interest Income 40202210 00 750.00
To recognize the collection of notes receivable.
Interest = P50,000 x 6% x 90/360 = P750.00

NON-EXCHANGE TRANSACTIONS
These 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.
Examples:
 Gifts, Donations and Goods in-kind
Recognized as revenue measured at fair value when it is probable that future economic
benefits will flow to the entity.
If without condition, recognized immediately as revenue.
If with condition, initially recognized as liability and recognized as revenue only when the
condition is satisfied.
 Services in-kind – not recognized as revenue.
 Debt Forgiveness – carrying amount of debt forgiven is recognized as revenue.
 Bequests – (transfers made according to the provisions of a deceased person’s will) recognized
as revenue measured at fair value, if asset recognition criteria are met.
 Grant with Condition – initially recognized as liability until condition is satisfied.
 Pledges – (unenforceable promises to give) not recognized as revenue.
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 Concessionary Loans – (loans w/ below-market rate) difference b/w fair value and transaction
price is recognized as revenue, if non-exchange transaction.

TAX REVENUE
Taxes are economic benefits or service potential compulsory paid or payable to public sector agencies in
accordance with laws and or regulations, established to provide revenue to the government.
Examples: Income Tax, Business Tax, Estate Tax, Donor’s Tax, Customs duty, Value-added Tax, Property
Tax

Dishonored Checks
RA 2031, Negotiable instruments provide that a check is dishonored either by non-payment or non-
acceptance. Dishonor by non-payment occurs when (a) the check is duly presented for payment and
payment is refused or cannot be obtained; or (b) presentment is excused and the check is overdue and
unpaid. Dishonor by non-acceptance happens when (a) the check is duly presented for acceptance, and
such an acceptance as is prescribed by law is refused or cannot be obtained; (b) presentment for
acceptance is excused and the check is not accepted. A dishonored check may also be defined as a check
paid to the agency that was dishonored by the AGDB due to “Drawn Against Insufficient Fund (DAIF)” or
“Drawn Against Uncleared Deposits (DAUD)”.

ILLUSTRATION 1:

At a seminar conducted by Agency A, several participants issued personal checks representing registration
fees. When deposited in the bank, one of the checks in the amount of P3,000 was dishonored.
Accordingly, the official receipt was cancelled. After several days, the dishonored check was replaced and
remitted to the Bureau of Treasury.

The following journal entries shall be prepared for the above transactions:
a. Cancellation of OR due to Dishonored Checks
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Other Receivables 10305990 00 P3,000.00
Cash – Treasury/Agency 10104010 00 P3,000.00
Deposit, Regular
To recognize the cancellation of current year’s deposited collections due to dishonored
checks

Note: If the dishonored check pertains to prior year’s deposited collection, the journal entry would be:
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Other Receivables 10305990 00 P3,000.00
Accumulated Surplus/(Deficit) 30101010 00 P3,000.00
To recognize the cancellation of prior year’s deposited collections due to dishonored
checks
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Accounting for Cash Overage/Shortage of Collecting Officer/Disbursing Officer

Cash overage discovered by Auditor that cannot be satisfactorily explained by the Collecting/Disbursing
Officer shall be forfeited in favor of the government and an official receipt shall be issued by the Collecting
Officer/Cashier. The cash overage shall be taken up as “Miscellaneous Income”.

Cash shortage which is not restituted by the Collecting/Disbursing Officer despite demand in writing by
the Auditor shall be taken up as receivable from the Collecting/Disbursing Officer.

ILLUSTRATION 1:

During cash examination by the resident auditor, cash overage in the amount of P500 was discovered in
the possession of the Collecting Officer. Said amount was forfeited and deposited in the Bureau of
Treasury.

Cash Overage
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Cash Collecting Officer 10101010 00 P500.00
Miscellaneous Income 4060990 00 P500.00
To recognize forfeiture of cash overage of the Collecting Officer.

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Cash – Treasury/Agency Deposit, 10104010 00 P500.00
Regular
Cash Collecting Officer 10101010 00 P500.00
To recognize the remittance of forfeited cash overage to the BTr.

ILLUSTRATION 2:

The resident auditor of Agency AB discovered cash shortages of the following officers:
Collecting Officer P7,000.00
Disbursing Officer 3,000.00
Total P10,000.00

Cash Shortage
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Due from Officers and Employees 10305020 00 P10,000.00
Cash Collecting Officers 10101010 00 P7,000.00
. Advances from Payroll 19901020 00 3,000.00
To recognize cash shortage of Collecting/Disbursing Officer

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

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Cash Collecting Officers 10101010 00 P10,000.00

Due from Officers and 10305020 00 P10,000.00
Employees
To recognize restitution of cash shortage.

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Cash – Treasury/Agency Deposit, 10104010 00 P10,000.00
Regular
Cash Collecting Officers 10101010 00 P10,000.00
To recognize the remittance of restituted cash shortage to the BTr.

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