GOVERNMENT ACCOUNTING & ; ACCOUNTING FOR NON-PROFIT ORGANIZATIONSGOVERNMENT ACCOUNTING | & Accounting for Non-Profit Organizations BASED ON GOVERNMENT ACCOUNTING MANUAL FOR NATIONAL GOVERNMENT AGENCIES (GAM for NGAs) and 2 PHILIPPINE FINANCIAL REPORTING STANDARDS (PERSs) Nation’s Foremost CPA Review Inc. (NCPAR) 4 Pelizloy Centrum, Lower Session Road, Baguio City 2600, Philippines Mobile Number: (0917) 870 6962 af) Like us on | Facebook — Nation's Foremost CPAR0 ALL RIGHTS RESERVED 2018 3 ‘ No part of ‘this work covered by the copyright hereon may be reproduced or used in any form or by any means - electronic or mechanical, including photocopying - without the written permission of the author. ISBN 978-621-8029-15-6 Any copy of this book not bearing the signature of the author shall be considered as proceeding from an illegal source. ee Published by: BANDOLIN ENTERPRISE (Publishing and Printing) #21 1F M BLDG., PARAMOUNT, STO. TOMAS, BAGUIO CITY CONTACT NOS. (0917) 870 6962; (0917) 813 6037Dear Reader, This book has two parts. The first part is Government Accounting and the second part is Accounting for Non-profit Organizations. As with all the books that I have written and co-written so far, this book is also a labor of love and it is dedicated to you, my dear reader. . When I was a student ‘like you, I disliked government accounting and accounting for non-profit organizations simply because I found these topics too difficult to understand. My aim in writing this book is to present concepts in a manner that would make sense to you. I hope that, this way, you will find it easier to appreciate these topics. One day, if you have the opportunity to become a government accountant, you would already have the basic knowledge necessary for you to start building a meaningful career. Being a government accountant is one of the noble professions in the practice of accountancy. You will not only be serving your personal aspirations but also the aspiration of many Filipinos - and that is, to have a great nation! As a public servant, you will have the privilege of directly serving our beloved country. Remember, theories become truly useful only when applied in order to achieve something that is meaningful. If later on, you have queries, comments, or suggestions on how I can improve my work, I would be glad if you inform me. Here are my contact details: zeusvernonmillan@gmail.com and (0917) 870 6962. Good luck in your leaming and best wishes in your journey through life......thank you for making me a part of it. Sincerely, Zeus vernon'B. Millaniv Dedicationy For my wife - Eureka, my son — Devin Joshua and daughter ~ Athena. My deepest gratitude goes to my parents - Agapito, Jr. and Dr. Remedios, and all my teachers in elementary, high school and college for inculcating in me the importance of education, Special thanks to all the people at Bandelin Enterprise (7dihing and Printing). My sincere thanks also go to my dear friend Mr. Rodel Villanueva (a GOCC Audit Manager) for sharing his valuable time in answering my queries during the writing of this book as well as his experiences in the field of government accounting. ~ Zeus vernon B. Millan About the Author The author is a 6" Placer in the October 2006 CPA board examinations. He is a co-founder of, and a CPA reviewer at, Nation’s Foremost CPA Review Inc. (NCPAR), a teacher, and an entrepreneur.TABLE OF CONTENTS CHAPTER 1 OVERVIEW OF GOVERNMENT ACCOUNTING RESPONSIBILITY, ACCOUNTABILITY AND LIABILITY OVER GOVERNMENT FUNDS AND PROPERTY. ACCOUNTING RESPONSIBILITY. THE GAM FOR NGAS.. BASIC ACCOUNTING AND BUDGET REPORTING PRINCIPLES QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING... COMPONENTS OF GENERAL PURPOSE FINANCIAL STATEMENTS ELEMENTS OF THE FINANCIAL STATEMENTS CHAPTER 1 SUMMARY: ... RBReovan, CHAPTER 2 THE BUDGET PROCESS .. THE NATIONAL BUDGE’ ‘THE BUDGET CYCLE Budget Preparation Budget Legislation. The Approved Budget .. Budget Execution Budget Accountability... Responsibility Accounting CHAPTER 2 SUMMARY: 42 CHAPTER 3 THE GOVERNMENT ACCOUNTING PROCESS BOOKS OF ACCOUNTS AND REGISTRIES.. BUDGET REGISTRIES Object of Expenditures. KEEPING OF THE GENERAL ACCOUN Basic RECORDINGS .. Appropriation.. Allotment Incurrence of Obligation Obligation Request and Status (ORS) Disbursement Authority - Notice of Cash Allocation (NCA) .vi Disbursements Remittance of Amounts Withheld .. Tax Remittance Advice (TRA) Billings, Collections & Remittances .. Reversion of Unused Notice of Cash Allocation (NCA) THE REVISED CHART OF ACCOUNTS... THE GOVERNMENT ACCOUNTING CYCLE. CHAPTER 3 SUMMARY: CHAPTER 4 REVENUES AND OTHER RECEIPTS ... FUNDAMENTAL PRINCIPLES FOR REVENUE Types of funds. ‘SOURCES OF REVENUE .. Exchange Transactions. Non-exchange Transactions. Bequests. Grant with Condition 126 Pledges 127 Concessionary Loans 128, OTHER RECEIPTS. CHaPTER 4 Summa CHAPTER 5 DISBURSEMENTS .... FUNDAMENTAL PRINCIPLES FOR DISBURSEMENT OF PUBLIC FUNDS ... AUTHORITY TO DiSBURSE/PAY.. Basic REQUIREMENTS & CERTIFICATIONS FOR DISBURSEMENTS... Mones oF DISBURSEMENTS Disbursements through Check Disbursements through Cash Disbursements through Advice to Debit Account (ADA) Disbursements through electronic Modified Disbursement System . 146 Disbursements through Cashless Purchase Card (CPC) System. Disbursements through Non-Cash Availment Authority (NCAA] ACCOUNTING FOR DISALLOWANCES, ACCOUNTING FOR OVERPAYMENTS: CHAPTER S SUMMARY: 151.CHAPTER 6 FINANCIAL ASSETS CASH AND CASH EQUIVALENTS Petty Cash Fund... Accounting for Cash Shortage/Overage of Disbursing Officer. Dishonored Checks. Bank Reconciliation RECEIVABLES. INVESTMENTS... Categories of Financial Assets.. Impairment of Financial Assets. Derecognition of Financial Asset: DERIVATIVES... CHAPTER 6 SUMMAR CHAPTER 7 INVENTORIES... MEASUREMENT. Cost FORMULAS «. RECEIPT AND DISPOSITION OF INVENTORIES .. CHAPTER 7 SUMMARY: CHAPTER 8 AGRICULTURE. RECOGNITION MEASUREMENT. DETERMINATION OF FAIR VALUE DISCLOSURES ....... CHAPTER 8 SUMMARY: CHAPTER 9 INVESTMENT PROPERTY .... INITIAL MEASUREMENT. ‘SUBSEQUENT MEASUREMENT ... TRANSFERS TO OR FROM INVESTMENT PROPERTY .. DERECOGNITION IMPAIRMENT.. CASH GENERATING UNI REVERSAL OF IMPAIRMENT ...INTIAL MEASUREMENT. Subsequent Expenditures on recognized PPE. SUBSEQUENT MEASUREMENT ... IMPAIRMENT... Computation of Value i in Use. HERITAGE ASSETS .. INFRASTRUCTURE ASSETS. REFORESTATION PROLECTS.. DERECOGNITION. IDLE, FULLY DEPRECIATED, UNSERVICEABLE AND LOST PPE. RECEIPT AND DISPOSITION OF PPE. BORROWING COSTS... CHAPTER 10 SUMMARY: CHAPTER 11 INTANGIBLE ASSETS.. RECOGNITION.. INITIAL MEASUREMENT ‘SUBSEQUENT MEASUREMENT IMPAIRMENT... DERECOGNITION CHAPTER 11 SUMMARY’... CHAPTER 12 LIABILITIES .. FINANCIAL LIABILITIES Initial Measurement. Subsequent Measurement... PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS.. Measurement... CHAPTER 12 SUMMARY:CHAPTER 13 LEASES. FINANCE LEASE ... 320 LEASE OF LAND AND BUILDING .. 321 Accounting for Finance lease by Lessees 322 Accounting for Finance lease by Lessors. 323° OPERATING LEASE ... CHAPTER 13 SUMMARY: CHAPTER 14 FINANCIAL STATEMENTS .... GENERAL PRINCIPLES....... STATEMENT OF FINANCIAL POSITION .. STATEMENT OF FINANCIAL PERFORMANCE .. ‘STATEMENT OF CHANGES IN NET ASSETS/EQUITY .. STATEMENT OF CASH FLOWS... STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS. NOTES TO FINANCIAL STATEMENTS. Events After the Reporting Date Changes in Accounting Policies. Changes in Accounting Estimates Errors CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS. INTERIM FINANCIAL STATEMENTS... OTHER REPORTS .. DEADLINES ON SUBMISSION OF REPORTS. CHAPTER 14 SUMMARY: CHAPTER 15 MISCELLANEOUS TOPICS SERVICE CONCESSION ARRANGEMENTS BY GRANTOR... Recognition and Measurement of Asset.. Recognition and Measurement of Liability Financial Liability Model. Grant of Right to the Operator Model Dividing the Arrangement... INTERESTS IN JOINT VENTURE ... Jointly Controlled Operations Jointly Controlled Assets. Jointly Controlled EntitiesTHE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES. Initial Measurement. Subsequent Measurement. Exchange Differences Translation of Financial Statements.. CHAPTER 15 SUMMARY: CHAPTER 16 NON-PROFIT ORGANIZATIONS. (CURRENT TREND IN PRACTICE (CHARACTERISTICS OF A NON-PROFIT ORGANIZATION PFRS PRINCIPLES APPLICABLE TO NPOS..... ACCOUNTING FOR NON-PROFIT ORGANIZATIONS .. Fund theory vs. Fund accounting. Contributions Recognition and measurement... Cash and other Non-cash assets Unconditional promises Conditional promises Services . Works of art and similar items Deferral method of recognizing contribution: FINANCIAL STATEMENTS ... Statement of financial position. Statement of activities ... Statement of cash flows. . ACCOUNTING PROCEDURES PECULIAR TO SPECIFIC TYPES OF NPOS Health Care Organizations... Private, non-profit, Colleges and Universities. Voluntary Health and Welfare Organizations .. Other non-profit organizations... ACCOUNTING FOR OTHER ASSETS HELD BY NPO: CHAPTER 16 SUMMARY: 410 418 420 420 420 422 423 423 429 430 431 432 CHAPTER 17 ILLUSTRATIVE FINANCIAL STATEMENTS OF NPOS.. ILLUSTRATIVE FINANCIAL STATEMENTS ~ BASED ON U.S, GAAP ILLUSTRATIVE FINANCIAL STATEMENTS ~ BASED ON IFRSS 462 ILLUSTRATIVE FINANCIAL STATEMENTS — BASED ON IFRSS, SOME U.S, GAAP PRINCIPLES ‘ARE INCORPORATED. 473Overview of Government Accounting - i Chapter 1 ‘Overview of Government Accounting Learning Objectives 1. Differentiate government accounting from the accounting for business entities. 2. State the government entities charged with accounting responsibility. 3. Describe briefly the GAM for NGAs. 4, State the basic principles used in government accounting. 5, State the recognition criteria for assets. Introduction “Government accounting encompasses the processes of analyzing, recording, classifying, summarizing and communicating all transactions involving the receipt and disposition of government funds and property, and interpreting the results thereof.” (State Audit Code of the Philippines, P.D. No. 1445, Sec. 109) The objectives of government accounting are: a) To produce information concerning past operations and present conditions; To provide a basis for guidance for future operations; To provide for control of the acts of public bodies and officers in the receipt, disposition and utilization of funds and property; and To report on the financial position and the results of operations of government agencies for the information of all persons concerned. * (PD, No; 1445, Sec. 110) b) ¢) dq)Like the accounting for. business entities, governmey accounting is also a process of producing information that is usefy in making economic decisions, Government accounting, howeve, places greater emphasis on the following: a. . Sources and utilization of government funds; and b. Responsibility, accountability and liability of entities entrusteg with government funds and properties. > The sources of government funds include receipts from taxes and other fees, borrowings, and grants from other governments and international bodies. > The utilization of government funds includes expenditures on programs, projects, unanticipated losses from calamities and the like. Responsibility, Accountability and Liability over Government Funds and Property Responsibility over Government Funds and Property 1. Government resources shall be utilized efficiently and effectively in accordance with the law. The head of a government agency is directly responsible in implementing this policy and is primarily responsible for government resources entrusted to his agency. Those who are entrusted with the possession of government resources are directly responsible to the head of the agency. 2. All those who are exercising authority over a government agency shall share fiscal responsibility. (State Audit Code of the Philippines, P.D. No, 1445) Accountability over Government Funds and Property 1. A government officer entrusted with the Possession of government resources is responsible for the safekeepingOverview of Government Accounting therefor in accordance with the law. Every accountable officer shall be properly bonded. (P.D. No. 1445 and E.O. No. 292) 2. The transfer of government funds from one officer to another shall, except as allowed by law, be made only after the authorization of the COA. The transfer shall be properly documented in an invoice and receipt. (P.D. No. 1445) Liability over Government Funds and Property 1. The unlawful use of government resources shall be the personal liability of the employee found to be directly responsible therefor. 2. Every accountable officer shall be liable for all losses resulting from the unlawful use or negligence in the safekeeping of government resources. 3. No accountable officer shall be relieved from liability merely because he has acted under the direction of a superior officer in unlawfully utilizing the government resources entrusted to him, unless before that act, he has notified the superior officer, in writing, that the utilization is illegal. The superior officer shall be primarily liable while the accountable officer who fails’ to serve the required notice shall be secondarily liable. 4. An accountable officer shall immediately notify the COA for any loss of government funds from unforeseen events (force majeure) within 30 days. Failure to do so will not relieve the officer of liability. (P.D, No. 1445) | * Main concept | Government resources must be utilized efficiently and effectively in accordance with the law. Government officials are responsible in | “implementing this policy, are accountable for the government | | resources in their custody, and are liable for any loss.__ te iChapter 1 AO The Unsung Heroes The number of Filipinos going abroad to seek employment ig increasing every year. In 2012, it was estimated that about 10.4 million Filipinos worked abroad.' Almost all Filipinos know at least one Other Filipino — a family member, a relative, or a friend, who is working abroad. We refer to our overseas workers as unsung heroes. How so? This is mainly because overseas workers remittances greatly increase the spending in our country, and the more money Is spent, the more taxes the government collects. A portion of the money we spend on almost everything (food, clothing, bills, entertainment, medicine, rentals, etc.) represents payment for tax. Taxes are the main source of government funds used in developing our country. Working abroad entails great sacrifices, not only for the overseas worker but also for family members left at home. We need efficient and effective utilization of our government resources so that someday our countrymen can have better options of finding a livelihood in our country. Accounting, as a tool for planning and control, contributes to the achievement of this goal by providing information that is useful in planning the sources and uses of government funds and comparing actual results with expected results to_ promote the efficient and effective utilization of government funds. ToNN Accounting responsibility The following offices are charged with government accounting responsibility: a. Commission on Audit (COA) b. Department of Budget and Management (DBM) c. Bureau of Treasury (BTr) d. Government agencies Commission on Audit (COA) The Commission on Audit (COA): a. Has’ the exclusive authority to promulgate accounting and auditing rules and regulations. i.Overview of Government Accounting 5 b. Keeps the general accounts of the government, supporting vouchers, and other documents. c. Submits financial reports to the President and Congress. Department of Budget and Management (DBM) The Department of Budget and Management (DBM) is responsible for the formulation and implementation of the national budget with the . goal of attaining the nation’s socio-economic objectives. Bureau of Treasury (BTr) The Bureau of Treasury (BTr) functions under the Department of Finance and is the cash custodian of the government. The BTr is authorized to: a. Receive and keep national funds and manage and control the . disburséments thereof; and b. Maintain accounts of financial transactions of all national government offices, agencies and instrumentalities. Government Agencies Government agency refers to any department, bureau or office of the national government, or any of its branches and instrumentalities, or any political subdivision, as well as any government owned or controlled corporation (GOCC), including its subsidiaries, or other self-governing board or commission of the government. (P.D. No. 1445) The government agencies are responsible in directly implementing the projects of, and performing the functions delegated by, the government. Each agency (entity) shall maintain accounting books and budget registries which are reconciled with the cash records of the BTr and the budget records of the COA and DBM. Government agencies are required by law to have accounting units/divisions/departments. & Even a barangay (the smallest administrative division in the Philippines) is required to have an accounting unit, eg, the barangay’s “bookkeeper.”- § Chapter 1 SO ator Financial Reporting System of the National Government Bureau of Treasury (BT!) ~ Each entity reconciles ‘accounting books with cash records of BT. - Eachentity’s ‘accounting books are subject to audit by CoA. Commission on Audit I~. Each entity reconciles, —pp (COA) budget registries with budget records of COA. ~ Each entity submits financial reports to = Each entity reconciles COA {or consolidation. = Consolidates financial budget registries with $ reports of government budget records of DBM. agencies and submis itt 1 the President and Congress Department of Budget and Management (DBM) > Entity - refers to a government agency, department or operating/field unit. > Financial Reporting - is the process of preparation, presentation and submission of general purpose financial statements and other reports. The objective of financial reporting is to provide information about the entity that is useful to users for accountability purposes and decision-making.Overview of Government Accounting Zz The GAM for NGAs An “old” government accounting system had been used for about five decades before it was replaced by the New Government Accounting System (NGAS) in 2002. However, on January 1, 2016, the NGAS was replaced by the Government Accounting Manual for National Government Agencies (GAM for NGAs). The GAM for NGAs was promulgated primarily to harmonize the government accounting standards_with international accounting standards, particularly the International Public Sector Accounting Standards (IPSAS). The IPSASs are based on the International Financial Reporting Standards (IFRS). The Philippine Government has adopted the IPSAS through the Philippine Public. Sector Accounting Standards (PPSAS). The provisions of the PPSAS are incorporated in the GAM for NGAs. Since the PPSAS are based on the IPSAS, which are in turn based on the IFRSs/PFRSs, most of the concepts that we will be learning in this book would be very familiar to you #©. Legal basis The GAM for NGAs is promulgated by the Commission on Audit (COA) based on the authority conferred to it by the Philippine Constitution: Relevant provision of law: > “The Commission (on Audit) shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and_regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties." (Art. IX-D. Sec. 2(2), Philippine Constitution)8 Chapter 1 Coverage The GAM for NGAs provides the basic concepts to be used in: a. Preparing general purpose financial statements in accordance with the Philippine Public Sector Accounting Standards (PPSAS) and other financial reports as may be required by laws, rules and regulations; and b. Reporting of budget, revenue and expenditure in accordance with laws, rules and regulations. Objective The GAM for NGAs 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. (GAM for NGAs; Chapter 1, Sec, 3) Basic Accounting and Budget reporting Principles The financial records and reports of government entities shall comply with the following: 1. Philippine Public Sector Accounting Standards (PPSAS) and relevant laws, rules and regulations; 2. Accrual basis of accounting; Under the accrual basis of accounting, transactions are recognized when they occur (and not only when cash is received or paid). Therefore, transactions are recognized in the periods to which they relate. 3. Budget basis for presentation of budget information in the financial statements; 4. Revised Chart of Accounts prescribed by COA;Overview of Government Accounting 5. Double entry bookkeeping; , 6. Financial statements based on accounting and budgetary records; and 7. Fund cluster accounting. The books of accounts. are maintained by fund cluster (ie,, according to the types of funds being accounted for) as follows: Code | Fund clusters 01 | Regular Agency Fund 02 | Foreign Assisted Projects Fund 03 | Special Account-Locally Funded/Domestic Grants Fund 04 | Special Account-Foreign Assisted/Foreign Grants Fund 05 | Internally Generated Funds 06 | Business Related Funds 07 __| Trust Receipts For example, separate accounting books (Journals and Ledgers) and budget registries shall be maintained for Regular Agency Fund. Another separate accounting books and budget registries shall be maintained for Foreign Assisted Projects Funds, and so on. Qualitative Characteristics of Financial Reporting Information reported shall meet the qualitative characteristics. Qualitative characteristics are the attributes that make information useful to users. a. Understandability - information is understandable when users can reasonably be expected to comprehend its meaning. Accordingly, users are assumed to have i. reasonable knowledge of the entity's activities; and ii, _ willingness to study the information. J10 tO Chapter | et Information about complex matters is not excluded simply because it may be too difficult for certain users ty understand. Relevance — Information is relevant if it can assist users in evaluating past, present or future events or in confirming or correcting past evaluations. In order to be relevant, information must also be timely. Materiality — Materiality affects. the relevance of information. Information is material if its omission or misstatement could influence the decisions of users. Materiality depends on the nature or size of the item or error, judged in the particular circumstances of its omission or misstatement. Timeliness - Information loses its relevance if there is undue delay in its reporting. The complexity of an entity’s operations is not a sufficient reason for failing to report on a timely basis. Reliability - reliable information is free from material error and bias, and can be depended on by users to represent faithfully that which it purports to represent or could reasonably be expected to represent. Trade-offs between Relevance and Reliability To provide timely information, it may be necessary to report - before all aspects of a transaction are known, thus impairing reliability. Conversely, if reporting is delayed until all aspects are known, the information may be highly reliable but of little use to users who need to make decision in the interim. To achieve a balance between relevance and Teliability, the overriding consideration is how users’ needs are best satisfied. Faithful representation - For information to tepresent faithfully transactions and other events, it should be presented in accordance with the substance of the transactions and other events, and not merely their legal form. ,Overview of Government Accounting il g. Substance over form - The substance.of transactions or other events is not always consistent with their legal form. If information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they be accounted for and presented in accordance with their substance and economic reality, and not merely their legal form. h. Neutrality - Information is neutral if it is free from bias. Information shall not be selected or presented in a manner that is designed to influence the user’s decision in order to achieve a predetermined outcome. i, Prudence — is the exercise of a degree of caution when making, estimates under conditions of uncertainty, such that assets or revenue are not overstated and liabilities or expenses are not understated. However, prudence does not allow the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or revenue, or the deliberate overstatement of liabilities or expenses, because the financial statements would not be neutral and, therefore, not reliable. j. Completeness - Information should be complete within the bounds of materiality and cost. k. Comparability - Information is comparable when users are able to identify similarities and differences between that information and information in other reports. Comparability applies to the comparison of financial statements of different entities and comparison of the financial statements of the same entity over different periods. Comparability requires that users must be informed of the entity’s policies, changes to those policies, and the effects of those changes and that financial statements show corresponding information for preceding periods. (PPSAS 1/GAM for NGAs, Chapter 19, Sec. 6)re i | | i i ‘ i i omer RR TENE a? 2 Chapter Components of General Purpose Financial Statements General Purpose Financial Statements are those intended to meet the needs of users who are not in a position to demand reports tailored to meet their particular information needs. (PPSAS 13) The complete set of general purpose financial statements consists of: Statement of Financial Position; Statement of Financial Performance; Statement of Changes in Net Assets/Equity; Statemient of Cash Flows; Statement of Comparison of Budget and Actual Amounts; and Notes to the Financial Statements, comprising a summary of significant accounting policies and other explanatory notes. me pore Notice that the financial statements listed above are similar to those of a business entity. However, the financial statement unique to a government entity is the “Statement of Comparison of Budget and Actual Amounts” (letter ‘e’). We will elaborate on this later. Elements of the financial statements ASSETS Assets ~ are resources controlled by an entity as a result of past events, and from which future economic benefits or service potential are expected to flow to the entity. The key features of an asset are: a. The benefits must be controlled by the entity; b. The benefits must have arisen from a past event; and c. Future economic benefits or service potential must be expected to flow to the entity. > Control means the ability to benefit from an asset or prevent others from benefitting from that asset,a Overview of Government Accounting 13 Possession or ownership normally evidences control. However, this is not always true. For example, under a finance lease, the lessor retains legal ownership over the leased asset but control is transferred to the lessee. » Benefit means the ability to use, exchange, lease, sell, or use the asset to settle liabilities, or distribute it to owners. Indicators of future economic benefits: a. distinguishable from the source of the benefit i.e. the particular physical resource or legal right; b. does not imply that assets necessarily generate cash flows, the benefits can also be in the form of ‘service potential’; c. in determining whether a resource or right needs to be accounted for as an asset, the potential to contribute to the objectives of the entity should be the prime consideration; d. capacity to contribute to activities/objectives/programs; and e. the fact that an asset cannot be sold does not preclude it from providing future economic benefits. > Past event — A transaction or event giving rise to control of future economic benefits must have occurred. A mere intention to acquire assets in the future does not result to the recognition of assets in the present. Recognition of an Asset An asset is recognized when: a. it is probable that the future economic benefits will flow to the entity; and b. the asset has a cost or value (e.g., fair value) that can be measured reliably. Probable inflow of future economic benefits: a. The chance of benefits arising is more likely rather than less likely (e.g. greater than 50%). b. Benefits can be expected on the basis of available evidence or logic.14 Chapter Reliable measurement: , a. Valuation method is free from material error or bias. b. Faithful representation of the asset's benefits. c. Reliable information will, without bias or undue error, faithfully represent those transactions and events. LIABILITIES : Liabilities — are present obligations of the entity arising from past events, the settlement of which is.expected to result in an outflow from the entity of resources embodying economic benefits oy service potential. EQUITY Net assets/equity — is the residual interest in the assets of the entity after deducting all its liabilities. 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. > Contributions from owners — are future economic benefits that have been contributed to the entity by external parties which do not result to liabilities of the entity and for which the contributor obtains interest in the net assets of the entity (i.e., tight to dividends and right to net assets in cases of liquidation). Revenue funds — comprise all funds derived from the income of any agency of the government and available for a Ppropriation or expenditure in accordance with law. (Section 3, P.D. No, 1445)Overview of Government Accounting 15 EXPENSES Expenses ~ are decreases in economic benefits or service potential during the reporting period ‘in the form of outflows or consumption of assets or incurrence of liabilities that result in decreases in net assets/équity, other than those relating to distributions to owners. > Distributions to owners - are future economic benefits distributed by the entity to its owners, either as a return on investment or as a return of investment.16 Chapter 1 Chapter 1 Summary: * Aside from providing information that is useful in making economic decisions, government accounting also aims to demonstrate the accountability of the entity for the resources entrusted to it. * The following are charged with government accounting responsibility; COA, DBM, BTr and other government agencies. ¢ The GAM for NGAs provides the principles and procedures to be applied in the financial reporting of government entities. It | | was promulgated by the COA primarily to harmonize the government accountirig standards with _ international standards. * Basic principles: Compliance with PPSAS and other relevant laws, Accrual basis, Budget basis, Revised chart of accounts, Double entry, Financial statements based on accounting and budgetary records, and Fund cluster accounting. © Qualitative characteristics: | Understandability, Relevance, Materiality, Timeliness, Reliability, Faithful representation, Substance over form, Neutrality, Prudence, Completeness, and Comparability. + An item is recognized as asset if all of the following criteria are met: 1. the item meets the definition of an asset; 2. probable inflow of future economic benefits; and 3, reliable measurement of cost or other value (e.g,, fair value).ae Overview of Government Accounting PROBLEMS: PROBLEM 1-1: TRUE OR FALSE 1 Compared to the accounting for business entities, government accounting places greater emphasis on the sources and. utilization of government funds and the management's stewardship over government resources. . Taxes are the main source of funds of the-government. Other sources of funds of the government include fees, borrowings, and grants from other governments and international bodies. Currently, the financial reporting of government entities is based on NGAS. The principles used in the financial reporting of government entities are very unique that only a very few of. these principles are similar to those that are applied to business entities. . The prindples in the GAM for NGAs are similar to the principles in the PFRSs. The GAM for NGAs is promulgated by the Philippine Congress under the authority conferred to it under the Philippine Constitution. A unique financial reporting requirement of government entities is the use of fund cluster accounting. Under fund cluster accounting, separate books and reports are prepared for each type of fund held by a government entity. The GAM for NGAs is promulgated primarily to harmonize government accounting standards with the U.S. GAAP.18 oy Chapter 1 eececaeeeaiaiimecicindl ce ccapteipenp enna eR ne 10, An item is recognized as an asset if it meets both the “probable future economic benefits” and “reliable measuremeny” criteria, regardless of whether the item is a resource controlled arising from past events. PROBLEM 1-2: MULTIPLE CHOICE 1, Which of the following is a unique requirement of government, accounting that is not required in the accounting for business entities? a. The use of double-entry recording system. b. The use of single-entry recording system. c. The use of accrual basis of accounting. d. The presentation of budget information in the financial statements. 2. What is the legal basis of the COA in promulgating the GAM for NGAs? P.D. No. 1445, State Audit Code of the Philippines The Philippine Constitution R.A. 9298, The Philippine Accountancy Act of 2004 Philippine Public Sector Accounting Standards (PPSAS) aoe 3. Which of the following is tasked in keeping the general accounts of the government, supporting vouchers, and other documents? a.COA c. NGAs b. DBM d. Congress 4. The Bureau of Treasury (BTR) is responsible for a. promulgating accounting and auditing rules and regulations. b. the formulation and implementation of the national budget with the goal of attaining the nation’s socio- economic objectives.Overview of Government Accounting 8 ©. Teceiving and keeping national funds and managing and Controlling the disbursements thereof. d. directly implementing the Projects of the government. 5. According to the GAM for NGAs, the basis of accounting to be applied by government entities is the a. Cash basis c. Modified accrual basis b. Accrual basis d. Any of these as a policy choice Government resources must be utilized efficiently and effectively in accordance with the law. According to P.D. No. 1445, who is directly responsible in implementing this policy? a. All employees who are entrusted with the possession of government resources. b. The head of the government agency, c. The COA. d. Allelected officials, 7. The transfer of government funds from one officer to another requires the prior authorization of the a. Commission on Audit b. Head of the Agency ©. The President of the Republic of the Philippines d. Bureau of Treasury 8. Mr, A, a government employee entrusted with the custody of government funds, was instructed by Mr. B (a politician) to release funds for the acquisition of a car as a birthday gift for Mr. B’s daughter who will be having her 18 birthday next week. To relieve Mr. A from any liability, what should Mr. A do? a. Mr. A shall not release the fund but rather notify Mr. B, in writing, that his instruction is illegal. b. Mr. A shall release the fund and then notify Mr. B, in writing, that his instruction is illegal. c. Mr. A shall release the fund but retains 20% commission. ater ene caterer20 ae Chapter; 9% 10. 11. 12, $$$ $$ $$$$$$_Srrter dv Mr. A shall release the fund but requires Mr. B to Promise in writing, that the car shall be returned to the government after his daughter's birthday, Mr. C, a government employee entrusted with the Custody of government funds, has lost the government funds entrusted to him in a force majeure, What should Mr. C do to relieve him from liability? a. Mr. C should immediately notify the Head of Agency after 30 days, b. Mr. C should immediately notify the COA within 30 days, ¢. Mr. C should immediately notify the Bureau of Treasury within 30 days. d. Mr, C should keep the event a secret and wait for next funds to arrive. These refer to the attributes that make information useful to users. a. Usefulness characteristics b.. Quantitative characteristics ¢. Qualitative characteristics d. Fundamental principles Information loses ‘this qualitative characteristic if it is not reported on a timely basis. a. Relevance c. Neutrality b. Reliability d. Materiality Which of the following qualitative characteristics does an entity most likely would need to make some trade-offs? a. Faithful representation and Substance over form b.” Materiality and Relevance c. Relevance and Reliability d. Understandability and ComparabilityOverview of Government Accounting 21 13, An entity recognizes an estimated loss from the decline in value of a property. Which of the following is rhost likely the qualitative characteristic being applied by the entity? a. Reliability c. Faithful representation b. Substance over form d. Prudence 14. Which.of the following is not one of the fund clusters of a government entity? Regular Agency Fund Foreign Assisted Projects Fund Special Account-Locally Funded/Domestic Grants Fund Business Related Funds Petty Cash Fund epose 15. To achieve a proper balance between relevance and reliability, the overriding consideration is a. how users’ needs are best satisfied. b. relevance is always more important than reliability. ¢. reliability is always more important than relevance. d. greater weight shall be given to relevance compared to reliability. PROBLEM 1-3: FOR CLASSROOM DISCUSSION 1. How does government accounting differ from the accounting for business entities? a. Government accounting places more emphasis on profit- making. .b. Government accounting is very complex that only highly intellectual individuals can understand it. c. Government accounting places greater emphasis on sources and utilization of funds in accordance with the law and management's stewardship over government resources entrusted to the entity.8 22 ‘ Chapter} tery d. Government accounting is specialized in nature that the Principles applicable to business entities are neve, applicable to government entities. 2. Which of the following is not a source of revenue for the government? a. Taxes b. Fees collected by government agencies c. Grants and donations from other governments d. Contract price on government contracts awarded to private companies. 3. Entity A (a government agency) is entrusted with government resources. According to P.D. 1445, who is directly responsible for the efficient and effective utilization of these resources? a. The government employees who have custody over the resources. .. The Head of Entity A. ¢. The COA staff stationed in Entity A. d. The Foot of Entity A. 4. Which of the following is not charged with government accounting responsibility under the GAM for NGAs? a.COA c.NGAs b. DBM d. House of Representatives 5. The Department of Budget and Management (DBM) is responsible for a. promulgating accounting and auditing rules and regulations. b, the formulation and implementation of the national budget with the goal of attaining the nation’s socio- economic objectives. c. receiving and keeping national funds and managing and controlling the disbursements thereof. d. directly implementing the projects of the government.Overview of Government Accounting 23 6. Which of the following is not one of the objectives of the GAM for NGAs? a. to harmonize government accounting standards with international standards, b. to update the coding structure and accdunts ¢. to update accounting books, registries, records, forms, Teports and financial statements. d. to update government accounting standards to be consistent with the provisions of U.S. GAAP. All of the following are requirements peculiar to a government entity. Which is not? a. Presenting budget information in the financial statements. b. Fund cluster accounting. ¢. Incorporating budgetary controls in the financial reporting system, d. Accrual basis of accounting. 8. Which of the following qualitative characteristics is improved when information is reported on a timely basis? a. Relevance c. Understandability b. Reliability d.aandb 9. The best estimate for a loss is P100,000. However, the entity deliberately overstated the loss to P200,000. Which of the following qualitative characteristics is violated? a. Prudence c.aandb b. Reliability . d. Nothing is violated 10. Which of the following financial statements is peculiar to a government entity? a. Balance Sheet Statement of Cash Flows b. c. Statement of Comparison of Budget and Actual Amounts d. Statement of Changes in Equityce Chapter 2 The Budget Process Learning Objectives 1. Enumerate the Steps in the budget process. 2._Describe briefly the principles of responsibility accounting. The National Budget Government accounting is primarily budgetary accounting, Government accounting does not only aim to provide information on past events and transactions but also budget information in accordance with PPSAS 24. The Philippine Constitution and other laws require government funds to be utilized in accordance with a national budget that is duly approved by legislation. Government accounting, therefore, is concerned with providing information useful in assessing the conformance of utilizations of government funds with the approved budget. The national budget (government budget) is the government's estimate of the sources and uses of government funds within a fiscal year. This forms the basis for expenditures and is the government's key instrument for promoting its socio-economic objectives. The formulation and eventual utilization of the national budget are summarized in the budget cycle. The Budget Cycle The budget cycle has four phases, namely: 1. Budget Preparation 2, Budget Legislation 3. Budget Execution 4, Budget AccountabilityThe Budget Process 25 Budget Preparation The budget preparation in the Philippines uses a “bottom-up’ approach. Under “bottom-up” budgeting, several _ parties participate in the budget preparation, starting from the lowest fo the highest levels of the government. Government agencies are also tasked to increase the participation of citizen-stakeholders in the budget preparation. The opposite of “bottom-up” budgeting is “top-down” budgeting - wherein the budget preparation starts from the agency heads. In 2011, the Philippine Government attempted to a start a new tradition by shifting from the old “incremental” system of budgeting to the “zero-based budgeting” approach. (The Philippine Public Transparency Reporting Project, January 11, 2011) Incremental budgeting vs. __ Zero-based budgeting > The current year’s budget is formulated based on the previous year’s budget, which is just adjusted for any variances experienced in the past. Presumably, the and expenditures. in the previous year — are automatically approved in the current year. > Uses a “roll-over” approach. » Prone to abuse. proposed programs > The current year’s budget is formulated without regard to the previous year’s budget. Government agencies are required to justify their current year’s proposed programs and expenditures, irrespective of whether these are new or carried over from the previous year. > Uses a “back-to-zero” or “clean slate” approach. > Promotes efficient and effective utilization. of funds. 1. Budget call - The budget preparation starts when the Department of Budget and Management (DBM) issues a Budget Call to all government agencies. The budget call26 * Chapter 2 Apter 2. Contains, among other things, the next fiscal year’s targets, the agency’s budget ceiling, and other guidelines in the completion and submission of agency budget proposals. Relevant terms: * Balanced budget - prepared in such a way that estimateg revenues exceed estimated expenditures. If actual Tevenues exceed actual expenditures, the government earns a surplus. If expenditures exceed revenues, the government incurs a deficit. - * Annual budget — covers a period of one year and forms the basis for the annual appropriation. * Special budget - provides for items not adequately covered or not included in the general appropriations act. * Line item budget — focuses on specific expenditures such as salaries and wages, travel expenses, freight, supplies, materials and equipment. * Performance budget - a plan of activities to be undertaken, including their related costs, with the emphasis on meeting targets and desired results. The main focus is on the work to be done or services to be rendered. * Obligations budget — focuses on expenditures incurred in the current year which are to be paid either in the same year or in the following year. Budget hearings - Budget hearings are conducted after the agencies submit their budget proposals. Each agency defends its budget proposal before the DBM. The DBM deliberates on the budget proposals, makes recommendations, and consolidates the deliberated proposals into the National Expenditure Program (NEP) and Budget of Expenditures and Sources of Financing (BESF). The DBM then submits the proposed budget to the President. 1The Budget Process . Od 3. Presentation to the Office of the President - The President and Cabinet members review the proposed budget. After the President approves the proposed budget, the DBM finalizes the budget documents to be submitted to the Congress. At this point, the proposed budget is referréd to as’ the “President's, Budget.” The “President's Budget” contains the following documents which are intended to assist the Congress in their review and deliberation of the proposed national budget: a. President's Budget Message — this contains the President's explanation of the country’s fiscal policy and budget priorities, b. National Expenditure Program (NEP) - this contains the details of all the government entities’ proposed expenditures in the coming year. c. Budget of Expenditures and Sources of Financing (BESF) — this contains the estimated expenditures accompanied by estimates of expected sources of financing. d. Other:documents aimed to provide further explanation of selected items in the NEP (e.g, details of key programs and projects and staffing summary). Relevant provision of law: > The President shall submit the proposed budget to the Congress within 30 days from the opening of every regular session. (Art. VII, Sec. 22, Philippine Constitution)28 Illustration: Excerpts from President’s Budget Message Excerpt 1: Chapter 2 Fiscal Year 2017 Message of President Rodrigo Roa Duterte to the Seventeenth Congress of the Philippines on the National Budget for Fiscal Year 2017 ‘August 15, 2016 Ladies and Gentlemen of the 17% Congress of the Philippines: | have the honor to submit to you, through the President of the Senate and the Speaker of the House of Representatives, the Proposed National Budget for Fiscal Year (FY) 207: BUDGET PHILOSOPHY Ladies and gentlemen, my commitment to implement real change lies at the core of the P3.35 trillion proposed Budget for FY 2017. This is my Administration's first Budget. It is a Budget that gives flesh and bone to the promise by which | won as President: to fight for social justice. It was designed to realize change in the here and now. This Budget is for the people and by the people. In the last one and a half months since we assumed office, we designed this Budget around the following principles: LAAN LAAN PLANS v RADA “Fiscal Year 2017The Budget Process 29 Budget Legislation Government funds shall only be spent in pursuance of an appropriation made by law. Therefore, due process must be undertaken to legalize the proposed budget. 4. House Deliberations - Upon receipt of the President's Budget, the House of Representatives conducts hearings to scrutinize the various agencies’ respective proposed programs and expenditures. Thereafter, the House of Representatives prepares the General Appropriations Bill (GAB). 5. Senate Deliberations - The Senate conducts its own deliberations on the GAB. These normally start after the Senate receives the GAB from the House of Representatives.’ However, for expediency, hearings in the Senate start even as Representatives deliberations are ongoing. 6. Bicameral Deliberations - After deliberations in both houses are finished, a committee called the Bicameral Conference Committee is formed to harmonize any conflicts between the Representatives and Senate versions of the GAB. The harmonized GAB (‘Bicam’ version) is submitted back to both Houses for ratification. After ratification, the final GAB is submitted to the President for enactment. 7. President's enactment - The President enacts the budget, which is now known as the General Appropriations Act (GAA). Before enactment though, the President may exercise his veto power as conferred to him under the Philippine Constitution. Relevant provision of law: > When the proposed budget is not enacted before the fiscal the last year’s GAA is automatically reenacted. The last year’s GAA shall be used in the current year until a new general appropriations bill is passed by the Congress. (Art. VI, Sec. 25(7), Philippine Constitution) year starts,Chapter, i Fs a | The Approved Budget Approved Budget - is the expenwiitui appropriation laws, government ordinances, related to the anticipated revenue or recelp 2 period. The approved budget consists of the following: re authority derived fro, | and other decisions ts for the budgetary UACS Code New General Appropriations o1 Continuing Appropriations 02 Supplemental Appropriations 03 Automatic Appropriations 4 Unprogrammed Funds 05 Retained Income/Funds 6 Revolving Funds 07 Trust Receipts 08 *The Unified Accounts Code Structure (ACS) refers to the standard coding system used in financial reporting of the National Government. > Appropriation — is the authorization made by a legislative body to allocate funds for purposes spécified by the legislative or similar authority. 1. New General Appropriations - are annual authorizations for incurring obligations during a specified budget year, as listed in the GAA. 2. 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. 3. 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 @ Certification of Availability of Funds from the BTr.tae ‘The Budget Process 31 4, Automatic Appropriations — are the authorizations programmed annually or for some other period prescribed by law which do not require periodic action by Congress. 5. Unprogrammed Funds — are standby appropriations authorized by Congress in the annual GAA which may be availed only when any of the following instances occur: a. revenue collections exceed the original revenue targets in the Budget of Expenditures and Sources of Financing (BESF) submitted by the President to the Congress; b. new revenues are collected. or realized from sources not originally considered in the BESF; or c. newly-approved loans for foreign-assisted projects are secured or when conditions are triggered for other sources of funds such as perfected loan agreements for foreign assisted projects. (soiurce: http://www dbm gov. ph/?page_id-7366) 6. Retained Income/Funds - collections which are authorized by law to be used directly by agencies concerned for their operation or specific purposes. (http:/www.dbm gov. ph/wp-content/uploads/BESF/BESF2016/GLOSSARY pdf) 7. Revolving Funds - receipts derived from business-type activities of departments/agencies which are authorized by law to be constituted as such and deposited in an authorized government depository bank. These funds shall be self- liquidating and all obligations and expenditures incurred by virtue of said business-type activity shall be charged against said fund. (hitpy/www.dbm.gov.ph/wp-content/uploads/BESF/BESF2016/GLOSSARY pdf) 8. Trust Receipts - receipts by any government agency acting as trustee, agent or administrator for the fulfilment of some obligations or conditions. (Adapted from the definition of “Trust Fund” in http://www.dbm.gov.ph/wp- content/uploads/BESF/BESF2016/GLOSSARY. pdf)32 Chapter 2 Relevant provisions of law: > A special appropriations bill shall specify the purpose for which it is intended, and shall be supported by funds actually available as certified by the National Treasurer, or to be raised by a corresponding revenue proposal therein. (Art. VI. Sec. 25(4), Philippine Constitution) No law shall be passed authorizing any transfer of appropriations; however, the President, the President of the Senate, the Speaker of the House of Representatives, the Chief Justice of the Supreme Court, and the heads of Constitutional Commissions may, by law, be authorized to augment any item in the general appropriations law for their respective offices from savings in other items of their respective appropriations.” (Art. VI, Sec. 25(5), Philippine Constitution) Budget Execution This is the phase where government funds are spent. 8. Release guidelines and BEDs - The DBM issues guidelines on the release and utilization of funds while the various agencies submit their Budget Execution Documents (BEDs). A BED | summarizes an agency's fiscal year plans and performance targets. It includes the following: a. Physical and financial plan, b. Monthly cash program, c. Estimate of monthly income, and d. List of obligations that are not yet due and demandable. The following are the major recipients of the budget: 1. National Government Agencies (NGAs) — include all agencies within the executive, legislative and judicial branches of government, e.g., commissions, departments, Land Bank of the Philippines, Social Security System, etc._ The Budget Process 33 2. Local Government Units (LGUs) — include (a) autonomous regions, (b) provinces and cities independent from a province, (c) component cities (cities which are part ofa province) and municipalities, and (d) barangays. 3. Government Owned and Controlled Corporations (GOCCs) - corporations that are owned or controlled, directly or indirectly, by the government and vested with functions relating to public needs. The members of the Congress (Senators and Congressmen) and the Judiciary Branch are also recipients of a portion of the budget. 1. The portion received by members of the Congress is referred to as the Priority Development Assistance Fund (PDAF) a.k.a. “Pork Barrel.” This is intended to fund priority development programs of the government. 2. The portion received by members of the Judiciary is referred to as the Judiciary Development Fund (JDF). At least 80% of the fund is intended for the cost of living allowances of the members and personnel of the Judiciary, the remainder, 'not exceeding 20%, is for the acquisition and maintenance of office equipment and facilities. (PD NO. 1949) In 2014, the Aquino Administration introduced the Disbursement Acceleration Program (DAP) which aims to speed-up public spending. The DAP is not a fund but a mechanism of releasing funds, particularly from savings and unprogrammed funds. > Savings are available portions or balances of items under the General ‘Appropriations Act (GAA) which result from: a) the completion or final discontinuance or abandonment of a program, activity, or project: b) unpaid compensation for vacant or unfilled positions and leaves of absence without pay: or ¢) the implementation of efficiency measures that enable agencies to deliver services at lower cost. Such savings may then be used to augment funds for programs, activities, or projects which are included in the GAA (i.e. nonexistent budget items cannot be funded). > — Unprogrammed funds (see previous definition). Both the PDAF and the DAP received various criticisms from the public in 2013 and 2014, following the Janet Lim-Napoles alleged pork scam. The PDAF and DAP was later on thought to have been abolished by the Supreme Court. However, “The 2015 budget is still filled with pork barrel funds despite the Supreme Court decision declaring the Disbursement Acceleration Program (DAP) and the Priority Development Assistance Fund (PDAF) as unconstitutional, according to a budget watchdog.” (Source: The Philippine Star. December 21, 2014)34 Chapter 2 9. Allotment - The DBM formulates the Allotment Release Program (ARP) to set the limit for allotment releases during the upcoming year. This is used as a control device to ensure that releases conform to the national budget. Alongside, is a Cash Release Program (CRP), which sets the disbursement limits for the year, for each quarter and for each month. > Allotment — is an authorization issued by the DBM to government agencies to incur obligations for specified | amounts contained in a legislative appropriation in the form of budget release documents. It is also referred to as Obligational Authority. It is illegal for a government entity to incur obligations without having first received the “Allotment.” Moreover, the type and amount of obligations to be incurred must conform to those that are specified in the “Allotment.” > 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. The following are the documents used in releasing allotments to government agencies: 1. 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. 2. Special Allotment Release Order (SARO) - covers budgetary items under For Later Release (negative list) in the entity's submitted Budget Execution Documents (BEDs), subject to compliance of required documents/clearances. Releases of allotments for Special Purpose Funds (e.g., Calamity Fund, Contingent Fund, E-Government Fund, Feasibility Studies a a _ |_ . 35 The Budget Process Fund, International Commitments Fund, Miscellaneous Personnel Benefits Fund and Pension and Gratuity Fund) are also covered by SAROs. . 3. General Allotment Release Order (GARO) = # 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, i.e. Retirement and Life Insurance Premium. 10. Incurrence of Obligations - government agencies incur obligations which will be paid by the government, e.g., entering into contracts, hiring of personnel, purchase of supplies, etc. 11. Disbursement Authority - the DBM issues disbursement authority to the government agencies. This is the point where government agencies obtain access to the government funds. , The following are the documents used in releasing disbursement authority to government agencies: 1. Notice of Cash Allocation (NCA) — authority issued by the DBM to central, regional and provincial offices and operating units to cover their cash requirements. The NCA specifies the maximum amount of cash that can be withdrawn from a government servicing bank in a certain period. The NCA is based on the agency’s submitted Monthly Cash Program.36 ‘Chapter 2 2. Notice of Transfer of Allocation - authority issued by an agency’s Central Office to its regional and operating units to cover the latter’s cash requirements. 3. Non-Cash Availment Authority - authority issued by the DBM to agencies to cover ithe liquidation of their actual obligations incurred against available allotments for availment of proceeds from loans/grants through supplier's credit/constructive cash. 4. Cash. Disbursement Ceiling - authority issued by the DBM to agencies with foreign operations (e.g, Department of Foreign Affairs ‘DFA’) allowing them to use the income collected by their Foreign Service Posts to cover their operating requirements. Disbursements are most commonly made through checks that are chargeable against the account of the Treasurer of the Philippines (i.e., Treasury Single Account). Checks issued under this scheme are called “Modified Disbursement System (MDS) Checks.” Other modes of disbursements include payments through cash, commercial check, bank transfer/bank debit, or credit card. We will elaborate on these later in Chapter 5. CD) Remember the following: | 1, Appropriation |- authorization by a legislative body to allocate funds for specified purposes. 2. Allotment - authorization to agencies to incur obligations (ie, —_—_obligational authority). 3. Obligation - amount contracted by an authorized officer for which the government is held liable. 4, Disbursement actual amount paid out of the budgeted amount,The Budget Process 37 Budget Accountability This phase occurs concurrently with the Budget Execution phase. As the budget is being executed, it is regularly monitored to determine the conformance of actual results with planned targets. 12. Budget Accountability Reports -~ government agencies are required to submit the following accountability reports: a. Monthly Report of Disbursements — shows the disbursements of the entity during the month, classified according to the type of disbursement authority. This report is submitted to the COA and DBM within 30 days after the end of each month. b. Quarterly Physical Report of Operation - shows the agency's physical accomplishments in a given quarter vis-a-vis its physical targets. c. Statement of Appropriations, Allotments, Obligations, Disbursements and Balances - shows the agency's authorized appropriations, allotments _received, obligations incurred, disbursements made and the balances of unreleased appropriations, unobligated allotments, and unpaid obligations. d. Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by Object of Expenditures — similar to ‘c’ above but provides details of expenditures (e.g., salaries and wages, traveling expenses, etc.) e. List of Allotments and Sub-Allotments - shows the allotments received by the agency from the DBM and the sub- allotments issued by the agency’s Central Office or Regional Office to lower operating units.| 38 Chapter2 | | £, Statement of Approved Budget, Utilizations, Disbursements and Balances — this report is prepared by agencies that have authority to .use their revenue. It shows the budgeteq | revenue, the utilizations and disbursements thereof, and the unutilized amount. | 8. Summary of Approved Budget, Utilizations, Disbursements and Balances by. Object of Expenditures - similar to ‘f’ above but | provides details of expenditures. h. Quarterly Report of Revenue and Other Receipts — shows the actual revenues and other receipts remitted to the BTr and deposited in authorized government depository banks ina given quarter. * Reports ‘b’ to ‘h’ above aré prepared on a quarterly basis and are submitted to the COA and DBM within 30 days after the end of each quarter. i. Aging of Due and Demandable Obligations — shows the names of creditors, the amounts owed to them, and the number of days these obligations are outstanding. This report.is submitted to the COA and DBM within 30 days after the end of the year. % A Consolidated Statement of Allotments, Obligations, and Balances per Summary of Appropriations (based on reports ‘c’ and ‘d’ above) shall be submitted on or before February 14 of the follawing year. 13. Performance reviews - The DBM and COA perform periodic - reviews of the agencies’ performance and budget accountability and report to the President. 14. Audit - the COA audits the agencies.The Budget Process 39 ‘ The budget reports, together with other budget records, provide. information in preparing the Statement of Comparison of Budget and Actual Amounts, which is one of the components of a complete set of financial statements of a government entity: We will discuss this statement later. Story: The Budget Cycle |. Budget Preparation Papa and Mama are leaving for a 1-month trip so they asked you and your little sister to make an estimate of the money you will need while they are gone (Budget Call). You started your estimate by asking first Little Sister of her needs ( ‘bottom-up’ budgeting). Same time last year. Papa and Mama also went for a 1-month trip and they had you made a similar estimate. However, instead of giving them that old estimate, you decided to make a new one in order to better reflect current circumstances ( ‘zero-based’ budgeting). - You defended your estimate with Mama (Budget hearings). Mama, submitted the estimate to Papa for approval (Presentation to the Office of the President). 11. Budget Legislation Papa consulted Lolo (a retired Lawyer) to review: your estimate (House Deliberations). After reviewing the estimate, Lolo gave the estimate to Lola (a retired CPA) for further study (Senate Deliberations). Lolo and Lola had some disagreements, so they asked Umpong. your. dog, to harmonize the conflicts (Bicameral Deliberations). After harmonizing the conflicts, Umpong submitted the “Bicam” version of the estimate back to both Lolo and Lola for ratification. Lolo and Lola submitted the ratified estimate to Papa for enactment (President's enactment). Your approved budget for the month is ®100 (Appropriation). UII. Budget Execution Papa left the money to Uncle. Uncle gave you guidelines on how the money will be released to you, based on your estimates of the timing Of disbursements (Release guidelines and BEDs).40 Chapter Uncle told you that you can now incur obligations up to 4 maximum of ®80 (Allotment). You then went to Aling Masing’s Store to purchase groceries, good for 1 month, worth P50. on crealt (Incurrence of Obligations). Uncle gave you ®25 cash to cover your cash disbursement needs for the 1* week (Disbursement Authority - Notice of Cash Allocation). You gave Little Sister her share of ®5 (Notice of Transfer of Allocation). *% Your disbursements in the I week were as follows: - You: PS installment payment to Aling Masing and P12 on personal needs - Little Sister: P5 on personal needs Total disbursements in Ist week P22 IV. Budget Accountability Your budget accountability reports after the 1* week will show the following information (Budget Accountability Reports): = Appropriation: #700 -' Allotment received: #80 - Unreleased appropriation: (P100 - P80) = #20 - Obligations incurred: (P50 to Aling Masing + ®12 on your personal needs + ®5 on Little Sister's personal needs) = P67 - Unobligated allotment: (P80 allotment - 67) = #/3 - Disbursements: P22 - Unpaid Obligations: (67 obligations incurred - P22 disbursements) = P45 (payable to Aling Masing) = Unused NCA = (#25 NCA - 22 disbursements) = P Unde periodically updates Papa and Mama regarding your budget execution through call and text (Performance Review). Papa and Mama will audit you when they return (Audit). - The End — < Notice that appropriation, allotments and disbursement authorities are systems of budgetary controls. Instead of releasing the allocated funds of #100 to you all at once, it is released on a piecemeal basis, based on your estimate of the timing of needs (Budget Execution Documents ‘BEDs’). This is to prevent the incurrence of overdraft (ie, obligations exceeding the appropriated funds). . -_The Budget Process 41 BUDGET PREPARATION 4, House Daldsettine S,wadpe’” arsine BOs Saceoruatenes, wo DESERT Ens § PY , 9 14, Ava a 4 e a f nt i 9 5 THE 4 a 6. Bicameral 0 € peter BUDGET roa ems z CYCLE Dy 5 2 0 9 Z d Y 12. Bud, . ae 7 Pissidents a 9 a 2 f Uther "' TgBtigatass % 9 Allotmene 6 S.Release S BUDGET EXECUTION Ei é42 Chapter Responsibility Accounting To better evaluate the budget accountability of an entity, government accounting adheres to the concept of responsibility accounting. Responsibility accounting is a system of providing cost and revenue information over which a manager has direct control of, This enables the evaluation of a manager's performance based only on matters that are directly under his control. Therefore, budget deviations can be readily attributed to the managers accountable therefor. Responsibility accounting requires the identification of responsibility centers and the distinction between controllable and non-conirollable costs. > Responsibility center — is a part, segment, unit or function of a government agency, headed by a manager, who is accountable for a specified set of activities. > Controllable costs - a cost is considered controllable at a given level of managerial responsibility if the manager has the power to incur it within a given period of time. > Non-controllable costs - are costs incurred indirectly and allocated to a responsibility level. Except for some which derive most of their income from collection of taxes and fees, government agencies are basically cost centers whose primary purpose is to render service to the public at the lowest possible cost. Each of the managers of an agency that is a cost center is evaluated based on his ability to meet budgeted goals fot controllable costs. All costs are controllable by top management because of the high extent of its authority. Fewer costs at controllable in lower management levels because of the decreased scope of authority. Each government agency is assigned a responsibility center code as follows:The Budget Process = 43 Responsibility Center Code Structure Example: Commission on Audit —— ——_| | Comino it ay ey (nm Ler over cm ce tn eae scot Aetna ade for mau step oe Na orem Chapter 2 Summary: * The Budget Cycle: (1) Budget Preparation, (2) Budget Legislation , (3) Budget Execution, (4) Budget Accountability © Under “bottom-up” budgeting, several parties participate in the budget preparation, starting from the lowest to the highest levels of the government. « Under “zero-based” budgeting, the current year's budget is formulated without regard to the previous year's budget. Government agencies are required to justify their current year’s proposed programs and expenditures, irrespective of whether these are new or carried over from the previous year. «Appropriation — is the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar authority. 7 Allotment - is an authorization issued by the DBM to incur obligations for specified government agencies to tive appropriation in the form amounts contained in a legisla of budget release documents. It is also referred to as 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. * Under responsibility accounting, a evaluated only in terms of the costs that he controls. manager's performance is44 Chapter PROBLEMS: PROBLEM 2-1: TRUE OR FALSE 1. The budget preparation in the Philippines uses a “bottom-up approach. Under this approach, the budget preparation starts from the highest levels of the government down to the lowest levels. An entity prepares its budget by simply rolling-over the budget in the previous year and adjusting each line item by 10% increment to reflect inflation. This process is described as zero-based budgeting. After the budget call from the DBM, the proposed budget of various agencies are submitted immediately to the Office of the President for review. An entity can incur obligations after receiving notice of its appropriation but before receiving the allotment. Budget deliberations in the Congress start in the House of Senate. A government entity must first receive an allotment before it can incur obligations. A government entity can make disbursements even before it receives a disbursement authority. Appropriation is also called obligational authority. The Notice of Cash Allocation (NCA) is an authority issued by the DBM to central, regional and provincial offices and operating units to cover their cash requirements.The Budget Process 45 10. Responsibility accounting greatly + enhances budget accountability because managers are evaluated only in terms of the costs or other variables that they control, and therefore, budget deviations can be readily attributed to the managers accountable therefor. PROBLEM 2-2: MULTIPLE CHOICE 1. Which of the following does not properly describe the budget process used in the Philippines? a, Bottom-up budgeting b. Top-down budgeting c. Zero-based budgeting d. Non-incremental budgeting 2. Arrange the following steps according to the sequence that they appear in the budget cycle. I. Allotment |. Bicameral deliberations I. Budget accountability reports IV. President's enactment of the GAA V. Budget hearings with the DBM a. V,IV,IL,.and I cH, V, 0, Land I b. V,IL IV, land II d. V, 1, IL IV and It 3. Arrange the following steps according to the sequence that they appear in the budget cycle. I Allotment I. Disbursement authority Ill. Disbursement IV... Appropriation V. Incurrence of obligation *oe 46 Chapter a. IV,L IL, Vand III c. IV, V, Hand Ill b: IV,1,V, Il and Il d.IV, V, 1 and IL 4. This type of budget is prepared in such a way that estimated revenues exceed estimated expenditures. a. Balanced budget c. Obligations budget b. Excess budget d. Budget meal 5. This summarizes an agency’s fiscal year plans and performance targets. It shows the agency’s physical and financial plan, monthly cash program, estimate of monthly income, and list of obligations that are not yet due and demandable. a. Budget Execution Documents (BEDs) b. Special Allotment Release Order c, Statement of Approved Budget, —_Utilizations, Disbursements and Balances d. Aging of Due and Demandable Obligations 6. It is an authorization issued by the DBM to NGAs to incur ‘obligations. It is also referred to as Obligational Authority. a. Appropriation c. Budget call b. Allotment d. Budget hearings 7. It refers to the amount contracted by a duly authorized administrative officer for which the government is held liable. a. Appropriation c. Obligation | b. Allotment d. Disbursement 8. Which of the following best describes the Notice of Cash Allocation (NCA)? a. It isa form of legislative authorization in the allocation of funds for specified purposes. b. It is a form of authorization to a govemment agency to incur obligations on behalf of the government, c. It is a form of authorization to a government agency to make disbursements out of government funds.The Budget Process 47 d. It is a notice received from the Congress that cash is allocated for the payment of planned expenditures. 9. Disbursements by government entities are most commonly made through a. MDS Checks c. Petty Cash Fund b. Cash d. Credit Card 10. Responsibility accounting requires all of the following except a. separate books of accounts to segregate controllable and non-controllable costs . identification of responsibility centers ¢. distinction between controllable and non-controllable costs d. coding structure for responsibility centers PROBLEM 2-3: MULTIPLE CHOICE Fact pattern: A legislation approves the allocation of ®100B funds to support the operations of Entity A (a government agency) in the current year. At the start of first quarter, Entity A receives authorization to incur obligations for a maximum amount of P45B in that quarter. Entity.A extends half of that authorization to its lower operating units, During the quarter, Entity A receives monthly authorization to disburse funds not to exceed ®15B per month. Entity A extends half of those monthly authorizations to its lower operating units. At the end of the quarter, total obligations incurred amounted to 40B while total disbursements amounted to ®35B. 1. The allocation of the ®100B funds to Entity A is referred to as a. Allotment c. Obligation b. Appropriation d, Sub-allotment 2. The allocation of the P100B funds to Entity A is authorized by a. Department of Budget and Management (DBM)Chapter b. Commission on Audit (COA) ¢. Bureau of Treasury (BTr) d. Congress The P45B authorization is referred to as a. Allotment c. Obligation b. Appropriation d. Sub-allotment The P45B authorization is received by Entity A from a. DBM c. BTr b. COA d. Congress The half of the ®45B authorization extended by Entity A (Central Office) to its lower operating units is referred to as a. Allotment c. Obligation b. Appropriation d. Sub-allotment Which of the following best describes the P15B monthly authorizations? a. Allotment b. Obligation authority (¢,¢. Notice of Cash Allocation ‘NCA’) c. Disbursement authority (e.g, Notice of Cash Allocation ‘NCA’) d. Disbursement authority (e.g., Notice of Transfer of Allocation ‘NTA’) The ®15B monthly authorizations are received by Entity A from a. DBM c. BTr b. COA d. Congress The half of the ®15B monthly authorizations extended by Entity A (Central Office) to its lower operating units is referred to as a. Cash Disbursement Ceiling b. Non-Cash Availment Authority c. Notice of Cash Allocation (NCA)The Budget Process 49 d. Notice of Transfer of Allocation (NTA) 9. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unreleased appropriations?” . a. P6SB b. P60B c. P55B d. P45B 10. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unobligated allotments?” a. FOB b. 5B c. P10B d. P15B In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unpaid obligations?” a, POB b. PSB c. P10B d. 15B 11. PROBLEM 2-4: FOR CLASSROOM DISCUSSION 1. All disbursements of government entities must be in conformance with the law and the a. National budget c. PPSASs b. COA audit findings d. PFRSs 2. An entity prepares its budget for the upcoming year from scratch. It scrutinizes each item in the budget irrespective of whether the item was included in the previous budget. This process is called . a. zero budgeting c. scratch budgeting b. incremental budgeting d. zero-based budgeting 3. Under this approach to budgeting, several parties participate in the budget preparation - from the lowest levels of government to the highest levels, and sometimes even citizen- stakeholders participate in the budget preparation.50 i Chapter 2 a. bottoms-up budgeting c. top-down budgeting b. zero-based budgeting d. bottom-up budgeting 4. What is the correct sequence of the following steps in the budget process? I Budget Legislation Ul. Budget Accountability Il. Budget Preparation IV. Budget Execution a. IL I,landIv c. IM, 1, and IV b. TIL, IV and IL d. II, IV, I and IL 5. After deliberations in both houses in the Congress are finished, a committee is formed to harmonize any conflicts between the Representatives and Senate versions of the General Appropriations Bill. This committee is called the Adjudication Conference Committee Bicaramel Conference Committee | Referee Conference Committee | Bicameral Conference Committee ao ge 6. -It is the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar authority. a. Appropriation c. Obligation b. Allotment . d. Disbursement 7. These are the authorizations programmed annually or fot some other period prescribed by law, by virtue of outstanding legislation which does not require periodic action by Congress. a. Automatic Appropriations b. New General Appropriations c. Continuing Appropriatioris - d. Supplemental Appropriationsee EE ‘The Budget Process i 8, Entity A, a government entity, wants to make disbursements. Arrange the following events in the correct sequence before Entity A can make valid disbursements. “I. Allotment I. Disbursement Authority Il. Appropriation IV. _ Incurrence of obligation a. UL Il, 1,andIV c. IL, I, 0, and IV b. I, 1 1V, and I d. IH, IV, I, and II 9. This is necessary before government entities can enter into contracts that bind the government for the eventual disbursement of government funds a. Disbursement authority c. Allotment »_b. Notice of cash allocation d. Incurrence of obligation 10. Under responsibility accounting, a manager's performance is evaluated based on all resources under his custody a. or other variables, that he b. only in terms of the costs, controls. on the basis of both controllable and non-controllable costs. d. only at year-end.% The Government Accounting Process : R | Tie Boweramertt Accowmting Process BR Chapter 3 The Government Accounting Process Learning Objectives 1. Record the basic transactions of a government entity. 2. Prepare a worksheet. Introduction The government accounting process comprises the activities of analyzing, recording, _ classifying, summarizing —_and communicating transactions involving the receipt and disposition of government funds and property, and interpreting the results thereof. This process is similar to that of a business entity, except that it incorporates budgetary controls, such as recording in the budget registries and preparing periodic budget accountability reports. Books of Accounts and Registries The books of accounts and registries of government entities ” consist of: 1. Journals a. General Journal b. Cash Receipts Journal c. Cash Disbursements Journal d. Check Disbursements Journal 2. Ledgers a. General Ledgers b.. Subsidiary Ledgers‘The Government Accounting Process 3. Registries a. Registries of Revenue and Other Receipts (RROR) b. Registry of Appropriations and Allotments (RAPAL) c (RAOD) Registries of Allotments, Obligations and Disbursements d. Registries of Budget, Utilization and Disbursements (RBUD) Technically, only the Journals and Ledgers are considered. accountit business entity. The Registries are budget records. These ate u: ing records. These are similar to the accounting records of a sed to monitor the budget. You may think of the registries like “logbooks” or something, rather than accounting books with debit and credit columns. The accounting unit of the agency maintains the Journals and Ledgers while the budget division of the aj maintains the Registries. Recall that separate accounting records and bi registries are maintained for each fund cluster (i.e., Regular A; Fund, Foreign Assisted Projects Fund, etc. - see Chapter 1). Budget Registries gency udget gency 1. Registries of Revenue and Other Receipts (RROR) - used to monitor the budgeted amounts, actual collections remittances of revenue and other receipts. and Registry of Appropriations and Allotments (RAPAL) — used to monitor appropriations and allotments. This is to ensure that allotments will not exceed appropriations. 3. Registries of Allotménts, Obligations and Disbursements (RA\ OD) - used to monitor the allotments received, obligations incurred against the corresponding allotment, and the disbursements made. This is to ensure that oblig incurred will not exceed allotments while disbursements will not exceed the obligations incurred. actual ations actualos” 54 Chapter 3 Separate RAOD shall be maintained for each object of expenditure. Object of Expenditures acer | The classifications of expenditures by object are as follows: | | | a. Personnel Services (PS) - pertain to all types of employee benefits, e.g., salaries, bonuses, allowances, cash gifts, etc. b. Maintenance and Other Operating Expenses (MOOE) - pertain to various operating expenses other than employee benefits and financial expenses, e€.g., travel, utilities, supplies, ete. ‘sanci; ini P | c. » Financial Expenses (FE) - pertain to finance costs, ¢.g., interest | expense, bank charges, etc. Financial expenses also include | Josses on foreign exchange transactions. |. Capital Outlays (CO) ~ pertain to capitalizable expenditures, | eg, ‘expenditures on the construction of public infrastructures, acquisition costs of equipment, etc. 5 ‘Accordingly, the following separate RAODs shall be maintained: (a) RAOD-PS; (b) RAOD-MOOE; (c) RAOD-FE; and (d) RAOD-CO. 4, Registries of Budget, Utilization and Disbursements (RBUD) - used to record the approved ‘special budget and. the corresponding utilizations and disbursements charged to retained income. Separate RBUDs are also maintained for each object of expenditure, i.e., (a) RBUD-PS; (b) RBUD-MOOE; (<) RBUD-FE; and (d) RBUD-CO.The Government Accounting Process « 55 Keeping of the General Accounts The COA shall keep the general accounts of the Government and preserve the vouchers and other supporting documents: Basic Recordings Appropriation Entity A (a government agency) receives its GAA consisting of the following: Personnel Services (PS) 100,000 Maintenance and Other Operating Expenses (MOOE) 60,000 Financial Expenses (FE) - Capital Outlays (CO) 200,000 Total appropriation for the current year 20x1 360,000 The receipt of the appropriation is posted (recorded) in the Registry of Appropriations and Allotments (RAPAL) as follows: REGISTRY OF APPROPRIATIONS AND ALLOTMENTS Baty Name: Ett A Fad Chester: Regular Agen Fed Date | Re __ Appropriations ‘Aetwes areas Appropriations I | Mook | FE | co | Tol | PS |MOOE FE, CO. Toul | PS |MOOE FE | CO | Tota Li goo | 6400 EE -[ [| - TT tr ttl i tl Allotment Entity A receives its allotment from the DBM consisting of the following: . . Personnel Services (PS) , 90,000 Maintenance and Other Operating Expenses (MOOE) 40,000 Financial Expenses (FE) : Capital Outlays (CO) 170,000 Total allotment 300,00056 Chapter 3 The receipt of the allotment is posted (recorded) in the Registry of Appropriations and Allotments (RAPAL) and Registries of Allotments, Obligations and Disbursements ( RAOD) as follows: RAPAL RIGISTRY OF APPROPRIATIONS AND ALLOTMENTS Ent Name: Ext A Frade Rag gas Fd Date | Ret ‘Approprats | ‘Avie’ arceed Appropriations | PE LMOOE FE CO] Toa] | MOOE FE] CO | Tua | % MOOE FE OO toad Ti, Gan [nom ow. amooisamo| | || : ‘Okt GANRD| | enn | to) = moto noon, mow | = sao] een | Tomah | | RAODs REGISTRY OF ALLOTMENTS, ‘OBLIGATIONS AND DISBURSEMENTS PERSONNEL SERVICES For the year 20x1 Taam —| Date | Ret | Atlooments | Ovigatons | Uiprle| Disdurtements | Ducand | N° ¥S) Demandable | DU 26, REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSE! MAINTENANCE AND OTHER OPERATING EXPENSES For the year 20x1 Entity Name: Entity A |r ‘Cluster : Regular Aseocr Fund ‘Unpaid Obligations Not Yet poe | net | Atermeats | obiqnions | U0EME | Ouberemets | Doe and T2AL 40,000 | Deans |57 The Government Accounting Process REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS CAPITAL OUTLAYS For the year 20x1 ‘Entity Name: Eaticy A Fond Claster : Regular Ageacy Fund r Toga ate [net | atloments | obiigntons | USBI! Dyberements | Due and a Demande 77 170,000 Incurrence of Obligation {Obligation Request and Status (ORS) | | | Obligations shall be incurred through the issuance of Obligation | |Request and Status (ORS). The Requesting Office shall prepare this | |document, supported by valid claim documents like disbu: rsement| vouchers, payrolls, purchase/job orders, itinerary of travel, etc. | The Head of the Requesting Office shall: certify the| necessity and legality of the obligation and the validity of the! ‘supporting documents. The Head of the Budget Division shall |certify the availability of the allotment. Entity A enters into the following contracts: a. Personnel Services - Employment contracts (Job Order) amounting to ®70,000. b. Maintenance and Other Operating Services — Purchase contract for office supplies worth ®25,000. c. Capital Outlays - Purchase contract for office equipment worth ®160,000. The ORS is prepared as follows:58 [Dacian | “OBLIGATION REQUEST AND STATUS a Mamet: Regs Agra Find Entity A Payee [Cog Bayer Ofce | Big Ofie ‘Astros | Somewbare St, Lit Towa = u ‘i Respostilty Cente Parveaan moar | ‘Cote Hina Resnes | Job Order ample contracs) = | 2 3S Adiniraten Once | “Purchase order for fic upp et m= | = inal ‘Adminisraion Otfce | Perchas order fr ofe equipment =m a 155.00 A B Allotment vailabe md obit Cetin: Caagetospropeiation tment contin: ecard ude my diet persion snd {ox he pp /ajusment seem) 28 ‘Sporting Socesnt vad, prope and see Sigutwe ayn Primed Name Boy. Anat Poston: Head Reuesting Ofce Dae Mins =I sw =| Raterece onuiption| Payable | Payment] NatYet | _Dueand Duc} Paints | DARA BON Dee | Dende @ o @ | ey | a Tat | tab Order 000] 0 ° | zoo | 0 Voti| —Ofie supplies 20 0 o |. 2500 | 0 aint | Oe equpment ran] 0 0 | 100} 0 To simplify the illustration, only one ORS is presented for the three contracts. Separate ORSs should be prepared for each of them. The “obligations” are recorded in the Registries of Allotments, Obligations and Disbursements (RAOD) as follows: REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS PERSONNEL SERVICES For the year 20x1The Government Accounting Process REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS MAINTENANCE AND OTHER OPERATING EXPENSES For the year 20x1 Entity Name: Estey A ‘Fand Chester : Regular Agency Fund cr sue | nat | Atvrments | onngetons | Uclened | yanremets | dacana | Note s Demandable Tk 10.00 7 125,000 | 15,000 ° o| 25,000 REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS CAPITAL OUTLAYS For the year 20x Entity Name: Estity A Fead Chaster: Regular Agency Fund |__Unpaid O8 pur | ne | atomean | oviguion | Uasbleret} Dateruman [Docent | NOE, 1b 170,000 _. srl _ 160,000 | 10,000 ° 0 | 160,000 Notice of Obligation Request and Status Adjustment (NORSA) If the obligations recorded in the RAOD and ORS above need to be adjusted, the subsequent adjustment shall be made through the use of the Notice of Obligation Request and Status Adjustment (NORSA). The adjustment shall be effected through a positive entry (addition) or a negative entry (reduction), as appropriate. Up to this point, nothing is recorded yet in the accounting books. The recordings above are made on the budget registries. Journal entries shall be made only after: a. the employees have rendered services; b. the office supplies are delivered and received; and c. the office equipment is delivered and received.Oar Only after these events occur that the entity's financial statement elements are affected, and thus, an accountable event has occurred that needs to be recognized. In the meantime, the “obligations” recorded in the registries (but not yet in the accounting books) are referred to as “Not Yet Due and Demandable.” Notice that government entities and business entities use the term “obligation” or the phrase “incurrence of obligation” differently. Government entity Business entity > Obligation — is an act of aduly | > Obligation is another term for q authorized official which liability. 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. Disbursement Authority — Notice of Cash Allocation (NCA) Entity A receives Notice of Cash Allocation (NCA) from the DBM amounting to 200,000, net of tax. This time a journal entry shall be made in the accounting books because the financial statement elements of the entity are now affected, i.e., increase in cash and increase in revenue. The entry is as follows: Date] Cash-Modified Disbursement System (MDS), Regular 200,000 Subsidy from National Government : 200,000 To recognize receipt of NCA from DBM :The Government Accounting Process 61 The registries used to monitor the NCA are the following: Registry of Allotments and Notice of Cash Allocation (RANCA) — used to determine the amount of allotments not covered by NCA and to monitor the available balance of NCA. b. Registry of Allotment and Notice of Transfer of Allocation (RANTA) — used to determine the amount of allotments not covered by Notice of Transfer of Allocation (NTA) and to monitor the available balance of NTA. ~ a. The NCA is posted (recorded) in the RANCA as follows: REGISTRY OF ALLOTMENTS AND NOTICE OF CASH ALLOCATION For the period January 2031 Entity Name: Entity A Fund Cluster: Regular Agency Fund ‘Sheet Number: 1 I. JOURNALS a. General Journal — used to record transactions not recorded in the Special Journals. Special Journals: b. Cash Receipts Journal - used to record the Report of Collection and Deposit and Cash Receipts Register of collecting officers. » Report of Collection and Deposit (RCD) - prepared by a’ collecting officer to report his/her collections and deposits to an Authorized Government Depository Bank (AGDB).62 Chapter 3 > Cash Receipts Register (CRReg) - used by field offices without a complete set of books to record their cash collections and deposits in the books of their mother unit (central/regional/division office). c. Cash Disbursements Journal - used to record the cash disbursements of the Disbursing Officer. d. Check Disbursements Journal — used to record the check disbursements of the Disbursing Officer. Il. LEDGERS a. General Ledger - summarizes all transactions recorded in the journals. Accounts in the general ledger are arranged according to their sequence in the Revised Chart of Accounts. b. Subsidiary Ledgers - show details of each control account in the general ledger. “The NCA specifies the maximum amount of withdrawal that an entity can make from a government bank for the period indicated. The Collecting Officer shall not issue an official receipt (OR) for the receipt of NCA.” (GAM for NGAs, Chapter 5, Sec. 38) Since the receipt of the NCA does not constitute a collection that is recordable in the Cash Receipts Journal, it is recorded in the General Journal as follows: Odject Code "| 10104040 Subsidy foes Neon Goverment 20301010 700,008The Government Accounting Process 63 The journal entry for the NCA is posted to the general ledger as follows: Disbursements Employees have rendered services and are now entitled to compensation. fe Journal entries shall be made because the financial statement elements of the entity are affected, ie. increase in expenses and increase in liability/decrease in cash. The recordings are as follows: a. Set up of payable to officers and employees upon approval of payroll. a Salaries and Wages 35,000 Personal Economic Relief Allowance (PERA) 5,000 Gross Compensation 40,000 Withholding Tax (10,000) GSIS (2,000) Pag-IBIG (2,000) PhilHealth (1,000) Total Deductions (15,000) Net 25,000