FGE Accounting

Federal Government of Ethiopia (FGE) Accounting and reporting
Overview of the Financial Administration and

Accounting System
Currently, the federal and regional accounts manuals are standardized in fundamental
areas such as accounting concepts and policies, procedures, source documents,
registers, ledgers and reports .In this section a summarized discussion about the core
concepts and principles governing the accounting system is made.
1. Basis of Accounting
The basis of accounting is the basic set of principles and rules employed by the
accounting system to determine when and how to record transactions. A transaction is
an economic event that affects the financial position of the government.
Currently the accounting system in use by FGE and the regions is a modified cash basis of
accounting. The modified cash basis of accounting combines both the accrual and cash
basis of accounting. Accordingly for the recognition of expenses and revenues it uses
accrual basis of accounting and for the accounting of fixed assets and stocks it uses the
cash basis of accounting.
That is, the modified cash basis of accounting, applies the cash basis of accounting
except for recognition of the following transactions:
• Revenue and expenditure are recognized when aid in kind is received.
• Expenditure is recognized:
 When payroll is processed.
 At the end of the year when a grace period payable is recognized.
 When goods are received or services are rendered.
• Intergovernmental transfers are recognized without actual cash movement.
• Transactions resulting from salary withholdings are recognized in the absence of
actual cash movement.

“A basis of accounting is the basic set of principles and rules employed by the accounting system
to determine when and how to record transactions.”
The modified cash basis of accounting recognizes transactions and events which have
occurred by the year end and are normally expected to result in cash disbursement
within the specific legal grace period of 30 days after year end. Payments over this grace
period that are related to transactions of the previous fiscal year are reported as
expenditures of the previous fiscal year.
2. Accounting Recording System
The accounting system used is double-entry accounting system, where each transaction
is recorded equal birr amounts of debits and credits. That is for each entry the sum of
birr amounts for debits equals the sum of birr amounts for credits.
Table 1.1. : Accounting Rules for Debits and Credits Account Category Used for Modified Cash
Basis
Account Category Used for

Normal Balance Increase Recorded as Decrease Recorded as
Modified Cash Basis
Revenue Credit Credit Debit
Expenditure Debit Debit Credit
Cash and cash equivalents Debit Debit Credit
Receivables Debit Debit Credit
Payables Credit Credit Debit
Transfers Debit or Credit depending on transfer type
Net assets/equity Credit Credit Debit

Because each transaction is entered in the accounting records as debits and credits of
equal amounts, the total debits in all account balances always equals the total credits in
all account balances. For the FGE modified cash basis of accounting, this means that the
equation in Table 1.2. is always true:
Table 1.2. : Basic Accounting Equation
FGE Basic Accounting Equation
Assets = Liabilities + Net Assets/Equity
Cash & Cash Equivalents + Receivables = Payables + Net Assets/Equity
3. Chart of Accounts
A chart of accounts is a system of coding used by a financial management system to
identify and classify financial transactions and events. It lists the account titles and
account numbers used. A unique set of titles and account numbers are used for each
type of accounts. The chart of accounts used are uniform and exactly the same
throughout the region to record revenues, expenditures, transfers, assets, liabilities and
net assets/equity. This will enhance consolidation of reports at the zone level, regional
level and ultimately at federal level. Above all it helps to make comparison between
different reporting entities.

The summary of the account codes for the chart of accounts is as follows:
 Codes starting from 1000-1799 are reserved for domestic revenue
 Codes starting from 2000-2999 are reserved for external assistance
 Codes starting from 3000-3999 are reserved for external loans
 Codes starting from 4000 up to 4099 are reserved for transfers.
 Codes starting from 4100 up to 4999 are reserved for assets.

 Codes starting from 5000 up to 5599 are reserved for liabilities.
 Codes starting from 5600 up to 5699 are reserved for net assets/equity.
 Codes starting from 6000 up to 6999 are reserved for expenditure
Revenue, expenditure and transfers are temporary accounts that begin each year with a zero
balance. Assets and liabilities are permanent accounts whose balance at the end of a year
becomes the balance in the account at the beginning of the next year.
A brief description of each one is depicted as follows:
I. Assets:
Assets are formally defined by the International Federation of Accountants - Public Sector
Accounting Standards (IPSAS) as "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 categories of assets in the accounting system are:
a. Cash and Cash Equivalents
Cash is cash on hand and at bank. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of change in value.
b. Receivables
Receivables are amounts owed to a government unit by another government unit, a
person, or a non-government entity except public enterprises. Salary advances to
employees and advances to suppliers are two examples of receivables commonly
occurring.
c. Goods in Transit
Goods in transit are goods that are owned by the government but not yet in its
physical possession.
d. Stocks
Stocks are goods that are expected to be consumed within one year.
e. Fixed Assets
Fixed assets are physical items that are expected to have a useful life of longer than
one year and have a certain minimum value.
f. Loans Receivable
Loans receivable are amounts due from public enterprises over a period of time
exceeding one year.
g. Investments
Investments are FGE investments in public enterprises and private organizations that
are held for more than one year.
II. Liabilities
Liabilities are formally defined by the IPSAS as "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 or service potential." The categories of liabilities in the
improved and expanded accounting system are:
a. Payables
Payables are obligations to pay that are due in less than one year. Examples of FGE
payables are deposits, salary payable, grace period payables and treasury bills.
b. Long-term Debt
Long-term debt is an obligation to pay that is due in more than one year.
III. Net Assets/Equity

Net assets/equity is formally defined by the IPSAS as "the residual interest in the assets of the
entity after deducting all its liabilities." Net assets/equity is the balance remaining after
liabilities are deducted from assets. This balance represents the equity interest of FGE.
4. Budget Classification Scheme
The budget classification scheme used to classify budget institutions is uniform at
regional zonal and wereda levels. The scheme shows how the budget is organized by
each budget institution. For accounting purposes, the budget classification scheme as
defined in the government’s annual budget is tracked to identify expenditure variances
between what is budgeted and what is expended by budget institution.
5. Accounting Cycle
The diagram below provides an overview of the accounting cycle used:
Figure 1.1.: Overview of the Accounting Cycle
Source Documents
Payment Vouchers Receipt Vouchers Journal Vouchers
Transaction Register
General Ledger Budget Ledger/ Expenditure Subsidiary Ledger

Book of Original Entry
 Revenue Report Ledgers

 Transfer Report Trial Balance
Expenditure Reports
 Receivable Report
Payable Report
Monthly
Post Closing Trial balance Reports
Summary Income and Expenditure Statements

Detailed Income and Expenditure Statements
Cash Flow Statement
Balance Sheet
Financial Statements
The above diagram clearly indicates that in addition to the accounting process, the
source documents to capture and approve accounting data, the registers to record
accounting data, the ledgers to analyze accounting data and the reports produced by
the accounting system are the same at the federal and regional levels. The accounting
system is designed to have the capability to record, analyze and report expenditures
and revenues for all types of donor funds and other special funds that are included in
the government budget.
6. Single Pool and Single Treasury System
The SNNNPR and Oromiya regions are organized into different tiers of governments
that include jurisdiction zones and weredas. One feature of the single treasury system is
the use of single pool system.
The single pool system means that at all zones and weredas the accounting staff is
located only in one single location - the Finance Office. The accounting staff located at
the Finance Office maintains budget control, disburses payments, collects revenue and
maintains the books of accounts and produces reports on behalf of all the sector offices at the zone
or woreda. However, all expenditures are authorized by individual sector offices but
disbursed, accounted and reported on behalf of the sector office by the single pool of
accountants located at the Finance Office.
The benefits of the single pool system are as follows:
 Cost savings in terms of the number of accountants required to operate the
accounting system.
 Cost savings in terms of office space and infrastructure.

 The work is organized to match zone/ wereda capacity in terms of availability of
qualified staff and continuous on-the-job training and therefore promotes
sustainability.
 Sector Offices can better focus on their objectives and mission.
 Training is more effective and efficient in terms of quality and sustainability
because it is directed at fewer numbers of locations.
 Implementation support is directed at fewer locations and therefore more
effective and efficient in terms of sustainability.
 Reporting is more timely because reports are produced at fewer locations.
 Risk of failure of new system is minimized because the accounting system
operates at fewer locations.

Transaction Register and Ledgers
The Transaction Register is the book of original entry into the accounting system.
Receipts and vouchers are prepared at the time that transactions occur by cashiers and
accountants in the accounting unit to capture transactions. Accountants in the
accounting unit enter information from these source documents in the Transaction
Register.
Forms and processes described in this Session are common to all transactions. The
session contains the following sections:
 Capturing transactions:
o Receipt Voucher
o Cash Payment Voucher
o Bank Payment Voucher
o Journal Voucher
 Recording transactions in the transaction register
3.1. Capturing Transactions

There are three broad categories of transactions that are recorded in the transaction
register, these are:
 Cash receipts
 Cash payments
 Transactions that do not involve the movement of cash
3.1.1. Capturing Cash Receipt Transactions

a. Receipt Voucher
A cash receipt transaction arises in four circumstances:
 Cash is received in the form of currency
 Cash is received in the form of checks

 Cash is deposited in the bank and evidenced by a bank deposit slip
 Cash is transferred to a bank account and evidenced by a bank advice
Purpose:
The Receipt Voucher is used to acknowledge and evidence the receipt of cash, checks,
direct deposit of cash into the bank and bank transfers, and serves as a source document
to record the transaction into the Transaction Register.
Maintenance:
The accountant maintains the Receipt Voucher. In addition, where other persons are
authorized by a BI to collect cash in the form of currency, such authorized personnel
will maintain the Receipt Voucher.
Distribution:
The Receipt Voucher is prepared in 3 copies and distributed as follows:
 Original copy to the payer as acknowledgement of the cash receipt.
 Second copy to the accountant to record the transaction in the Transaction
Register.
 Third copy is retained in the pad as a file copy.
b. Summary Receipt Voucher (Me/He 64)
Purpose:
A Summary Receipt Voucher (SRV) is the document used to summarize Receipt
Vouchers and minimize the number of Receipt Vouchers recorded in the Transaction
Register.
Maintenance, Distribution & Completion:
The Accountant issues the SRV and reconciles the total of all Receipt Vouchers with the
cash count if the cash is deposited at bank. However, the Main Cashier issues the SRV
and reconciles the cash count, if the cash is deposited in the safe.
The serial numbers of the Receipt Vouchers are recorded on the SRV and the total
amount shown on the SRV is checked with total amount shown on the Receipt Voucher
Summary by Revenue Code to ensure that the two amounts are same. The SRV is
prepared in 3 copies and distributed as follows:
 The original is given to the assistant cashier as a receipt.
 The second copy is sent to the Accountant attaching the Receipt Vouchers and
Deposit Slips for recording in the Transaction Register.
 A copy is kept in the pad.
c. Receipt Voucher Summary by Revenue Account Code (Me/He 65)
Purpose:
A Receipt Voucher Summary by Revenue Code is a spreadsheet prepared by cash
collectors to summarize Receipt Vouchers by Revenue Account Code.
Each cash collector summarizes Receipt Vouchers on a Receipt Voucher Summary by
Revenue Code and provides the Receipt Voucher Summary by Revenue Code to the
Main Cashier with the issued Receipt Vouchers.
The serial numbers of the Receipt Vouchers are recorded on the Receipt Voucher
Summary by Revenue Code and the total amount shown on the Receipt Voucher
Summary by Revenue Code is checked with total amount shown on the Summary
Receipt Voucher to ensure that the two amounts are the same. A copy of the Summary
Receipt Voucher together with the Receipt Voucher Summary by Revenue Code is
given to the Accountant.
The source document to the Transaction Register is the Summary Receipt Voucher.
3.1.2. Capturing Payment Transactions

A cash payment transaction arises when actual cash is paid:
 In the form of currency
 In the form of checks
 By transfer from a bank account and evidenced by a bank advice

a. Cash Payment Voucher
The source document to record cash paid by a cashier with currency is the Cash
Payment Voucher shown in Figure 6.4.
Purpose:
The Cash Payment Voucher is used to acknowledge and evidence the payment of cash
by the cashier and serve as source document to record the transaction into the
Transaction Register.
Maintenance:
The accountant maintains the Cash Payment Voucher for cash paid in the form of
currency.
Distribution:
The Cash Payment Voucher is prepared in 2 copies and distributed as follows:
 Original copy to the accountant to record the transaction in the Transaction
Register.
 Second copy is retained in the pad as a file copy.
b. Suspense Payment Voucher
Purpose:
Suspense payments are effected only if the amount disbursed in cash is within the limits
permitted and the suspense is likely to be cleared within the prescribed period.
Suspense Payment Vouchers are treated as cash and are retained in the safe.
The source document to record a suspense payment is the Suspense Payment Voucher.
When a payment requires a Suspense Payment Voucher, the Accountant sends the
Suspense Payment Voucher to the Cashier who effects the suspense payment from the
cash in safe. Payments made using Suspense Payment Vouchers are not recorded in the
Cashbook. Suspense Payment Vouchers are treated as cash and is retained in the safe.
Only an original Suspense Payment Voucher is prepared with no copies. When the
Suspense Payment Voucher is settled, it is made void and attached to the Cash Payment
Voucher for all non –salary advances. A Cash Payment Voucher is prepared when the
suspense amount is not settled and the Suspense Payment Voucher is attached to the
Payment Voucher as a supporting document.
c. Bank Payment Voucher
The source document to record cash paid by an accountant with check or bank transfer
is the Bank Payment Voucher.
Purpose:
The Bank Payment Voucher is used to acknowledge and evidence the payment of
checks or bank transfer, and serve as source document to record the transaction into the
Maintenance:
The accountant maintains the Bank Payment Voucher for cash paid in the form of
checks or bank transfers.
Distribution:
The Bank Payment Voucher is prepared in 2 copies and distributed as follows:
 Original copy to the accountant to record the transaction in the Transaction
Register.
 Second copy is retained in the pad as a file copy.
3.1.3. Capturing Transactions without Cash Movement using the Journal

Voucher
Transactions that do not involve the movement of cash arise in the case of:
 Non-cash receipts/transfers
 Aid in kind
 Receivable and payable transactions

 Grace period payable transactions
 Correction of incorrect entries recorded in the register.
Purpose:
The Journal Voucher is used to evidence transactions not involving cash movement and
serve as a source document to the Transaction Register.
Maintenance:
The accountant maintains the Journal Voucher.
Distribution:
The Journal Voucher is prepared in two copies and distributed as follows:
 Original to the accountant to record the transaction in the Transaction Register.
 Second copy is retained in the pad as a file copy
3.2. Recording Transactions in the Transaction Register

The Transaction Register is the book of original entry for the accounting system. All
entries into the General Ledger are recorded from the Transaction Register. Source
documents are prepared at the time a transaction occurs to capture the transaction.
Information from source documents is entered into the Transaction Register to
summarize the essential information in the source documents for entry into the General
Ledger.
Purpose:
The Transaction Register is maintained to ensure that all transactions are recorded
within the accounting system. The Transaction Register serves as a basis to classify and
post transactions into the General Ledger. The General Ledger facilitates the report
generation process. All transactions involving revenue, expenditure, transfers, cash and
cash equivalents, receivables, payables, and net assets/equity are recorded in the
Maintenance:
The accountant in an accounting unit maintains a Transaction Register for the bank
account. The purpose of maintaining a Transaction Register for each bank account is to
ensure that reports are generated for each BA.
Where more than one BI shares the same bank account, only one Transaction Register is
maintained for the shared bank account.
Distribution:
The Transaction Register is prepared in two copies and distributed as follows:
 The accounting unit retains the original copy as a permanent record.
 Second copy is passed to BoFED/MoFED (if required).
 Types of Transactions and Source Documents
The table that follows shows the types of transactions recorded in the Transaction
Register and the source documents used to capture each type of transaction:
Table 3.1.
Types of Transactions Recorded in Transaction Register and Source Documents
Transaction Type Source Document
Cash receipts Receipt Voucher
Cash payments Cash Payment Voucher and Bank Payment Voucher
Non-cash receipts/transfers Journal Voucher
Aid in kind Journal Voucher
Receivables and payables Receipt/Payment /Journal Voucher
Grace period payables Journal Voucher/Payment Voucher
Letters of credit Bank Payment Voucher (Journal Voucher when cash

moves from blocked bank account to supplier)
Net assets/equity Journal Voucher
** The vouchers contain all information necessary for recording the transaction in the
 Completion of the Transaction Register
The Transaction Register has two portions:
 Identification information at the top of the form, and
 Transaction details in a table on the form.
3.3. General and Subsidiary Ledgers

A ledger is the group of accounts maintained by an accounting unit. The ledger summarizes
transactions by accounts. The ledgers summarize the transaction information from registers in
the form of accounts that facilitate reporting of financial results. Transactions are recorded in the
register, but reports are produced from the ledgers. Two types of ledgers are maintained in the
FGE accounting system: General Ledgers and Subsidiary Ledger .
1. General Ledger
A ledger card is maintained for every account recorded in the register. This ledger is the source
of information for the preparation of periodic reports. The general ledger is a set of self-
balancing ledger cards because at all times the total debits and the total credits recorded in the
general ledger are equal. All transaction amounts recorded in the Register are entered on ledger
cards in the general ledger.
2. Subsidiary Ledger
Where more than one BI shares the same bank account, the accounting unit maintains one
Register and one general ledger for the bank account. A system of control accounts in the general
ledger and supporting subsidiary ledgers is used to maintain detailed information to facilitate
management reporting requirements. An account in the general ledger that has a subsidiary
ledger can be called a controlling account. The sum of balances in the subsidiary ledger has to
sum up to equal the balance of the controlling account in the general ledger.
A ledger card is maintained for every control account code recorded in the general ledger. Either
every amount that is entered as a debit or credit on a control account's ledger card in the general
ledger is also entered to the corresponding debit or, credit column in the subsidiary ledger card.
A subsidiary ledger is not maintained for all accounts in the general ledger. Subsidiary ledgers
are only maintained for accounts within the general ledger that requires more detail than simply
the total account balance.
Cash in Safe
4.1. Petty Cash Management

A PB will keep cash in safe by establishing a petty cash balance to be used for daily operational
activities that are below a prescribed amount defined by the PB/MOFED.
Petty cash is managed using an imprest system. In the imprest system, the PB establishes a
balance for cash in safe depending on its needs. The Accountant issues the amount of imprest
cash to the Cashier using a check. The Accountant prepares a Bank Payment Voucher to transfer
cash from the bank to safe. When the Cashier receives the check, the cashier records the amount
as a receipt in the Cashbook. Petty cash payments are not effected by the Cashier unless the Cash
Payment Voucher or Suspense Payment Voucher is approved and authorized by the appropriate
personnel. Petty cash payments are effected only if the amount of payment is below the limit
prescribed.
To replenish the amount of cash in safe, the Cashier surrenders all cash payment vouchers to the
Accountant. The Cashier returns one copy of the Cash Payment Voucher with the attached
supporting documents to the Accountant using the petty cash summary sheet.
The Accountant replenishes the cash in safe by issuing a check to the cashier for the total amount
of the Cash Payment Vouchers that are submitted. The replenishment should return the balance
of cash in safe to the established level. The Cashier will ensure that cash received from sources
other than the accountant are not used for petty cash payments but is banked on a daily basis.
The Accountant conducts regular physical verifications checks to check that that the petty cash
balance in the cash box is equal to the balance in the cash book.
Suspense Payments
A suspense payment is a temporary cash payment effected with an expectation that a supporting
document is submitted to settle the amount withdrawn on suspense within the prescribed period.
When a payment requires a Suspense Payment Voucher to be used, the Expenditure Accountant
prepares and sends the Suspense Payment Voucher to the Cashier who effects the suspense paym
ent fro the cash in safe. Payments made using Suspense Payment Vouchers are not recorded in th
e Cashbook because Suspense Payment Vouchers are treated ascash in safe. When the suspense i
s settled within the prescribed period, the Suspense Payment Voucher is cancelled and the Payme
nt Voucher is prepared.
When a Suspense Payment Voucher is not settled within the prescribed period, the Suspense Pay
ment Voucher is sent to the Expenditure Accountant who prepares a Payment Voucher. The Pay
ment Voucher is recorded in the Cashbook as cash out and passed to the General Ledger Account
ant to record it in the Trnsaction Register as a receivable.
4.2. Other Modalities

a. Assistant Cashiers
Some Public Bodies have a main cashier and assistant cashiers. The assistant cashiers only
receive cash and issue Receipt Vouchers. Only the main cashier has the authority to issue
Suspense Payment Vouchers and Cash Payment Vouchers.
b. Check payment orders (CPOs)
Public Bodies receive Check Payment Orders (CPOs) for deposits. The recommended practice is
to deposit CPOs in the bank when received. The accountant records the deposit as a debit to Cash
in Bank 4103 and a credit to the appropriate deposit account.
If the Public Body does not deposit the CPO but instead keeps it in the safe, the Cashier is
responsible for the safekeeping of the CPO. No recording should be made in any Cash Book or
in the Transaction Register. In any case, the CPO must be deposited in the bank before it expires.
c. Advance to employees
Many employees receive a portion of their pay at the beginning of each month, then the
remainder at the normal time. In some Public Bodies, the number of employees receiving
advanced pay during the month, which is settled at the end of month, is large.
Instead of preparing a Suspense Payment Voucher for each employee each month, the
recommended practice is to issue this type of short-term advance using a Model 33 or some other
list of employees and amounts. When salary is paid, the advance is deducted.
d. Deposits kept in a safe
A bank account may be treated as a safe. This practice is most common when the bank account is
used exclusively for deposits. In this situation, the person in charge of the bank account
maintains a Cash Book for the bank account. No payments should be made from this bank
account. The only cash movements should be receipt and return of deposits. When deposits
become revenue, the deposit should be returned and revenue collected using a Receipt Voucher.
e. Financial Document Transfer Voucher (Me/He 42)
The Financial Document Transmittal Voucher is the document prepared as evidence for the trans
fer of financial documents, such as Payment Vouchers, between responsible persons in the accou
nting system. The purpose of the Financial Document Transmittal Voucher is to acknowledge the
transfer of financial documents from one responible party to another.
4.3. Cash Book
The primary record maintained by the Cashier to maintain a record of cash movements from the
cash in safe and the cash balance for each type of fund is the Cashbook. The source document to
record a receipt of cash in the Cashbook is the Receipt Voucher. The source document to record
a payment of cash in the Cashbook is the Cash Payment Voucher. Suspense Payment Vouchers
are not recorded in the Cashbook as Suspense Payment Vouchers are treated as cash and are
therefore retained in the safe and counted as part of the physical cash balance in safe.
Checks issued to the Cashier for payment of monthly salary, budgetary and non-budgetary
expenditures are recorded in the Cashbook using the appropriate source documents. The
cashbook has a number of columns to identify receipts, payments and cash balances for
“different types of funds”. Examples of “different types of funds” include petty cash for
budgetary expenditure, revenue collections and special purpose funds.
In summary, petty cash is managed using an imprest system. In the imprest system, the PB
establishes a balance for cash in safe depending on its needs. The Accountant issues the amount
of imprest cash to the Cashier using a check. The Accountant prepares a Bank Payment Voucher
to transfer cash from the bank to safe. When the Cashier receives the check, the cashier records
the amount as a receipt in the Cashbook. Petty cash payments are not effected by the Cashier
unless the Cash Payment Voucher or Suspense Payment Voucher is approved and authorized by
the appropriate personnel. In addition, the cashier uses various documents and books such as
Check payment orders (CPOs), Advance to employees,
Financial Document Transfer Voucher (Me/He 42) and Cash Book to manage cash in safe.
Transactions, Beginning and Year End Procedures and Monthly
Reporting
5.1. Transactions
This section is mainly concerned with recording transactions related to:
 Subsidy
 Other Revenue
 Transfers between bank and safe
 Salary
 Operational Budgetary Expenditure
 Suspense
 Receivables
 Payables
 Payments made by BOFED on behalf of OFED
 Special Funds
 Aid in Kind
 Construction Project
 Closing Entry at the End of the Fiscal Year
 Beginning of Year Procedures
1. Subsidy
Subsidy is one of the sources of revenue that cities receive from BOFED for undertaking their
activities. Subsidy is considered as a budgeted expenditure at regional government and as
revenue at Woredas.
 From BOFED to ZOFED- Transfer of subsidies for Woredas:
When ZOFED receives the bank transfer letter and advice for transfer of the wereda subsidy fro
m BOFED, a Receipt Voucher is prepared. The transaction is recorded as a transfer.
Example:
BOFED transfers Br 1,000,000 to ZOFED as a subsidy for two Woredas.
Transaction Register of ZOFED
The zone records the entry in the transaction register by wereda, maintains a subsidiary ledger for each were
da and records the entry in each subsidiary ledger
Ref Description TB Account Others Cash at bank

Number 4105
Dr Cr Dr Cr
RV Transfer from BOFED 4011/111 400,00 1,000,00
0
4011/112 600,00
From ZOFED to OFED – Transfer of Subsidies for Weredas

When ZOFED transfers the subsidy held on behalf of weredas to OFED, a Payment Voucher is pre
pared. The transaction is recorded as a transfer.
Example:
ZOFED transfers Birr 2,500,000 to the 5 weredas within the zone.
The zone records the entry in the transaction register by wereda and records the entry in the subsidia
ry ledgerfor each wereda. The zone will bear the cost of bank charges.
Number 4105
Dr Cr Dr Cr
RV Subsidy 4011/111 400,000
4011/112 600,000
6256 50 1,000,050
Receipt of Subsidy by Wereda from ZOFED

Up on receipt of transfer letter and bank advice, Wereda records the subsidy as follows in its transaction
register
Transaction Register of OFED-111

Number 4105
Dr Cr Dr Cr
RV Subsidy 1601 400,00 400,000
0
Transfers from BOFED to Z/OFED for Region Sub Agencies:

There may be SubAgencies of Region Sector Bureaus located in zones and weredas. Each sub agen
cy is notified its approved budget by BOFED together with copies to the RSB and Z/OFED. Z/
OFED establishes a separate bank account for receiving and disbursing cash and maintains a separat
e Transaction Register and Geeral Ledger for the separate bank account. Cash in the BA belongs to
BOFED and is not part of the Wereda subsidy.
BOFED transfers funds to the separate bank account each month for the Region Sub Agency at Zones. Simil
arly, Zones may transfer funds to the separate bank account each month for the Region Sub Agency (RSA) at
Weredas
Example:
Assume that B/ZOFED transfers Birr 1000,000 to the Z/OFED separate bank account. Up on receipt of the
fund, records the transaction as follows in its transaction register.

Number 4105
Dr Cr Dr Cr
RV Cash received from 4010 1000,000 1000,000
BOFED
Transaction Register of ZOFED when funds are transferred to wereda for RSA
The zone records the entry in the transaction register by wereda and records the entry in the subsidia
ry ledger for each wereda and the zone will bear the cost of bank charges.

Number 4105
Dr Cr Dr Cr
RV Cash transferred to 4010 1000,000 1000,000
OFED
Up on the receipt of funds from ZOFED, OFED records the transaction as follows in its
transaction register

Number 4105
Dr Cr Dr Cr
RV Cash transferred 4010 1000,000 1000,000
from ZOFED
2. Other Revenues
The source document to acknowledge receipt of other revenues at Z/OFED is the Receipt Voucher. Wher
e the number of Receipt Vouchers issued is numerous, these are summarized on a Summary Receipt Vouc
her (Me/He 64) that is used as the source document to record the revenue in the Transaction Register.
The GLA uses the Receipt Voucher (Me/He 1 or Me/He 64) to record entries in the Transaction Regist
er.
Example-1:
Z/OFED cashier collects Br 50,000 in miscellaneous fee; the transaction is recorded as follows;
Number 4105
Dr Cr Dr Cr
RV miscellaneous fee 1489 50,000 50,000
Example-2:
Z/OFED cashier collects Br 10,000 in land use tax; the transaction is recorded as follows;

Number 4105
Dr Cr Dr Cr
RV Land use tax 1468 10,000 10,000
3. Transfer between Bank and Safe
When cash is transferred from bank to safe by writing checks,

the Expenditure Accountant maintains the checkbook. The authorized signatories at Z/OFED sign t
he checks,
the Expenditure Accountant prepares the Payment Voucher for the amount of the check issuedandth
e General Ledger Accountant uses the Payment Voucher to record the transaction in the Transaction
Register.
Example-1:
A check of Br 60,000 is issued to transfer cash from the bank to safe
Ref Description TB Account Cash at bank Cash in safe

Number 4105 4101
Dr Cr Dr Cr
RV Cash transferred to - 60,000 60,000
safe
When the cashier receives the check, the cashier records it as a receipt in the Cashbook.
Example-2:
Cash is transferred from Safe to Bank by preparing Payment Vouchers. The Cashier makes a deposi
t of Birr 25,000 from Safe to Bank.
Ref Description TB Account Cash at bank Cash in safe

Number 4105 4101
Dr Cr Dr Cr
RV Cash transferred to - 25,000 25,000
bank
4. Salary
The Head of the Public Body notifies Z/OFED of any changes that may impact the preparation of
the monthly payroll (Model 33). The Expenditure Accountant (EA) reviews any such notification
and prepares Model 33 by budget institution (sub agency/project). After approval of the Model 3
3 by the authorized person, the EA prepares a Journal Voucher (JV) as follows:
 Debit to salary expense code 6111 for the gross salary amount,
 Debit to pension expense code 6131 for the government’s portion of the contribution,
 Credit to salary payable code 5004 for the net salary amount,
 Credit to pension payable code 5003 for the amount of pension payable
 Credit to income tax code 1101 for tax withheld from salary, and
 Credit to any other withholding amounts.
The expenditure accountant uses JV to record the commitment and expenses in BESLC
Example:
A BI requests salary on Model 33 with the following details:
Gross salary------------------------200,000 Deduction: salary advance------------------1,500
Pension expense – 9%--------------18,000 Fine----------------------------------------------500
Employee pension - 7%------------14,000 Net Salary Payable-------------------------181,000
Income tax--------------------------- 3,000
Salary expense is recorded as follows:
Ref Description TB Account Others Cash in safe
Number 4101
Dr Cr Dr Cr
JV Salary expense 1 6111 200,000
Pension expense 1 6131 18,000
Income tax 1101 3,000
Staff advance 4203 1,500
Fine 1489 500
Pension payable 5003 32,000
Salary payable 5004 181,000
Withdrawal of cash from bank to pay salary:

The cashier records Birr 181,000 as a receipt in the cashbook:
Ref Description TB Account Cash in safe Cash at bank

Number 4101 4105
Dr Cr Dr Cr
PV Cash transferred to - 181,000 181,000
Salary
Settlement of Salary:
After cash is withdrawn;
 Employees sign Model 33 to evidence receipt of salary from the Cashier
 After all salary payments are effected, the Model 33 is given to the Expenditure Accountant
 The EA checks the Model 33 and prepares one Payment Voucher for the total salary paid
 The Cashier records the PV for Birr 15,350 in the Cashbook
Number 4101
Dr Cr Dr Cr
PV Salary payable 5004 179,000 179,000
Deposit of Unpaid Salary into Bank:

If there is un-paid salary to employees, the cashier deposits the cash at bank using PV

Number 4101 4105
Dr Cr Dr Cr
PV Salary payable 2,000 2,000
Payment of Unpaid Salary:

When an employee seeks payment of unpaid salary
 The EA prepares a PV for the amount of unpaid salary
 Sends it to the Cashier
 After payment is effected
 The Cashier gives the PV to the GLA who records the payment as a debit to the salary paya
ble code 5004 and a credit to cash insafe 4101.
In the example above Birr 1,000 is unpaid. A request is made for the payment of unpaid salary and t
he unpaid salary is paid.
Number 4101
Dr Cr Dr Cr
PV Salary payable 2,000 2,000
Payment of Pension:
At the end of the year, after all salary payments are recorded in the general ledger the balance in the
pension payable account (5003) shows Br 60,000. After this the EA prepares PV and sends it to
GLA to effect payment.
Number 4105
Dr Cr Dr Cr
PV Salary payable 5003 60,000 60,000
Payment of Salary Advance
Sometimes public bodies may pay long-term advances to their employees. When this advance is
processed, interest is charged and is withheld from the advance. Then PV is prepared for the net
amount payable to the employees (total advance minus interest charged).
Example
A long-term salary advance of Br 5,000 is approved for employees and the interest charge on this is
Br 5000. The payment and the interest charge may be recorded as follows:

Number 4101
Dr Cr Dr Cr
PV Staff advance 4203 5,000
Interest 1465 500 4,500
Employees Transferred With Salary Advance from Z/OFED to Z/OFED

It is common that employees may be transferred from one Z/OFED to another Z/OFED. At this
time they may have received salary advances and in this case transferred with their respective salary
advances.
Example:
An employee with long-term salary advance of Br 3,000 is transferred from OFED#1 to OFED#2
with its salary advance.
 OFED # 1 writes a letter to OFED # 2 with a copy to BOFED indicating the outstanding sala
ry advance balance of the transferred employee
 OFED # 1 debits 4274 (other receivable code) and credits 4203 by the amount of staff advan
ce due from the employee transferred.
 On receipt of the letter from OFED # 1, OFED # 2 debits 4203 and credits 5028 (other paya
bles) and the balance is transferred by OFED # 1 to OFED # 2 using JVs.
Transaction Register of OFED #1:

Number 4105
Dr Cr Dr Cr
JV Transfer Staff 4274 5,000
advance
Advance to staff 4203 5,000
Transaction Register of OFED #2:

Number 4105
Dr Cr Dr Cr
JV Advance to staff 4203 5,000
Transfer staff 5028 5,000
advance
Salary Adjustments
In certain cases, an employee may be ineligible to collect salary or salary may be computed incorre
ctly. In such cases the original salary expense entry should be reversed and the salary adjustment en
try should be effected.
Example: An employee salary contains the following details:
Gross salary 5,000 Deduction: salary advance 500
Pension expense – 9% 450 Employee pension - 7% 350
Income tax 800 Net Salary Payable 3,350
It was detected later that the employee was ineligible for any salary payment because he was absent
from duty. Therefore, a salary adjustment entry should be passed to reverse the salary expense entry
. The transaction may be recorded as follows;

Number 4103
Dr Cr Dr Cr
JV Salary payable 5004 3,350
Income tax 1101 800
Staff advance 4203 500
Pension payable 5003 800
Salary expense 01 6111 5,000
Pension expense 01 6131 450
5. Operational Budgetary Expenditure
Operational Expense
For effecting operational expenses, either a payment voucher (PV) or a suspense payment
voucher (SPV) is used. A payment voucher is used when the exact amount of the invoice is
known prior to effecting cash payment.

Example:
Cash of Birr 5,000 is paid for office supplies using SPV. The purchaser returns with an invoice of
Br 5,000 and Model 19. A payment voucher is prepared for Br 5,000, the SPV is cancelled and the
GLA records the PV as follows:
Number 4101
Dr Cr Dr Cr
PV Office supplies 6212 5,000 5,000
Commission to Farmers
Farmers collect land use tax from peasant farmers and are paid a commission after they deposit the
collectionat OFED. The commission is 3% of the collection.
Example:
OFED Cashier collects Birr 50,000 in land use revenue from a framer who is paid 3% commission:
Number 4101
Dr Cr Dr Cr
PV Miscellaneous 1 6419 1,500 1,500
payments
Operational Expense with Withholding Tax

Withholding tax is collected on behalf of either the federal, regional or sub regional government, ba
sed on the location of the supplier. The accounting treatment depends on whether the tax collected i
s revenue or payable. Pursuant to Article 53(2) of the proclamation, tax of 2% should be withheld
as follows:
Supply of goods worth more than Birr 10,000 in one transaction or supply contract;
Provision of services worth more than Birr 500 in one transaction or one service contract such as: c
onsultancy service; designs, written materials, lectures and dissemination of information; lawyers, a
ccountants, auditors and other services of similar nature; sales persons, arts and sports professionals
; construction services; advertisement services; rent for lease of machineries, building and other goo
ds including computers; maintenance services; tailoring; printing and insurance.
The withholding tax does not reduce the cost of the goods. When a purchase is made that requires t
he withholding of tax a PV for the full purchase price is prepared. When payment is made, the EA p
repares a receipt for the amount of the withholding tax.
Example:
Withholding tax treated as revenue:
Z/OFED buys office supplies for Birr 30,000 from its recurrent expenditure budget. It issues a ch
eck for only Birr 29,400 as Birr 600 is the withholding tax. The GLA records the PV as follows:
Number 4105
Dr Cr Dr Cr
PV Office supplies 1 6212 30,000
Revenue 1104 600 29,400
Withholding tax treated as a payable:
If in the above example, the supplier is located in either Federal/Regional or other sub regional
government, the withholding tax is treated as a payable and the GLA records the PV as follows:

Number 4105
Dr Cr Dr Cr
Payable 5006 600 29,400
6. Suspense
When a Suspense Payment Voucher (SPV) remains unsettled for more than the prescribed period
, it is converted to Receivables.
A SPV for Birr 1,000 for per diem is outstanding for more than the prescribed period. The EA pr
epares a PV that debits the receivable account and credits cash in safe account. The EA attaches t
he SPV to the PV as supporting document to evidence that the concerned employee received the
cash.

Number 4101
Dr Cr Dr Cr
PV Staff receivable 1 4211 1,000 1,000
The employee may settle the above receivable in one of the following ways:
A. The employee may settle the entire amount
In this case, the EA checks the balance in the subsidiary ledger account of the employee and
prepares a JV and the transaction can be recorded as follows:

Number 4101
Dr Cr Dr Cr
PV Per diem 1 6231 1,000
Staff receivable 4211 1,000
B. The employee may settle only a portion of the entire amount

The employee settled only for Br 700 and Br 300 is returned in cash to the cashier. The EA
prepares JV to record the expense of Br 700 and RV for receipt of Br 300.
Number 4101
Dr Cr Dr Cr
JV Per diem 1 6231 700
Staff receivable 4211 700
RV Cash refund 300
Staff receivable 4211 300
C. The employee may settle for more than the suspense payment
The employee settled for Br1, 200 and Br 200 is paid in cash to employee. The EA then prepares
a PV to credit the receivable account for Br 1,000 and record the expense of Br 1,200 and the
cash paid of Br 200
Number 4101
Dr Cr Dr Cr
PV Per diem 1 6231 1,200
Staff receivable 4211 1,000 200
7. Receivables
Reimbursement by Employees for Use of Office Facilities
Sometimes employees of a public body may owe some amount as a result of using the public
body’s facilities.
Example:
A Public Body receives a telephone bill for Birr 500. Included in the bill are personal telephones
calls made by an employee. A PV is prepared to effect the payment. The public body then
makes payment.
Number 4101
Dr Cr Dr Cr
PV Telephone expense 1 6258 500 500
The personal call is identified to staff and the staff member makes reimbursement an
amount equal to Br 100.
Number 4101
Dr Cr Dr Cr
RV Telephone expense 1 6258 100 100
A RV is issued to acknowledger the receipt of cash from the employee.
Alternatively, personal calls may be identified before settling the telephone bill and may be
recorded as follows:

Number 4101
Dr Cr Dr Cr
PV Telephone expense 1 6258 400
Receivable 4203 100 500
The receivable may be settled by payment of cash by the employee or deducted from salary.
With Suppliers
To pay an advance to a supplier, the Head of Public Body authorizes the payment. The EA verifi
es budget availability to the Budget/Expenditure Subsidiary Ledger Card, records a commitment
for the total amount of the purchase, and prepares a PV for the advance. When the goods are deli
vered or the services are rendered, final payment is made and the advance is settled.
Example:
Z/OFED pays an advance of Birr 5,000 to a supplier for procurement of office supplies. The sup
plier delivers the office supplies after 30 days and the invoice amounts to Birr 6,000.
Payment of advance

Number 4101
Dr Cr Dr Cr
PV Advance to supplier 4253 5,000 5,000
Delivery of supplies and payment of Birr 1,000

Number 4101
Dr Cr Dr Cr
Advance to supplier 4253 5,000 1,000
8. Payables
Between RSB and Z/OFED
The capital budget approved for a RSB may need to be executed at a zone/wereda. Therefore, cas
h may be transferred from RSB to Z/OFED to execute payments out of the RSB capital budget.
When cash is received from RSB, the EA prepares a RV as a debit to bank 4105 and a credit to p
ayable account code 5028.
Example:
A given RSB sends Birr 100,000 to Z/OFED to make a payment to a contractor the transaction
may be recorded as follows;
When cash is received
Number 4105
Dr Cr Dr Cr
RV Payable to RSB 5028 100,000 100,000
Cash is disbursed and invoice is sent to RSB by using Me/He 42.
Number 4105
Dr Cr Dr Cr
PV Payable to RSB 5028 100,000 100,000
Deposits
Funds held on deposit should not be expended but held in custody on behalf of the depositor and
are considered as payables.
Example:
Z/OFED collects a deposit of Birr 200,000 as bid security. The bidder is unsuccessful and the dep
osit is returned at a later date.
Receipt of Deposit – in bank or safe

Number 4105/4101
Dr Cr Dr Cr
RV Bid security deposit 5054 200,000 200,000
Refund of Deposit – from bank or safe

Number 4105/4101
Dr Cr Dr Cr
PV Bid security deposit 5054 200,000 200,000
Family Pay and Other Similar Payments

Special funds are maintainedfor repatriation, internally displaced persons, demobilization and wa
r veterans. BOFED transfers to Z/OFED a list of payees for each type of payment on a Model 33,
and cash for making payments. The EA prepares a RV when the cash is received and GLA recor
ds the RV in the TR as a debit to cash and a credit to the approprate payable account.
Family Pay is code 5029, Repatriation is code 5030, Internally displaced persons is code 5031, D
emobilization is code 5032 and War veterans is code 5033. The GLA does not maintain a subsidi
ary ledger for these payable accounts. At the end of the program or when all funds are paid or wh
en requested the EA prepares a PV for the amount paid and any unpaidamounts are returned to B
OFED with the supporting documents.
Example:
BOFED transfers Birr 100,000 for family pay to ZOFED. The transaction ta various level of
activity may be recorded as follows:
Receipt of birr in the bank account
Number 4105
Dr Cr Dr Cr
RV Family pay payable 5029 100,000 100,000
Transfer of the Br 100,000 to the respective OFED

Number 4105
Dr Cr Dr Cr
PV Family pay payable 5029 100,000 100,000
Receipt of Birr 100,000 in the Wereda bank account

Number 4105
Dr Cr Dr Cr
RV Family pay payable 5029 100,000 100,000
Withdrawal of Birr 100,000 from bank to safe at OFED or Wereda

Number 4101 4105
Dr Cr Dr Cr
PV Cash withdrawal 100,000 100,000
At the end of the third month, the Cashier has paid Birr 90,000

Number 4101
Dr Cr Dr Cr
PV Family pay payable 5029 100,000 90,000
The remaining amount (Birr 10,000 is deposited at the bank

Number 4101 4105
Dr Cr Dr Cr
PV Cash deposit family 5029 10,000 10,000
pay
At the end of the period, Wereda or OFED transfers
the balance of funds to ZOFED with supporting documents

Number 4105
Dr Cr Dr Cr
PV Transfer funds to 5029 10,000 10,000
ZOFED
Grace Period Payables
The Financial Law permits to effect payments from the prior yearʹs budgets during the grace perio
d for goods and services delivered before the end of the fiscal year. Amounts due to suppliers on
the last day of the fiscal year that are paid during the grace period from the prior yearʹs budget are
called grace period payables, and, are recorded as expenditure in the prior fiscal year, although pa
yment is effected in the next fiscal year. The first 30 days of the fiscal year (Hamle 1 to 30) are ca
lled the grace period.
Example:
On Hamle 15, Z/OFED pays Birr 50,000 for office supplies that were received before June 30 and
recorded as grace period payables
Last year’s transaction
Number 4105
Dr Cr Dr Cr
JV Office supplies 6212 50,000
Grace period payable 5001 50,000
At the time the related payment is made, Z/OFED records the transaction as follows
( Hamle 15):
Number 4105
Dr Cr Dr Cr
PV Grace period payable 5001 50,000 50,000
9. Payments by BOFED on Behalf of Z/OFED

Advance Paid by BOFED/ZOFED on Behalf OFED
Some times OFED may authorize BOFED to make some payments (advance in this case) on its
behalf. BOFED then prepares PV and debits subsidy expenditure and (6411) and credits cash at
bank (4105).
BOFED then notifies OFED by letter that the advance payment was made. The letter is given to t
he EA who prepares a JV that debits the receivable account code and credits the appropriate subs
idy tansfer receipt code and records the advance in the BESLC as a commitment.
Example:
Assume BOFED pays an advance of Birr 100,000 to purchase motor vehicles from a BIʹs capital
expenditure budget and notifies OFED of the payment of advance.
Number 4105
Dr Cr Dr Cr
JV Advance 4253 100,000
Subsidy transfer 1622 100,000
Further, assume that BOFED pays the balance of Birr 50,000 after a month to purchase the motor
vehicle in the above example and notifie OFED by letter of the payment. BOFED prepares a PV
that debits subsidy expenditure code 6411 and credits 4105. BOFED then notifies OFED by lette
r that the advance payment was made.
Number 4105
Dr Cr Dr Cr
JV Purchase of motor 2 6311 150,000
vehicle
Subsidy transfer 1622 50,000
Advance 4253 100,000
Expenses Paid by BOFED/ZOFED on Behalf of OFED

Sometimes BOFED may some expenses on behalf of Z/OFED
BOFED notifies OFED by letter that the payment was made.
Example:
Assume BOFED pays Birr 100,000 on account of custom duties to purchase the motor vehicle in
the above example and notifies OFED by letter that the payment was made. The EA then
prepares a JV and record the transaction as follows:
Number 4105
Dr Cr Dr Cr
JV Custom duties - 6311 100,000
Subsidy transfer - 1622 100,000
10. Special Funds: Food Securities, HIV/AIDS and Others
Where the special funds do not form a part of the wereda budget the accounting treatment for th
ese funds will be accounted as payable. At the same time, where the special funds do not form
part of the
regional budget, the transfer of funds to zones will be accounted as a payable sing account code 5
028.
Budgeting
The Wereda must create a supplementary budget for the spending the Special Funds. The supple
mentary budget should be budgeted as a capital budget with the unique program, project code an
d source of finance code used at the Region level. The supplementary budget should be assigned
to Wereda Public Bodies by item of expenditure. In addition, each Special Fund must be assigne
d a revenue code to use in the Wereda for receiving the Special Fund payment (a unique revenue
code is needed for region and wereda.
Receipt
When OFED receives the Special Funds, the receipt must be recorded in a revenue code. Theref
ore, each Special Fund must be assigned a revenue code to use in the Wereda for receiving the S
pecial Fund payment (a unique revenue code is needed for region and wereda). OFED must be i
nformed the program, project code, and source of finance code by BOFED prior to transferring t
he funds.
Example:
Assume that Br 3,000,000 is sent to a Wereda for Food security. OFED records the receipt of the
fund as follows;
Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
Block grant for food - 16--- 3,000,000 3,000,000
security
The usual process is employed to distribute the funds and record expenditures. Reports can be c
ompiled for the program/project/source of finance to identify total Special Fund expenditure.
11. Aid in Kind
Aid in kind is goods or services provided by donors. Aid in kind is recognized if a budget is app
roved for it and after goods is received or services are rendered. If aid in kind was not budgeted,
a budget supplement should be requested.
Accountants should receive a copy of all Model 19’s. Aid in kind represents two transactions si
multaneously: the receipt of assistance and the expenditure of assistance. The EA records both r
eceipt and expenditure on a JV and the JV should be sent to the GLA to record in the TR.
Example:
A local NGO donates a machinery to a city administration that has a cost of 1,500,000(revenue
code of 2084) under the capital expenditure budget for project code 2356.
The expenditure should be recorded in the Budget/Expenditure Subsidiary Ledger Cards of expe
nditure account 6311 for project 2356 and donor 2084 and it is recorded as follows in the TR.
Number 4105
Dr Cr Dr Cr
JV Machinery 2 6311 1,500,000
Assistance - 2084 1,500,000
12. Construction Project

In construction type activities, there are several steps in the payment process after the
construction contract is signed. The general steps involve:
 Payment of an advance: Usually the contract calls for an advance payment to the contract
or. The advance payment is proportionately deducted from future payments.
 Progress payments based on payment certificates: Usually the contract calls for partial pa
yment of the total contract price as the construction reaches agreedupon percentages of co
mpletion. A payment certificate is evidence that the agreedupon completion percentage is
reached.
 Payment of the retention: Usually a percentage of the payment is retained and not paid un
til final acceptance of the construction after all is complete
Example:
A contract is signed to construct a building for 1000,000 birr. Terms of contract are that an initial
advance of 20% 200,000 birr is paid on signing the contract and:
 The advance is adjusted proportionately with each payment certificate approval.
 Retention of 10% withheld from each payment certificate & paid after final approval.
 2% withholding tax is withheld on work certified as completed.
 Rebate of 5 %
The steps in the payment process are as follows:
Payment of advance
Number 4105
Dr Cr Dr Cr
PV Advance to - 4251 200,000 200,000
contractor
Payment Certificate submitted for Birr 400,000
 Gross amount----------------400,000
 Advance------------------------80,000 (20%)
 Tax---------------------------------8,000 (2%)
 Retention------------------------40,000 (10%)
The EA then prepares PV and check for Br 272,000 (400,000-80,000-8000-40,000) and the
transaction is recorded as follows:
Number 4105
Dr Cr Dr Cr
PV Construction- 2 6323 400,000
Building
Tax 1104 8,000
Advance to 4251 80,000
contractor
Retention on contract 5061 40,000 272,000

The EA prepares a PV for Br 272,000 as follows.
 Gross amount----------------400,000
 Advance------------------------80,000 (20%)
 Tax---------------------------------8,000 (2%)
 Retention------------------------40,000 (10%)

Number 4105
Dr Cr Dr Cr
Building
Tax 1104 8,000
contractor

The EA prepares a PV for Br 136,000 as follows.
 Gross amount----------------200,000
 Advance------------------------40,000 (20%)
 Tax-------------------------------4,000 (2%)
 Retention----------------------20,000 (10%)

Number 4105
Dr Cr Dr Cr
Building
Tax 1104 4,000
contractor
Payment of Retention
EA prepares a check for 100,000 birr and GLA records the PV in the TR as follows:
Number 4105
Dr Cr Dr Cr
PV Retention on contract - 5061 100,000 100,000
Note:
Contractors may offer rebates as part of the price offer. Such rebates should be deducted to deter
mine the value of the construction. The actual net costs after deducting the rebate are accounted f
or as expenditure. The rebate is not accounted.
13. Closing entry at the end of the fiscal year
A closing entry must be recorded at the end of the year after the last monthly report is prepared a
nd sent to BOFED. General Ledger cards for all temporary account codes are closed at the end o
f the fiscal year. Closing an account means setting the accountʹs balance to zero, and filing the ac
countʹs ledger card. The purpose of closing entries is to set all temporary accounts in the GL to z
ero. Temporary accounts are:
 Revenue/Assistance/Loan account codes 1000 – 3999
 Expenditure account codes 6000 – 6999.
Permanent account balances of general ledger and subsidiary ledger accounts carry forward to th
e next fiscal year.
The procedures for making the closing entry are:
1. After the June monthly report for the fiscal year is accepted by BOFED, prepare a JV fro
m the Me/He 27 Trial Balance:
From the line for Revenue/Assistance/Loan:
Record a debit in the JV for any amount that is a credit on this line in Me/He 27.
From the line for Expenditure:
Record a credit in the JV for any amount that is a debit on this line in Me/He 27.
In Net Asset/Equity account code 5601:
Record the appropriate amount as a debit or a credit to make the entry balance.
Record the JV into the TR
2. Enter the amount for Net Asset/Equity on the Net Asset/Equity account code 5601 ledger
card in the General Ledger.
3. Remove all GL cards from the GL for account codes:
 Expenditure account codes 6000 – 6999
4. Remove all subsidiary ledger cards associated with account codes:
 Expenditure account codes 6000 6999, including all Budget/Expenditure Subsidiary L
edger Cards
5. Store all general, subsidiary and budget/expenditure subsidiary ledger cards that are remo
ved in a file. The file should be appropriately labeled as ledger cards for the fiscal year.
14. Beginning of year procedures
A set of general and subsidiary ledger cards and sets of budget/expenditure subsidiary ledger car
ds should be prepared at the beginning of each fiscal year as follows:
Step 1
Balances in all permanent accounts should be carried forward to the next fiscal year by using ne
w general ledger cards. Last yearʹs cards should not be continued to be used in the following yea
r. The beginning balance (equal to last yearʹs ending balance) should be recorded on the new led
ger card.
Step 2
Open budget expenditure subsidiary ledger cards for each sub agency using the approved budget
Step 3
Open new general ledger cards and subsidiary ledger cards (as required) for the following types
of account codes as and when they occur during the fiscal year
 Transfer account codes 4000 – 4099
Step 4
Open new general ledger cards and subsidiary ledger cards (as required) for the other new perma
nent account codes (that do not have an opening balance from the previous fiscal year) as and wh
en they occur during the fiscal year.
4.2. Monthly Reporting
This section mainly covers basic the preparation of basic monthly financial reports that public bodies
prepared and submit to concerned offices.
Monthly reports are submitted from OFED to ZOFED within two weeks of the last day of the month. Z
OFED verifies and consolidates the wereda reports within one week of receipt and sends to BOFED all t
he monthly reports withn three weeks of the last day of the month.
On receipt of monthly reports, ZOFED will:
 Verify the mathematical accuracy of all reports.
 Verify that totals in the Revenue/Assistance/Loan Report, Expenditure Report, Receivable
s Report, and Payable Report are carried forward to the Trial Balance.
 Verify that the Cash at Bank balance shown on the Bank Reconciliation equals the Cash at
Bank balance shown on the Trial Balanc.
ZOFED will visit any OFED that does not report within three weeks to assist with the monthly reporting
.All monthly reports that are submitted to ZOFED serve as input document to the Budget Disbursement
Accounts System in order to consolidate reports.
The following monthly reports are prepared:
 Revenue/Assistance/Loan Report
 Expenditure Report
 Receivables Report
 Payables Report
 Transfer Report
 Trial Balance
 Bank Reconciliation Statements
OFED will prepare two sets of monthly reports as follows:
A. One set of reports for its budget
B. Second set of reports for the bank account of region sub agencies
ZOFED will prepare two sets of monthly reports as follows:
A. One set of reports for its budget
B. Second set of reports for the bank account maintained for subsidies to weredas
Revenue/Assistance/Loan Report
The Revenue/assistance/Loan report provides information on the year to date revenues for cities. The
purpose of the report is to facilitate consolidation of the actual revenue, assistance loan collected and
comparison of budgeted revenues to actual revenue by account code.
The General Ledger Accountant prepares the Revenue/Assistance/Loan Report. The source document t
o prepare the Report is the General Ledger. The amount from the balance column in the General Ledger
Card is transcribed into the Revenue/Assistance/Loan Report by account code. The total balance of debit
s (if any) and credits from the Revenue Report are carried forward to the corresponding column of the Tr
ial Balance.The report is prepared in two copies. One copy is sent to ZOFED/BOFED and the other filed
at the jurisdiction.
Expenditure Report
This report provides information on the year-to-date expenditures of each BI by source. The purpose of
this report is to facilitate consolidation of the actual expenditures and comparison of budgeted
expenditure to actual expenditure
The General Ledger Accountant prepares the Expenditure Report for each BI by source. The source doc
ument to prepare the report is the BESLC. The amount from the balance column of year to date expendit
ure in each BESLC is transcribed to the total expenditure year-to-date column for the appropriate
account code. The adjusted budget and balance not committed is also taken from the BESLC.
The report is prepared in 3 copies, one copy is sent to BOFED/ZOFED, the second copy to the Head of t
he Public Body and the third copy is filed.
Receivables Report
Receivable report provides information on the year-to-date receivables. The purpose of this report is to
facilitate consolidation of the actual receivable.
The General Ledger Accountant prepares one monthly Receivables Report for each jurisdiction. The sou
rce document to prepare the Receivables Report is the General Ledger. Each item of receivable is identif
ied by account code. The amount from the Balance Column in the General Ledger is transcribed into th
e Receivables Report. The total balance of debits and credits (if any) from the Receivables Report are ca
rried forward to the corresponding column of the Trial Balance.The report is prepared in two copies. On
e copy is sent to ZOFED/BOFED and the other filed at the jurisdiction.
Payables Report
Payables report provides information on the year-to-date payables. The purpose of this report is to
facilitate consolidation of the actual payables.
The General Ledger Accountant prepares one monthly Payables Report for each jurisdiction. The sourc
e document to prepare the Payables Report is the General Ledger. Each payable item is identified by ac
count code and the amount from the Balance Column in the General Ledger is transcribed ito the Payabl
es Report. The total balance of debits (if any) and credits from the Payables Report are carried forward t
o the corresponding column of the Trial Balance. The report is prepared in two copies. One copy is sent
to ZOFED/BOFED and the other filed at the jurisdiction.
Transfer Report
The purpose of the Transfer Report is to facilitate verification and reconciliation of cash transfers betwe
en:
 BOFED and ZOFED for transfers to the bank accounts maintained for zone budget and for wered
a subsidies
 ZOFED to OFED for transfers to the bank account maintained for region sub agencies.
The General Ledger Accountant prepares the Transfer Report for each bank account. The source docum
ents to prepare the Transfer Report are the General Ledger Cards. One Transfer Report is prepared for ea
ch bank account. The Transfer Report consists of two parts:
Part 1 summarizes transfer account balances from the General Ledger.
The amount from the Balance Column in the General Ledger Card is transcribed into the Transfer Repor
t Part 1. The grand totals from each Transfer Report Part 1 are carried forward to the Trial Balance.
Part 2 provides information on each cash transfer to and from BOFED.
Each cash transfer during the month between the Reporting Unit and BOFED is listed individually in Pa
rt 2 of the Transfer Repor. The information required for Part 2 is transcribed from the following General
Ledger Cards:
 4001: Recurrent salary and allowances
 4002: Recurrent operating expenditure
 4003: Capital salary and allowances
 4004: Capital expenditure
 4005: Staff Advances
 4006: SSDP funds
 4007: Grace period payables
 Any other transfer code used during the month to transfer funds to/from BOFED
Columns are preprinted for transfer codes 4001 through 4007. If other transfer codes were used during t
he month, a blank column is provided. The appropriate transfer code should be written at the top of the
column. Columns are identified by account code.
The date and amount of each transaction recorded in the account codeʹs Ledger Card during the month a
re transcribed in the corresponding subcolumn of the Transfer Report. Each transaction is recorded in a s
eparate row. Debit and credit sub-columns are totaled and the total is recorded in the Total row.
The difference between the totals in the debit and credit subcolumns for each account code is calculated.
If the total of debits is greater than the total of credits; the difference is recorded in debit subcolumn of t
he Net Activity row. If the total of credits is greater than the total of debits, the difference is recorded in
credit sub-column of the Net Activity row.
The balance from the account codeʹs Ledger Card at the beginning of the month is recorded in the begin
ning of month (BOM Balance) row.
The amount is the Net Activity row is combined with the amount in the BOM Balance row and recorded
in the end of month (EOM Balance) row.
The EOM Balance must equal the balance in the account codeʹs Ledger Card at the end of the month, wh
ich equals the balance recorded for the account code in Part 1 of the Transfer Report.
Trial Balance
The Trial Balance is the summary of the net cumulative debit and credit balances contained in the Gener
al Ledger at the end of ach month for each account code represented by a General Ledger Card. The Tria
l Balance proves the arithmetical accuracy of the General Ledger. The total amount of the Debit Colum
n must equal the total amount of the Credit Column in the Trial Balance.
The Accounts Section Head prepares one Trial balance for each jurisdiction. The source documents to p
repare the Trial Balance are:
 Revenue/Assistance/Loan Report
 Expenditure Report
 Receivables Report
 Payable Report
 General Ledger, the account codes that are taken from the General Ledger directly to the Trial B
alance are Net Assets/Equity, Cash and Bank Balances.
If the debits and credit columns in the Trial balance are not equal, the following types of errors are verifi
ed to balance the Trial Balance:
 An incorrect amount is transcribed to the Trial Balance from the monthly reports or the General
Ledger
 An arithmetical error has occurred in the computation of the net debit or credit balance in the Mo
nthly Report
 An arithmetical error has occurred in the computation of the net debit or credit balance of a Ledg
er Card in the General ledger
 An amount is incorrectly posted into the credit column of a Ledger Card in the General ledger in
stead of into the debit column, and vice versa.
 Only one side (either debit or credit) of a transaction is posted into the General ledger and the oth
er portion (either debit or credit) of the transaction is not posted into the General ledger.
 An incorrect amount is posted into the Ledger Card from the Register.
 Permanent account balances are not carried forward correctly from the previous year.
Bank Reconciliation
The process of comparing the bank statement with the books of account is known as reconciling the ban
k account, and the schedule that is prepared to demonstrate the results of the comparison is called bank r
econciliation. The balance shown on the bank statement may not agree to the bank balance in the general
ledger. Causes of differences include:
 Checks issued but not presented to the bank
 Deposits made that do not appear on the bank statement
 Transactions that have not yet been recorded in the books
 Record keeping by either D/OFED or the bank.
The bank reconciliation provides proof that all bank related transaction errors are identified and provides
the basis to take crrective action to eliminate errors.
The bank reconciliation is submitted to ZOFED.
The Accounts Section Head prepares the Bank Reconciliation. The source documents to prepare the Ban
k Reconciliation are:
 Monthly Bank Statements received from the bank
 Transaction Register/General Ledger, and
 Detailed information in documents accompanying the bank statement, the checkbook.
Steps required in preparing bank reconciliation include:
1. When the bank statement is received, verify that items from the prior reconciliation are recorde
d on the statement by the bank.
2. Compare the check numbers listed on the bank statement to entries in the Transaction Register, n
oting errors and outstanding checks.
3. Compare deposits on the bank statement with entries in the Transaction Register, noting differen
ces.
4. List other items on the bank statement that are not recorded in the accounts and items in the acco
unts that are not on the bankstatement.
5. Prepare the bank reconciliation.
Items on the bank side of the bank reconciliation must either be corrected by the bank or will automatica
lly be adjusted when the transaction reaches the bank. They do not require journal entries by D/ OFED.
They usually include:
 Deposits in transit: Deposits received by the bank not recorded on the bank statement.
 Bank errors: Typical bank errors include transposition errors of check amounts or items recorde
d in error against the depositor’s account.
 Outstanding checks: Checks recorded in the accounting records that have not yet been paid by th
e bank on the date of the bank statement
Items on the D/OFED side of the bank reconciliation require rectification and normally include:
 Errors by D/OFED: include a transposition error or error in addition on its deposit slips to the ba
nk and error is recorded in the Transaction Rgister. Errors require adjustment to the account bal
ance.
 Service charges: Many banks charge a monthly administration fee for servicing the depositor’s a
ccount. The bank statement becomes the source document for recording bank service charges in
the depositor’s accounting records.
 Insufficient Funds Checks: Checks deposited that are returned by the bank to the D/OFED for in
sufficient funds.

FGE Accounting

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FGE Accounting

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Federal Government of Ethiopia (FGE) Accounting and reporting

Overview of the Financial Administration and

areas such as accounting concepts and policies, procedures, source documents,

concepts and principles governing the accounting system is made.

accounting system to determine when and how to record transactions. A transaction is

an economic event that affects the financial position of the government.

cash basis of accounting.

except for recognition of the following transactions:

• Revenue and expenditure are recognized when aid in kind is received.

 When payroll is processed.

 At the end of the year when a grace period payable is recognized.

 When goods are received or services are rendered.

• Intergovernmental transfers are recognized without actual cash movement.

• Transactions resulting from salary withholdings are recognized in the absence of

actual cash movement.

to determine when and how to record transactions.”

expenditures of the previous fiscal year.

2. Accounting Recording System

Account Category Used for

Revenue Credit Credit Debit

Expenditure Debit Debit Credit

Cash and cash equivalents Debit Debit Credit

Receivables Debit Debit Credit

Payables Credit Credit Debit

Transfers Debit or Credit depending on transfer type

Net assets/equity Credit Credit Debit

equation in Table 1.2. is always true:

Table 1.2. : Basic Accounting Equation

FGE Basic Accounting Equation

Assets = Liabilities + Net Assets/Equity

Cash & Cash Equivalents + Receivables = Payables + Net Assets/Equity

different reporting entities.

 Codes starting from 1000-1799 are reserved for domestic revenue

 Codes starting from 2000-2999 are reserved for external assistance

 Codes starting from 3000-3999 are reserved for external loans

 Codes starting from 4000 up to 4099 are reserved for transfers.

 Codes starting from 4100 up to 4999 are reserved for assets.

 Codes starting from 6000 up to 6999 are reserved for expenditure

A brief description of each one is depicted as follows:

Accounting Standards (IPSAS) as "resources controlled by an entity as a result of past events

The categories of assets in the accounting system are:

a. Cash and Cash Equivalents

subject to an insignificant risk of change in value.

Receivables are amounts owed to a government unit by another government unit, a

person, or a non-government entity except public enterprises. Salary advances to

employees and advances to suppliers are two examples of receivables commonly

one year and have a certain minimum value.

exceeding one year.

are held for more than one year.

improved and expanded accounting system are:

III. Net Assets/Equity

4. Budget Classification Scheme

The budget classification scheme used to classify budget institutions is uniform at

between what is budgeted and what is expended by budget institution.

The diagram below provides an overview of the accounting cycle used:

Figure 1.1.: Overview of the Accounting Cycle

Payment Vouchers Receipt Vouchers Journal Vouchers

General Ledger Budget Ledger/ Expenditure Subsidiary Ledger

 Revenue Report Ledgers

Summary Income and Expenditure Statements

the government budget.

6. Single Pool and Single Treasury System

the use of single pool system.