Katrine Celine C.

Gutierrez, CPA

TRIAL BALANCE, FINANCIAL REPORTS AND STATEMENTS

The objectives of General-Purpose Financial Statements (GPFS) are to provide

information about the financial position, financial performance, and cash flows of an
entity that is useful to a wide range of users in making and evaluating decisions about
the allocation of resources. Specifically, the objectives of general-purpose financial
reporting in the public sector are to provide information useful for decision-making, and
to demonstrate the accountability of the entity for the resources entrusted to it.

Financial reporting includes the preparation and submission of trial balances, financial
statements and other reports needed by fiscal and regulatory agencies. The sub-
systems are as follows:

1. Preparation and submission of trial balances and other reports.

2. Preparation and submission of financial statements.

Trial Balance

A trial balance (TB) is a listing of general ledger accounts with their corresponding debit
and credit balances. The accounts are listed in the order in which they appear in the
Revised Chart of Accounts (RCA), with the debit balances in the left column and the
credit balances in the right column.
1 GOVERNMENT ACCOUNTING
The TB shows the equality of debit and credit balances of all GL accounts as at a given
period. It is prepared and submitted monthly, quarterly and annually. At the end of the
fiscal year, the pre-closing and the post-closing trial balances shall be prepared.

The preparation of a TB shall serve the following purposes:

1. To prove the mathematical equality of the debits and credits after posting;
2. To check the accuracy of the postings;
3. To uncover errors in journalizing and posting; and
4. To serve as basis for the preparation of the financial statements.

Pre-Closing Trial Balance

It shall be prepared after posting the Adjusting Journal Entries (AJEs) in the General
Journal (GJ) and the same to the General Ledger (GL). It shows the adjusted balances
of all accounts as at a given period. This is also termed as the Adjusted Trial Balance.

Adjusting Journal Entries

Adjusting journal entries (AJEs) are made at the end of an accounting period to allocate
revenue and expenses to the period in which they actually occurred. AJEs are required
 Katrine Celine C. Gutierrez, CPA

every time a financial statement is prepared to make the statement truly reflective of the
financial condition of the entity at a given period. Adjustments are of two main types:

a. Accrued items
b. Deferred items

1. Accrued Items – These are adjusting entries for economic activities already
undertaken but not yet recorded as asset and revenue accounts or a liability and
expense account.

a. Asset/Revenue Adjustments – These involve assets and income, which exist at

the end of the accounting period but are not yet recorded.

Illustration:
The interest receivable account of Agency ABC for the interest already earned but
not yet collected nor billed as of the end of the year amounting to P2,000. The
journal entry will be as follows:

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
2 Interest Receivable 10301050GOVERNMENT
P 2,000
ACCOUNTING
Interest Income 40202210 P 2,000

b. Liability/Expense Adjustments – These involve liabilities and expenses, which

already exist at the end of the accounting period but are not yet recorded.

Illustration:
As of year-end, Agency ABC has not yet paid salaries and wages of P25,000, which
covers the period December 16-31 of the current year.

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Salaries and Wages – Regular 50101010 P25,000
Due to Officers & Employees 20101020 P25,000

2. Deferred Items – These are adjusting entries transferring data previously

recorded in asset account to expense account or data previously recorded in
liability account to revenue account. These also require two types of adjustments:

a. Asset/Expense Adjustments – These involve prepaid expenses, portion of

which shall be recorded as expenses, portion of which shall be recorded as
expense of the agency at the end of the accounting period. These also include
bad debts and depreciation.
 Katrine Celine C. Gutierrez, CPA

Illustration:
Agency ABC has prepaid expenses in the amount of P20,000, portion of which were
utilized or consumed in the amount of P5,000. Since the original entry was debited
to prepaid account, the adjusting entry would be:

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Rent/Lease Expense 50299050 P5,000
Prepaid Rent 19902020 P5,000

b. Liability/Revenue Adjustments – These involve unearned revenue where the

agency receives the asset, usually cash, even before the income is actually
earned.

Illustration:
The agency collected an amount of P15,000 for the rent of its facility and originally
recorded it as deferred credit to income. At the end of the fiscal year, only P3,000
was earned. The adjusting journal entry to recognized the earned portion would be

ACCOUNT
ACCOUNT TITLE DR. CR.
3 CODE GOVERNMENT ACCOUNTING
Other Deferred Credits 20501990 P3,000
Rent/Lease Income 40202050 P3,000

Other Adjustments

a. Reversion of unused NCA

For NGAs receiving subsidies from the national government in the form of NCA,
adjusting journal entry shall be made for the reversion of the unused or unutilized
NCA at the end of the accounting period.

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Subsidy from National Government 40301010 XXX
Cash – MDS, Regular 10104040 XXX

b. Petty Cash Fund Adjustments

At the end of the year, all unreplenished Petty Cash Fund expenses shall be
reported and supporting papers submitted to the Accounting Unit, to recognize the
expenses incurred for the period to which they relate. In case no replenishment
could be made for lack of fund, a JEV shall be prepared to recognize all the
expenses paid under the PCF with a credit to the account “Petty Cash”.
 Katrine Celine C. Gutierrez, CPA

c. Adjustments for the Unreleased Commercial Checks

A Schedule of Unreleased Commercial Checks shall be prepared by the Cashier for
submission to the Accounting Unit. All unreleased checks at the end of the year
shall be reverted back to the cash accounts.

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash in Bank – Local Currency, Current
Account 10102020 XXX
Accounts Payable 20101010 XXX

d. Depreciation Expense
Depreciation is the systematic allocation of depreciable amount of the property,
plant and equipment over its useful life. The useful life of an asset is defined as the
asset’s expected utility to the entity. The estimation of the useful life is a matter of
judgment.

Illustration:
The accounting records of Agency ABC show the following depreciable assets, with
5% salvage value, using the straight-line method:
4 GOVERNMENT ACCOUNTING
ASSETS COST USEFUL LIFE DEPRECIATION
Buildings 50,000,000 50
Machinery 150,000 5
Office Equipment 100,000 5
Furniture & Fixtures 75,000 10
Motor Vehicles 10,000,000 10
Books 10,000 5

Record the Depreciation Expense for each type of asset.

Closing Journal Entries

These are entries which close out the balances of all nominal/temporary and
intermediate accounts at the end of the year. The closure will reduce the balance of
those accounts to zero. The nominal accounts and intermediate accounts that shall
be closed at the end of the year are as follows:
a. Balance of all revenue accounts to the “Revenue & Expense Summary” account;
b. Balance of all expense accounts to the “Revenue & Expense Summary”
account;
 Katrine Celine C. Gutierrez, CPA

c. Balance of the “Revenue & Expense Summary” to the “Accumulated

Surplus/(Deficit)” account;
d. Balance of all “Cash-Treasury/Agency Deposit, Regular” to the “Accumulated
Surplus/(Deficit)” account;
e. Other closing entries.

Post-Closing Trial Balance

It shall be prepared at the end of the year after preparing and posting the closing
journal entries in the GJ and posting to the GL. Since revenue and expense
accounts have been closed out, the only accounts with balances are balance sheet
or real accounts.

Purpose of the Financial Statements

These are structured representation of the financial position and financial
performance of an entity. The objectives of the FS are to provide information about
the financial position, financial performance and cash flows of an entity that is useful
to a wide range of users in making and evaluating decisions about the allocation of
resources.

Components of the General-Purpose Financial Statements

1. Statement of Financial Position;

5 GOVERNMENT ACCOUNTING
2. Statement of Financial Performance;
3. Statement of Changes in Net Assets/Equity;
4. Statement of Cash Flows;
5. Statement of Comparison of Budget and Actual Amounts; and
6. Notes to the Financial Statements, comprising a summary of significant
accounting policies and other explanatory notes.

General Principles

• Fair Presentation
• Compliance with PPSASs
• Departure from PPSAS
• Going Concern
• Consistency of Presentation
• Materiality and Aggregation
• Offsetting
• Comparative Information

Identification of the Financial Statements

• The following information shall be displayed prominently and repeatedly:

a. Name of the reporting entity;
 Katrine Celine C. Gutierrez, CPA

b. Whether the financial statements cover the individual entity or a group of

entity;
c. The reporting date or the period covered by the financial statements,
whichever is appropriate to that component of the financial statements;
d. Name of fund cluster;
e. The reporting currency; and
f. The level of rounding-off of amounts.

• Financial statements shall be presented at least annually.

FINANCIAL STATEMENTS

1. STATEMENT OF FINANCIAL POSITION

The Statement of Financial Position, which is also referred to as Balance Sheet or

Statement of Assets and Liabilities, is a formal statement which shows the financial
condition of the entity as at a certain date. It includes information on the three elements
of financial position, namely, assets, liabilities and equity. It shall be prepared from
information taken directly from the year-end Post-Closing Trial Balance. The Statement
of Financial Position shall be presented in comparative, detailed and condensed format.

a. Condensed Statement of Financial Position

6 GOVERNMENT ACCOUNTING
It presents only the major sub-classification of Statement of Financial Position
accounts in the Revised Chart of Accounts. Condensed Statement of Financial
Position shall be submitted at year-end to the concerned Auditor. Its breakdown
and other relevant information shall be disclosed in Notes to Financial
Statements.

b. Detailed Statement of Financial Position

It presents all Statement of Financial Position accounts in the Revised Chart of
Accounts as a line item in the financial report. Detailed Statement of Financial
Position shall be submitted at year-end to the Government Accountancy Sector,
COA, as part of the year-end FS.

An entity shall present current and non-current assets, and current and non-current
liabilities, as separate classifications on the face of its Statement of Financial Position.

An asset shall be classified as current when it satisfies any of the following criteria: (1) It
is expected to be realized in, or is held for sale or consumption in, the entity’s normal
operating cycle; (2) it is held primarily for the purpose of being traded; (3) it is expected
to be realized within twelve months after the reporting date; or (4) it is cash or a cash
equivalent, unless it is restricted from being exchanged or used to settle a liability for at
least 12 months after the reporting date.

All other assets shall be classified as non-current.

 Katrine Celine C. Gutierrez, CPA

A liability shall be classified as current when it satisfies any of the following criteria: (1) It
is expected to be settled in the entity’s normal operating cycle; (2) It is held primarily for
the purpose of being traded; (3) it is due to be settled within twelve months after the
reporting date; or (4) the entity does not have an unconditional right to defer settlement
of the liability for at least twelve months after the reporting date.

All other liabilities shall be classified as non-current.

2. STATEMENT OF FINANCIAL PERFORMANCE

The Statement of Financial Performance, which may be referred to as Income

Statement, Statement of Revenues & Expenses, Operating Statement, or Profit and
Loss Statement, shows the results of operation/performance of the entity at the end of a
particular period. It shall be prepared by the accounting unit from information taken
directly from the Pre-Closing Trial Balance and shall be prepared in comparative
detailed and comparative condensed format.

An entity shall present, either on the face of the Statement of Financial Performance or
the Notes, a sub-classification of total revenue, classified in a manner appropriate to the
7 GOVERNMENT ACCOUNTING
entity’s operations. To provide a reliable and more relevant information, an analysis of
expenses using a classification based on either the nature of expenses or their function
within the entity should be made.

All items of revenue and expense recognized in a period shall be included in surplus or
deficit unless a PPSAS requires otherwise. Normally, all items of revenue and expense
recognized in a period are included in surplus or deficit.

3. STATEMENT OF CHANGES IN NET ASSETS/EQUITY

The Statement of Changes in Net Assets/Equity shows the changes in equity between
two accounting periods reflecting the increase or decrease in the entity’s net assets
during the year. The overall change in net assets/equity during a period represent the
total amount of surplus or deficit for the period, other revenues and expenses
recognized directly as changes in net assets/equity, together with any contributions by,
and distributions to owners, in their capacity as owners.

An entity shall present a statement of changes in net assets/equity showing on the face
of the statement:

a. Surplus or deficit for the period;

b. Each item of revenue and expense for the period that, as required by other
Standards, is recognized directly in net assets/equity, and the total of these items
 Katrine Celine C. Gutierrez, CPA

(example: unrealized gain/(loss) from changes in the fair value of financial

assets);
c. Total revenue and expense for the period (calculated as the sum of (a) and (b));
d. The effects of changes in accounting policies and corrections of errors for each
component of net asset/equity disclosed; and
e. The balance of accumulated surpluses or deficits at the beginning of the period
and at the reporting date, and the changes during the period.

4. STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNT

Since the financial statements and budget of NGAs are not on the same accounting
basis, PPSAS No. 1, Presentation of Financial Statement requires a comparison of
budget amounts and the actual amounts arising from execution of the budget to be
included in the financial statements of entities that are required to, or elect to, make
publicly available their approved budget(s), and for which they are, therefore, held
publicly accountable.

The statement shall present the following:

a. The original (approved appropriations, prior year’s not yet due and demandable
obligations) and final budget (continuing appropriations, transfers, realignments
and withdrawals) amounts;
b. The actual amounts on a comparable basis; and
8 GOVERNMENT ACCOUNTING
c. By way of note disclosure, an explanation of the material differences between the
budget and actual amounts, which are not included in the financial statements.

An entity shall present an explanation of whether the changes between the original and
final budget are a consequence of reallocations within the budget by way of note
disclosure in the FSs.

5. STATEMENT OF CASH FLOWS

The Statement of Cash Flows summarizes the cash flows from operating, investing and
financing activities of an entity during a given period. It identifies the sources of cash
inflows, the items on which cash was expended during the reporting period, and the
cash balance as at the reporting date. Cash flow information provide users of financial
statements with a basis to assess: (a) the ability of the entity to generate cash and cash
equivalents, and (b) the needs of the entity to utilize those cash flows.

Cash flow statement shall report cash flows during the period classified by Operating,
Investing and Financing activities of an agency.

a. Operating Activities
Cash flows from operating activities are primarily derived from the principal cash-
generating activities of the entity. Generally, these include the cash effect on
transactions that enter in the Income and Expense Summary account.
 Katrine Celine C. Gutierrez, CPA

b. Investing Activities
It involves the acquisition and disposal of non-current assets and other
investments not included in cash equivalent. These activities include cash
transactions such as the purchase of PPE, short and long-term investments and
other non-current assets.

c. Financing Activities
These are activities concerning build up of equity capital or borrowings of the
entity. These include cash transactions involving the equity and non-current
liabilities. The cash flows from financing activities are indicators of claims on
future cash flows by providers of capital to the entity.

6. NOTES TO FINANCIAL STATEMENTS

Notes to Financial Statements are integral parts of the financial statements. Notes
provide additional information and help clarify the items presented in the financial
statements. It provides narrative description or disaggregation of items in the financial
statements and information about them that do not qualify for recognition.

Notes shall, as far as practicable, be presented in a systematic manner. Each item on

the face of the Statement of Financial Position, Statement of Financial Performance,
9 GOVERNMENT ACCOUNTING
Statement of Changes in Net Assets/Equity, and Statement of Cash Flows shall be
cross-referenced to any related information in the notes.