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LZ / The Government Accounting Process 53 3. Registries a. Registries of Revenue and Other Receipts (RROR) b. Registry of Appropriations and Allotments (RAPAL) c. Registries of Allotments, Obligations and Disbursements (RAOD) d. Registries of Budget, Utilization and Disbursements (RBUD) Technically, only the Journals and Ledgers are considered accounting records. These are similar to the accounting records of a business entity. The Registries are budget records. These are used 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 agency maintains the Registries. Recall that separate accounting records and budget registries are maintained for each fund cluster (i.e., Regular Agency Fund, Foreign Assisted Projects Fund, ete. — see Chapter 1). Budget'Registries 1. Registries of Revenue and Other Receipts (RROR) - used to monitor the budgeted amounts, actual collections and remittances of revenue and other receipts. 2. 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 Allotments, Obligations and Disbursements (RAOD) - used to monitor the allotments received, obligations incurred against the corresponding allotment, and the actual disbursements made. This is to ensure that obligations incurred will ‘not exceed allotments while actual disbursements will not exceed the obligations incurred.54 Chapter 3 Separate RAOD shall be maintained for each object of expenditure. -Obiect of Expen | The classificati res by object are as follows: expen 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. | c. Financial Expenses (FE) - pertain to finance costs, e.g., interest | | 1 i | | expense, bank charges, etc. Financial expenses also include | losses on foreign exchange transactions. | | | | | d. Capital Outlays (CO) — pertain to capitalizable expenditures, | eg. expenditures on the construction of public |__ infrastructures, acquisition costs of equipment, etc. | 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, ie,, (a) RBUD-PS; (b) RBUD-MOOE; (c) 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) 7 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 ott Kame Ett A ol ie ak ork Dasa [tis MOOE inte | aa | Y0a0t0 | 600 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 Becta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 REGISTRY OF APPROPRIATIONS AND ALLOTMENTS Unreleased woe | FE | 00 | tal} ‘7400 | -_( 00 00 REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS PERSONNEL SERVICES For the year 20x1 1k 90,000 : ISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS MAINTENANCE AND OTHER OPERATING EXPENSES. For the year 20x1 Entity Name: Batty A, ‘Fund Cluster: Regular Agency Fund Tapaid Ovlgedins Date | Ret | Aotments | Obugations | Wrmeilte?| Disbursements | Docasd | Na YE ai] oo |The Government Accounting Process 57 REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS CAPITAL OUTLAYS: For the year 20x1 Incurrence of Obligation | Obligations shall be incurred through the issuance of Obtigaton| |Request and Status (ORS). The Requesting Office shall prepare this document, supported by valid claim documents like disbursement 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 th| 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 Chapter 3 OBLIGATION REQUEST AND STATUS ‘Date: 1/31 Entity A aod Chute: Regular Agency Fung mromar | Uacs ‘Anoont Yeam Reoues | Job Order(Empleyment contract) | x. | sae nm ‘Adiniarsva Ofce | _Parcha ordre lc pp on = ‘Admisisraoa Otic | Parca orderoroffevequpment | ae | tom Tot 285,000 Certified: Charges to appropriation/alloument are = Certified: Allotment available and obligated. . forth payee jst! cet Pew cnmasl pope ae Printed Name: Gil TPA Position Head, Requesting Office Position ‘Head, Budget Division | Dae: ins Dae uns el STATIS OF OMICATION ‘moant ia Partie [Poymer] Nava | Doeae pur! ratats | OR IEVCARA | Oe mre | @) o © 2) oe) Tai | Tob Onder 7.008] —¢ °—| mae ]—o vai] Ofte mpl: 3500] 0 0 | i000] 9 V3A1) Oftice equipment 166,000 0 o 160,000 o 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 ‘Eatky Name: Entity A ‘Fund Chester : Rexular Agspcy Fund oe Tapa gaa ate | mae | Aten | ontgann | Paste termes | paesns | NEG Demandable | dak 90,000 me eel tle)The Government Accounting Process 59 REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEM! MAINTENANCE AND OTHER OPERATING EXPENSES For the year 20x1 Entity Names Eat A ‘Pend Chester: Raralar Arecy Fund ons [oe Ret, | Attooments | Obtigations | Uacbllested | Oubersements | Doe and | NO Ye ‘Aetents Doesnd 1 Desundable | pemaadale Wake | wa00 I Waheh 25,000 15,000 0 0 | 25,000 REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS CAPITAL OUTLAYS: For the year 20x1 Baty Kame: Eat ‘Fund Chast : Regular Ateocr Fuad Dapett Obligations _| ‘Unohiigatea Not Yer Dete | Ret | Allotments | Obtatons | Us Dibarvements | Dusan | NotYet kh Wel | xee,eee | 10,000 | 0 (0 | 16,000 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.60 Chapter 3 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| 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 | cohtractual 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: a. 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. The NCA is posted (recorded) in the RANCA as follows: I JOURNALS a. General Journal - used to record transactions not recorded in the Spécial 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:The Government Accounting Process 63 The journal entry for the NCA is posted to the general ledger as follows: Employees have rendered services and are now entitled to compensation. 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. 2 Salaries and Wages 35,000 Personal Economic Relief Allowance (PERA) 5,000 Gross Compensation 40,000 Withholding Tax (20,000) GsIs (2,000) Pag-IBIG (2,000) PhilHealth (1,000) Total Deductions (15,000) Net 25,00064 Chapter 3 Date | Salaries and Wages, Regular 35,000 Personal Economic Relief Allowance (PERA) | 5,000 Due to BIR 10,009 Due to GSIS 2,000 Due to Pag-IBIG 2,000 Due to PhilHealth 1,000 . Due to Officers and Employees 25,000 To recognize payable to. officers and employees upon approval of payroll b. Posting of payable to the Section C of ORSThe Government Accounting Process 6 c. Grant of Cash Advance for payroll. Date | Advances for Payroll 25,000 Cash-Modified Disbursement 25,000 System (MDS), Regular To recognize grant of cash advance ‘for payroll The entries above are posted to the appropriate ledgers. d. Posting of disbursement to the payment column of Section of C of the ORS and disbursements column of the RAOD > The Section C of the ORS will show the following information: ‘OBLIGATION REQUEST AND STATUS [Paice tptcagasres_| ty A ‘STATUS OF OBLIGATION. > The recording in the RAOD-PS is as follows: REGISTRY OF ALLOTMENTS, OBLIGATIONS AND DISBURSEMENTS PERSONNEL SERVICES For the year 26x166 ‘Ss Chapter 3 [ At this point, the payment and disbursement columns in the ORS and RAOD-PS, respectivley, show only the 25,000 Payment. This amount will be updated after the entity remits the other 15,000 amount withheld to the other government agencies (ie., BIR, GSIS, Pag-IBIG, and PhilHealth). In the meantime, the 15,000 withheld are treated as “Due and Demandable.” We will discuss the remittances momentarily. e. Liquidation of Payroll Fund Date Due to Officers and Employees Advances for Payroll To recognize liquidation of Payroll Fund 25,000 Remittance of Amounts Withheld Entity A remits the ®15,000 withheld to the other government agencies. The breakdown is re-provided below: Withholding Tax 10,000 sis 2,000 Pag-IBIG 2,000 PhilHealth 1,000 Total Deductions 15,000 Remittance of Withholding Tax Tax Remittance Advice (TI RA) The Tax Remittance Advice (TRA) is used to recognize: a. In the books of government agencies, the constructive remittance | | | | duties; b. In the books of the BIR and BOC, the constructive receipt of tax revenue and customs duties; and jc. In the books of the BTr, the constructive receipt of the taxes and |___customs duties remitted. of taxes withheld to the Bureau of Internal Revenue (BIR) or customs duties withheld to the Bureau of Customs (BOC), and} the constructive receipt of NCA for those taxes and customs | iThe Government Accounting Process 67 The remittance of the tax withheld is recorded as follows: Books of Entity A Date | Cash-Tax Remittance Advice 10,000 Subsidy from National Government {f° 10,000 To recognize the constructive receipt of NCA for TRA Date | Due to BIR 10,000 Cash-Tax Remittance Advice 10,000 To recognize the constructive remittance of taxes withheld to the BIR through TRA Notice that there is actually no physical transfer of cash to the ‘BIR (ie, debit and credit to’ ‘Cash-TRA’), thus the term “constructive.” The TRA is another form of disbursement authority, thus it is recorded similarly to the receipt of the regular NCA (ie,, credit to ‘Subsidy from National Government’). This means that Entity A has the authority to use the amount withheld in its operations. Amounts used from the TRA will be reported in Entity A’s Monthly Report of Disbursements. The TRA is recorded by the other government agencies as follows: Books of BIR Books of BTr Cash-TRA ... 10,000 Subsidy to NGAs....10,000 Income Tax. 10,000 os To recognize constructive To ‘recognize constructive receipt of taxes remitted by National | receipt of remittance of taxe3 by NGAs Government Agencies (NGAs) through | through TRA : TRA The use of the account “Cash-Tax Remittance Advice” is as if Entity A remits the cash to the BIR and BTr, which the latter then remits back to Entity A, without the cash being ‘physically transferred. The use of TRA is necessary in order for the BIR to68 | Chapter 3 record the taxes as its income and for the BTr to record the withholding agency’s disbursement authority as subsidy. Remittance to GSIS, Pag-IBIG & PhilHealth Date | Due to GSIS Due to Pag-IBIG Due to PhilHealth Cash-Modified Disbursement System (MDS), Regular Pag-IBIG and PhilHealth To recognize remittance to GSIS, 2,000 2,000 1,000 5,000 The Obligation Request and Status (ORS) and the RAOD-PS are updated for the payments above. Billings, Collections & Remittances a. Entity A bills revenue of 100,000 for rent income. Date) Accounts receivable Rent/Lease income To recognize billing of income 100,000 100,000 "b. Entity-A collects #100,000 from the billed revenue and remits the collection to the BTr. Date | Cash - Collecting Officers 100,000 Accounts Receivable 100,000 To recognize collection of billed income Date | Cash-Treasury/Agency Deposit, Regular | 100,000 Cash - Collecting Officers To recognize remittance of income to BTr | rn P.D. No. 1445 requires that all collections must be remitted to the National Treasury, unless another law specifically allows otherwise.The Government Accounting Process 69 The billing of revenue is recorded in the General Journal while the collection and remittance are recorded in the Cash Receipts Journal as follows: Reversion of Unused Notice of Cash Allocation (NCA) Government entities are required to revert any unused NCA at the end of the accounting period. The unused NCA is computed as follows: Cash-Modified Disbursement System (MDS), Regular Receipt of NCA 200,000 25,000 Advances for payroll Remittances to GSIS, Pag-IBIG, & PhilHealth 170,000_ end 5,000 Date | Subsidy from National Government 170,000 Cash-Modified Disbursement 170,000 System (MDS), Regular To recognize reversion of unused NCA Notice that the entry above is the exact opposite of the entry to record the receipt of the NCA.70 Chapter 3 Q Summary of Basic Recordings: Recording in: Transaction Registries & Journal & Ledger Other Records a._Appropriation |-. RAPAL -__None b. Allotment - RAPALand }- None appropriate RAODs c. Incurrenceof |- ORSand - None Obligations appropriate . RAODs d. NCA - RANCA Cash-MDS, Regular” xx Subsidy fromNG xx e. Disbursements |- updating of | Expense/Asset * ORS and Payable x appropriate | payable xx RAODs Cash-MDS, Regular xx f. Tax Remittance |- updating of Cash-TRA x Ades ORS and Subsidy fromNG xx (TRA is used for appropriate | p60 BIR _ remittance of taxes RAOD: © vwithheld) s Cash-TRA x g. Billings, - RROR, Accounts receivable xx Collections, & RCD/CRReg | #h-CO Remittances (not illustrated) | cg x Accounts receivable xx Cash-Treasury/Agency Deposit, Regular _ xx ‘Cash-CO x ~ 7 Subsidy from NG xx h. Reversion of RANCA Cash MDS, Regular xx Unused NCA |The Government Accounting Process a The Revised Chart of Accounts A.chart of account is a list of all the accounts used by an entity. Government entities shall use the account titles and account codes in the Revised Chart of Accounts (RCA) issued by the COA. The RCA includes numerous accounts. Only a few of these accounts are shown below as presenting the complete list would more than double the number of pages in this book.O “Each account in the RCA is assigned an 8-digit co de Jas follows: 9 00 0 00 0 Account Group | Major Account Group Sub-Major Account Group General Ledger Accounts General Ledger Contra-Accounts Code Account Groups 1 Assets 2 Liabilities 3 Equity 4 Income 5 Expenses Example: Account Group: Asset ‘Major Account Growp: Cash and Cash Equivalents Sub-Major Account Group: Cash on Hand ‘General Ledger Account: Cash-Collecting Officers | -Gmenl Lage Gnas Acie Meta meat Officers 101 01 010 (Account ttle) (RCA Code) ice72 Chapter 3 LIST OF ACCOUNTS Account Title ASSETS Cash and Cash Equivalents Cash on Hand Cash-Collecting Officers 10101010 | 1010101000 Petty Cash 10101020 | 1010102000 Cash in Bank-Local Currency Cash in Bank-Local Currency, Current | 10102020 | 1010202005 Account-Banco de Oro (BDO) Treasury/ Agency Cash Accounts Cash-Treasury/Agency Deposit, 10104010 | 1010401000 Regular Cash-Modified Disbursement System | 10104040 | o10s0a000 (MDS), Regular Cash-Tax Remittance Advice 10104070 | “1070407000 Cash Equivalents Treasury Bills 10105010 | 1010501000 Investments Financial Assets at Fair Value Through Surplus or Deficit Financial Assets Held for Trading 10201010 | “1020101000 Receivables Loans and Receivable Accounts Accounts Receivable 10301010 | 1030101000 Allowance for Impairment-Accounts 10301011 | 1030101100 Receivable Inventories Inventory Held for Sale Merchandise Inventory \ 10401010 | 1040101000 L_Inventory Held for Consumption—_— ‘The Government Accounting Process Office Supplies Inventory 10404010 ,, Plant and Equipment Infrastructure Assets Road Networks ‘Accumulated Depreciation-Road Networks 10603010 10603011 1060301000 1060301100 ‘Accumulated Impairment Losses-Road Networks 10603012 1060301200 Other Assets Advances Advances for Payroll Prepayments 19901020 | 1990102000 Prepaid Rent 19902020 1990202000 LIABILITIES Financial Liabilities Payables ‘Accounts Payable 20101010 L 2010101000 Inter-Agency Payables Due to BIR 20201010 2020101000 NET ASSETS/EQUITY Government Equity ‘Accumulated Surplus/(Deficit) 30101010 3010101000 REVENUE Tax Revenue + Income Tax 40101010 4010101000 Income Tax-Individual -| 40101010 4010101001 40101040 4010104000 Immigration Tax Service and Business Income Service Income Y p_74 Chapter 3 Permit Fees 40201010 | 4020101000 Registration Fees 40201020 | 4020102000 Other Service Income 40201990 | 4020199099 } Business Income Tuition Fees [ 202010 ) | 4020201001 Power Supply System Fees 40202100 | 4020210000 Landing and Parking Fees 40202120 | 4020212000 Assistance and Subsidy Subsidy from National Government 40301010 | 4030101000 Gains Gain on Sale of Property, Plant and 40501040 | 4050104000 Equipment Other Non-Operating Income 4 * Reversal of Impairment Loss Reversal of Impairment Loss 40602010 | 4060201000 EXPENSES Personnel Services Salaries and Wages Salaries and Wages-Regular 50101010 | 5010101000 Other Compensation | Personal Economic Relief Allowance | 50102010 | 5010201000 | (PERA) Direct Costs Cost of Sales 50402010 | 5040201000 a Non-Cash Expenses Depreciation Depreciation-Buildings and Other 50501040 | 5050104000 StructuresThe Government Accounting Process 75 The Government Accounting Cycle In this section, we will have an overview of the accounting cycle ofa government entity. Here is a list of the things that we will be Jearning: 1, Appropriation 2. Allotment Incurrence of Obligation Disbursement Authority - NCA Disbursements Billings, Collections & Remittances Unadjusted trial balance Adjusting entries Closing entries 10. Preparation of financial statements peEnane yp The trial balance of Entity A (a government entity) at the beginning of the period is shown below: Accounts Debit - _ Credit Cash - Collecting Officers 5,000 Accounts Receivable 45,000 Buildings 500,000 Accumulated Depreciation - Buildings 150,000 Office Equipment 150,000 Accumulated Depreciation - Equipment 60,000 Accounts Payable 20,000 Accumulated Surplus (Deficit) 470,000 Totals 700,000 700,000 Notes: - The 20,000 accounts payable pertains to office supplies purchased in the prior year that were already delivered but not yet paid. = An additional purchase of office supplies worth P5,000 is not yet recorded in the accounting books because they are not yet delivered. This prior year “obligation” is described in the registries as “Not yet due and demandable obligation.”76 Chapter 3 1. Appropriation Entity A receives its GAA amounting to 1,000,000. > The appropriation is posted (recorded) in the Registry of Appropriations and Allotments(RAPAL). ) 2. Allotment Entity A receives its allotment amounting to 960,000 from the DBM. > The allotment is posted (recorded) in the Registry of Appropriations and Allotments (RAPAL) and Registries of Allotments, Obligations and Disbursements (RAOD). > 3. Incurrence of Obligation Entity A incurs obligations amounting to 700,000. > The obligations are recorded in the Obligation Request and Status (ORS) documents and_Registries of Allotments, Obligations and Disbursements (RAOD).~ 4, Disbursement Authority - NCA Entity A receives the following Notice of Cash Allocations (NCA), net of tax: a. For current year's appropriation 600,000 b. For prior year's accounts payable and not yet due and demandable obligations 25,000 > The journal entries are as follows: Date | Cash-Modified Disbursement System | 600,000 (4a) | (MDS), Regular 600,000 Subsidy from National Government To recognize receipt of NCA from the DBM.The Government Accounting Process 7 Date “| Cash-Modified Disbursement System 25,000 (40) | (MDS), Regular Subsidy from National Government To recognize receipt of NCA from the 25,000 DBM > The NCA is posted (recorded) in the Registry of Allotments and Notice of Cash Allocation (RANCA). 5. Disbursements I. Personnel Services (PS) a. Set up of payable to officers and employees upon approval of payroll. Salaries and Wages 200,000- Personal Economic Relief Allowance (PERA) 50,000 Gross Compensation Withholding Tax sis Pag-IBIG PhilHealth Total Deductions | Net Date ] Salaries and Wages, Regular 200,000 4a) | Personal Economic Relief Allowance (PERA)| 50,000 . Due to BIR 20,000 Due to GSIS. 9,000 Due to Pag-IBIG 2,000 Due to PhilHealth 1,000 Due to Officers and Employees 218,000 To recognize payable to officers and employees upon approval of payroll78 Chapter3 b. The payable is recorded in the ORS, 1 c. Grant of Cash Advance for payroll. Date | Advances for Payroll 218,000 ane Cash-Modified Disbursement 218,00) System (MDS), Regular To recognize grant of cash advance rr roll d. The disbursement is recorded in the ORS and RAOD. e. Liquidation of Payroll Fund Date _| Due to Officers and Employees 218,000 Gre), Advances for Payroll 218,000 To recognize liquidation of Payroll Fund| I. Maintenance and Other Operating Expenses (MOOE) Purchase of office supplies: a. Receipt of delivery of purchased office supplies from prior year's obligation (see note above on ‘Not yet due and demandable obligation’) Date | Office Supplies Inventory 5,000 ] (5.tLa) Accounts Payable 5,000 To recognize delivery of office supplies > The payable is recorded in the ORS. Receipt of delivery of purchased office supplies worth 70,000 from current year’s obligation.The Government Accounting Process 79 Date | Office Supplies Inventory 70,000 (6.1) Accounts Payable 70,000 To recognize delivery of office supplies > The payable is recorded in the ORS. Payment of accounts payable: Entity A pays the following accounts payable: c. From prior year’s accounts payable (see trial balance above): Accounts payable 20,000 Less: Withholding taxes* (2,000) Net 18,000 * For simplification, the withholding taxes in this illustration do not necessarily reflect the provisions of relevant tax laws. ‘Date | Accounts Payable 20,000 ous Due to BIR 2,000 Cash - Modified Disbursement System (MDS), Regular 18,000 To recognize payment of accounts payable d. From prior year's obligation (see note above on ‘Not yet due and demandable obligation’ and previous entry to record the related accounts payable): Accounts payable 5,000 Less: Withholding taxes (1,000) Net 4,000 —80 Chapter 3 Date | Accounts Payable 5,000 ea) Due to BIR 1,00) Cash - Modified Disbursement System (MDS), Regular 4,000 To recognize payment of accounts payable To maximize the available NCAs of the agency, the Common’ Fund System policy shall be adopted whereby cash allocation balances of agencies unde: the Regular MDS Account may be used to cover payment of current year’s accounts payable, ie, goods and services which have been delivered and accepted during the year charged against appropriations of prior year/s, after | Satisfying their regular operating requirements as reflected in their Monthly| | Cash Program. (GAM for NGAs, Chapter 6, Sec. 3) . From current year’s accounts payable. Accounts payable 60,000 Less: Withholding taxes (3,000) Net 57,000 Date | Accounts Payable 60,000 7 ole Due to BIR 3,000 Cash - Modified Disbursement | System (MDS), Regular 57,000 | To recognize payment of accounts payable Operating expenses: f. Entity A pays for the following expenses: Water 1,000 Electricity 5,000 Telephone 2,000‘The Government Accounting Process 81 Janitorial 10,000 Security 12,000 Total 30,000 Less: Withholding taxes (2,000) Net 28,000” Date] Water Expenses 1,000 GIP | Blectricity Expenses 5,000 Telephone Expenses 2,000 Janitorial Expenses 10,000 Security Expenses 12,000 Due to BIR 2,000 Cash — Modified Disbursement System (MBS), Regular 28,000 To recognize issuance of MDS checks as payment for expenses Cash advances for travel: . g. Entity A grants a cash advance of 2,000 for the traveling expenses of an officer: . Date | Advances to Officers and Employees 2,000 Gilg) Cash - Modified Disbursement System (MDS), Regular 2,000 To recognize grant of cash advance for travel > All the disbursements above (payments of accounts payable, operating expenses, and cash advance) are recorded in the ORS and RAOD. h. Liquidation of cash advance: Date | Traveling Expenses - Foreign 1,800 Guth) Advances to Officers and Employees 1,800 To recognize liquidation of cash advance for traveloN 82 Chapter 3 i, Receipt and deposit of refund of excess cash advance: Date | Cash - Collecting Officers 200 GID) Advances to Officers and Employees 200 To recognize refund of excess cash advance for travel | eu Cash - Treasury/Agency Deposit, | Tt2) | Regular 200 Cash - Collecting Officers 200 | To recognize remittance of the refund of excess cash adtoance for travel | > An adjustment for the excess cash advance is made on the ORS and RAOD. Issuance of office supplies to end users j. Entity A issues office supplies worth ®63,000 to end users. Date | Office Supplies Expense 63,000 up Office Sypplies Inventory 63,000 To record the issuance of office supplies to end users ‘ Il _ Capital Outlays (CO) Purchase of office equipment a. Receipt of delivery of purchased office equipment worth 300,000 from current year’s obligation. Date | Office Equipment 300,000 iia) Accounts Payable 300,000 To recognize delivery of office equipmentThe Government Accounting Process 83 b. Payment of accounts payable. Accounts payable 300,000 Less: Withholding taxes (20,000)_ > Net Date | Accounts Payable 300,000 ean Due to BIR Cash ~ Modified Disbursement System (MDS), Regular 280,000 To recognize payment of accounts 20,000 payable CAPITAL OULLAYE . IV. Remittances of amounts withheld a. Entity A remits the taxes withheld through TRA. Date Cash-Tax Remittance Advice 48,000 .1V.a.1) % Subsidy from National Government 48,000 To recognize the constructive receipt of NCA for TRA Date | Due to BIR (v2) Cash-Tax Remittance Advice To recognize the constructive remittance of taxes withheld to the BIR through TRA 48,000 J 48,000-| © Due to BIR 20,000 (5.La) 2,000 (5.Il.c) 1,000 (5.IL.d) 3,000 G.Le) 2,000 (SILA) 20,000. (5.1II.b) 48,000. b. Entity A remits the following to the GSIS, Pag-IBIG and PhilHealth.84 Chapter 3 csis 9,000 Pag-IBIG 2,000 PhilHealth 1,000 Total 12,000 Date | Due to GSIS 9,000 IV) | Due to Pag-IBIG 2,000 Due to PhilHealth 1,000 Cash-Modified Disbursement System (MDS), Regular 12,000 | To recognize remittance to GSIS, | Pag-IBIG and PhilHealth The disbursements above are recorded in the ORS and RAOD. 6. Billings, Collections & Remittances a, Entity A bills the following revenue/income: Power supply system fees 100,000 Landing and parking fees 80,000 Total 180,000 Date ] Accounts receivable 180,000 (6a) Power Supply System Fees 100,000 Landing and Parking Fees 80,000 To recognize billing of income b. Entity A collects.P100,000 accounts receivable from the billing above and remits ®90,000* of the collection. Date | ‘Cash — Collecting Officers 100,000 (620) | Accounts receivable 100,000 To recognize collection of current year's billed incomeThe Government Accounting Process a - 85 Dute | Cash-Treasury/Agency Deposit, Regular | 90,000 (6.62) Cash ~ Collecting Officers 90,000 To recognize remittance of incone to the BTr 7 * As a general rule, all revenues of an entity must be remitted to the BTr (See. 65(1), P-D. No. 1445). However, there are cases where other laws permit an entity to retain some of its revenues for specific uses - thus, the unremitted collection of 10,000 above (100K collection less 90K remittance): © Entity A collects 45,000 accounts‘receivable from prior year’s billing and remits total collection. Date | Cash’ Collecting Officers 45,000 een Accounts receivable 45,000 To recognize collection of prior year’s billed income Date | Cash-Treasury/Agency Deposit, Regular | 45,000 ee) Cash - Collecting Officers 45,000 To recognize remittance of income to the BTr. d. Entity A collects unbilled service income of 370,000 and remits 340,000 of the total collection: Permit fees 200,000 Registration fees 160,000 Other service income 10,000 Total collection 370,000 Date | Cash - Collecting Officers 370,000 een) Permit fees 200,000 Registration fees 160,000 Other service income 10,000 To recognize collection of unbilled service income86 Chapter 3 Date | Cash-Treasury/Agency Deposit, Regular | 340,000 642) Cash - Collecting Officers 340,000 To recognize remittance of income to the BTr “Unbilled revenue/income” refers to fees from regulatory functions and collections of revenue with no direct exchange of services or goods. e. Entity A collects unbilled tax revenue through direct deposit in Authorized Agent Banks: Immigration Tax 100,000 Total 100,000 Dite | Cash-Treasury/Agency Deposit, Regular] 100,000 Moe Immigration Tax 100,000 To recognize collection and remittance of income to BTr through Authorized Government Depository Banks (AGDB) Government Servicing Banks (GSB) The collection is automatically remitted to the National Treasury because it is made through the latter’s bank account. 7, Unadjusted trial balance An unadjusted trial balance is a list of the accounts in the General Ledger together with their balances. Its purpose is to test the equality of total debits and total credits in the accounts. Before we can prepare the unadjusted trial balance, we need to post first the journals entries above in the General Ledger.The Government Accounting Process 87 GENERAL LEDGER , S520 ak Cash-Tax Rewittence Advice Accounts Receivable cava) 48000] ‘beg. 45,000 48000_ 6.1v22) ts, wot | c0000 gas) ey 70000 63.000 emp _s 45000_ (61) 12,000 ent. 120,000. ond.88 LIABILITIES DestoBRR £20000 beg. 218000 61a) 200000" ess) 5,000 Ea) Ge 218,000 2000 ag Bile) 20,000} 70,000 Sib) md - 100 Gna ena 5000) 30000 omy = 3000 ona @n0 600 are cg oo (eava2)__ 48,000} 20,000 om» ot ee] me Duet De to Phlteaths j 2,000" tay 1,000 1a) Swe __ sas ems) __ 2.000 avs) "1,000 Lat = ~ at EQUITY ‘Accented —_] 270.000" beg, ead, _ £70,000 INCOME —bemigration Tex Permit Fees — 100,000" «) 200,000" (6.2) Tea adj ee mt 20000 xt ia 00 Orie Sevicrheome —_Proer Ft _Lnkag © Pein Fes 1c easy [ar can) | t0000 ey 28 yy ot ne ot mm} ext, 0000 200 ‘ | ite evan + sm] EXPENSES Salaries end Wages, Regular PERA sie GLa) _200,000 (Sia) 50,000 enn — 1300 (200000 at. 30,000 end, ae il ties Expense —Weter Bapenses ; ap __65000 eng too] "enn 5000 RE ma Tar a aes ae B Expences i GH __ 2,000 GIL __ 10,000 2000 a. T0000 na.The Government Accounting Process 89 UNADJUSTED TRIAL BALANCE Accounts RCA Code Debit Credit Cash - Collecting Officers 10101010 45,000 Cash-Treasury/Agency Dep., Reg. . 10104010 575,200 Cash-MDS, Regular 10104040 6,000 Cash-Tax Remittance Advice 10104070 - Accounts Receivable 10301010 80,000 Office Supplies Inventory 10404010 12,000 Buildings 10604010 500,000 Accum. Depreciation - Buildings 10604011 150,000 Office Equipment 10605020 450,000 Accum. Depreciation - Equipt. 10605021 60,000 Advances for Payroll 19901020 - Advances to Officers & Employees 19901040 : Accounts Payable 20101010 10,000 Due to Officers and Employees 20101010 - Due to BIR 20201010 a Due to GSIS 20201020 = Due to Pag-IBIG 20201030 - Due to PhilHealth 20201040 - . Accumulated Surplus (Deficit) 30101010 470,000 Immigration Tax 40101040 100,000 Permit Fees 40201010 200,000 Registration Fees 40201020 160,000 Other Service Income 40201990 10,000 Power Supply System Fees 40202100 - 100,000 Landing and Parking Fees 40202120 80,000 Subsidy from NG 40301010 673,000 Salaries and Wages, Reglilar 80101010. 200,000 PERA : 50102010 50,000 Traveling Expenses - Foreign 60201020 1,800 Office Supplies Expense 50203010 63,000 ‘Water Expenses 50204010 1,000 Electricity Expenses 50204020 5,000 Telephone Expenses 50205020 2,000 Janitorial Expenses 50212020 10,000 Security Expenses 50212030 12,000 Totals 2,013,000 2,013,000- —_———SSS—90 Chapter 3 The accounts are arranged according to their sequence in the Revised Chart of Accounts (RCA). (GAM for NGAs, Chapter 19, Sec. 48) 8. Adjusting entries 1. Reversion of unused Notice of Cash Allocation (NCA). 2. Depreciation expenses: i. Buildings - #50,000 ii, Equipment - €30,000 3. Allowance for impairment on accounts receivable of 2,000. The adjusting entries are as follows: Date | Subsidy from National Government 6,000 Ga) Cash-Modified Disbursement System (MDS), Regular 6,000 To recognize reversion of unused NCA Date | Depreciation-Buildings & Other Structures | 50,000 aby) Accumulated Depreciation - Bldgs. 50,000 To recognize depreciation of buildings Date | Depreciation-Machinery and Equipment | 30,000 842) Accumulated Depreciation - OLE. 30,000 To recognize depreciation of office equipment Date | Impairment Loss — Loans and Receivables 2,000 r (60) Allowance for Impairment — A/R 2,000 To recognize loss allowance on accounts receivable The adjusted trial balance is shown below:The Government Accounting Process 92 9. Closing entries The following are the necessary closing entries: ; a. Closing of the “Cash-Treasury/Agency Deposit, Regular” account to the “Accumulated Surplus/(Deficit)” account. b. Closing of the “Subsidy from National Government” account to the “Revenue and Expense Summary” account. ¢. Closing of income and expense accounts to the “Revenue and Expense Summary” account and closing of the net balance of “Revenue and Expense Summary” account to the “Accumulated Surplus/(Deficit)” account. Only closing entries (a) and (b) are unique to a government entity. i Date | Accumulated Surplus/(Deficit) 575,200 | - (9a) Cash-Treasury/Agency Deposit, 575,200 Regular . i To recognize closing of cash deposit » { account m= | Date Subsidy from National Government 667,000 M Revenue and Expense Summary 667,000 To recognize closing of subsidy account Date | Immigration Tax 100,000 i) Gc) | Permit Fees 200,000 Registration Fees 160,000 Other Service Income 10,000 Power Supply System Fees 100,000 Landing and Parking Fees 80,000} Salaries and Wages, Regular : 200,000 PERA 50,000 Traveling Expenses - Foreign 1,800 Office Supplies Expense 63,000 Water Expenses 1,000 Electricity Expenses 5,000 Telephone Expenses 2,000 Janitorial Expenses 10,000 Security Expenses 12,000 Depreciation-Bldgs. 50,000The Government Accounting Process 93 Depreciation-Mac. & Equipt. 30,000 Impairment Loss - L/R 2,000 Revenue and Expense Summary 223,200 To recognize closing of income and expense accounts Daie | Revenue and Expense Summary 890,200 (02) Accumulated Surplus/(Deficit) 890,200 To recognize closing of revenue and expense summary The completed worksheet is shown below:The Government Accounting Process 95, 10. Preparation of financial statements The Statement of Financial Position and Statement of Financial Performance are shown below. We will prepare the other components of a complete set of financial statements later in Chapter 14. ENTITY A STATEMENT OF FINANCIAL POSITION (REGULAR AGENCY FUND) AS AT DECEMBER 31,,20X1 ASSETS Current Assets Cash and Cash Equivalents Receivables Inventories Total Current Assets Notes Noncurrent Assets Property, Plant and Equipment Total Noncurrent Assets TOTAL ASSETS Current Liabilities Financial Liabilities Total Current Liabilities TOTAL LIABILITIES TOTAL ASSETS less TOTAL LIABILITIES NET ASSETS/EQUITY=* Diffecenc, Accumulated Surplus/(Deficit) TOTAL NET ASSETS/EQUITYChapter 3 96 ENTITY A 3 STATEMENT OF FINANCIAL PERFORMANCE (REGULAR AGENCY FUND) FOR THE YEAR ENDED DECEMBER 31, 20X1 REVENUE Notes Tax revenue 2 100,000 Service and Business Income 3 550,000 TOTAL REVENUE 650,000 Less: CURRENT OPERATING EXPENSES Personnel Services 4 250,000 Maintenance and Other Operating Expenses 5 94,800 Non-cash Expenses 6 82,000 TOTAL CURRENT OPERATING EXPENSES 426,800 SURPLUS/ (DEFICIT) FROM CURRENT OPERATIONS + 223,200 Net Financial Assistance/Subsidy 667,000 SURPLUS/ (DEFICIT) FOR THE PERIOD 890,200The Government Accounting Process 7 ENTITY A NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 20X1 Note 1: Property, Plant and Equipment This account consists of the following: Buildings 500,000 Office Equipment 450,000 Total Cost 950,000 Accumulated Depreciation - Buildings 200,000 Accumulated Depreciation - Equipment 90,000 Total Accumulated Depreciation 290,000 Property, Plant and Equipment, net 660,000 Note 2: Tax Revenue This account consists of the following: Immigration Tax 100,000 Tax Revenue 100,000 Note 3: Service and Business Income This account consists of the following: Permit Fees Registration Fees 4 Other Service Income Power Supply System Fees Landing and Parking Fees Service and Business Income 200,000 160,000 10,000 100,00098 Chapter 3 Note 4: Personnel Services This account consists of the following: Salaries and Wages, Regular 200,000 PERA 50,000 Personnel Services 250,000 Note 5: Maintenance and Other Operating Expenses This account consists of the following: Traveling Expenses - Foreign 1,800 Office Supplies Expense 63,000 Water Expenses 1,000 Electricity Expenses 5,000 Telephone Expenses 2,000 Janitorial Expenses 10,000 Security Expenses 12,000 Maintenance and Other Operating Expenses 94,800 Note 6: Non-cash Expenses This account consists of the following: Depréciation-Buildings & Other Structures 50,000 Depreciation-Machinery and Equipment 30,000 Impairment Loss - Loans and Receivables 2,000 Non-cash Expenses 82,000The Government Accounting Process 9 Chapter 3 Summary: A government entity’s books of accounts and registries consist of a. Journals, b. Ledgers, and c. Registries, The classifications of expenditures by object are: a. Personnel Services (PS), b. Maintenance and Other Operating Expenses (MOOE), c. Financial Expenses (FE), and d. -Capital Outlays (CO). Appropriations, allotments, and incurrence of obligations are recorded only in the registries. Recording in the books of accounts starts from the receipt of disbursement authority. Appropriations are recorded in the Registry of Appropriations and Allotments (RAPAL). Allotments are recorded in the RAPAL and Registries of Allotments, Obligations and Disbursements (RAOD). Obligations incurred are recorded in the RAOD and Obligation Request and Status (ORS). . Disbursement authority (e.g,, Notice of Cash Allocation) is recorded in the books of accounts.