Accounting for Budgetary Accounts • NU LAGUNA

Accounting for Government

and Non-profit Organization

Course Material No. 3:

Accounting for Budgetary
Accounts

Marina V. Justiniani, CPA, MBA

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 Accounting for Budgetary Accounts • NU LAGUNA

Marina V. Justiniani, CPA, MBA

Accounting for
Budgetary Accounts
LEARNING OUTCOMES
3
LESSON OUTLINE LEARNING OUTCOMES

Here’s what I will teach you in this course material:

 Accounting Systems
1. Understand the guidelines in monitoring, accounting and reporting of the
 Fundamental Principles of Fiscal Budget in the financial statements.
Operations
2. Identify the records to be maintained by the national government agencies,
 The National Budget forms to be used and reports to be prepared to monitor the budget
types of
 Kinds of Budget

 The Budget Cycle

RESOURCES NEEDED
 Budgetary Accounts System For this lesson, you would need the following resources:
 Government Accounting by Angelito R. Punzalan
 Budgetary Accounts
 Wiley Not-for-Profit GAAP 2016: Interpretation and Application of
 Fund Release Documents
Generally Accepted Accounting
 Guidelines on the Release of Funds
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 TABLE OF CONTENTS
Accounting for Budgetary Accounts • NU LAGUNA

Questions for Review and

Discussion

Accountant’s Word Hunt

Accounting for Budgetary

Accounts

Before you start, try answering the following questions.

1. What is the General Accounting Plan of government agencies? 19 Test Yourself

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22 References
2. Explain the National Budget.
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3. Enumerate and explain the different kinds of budget.

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4. Discuss briefly the budget process.

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5. Enumerate the budgetary accounts.

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Sting

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 Accounting for Budgetary Accounts • NU LAGUNA

Accoutning for
Budgetary Accounts

The lesson focuses on the guidelines

in monitoring, accounting and

reporting of the budget in the

financial statements. This also

prescribes the records to be

maintained by the national

government agencies, forms to be

used and reports to be prepared

to effectively monitor the budget

as well as the required information

disclosure and presentation of

budget Information in the financial

statement.

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Accounting for Budgetary Accounts • NU LAGUNA

r on the
Accountant’s Word Hunt
Find accounting words as much as you can. You can choose any
letters inside the box but you can only use it once. The student who
has the most points will have special reward. Write your answer on
the right side of the paper.

N A T I O N A L O D E T

B U D G E T C I U N T G

D I S B U R S E M E N T

N A N A A A O O U O A I

R E C E I P T A T I O N

C O D E V C H S J V N S

F I E E D D I E O C T L

B U D G E T C Y C L E M

M B N C F D C T K R E B

Z E R O B A S E D A L S

L W X L R V O S T T T N

L E G I S L A T I O N E

E X E C U T I O N I N H

M U N I C I P A L I T Y

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 Accounting for Budgetary Accounts • NU LAGUNA

Accounting for Budgetary Accounts

Hello Class! Let us talk about Accounting for Budgetary A

Section 29( (1), Article VI of the 1987 Constitution provides, “No money shall be paid out of the Treasury

except in pursuance of an appropriation by law

Accounting for budgetary accounts started upon enactment of the General Appropriations Act (GAA), which

contains the legal authorization to use public money for the various programs, activities and projects of the

national government.

The approved appropriation is the basis of DBM for issuing allotments or authorization of government

agencies to incur obligations or enter into commitments to spend government funds. The level of allotments

defines the amount of cash allocations which shall be released by DBM

Let us talk about the Accounting System.

General Accounting Plan (GAP)

It shows the overall accounting system of a government agency/unit. It includes the source

documents, the flow of transactions and its accumulation in the books of accounts and finally the

conversion into financial information/data presented in the financial reports.

The following accounting systems are:

 Budgetary accounting system

 Receipt/income and deposit system

 Disbursement system

 Financial reporting System

What are the Fundamental Principles of Fiscal Operations?

 No money shall be paid out of the public treasury or depository except in pursuance of an

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appropriation law or other specific statutory authority

 Government funds or property shall be spent or used solely for public purposes

 Trust funds shall be available and may be spent only for the specific purpose for which the

trust was created

 Fiscal responsibility shall be shared by all those exercising authority over the financial affairs,

transactions, and operations of the government agency

 Disbursements or disposition of government funds or property shall be invariably bear the

approval of the proper officials

 Claims against government funds shall be supported with complete documentation

 All laws and regulations applicable to financial transaction shall be faithfully adhered to

 Generally accepted principles and practices of accounting, as well as, of sound management

and fiscal administration shall be observed, provided they do not contravene existing laws

and regulations.

What is the National Budget?

A plan for financing the government activities for a fiscal year prepared and submitted

by responsible executive to a representative body whose approval and authorization

are necessary before the plan can be executed. A definite proposal of estimate or

statement of receipts and expenditures that may be approved or rejected. It should

present a detailed demonstration of the revenues and expenditures of the government

for the past and coming years and should furnish not only definite information

regarding the general character, purpose and amount of government expenditures but

also detailed data on costs.

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What is the role of the Department of Budget and Management in the National Budget?

 DBM ensures that public resources are managed more efficiently with greater degree of

discipline.

 DBM redirect funds to programs that would be responsive to the needs of the people

especially those in regions beset by poverty.

 In preparation for the National Budget in 2014, DBM adopted the Performance-Informed

Budgeting (PIB) which requires government agencies to strengthen the link between

planning and budgeting and to simplify the presentation of budget.

What is a Balanced Budget?

A budget where the proposed expenditures are equal to or less than the estimated revenues.

Government priorities is to achieve a balanced budget by increasing revenues and cutting on

expenditures.

Now let us talk about Performance-Informed Budgeting (PIB)

A budgeting approach that uses performance information to assist in deciding where the

funds will go.

Performance information includes the following:

 Purpose of the funds required

 Outputs that would be produced or the services that would be rendered

 Outcomes that would be achieved by the outputs and/or services.

 Cost of the programs and activities proposed to achieve the objectives.

PIB is an integral process whereby agency performance information, i.e., Major Final

Outputs (MFOs) and their corresponding performance indicators under the Organizational

Performance Indicator Framework (OPIF) is presented side-by-side with the agency

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budget to ensure that the outputs and outcomes an agency is committing to deliver in

exchange for its budget are clear to the public and the legislators.

What are the different kinds of budget?

• As to Nature

1. Annual budget – a budget which covers a period of one year. It is the basis of

annual appropriation.

2. Supplemental budget – a budget which supplement or adjust a previous

budget which is deemed inadequate for the purpose it is intended. It is the

basis for supplemental appropriation.

3. Special budget – a budget of special nature and generally submitted in special

forms on account that itemizations are not adequately provided in the

Appropriation Act or that the amounts are not all included in the

Appropriation Act.

• As to Basis

1. Performance budget – a budget emphasizing program or services conducted

and based on functions, activities, and projects which focus attention upon the

general character and nature or work to be done, or upon the services to be

rendered.

2. Line-item budget – a budget whose basis is the objects of expenditures such

as: salaries and wages, traveling expenses, freight, supplies and, equipment,

etc.

• As to Approach and Technique

1. Zero-based budgeting – a process which requires systematic consideration of

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2. all programs, projects and activities with the use of define ranking procedures.

3. Incremental approach - a budget where only additional requirements need

justifications. It focuses on analysis of incremental changes in the budget and

may be done within the context of performance and program budgeting.

Now, let’s talk about the Budget Cycle

Budget preparation

It covers estimation of government revenues, the determination of budgetary priorities

and activities within the constraints imposed by available revenues and by borrowing

limits, and the translation of approved priorities and activities into expenditure levels.

Estimates are prepared by the various government agencies, reviewed and finalized by

the President of the Philippines, and then submitted to the Legislative Department as

basis for the preparation of the annual Appropriation Act.

The budget preparation begins with the issuance of a “budget call” by the Department of

Budget and Management. The Budget Call contains budget parameters (including

macroeconomic and fiscal targets and agency budget ceilings) as set beforehand by the

Development Budget Coordination Committee and policy guidelines and procedures in

the preparation and submission of agency budget proposals.

Another feature of the budget preparation is to increase citizen participation in the budget

process, departments and agencies are tasked to partner with Civil Society Organizations

and other citizen stakeholders as they prepare their agency budget proposals.

Budget is designed using “Bottom-up” approach which focuses on rural development

programs and the conditional cash transfer program of the poorest municipalities

Proposed budget is presented by DBM to the President and Cabinet for further

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refinements or reprioritization. Once the President and Cabinet approve the proposed

National Expenditure Plan, the DBM prepares and finalizes the budget documents to be

submitted to Congress.

The budget preparation phase ends with the submission of the proposed national budget

– the “President Budget” to Congress.

The President’s Budget consists of the following documents to help legislators analyze the

contents of the proposed budget

 President’s Budget Message - the President explains the policy framework and

priorities in the budget

 Budget of Expenditures and Sources of Financing (BESF) – includes

macroeconomic assumptions, public sector context including overview of LGU and

GOCC financial position, breakdown of the expenditures and funding sources for

the fiscal year and the two previous years.

 National Expenditure Program (NEP) – contains the details of spending for each

department and agency by program activity or project, and is submitted in the

form of a proposed General Appropriation Act.

 Details of Selected Programs and Projects – contains a more detailed

disaggregation of key programs, projects and activities in the NEP, especially those

in line with the national government’s development plan

 Staffing Summary – contains a summary of the staffing complement of each

department and agency, including number of positions and amounts allocated for

it.

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Legislative Authorization (Budget Legislation)

The second phase of the budget process relative to the enactment of the General

Appropriation Bill based on the budget of receipts and expenditures submitted to the

President within 30 days from the opening of its regular session

House of Representatives, assigns the President’s Budget to the House Appropriation

Committee which conduct hearing and scrutinize their respective programs and projects.

After review, they prepare the General Appropriation Bill (GAB) which is then approved on

Second and Third Reading before transmission to the Senate.

The Senate conducts its own committee hearings and plenary deliberations on the GAB

A Bicameral Conference Committee is formed which will then discuss and harmonize any

conflicting provisions of the House and Senate version of GAB. A Harmonized version of

GAB is produced.

The Harmonized or Bicam version is submitted to both Houses which will then vote to

ratify the final GAB for submission to the President.

The President and DBM then review the GAB and prepare a Veto Message where budget

items subjected to direct veto or conditional implementation are identified and where

general observations are made.

Appropriation are approved by the legislative body in the form of

 General Appropriation Law which covers most of the expenditures of the

government

 Supplemental Appropriations laws that are passed from time to time to augment or

correct an already existing appropriation

 Certain automatic appropriation intended for fixed and specific purposes.

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Budget Execution and Operation

Third phase of the budget process which covers the various operation aspects of

budgeting

It includes development of the operating budget which indicates the program of work to

be done or undertaken, the time within which it should be done, the manpower and other

resources needed to carry out the work and the peso amounts required to accomplish the

programs. This phase begins with DBM’s issuance of guidelines on the release and

utilization of funds. Agencies are required to submit their Budget Execution Documents

(BEDs) at the start of budget execution. These documents outlines plans and

performance targets. DBM set a limit for allotments issued to an agency and on the

aggregate by preparing an Allotment Release Program (ARP). ARP corresponds to the

total amount of the agency-specific budget under the GAA as well as Automatic

Appropriations.

Budget Execution and Operation

A Cash Release Program (CRP) is formulated to set a guide for disbursement levels for

the year, for every month and quarter.

Budget Accountability

DBM monitors the efficiency of fund utilization, assesses agency performance and

provides a vital basis for reforms and new policies.

Agencies are held accountable not only for how they use public funds but also how these

attain performance targets and outcome using available resources.

Agencies are required to submit the Budget and Financial Accountability Report (BFARs)

on a monthly and quarterly basis to determine how agencies used their funds and identify

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their physical accomplishments

Failure to submit their BFARs, the DBM will penalize the agencies by withholding certain

fund releases to them

DBM regularly reviews the financial and physical performance of agencies. Actual

utilization of funds and physical accomplishments as indicated in BFARs are evaluated

against their targets as identified in OPIF. Results are reported regularly to the President.

Now, let’s talk about the Budgetary Account System

Allocation Release Program (ARP) shall serve as the ceiling for the aggregate allotment

releases during the year from all sources. ARP of each national government agency shall

be an amount equal to its appropriations from the following sources

 New Appropriations under GAA such as agency specific budget and allocations or

additional releases from Special Purpose Funds

 Automatic appropriations for Retirement and Life Insurance Premiums (RLIP),

Special Accounts in the General Fund and other items classified as such

 Continuing appropriations, i.e., allotments chargeable against the unreleased

appropriations for the MOOE and CO

What are Budgetary Accounts?

Budgetary accounts consists of the following:

• Appropriation – an authorization made by law or other legislative enactment,

directing payment of goods and services out of government funds under specific

conditions or for special purpose.

• Allotment – an authorization issued by the Department by Budget and

Management to the government agency, which allows it to incur obligations, for

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specified amounts, within the legislative appropriation.

• Obligation – a commitment by a government agency arising from an act of duly

authorized official which binds the government to the immediate or eventual

payment of a sum of money.

Now, let us talk about the different Fund Release Documents.

According to Government Accounting Manual, with the adoption of the Unified

Accounts Code Structures and the Performance-Informed Budgeting, the following are

the fund release documents:

1. Obligational Authority or Allotment - the following are the documents which

authorize the entity to incur obligations:

• General Appropriation Act Release Document (GAARD)

It serves as the obligational authority for the comprehensive release of

budgetary items appropriated in the General Appropriation Act (GAA)

• Special Allotment Release Order (SARO)

It covers budgetary items under For Later Release (FLR) in the entity

submitted Budget Execution Documents (BEDs), subject to compliance of

required documents/clearances. Releases of allotments for Special Purpose

Funds (SPFs) (e.g. Calamity fund, Contingent Fund, E-Government Fund,

Feasibility Studies Fund, International Commitments Fund, Miscellaneous

Personnel Benefits Fund and Pension and Gratuity Fund)are also covered by

SARO

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• General Allotment Release Order (GARO)

This 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. It covers

automatically appropriated expenditures common to most, if not all,

agencies without need of special clearance or approval from competent

authority.

2. Disbursement Authority – the following documents authorize the entity to pay

obligations and payables:

 Notice of Cash Allocation (NCA)

Authority issued by DBM to central regional and provincial offices and

operating units to pay operating expenses, purchases of supplies and

materials, acquisition of PPE, accounts payable and other authorized

disbursements through the issue of Modified Disbursements System (MDS)

checks, Authority to Debit Account (ADA) or other modes of disbursements

 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

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operating requirements, but not to exceed the released allotment to the said

post.

• Notice of Transfer of Allocation (NTA)

Authority issued by the Central Office to its regional and operating units to

pay their operating expenses, purchases of supplies and materials,

acquistions of PPE, accounts payable and other authorized disbursements

through the issuance of MDS checks, ADA or other modes of

disbursements.

Here are the General Guidelines on the Release of Funds:

1. National government agencies are authorized to incur overdraft in allotment

for obligations corresponding to the actual requirement of their regular

operations chargeable against the GAA as re-enacted pending the effective

date of the new GAA.

2. Re-enacted budget pertains to the budget of the preceding year which, by

operation of laws, becomes re-enacted and shall remain in force in effect until

the general appropriation bill for the current year is passed by Congress.

3. A re-enactment of the budget is a mechanism sanctioned by the constitution to

allow the use of public funds for regular operations pending the approval of the

GAA.

4. All unutilized allotments of agencies immediately before the effective date of

the new GAA out of the SAROs issued chargeable against the re-enacted GAA

shall no longer be available for obligation.

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5. Effectivity date of GAA is 15 days following the completion of its publication in

the Official Gazette or in a newspaper of general circulation and the Allotment

Release Program (ARP) may be established.

6. Allotment Release Program (ARP) which determines the level of allotment

releases for a given fiscal year is composed of the following:

 Obligations incurred

 Obligations authorized as overdraft

 Special allotment release order (SAROs) issued from the beginning of

the current fiscal year to the effectivity date of the current General

Appropriation Act

 Releases from the unprogrammed fund (UF). Allotment releases from

the multi-user Special Purpose Funds (SPFs) such as: Calamity Fund,

Contingent Fund, E-Government Fund, International Commitment

Fund, Miscellaneous Personnel Benefit Fund, National Unification Fund,

Priority Development Assistance fund, and Pension and Gratuity Fund

shall be over and above the agency Allotment Release Program

Do you understand, class?

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Choose the best answer

Test yourself
1. It is the system of prescribing the procedures for recording appropriations,
allotments and obligations
a. Fund accounting
b. Budgetary accounting
c. Obligation accounting
d. Government accounting

2. Its main concern is the availability and use of funds for public services
a. Commission on audit
b. Department of Finance
c. Bureau of Treasury
d. National Budgetary System

3. It is a statement of estimated receipts and estimated expenses of the

government, which serves as basis for a General Appropriation Act.
a. Statement of financial position
b. Statement of operations
c. National government budget
d. Local government budget

4. Which department prepares the national budget, which serves as the basis of
the General Appropriation Act?
a. Executive Department
b. Legislative Department
c. Judiciary Department
d. National Government Agencies

5. It is the legislative consideration, review and approval of the national budget

a. Preparation
b. Authorization
c. Execution
d. Accountability

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6. It is the implementation of the national budget by different departments

and release of allotments
a. Budget preparation
b. Budget authorization
c. Budget execution
d. Budget accountability

7. It denotes the responsibility to others that one or more persons have for
their actions and behaviour
a. Preparation
b. Accountability
c. Authorization
d. Execution

8. As specifically provided for in the New Constitution, no money shall be paid

out of the National Treasury except in the pursuance of
a. Budget
b. President’s executive order
c. Fund
d. Appropriation

9. It is the legislative authorization to make payments out of government funds

under specified conditions and specific purposes
a. Appropriation
b. Allotment
c. Obligation
d. Budgeting

10. It is the authorization from the Department of Budget and Management to

an agency to incur obligation up to a specified amount that must be within
the legislative appropriation
a. Obligation
b. Appropriation
c. Allotment
d. Fund release

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11. It is the amount committed to be paid by the government arising from an act
of duly authorized administrative officer and which binds the government to
the immediate and eventual payment of money.
a. Obligation
b. Appropriation
c. Allotment
d. Commitment

12. It is the functions and activities necessary for the performance of a major
purpose for which a government entity is established.
a. Program
b. Project
c. Resources
d. Internal control

13. The budgetary accounts in government accounting is consist of the following:

a. Allotment, obligation, and liquidation
b. Appropriation, liquidation and Notice of Cash Allocation
c. Appropriation, allotment and obligation
d. Allotment, liquidation and Notice of Cash Allocation

14. It is the formal document issued by the Department of Budget and

Management to the head of the agency containing the authorization,
conditions and amount of allocation.
a. Special Allotment Release Order
b. Allotment and Obligation Slip
c. Notice of Cash Allocation
d. Registry of Allotment and Obligation

15. In government accounting, which of the following is a Personnel Service?

a. Telephone charge
b. Rent
c. Meal allowance for overtime work
d. Salaries and wages

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Reference

Punzalan, A.. & Cardona, M. (2018). Government Accounting 2018 ed.

Ittelson, T. (2017). Nonprofit Accounting & Financial Statements: Overview for

Board, Management and Staff

Reck , Jacqueline & Wilson, Earl. (2015). Accounting for Governmental & Nonprofit
Entities (Irwin Accounting)

Copley, Paul. (2017). Essentials of Accounting for Governmental and Not-for-Profit

Organizations (Irwin Accounting)

Larkin, R. & Tommaso, Marie. (2016). Wiley Not-for-Profit GAAP 2016:

Interpretation and Application of Generally Accepted Accounting Principles

Freeman, R. & Shoulders, C. (2017). Governmental and Nonprofit Accounting (11th

Edition)

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