Professional Documents
Culture Documents
Fiscal Compliance
This refers to the extent to which any public sectors organizations have compiled
with the condition laid down in its authority to spend.
Management performance
This refers to the need to know whether money was spent wisely or effectively. It
is concerned with the output only.
The IPSASs prescribe the manner in which general purpose financial statements
should be presented to ensure comparability both with the entity’s financial
statements of previous periods and with the financial statements of other public
entities.
GOVERNMENTAL FUNDS
1) The general funds are used to account resources except these required to be
accounted for in another funds.
PROPRIETARY FUNDS
Enterprises funds are used to account for operations:
a) That is financial and operated in a manner similar to private business
enterprises where the intent of the governing body is that the cost (expenses,
including depreciation) of providing goods or services to the general public
on a continuing basis be financed or recovered primarily through user
changes; or
b) Whether the governing body has decided that periodic determination of
revenue and earned expenses incurred and/or net income is appropriate for
capital maintenance, public policy, management control, accountability or
other purposes.
A useful type of enterprise fund is the Revolving Fund. These are funds set up by
the approval of parliament and provide the financial resources for achieving some
specified objectives.
The initial appropriation in these funds is made out of the consolidated Fund, The
receipts generated in such funds are automatically used by the respective
enterprises in accordance with the positions of the Act that set up the fund (e.g.
Famine Relief Fund);
FIDUCIARY FUNDS
Trust and Agency Funds are used to account for assets held by a government unit
in a trustee capacity or as an agent for individuals, private organizations, other
governmental units, and/or to other funds. These include:
a) Trust Funds
b) Pension Funds and
c) Agency Funds
Kenyan examples of trust funds include the NSSF, NHIF, widows and orphans
pension fund etc.
ACCOUNTING GROUPS
NOTE
a) The governmental funds account for financial resources of a government
unit that are used in day to day operations.
b) The proprietary funds carry our governmental unit activities that closely
resemble the operations of a business enterprise.
Cash Accounting
This system recognizes only cash inflows and outflows. The resulting financial
statements are essentially summarized cash books. The sales and purchases are
only recognized when cash is received or paid. This system does not include
accruals of any kind. Many public sectors and non-profit organizations (e.g.
charitable organizations) use this system.
Budgetary accounting
This is a presentation technique which requires the preparation of operating
accounts in the format of the budgets. Most public sector organizations use this
technique. The main purpose of budgetary accounting is to emphasize the role of
the budget in the cycle of planning-control-and accountability
Accruals Accounting
Accruals accounting requires that revenue and costs be recognized as they are
earned or incurred and some public sector organizations follow this system.
Commitment Accounting
This is accounting system recognizes transactions when the organization has
committed them. Transactions are recognized when orders are issued or received,
not at the later stage when cash is paid or received. Under this system the
organization recognizes the issue of an order as a commitment to incur the
expenditure and the account continuously record commitments. The main purpose
of commitment accounting is the budgetary control rather than financial reporting.
Revenues
Few revenues of the four governmental funds and expandable trust funds are
susceptible for accrual. This is because most taxes and fees are not billable in
advance of the service or granting of a permit/license. Perhaps the only accrued
revenue is properly taxes (where they exist). Therefore, the cash basis of
accounting is appropriate for many revenues of the four governmental funds
(general, special revenue, capital projects and debt service) and expendable trusts.
Expenditures
Because of the lack of emphasis on operating results, funds other than the account
for authorized expenditures of the government’s resources, rather than accounting
When the Bill has been passed enacted it becomes the Appropriation Act for the
year thus in the appropriation act for 2014/2015 Parliament authorized as gross of
K95 002 150 for the Ministry of Health (this was in respect of Recurrent
Expenditure - see below) this was described in the 2004/2005 estimates of
Recurrent Expenditure as follows: -
In other words, the Ministry was authorized to spend 95,002,150 in total with
92,721,900 being supplied from central funds (coming out of the consolidated
fund) and the remainder coming from the Ministry’s own Appropriation-in-aid.
Appropriation-in-aid
This is the amount generated by a government department from its internal
activities. Example of Appropriation-in-Aid inside the Ministry of Health Are
Hospital Boarding Fees)
X-ray FEES
Laboratory Fees
Rent from Institutional Houses
The Development Revenue Estimates for the same year were K$645 million. If
look at the totals for the 2013/2014 Expenditure Estimate given below we can see
that a shortfall of K$ 266.1 million is expected. This gap will be bridged by
recourse to borrowing wither from abroad or on the domestic market. Domestic
borrowings usually take the form of Treasury bills (borrowings from the public
evidences by notes or bills drawn on the treasury),
Government Expenditure
The annual Expenditure Estimates (see above) consists of two parts. The Recurrent
Expenditure estimate and the Development Expenditure estimates and in fact, the
whole of Government Accounting follows this division. In the Annual estimates
for 2013/2014 the net amount of Recurrent Expenditure was set at K$ 1,420.8
million and the net amount of development Expenditure was K$1,292.0 million.
Recurrent Expenditure
This is expenditure on the day-to-day business of government (in commercial
accounting it would be called “revenue expenditure” as opposed to “capital
expenditure”). Recurrent expenditure may be described as “maintenance
expenditure as it covers items concerning the maintenance or operations of existing
Government services (e.g. some items of Recurrent Expenditure are the salaries of
the vast majority of Government officers the cost of traveling allowances and
expenses electricity and telephone and postage expenses).
A further important point follows seeing that fixed assets accounts do not exist,
there is no such thing either as depreciation in government Accounting. The effect
of passing- fixed assets through the usual expenditure accounts is to write them off
in the year of purchases.
Revenue (Income)
In accordance the normal rules of double entry bookkeeping cash received is
debited to the Cash account and the amount which gave the benefit is credited.
Thus, in the accounts for Ministry X, the receipts of Kshs 5,000 it’s recorded as
follows:
Debit: Paymaster General a/c (cash a/c) 5,000
Credit: Revenue Account 5,000
At the end of each financial year, each Ministry which has collected funds on
behalf of the Government make out a “Statement of Revenue” showing how much
revenue it has collected the year, how much it has remitted to the Treasury and
what balance of unremitted funds is awaiting transfer.
Expenditure
Remember that a ministry operates within the strict limits of the Vote allocated to
it by Parliament and that the funds made available to the Ministry come from two
sources.
Firstly, the Government itself (from the Consolidated Fund which collects
together
Secondly the ministry own appropriations-in-Aid (the income which
Parliament authorizes a Ministry to retain to help to pay part of the
Ministry’s own expenses).
It must be note that the PMG a/c is in fact just one bank account a single bank
account, which is kept at the Central Bank of Kenya and administered by the
PMG’s office in the treasury; and the ministries are authorized to draw on this
single PMG A/c and from the information supplied by the Central Bank of Kenya
the PMG’s office is able to analyze the different payments and receipts to allocate
them to various Ministries and send them monthly statement.
One of the benefits of this procedure is that it facilitates the physical control of
cash and cheques; at any moment the cashier or his supervisor can count the
contents of the cash box and check the total value (cash plus cheques) against the
balance shown in the Cash Column.
This principle applies also to “RD” cheques but only in the Districts. In the
Districts, a cheque that has been dishonored prompts the following entry:
DR Cash Column CR Bank Column
Three Cash Books are kept one for each of Recurrent Expenditure, Development
Expenditure and Deposit.
Vote Book
Together the Cash Book and the Vote Book form the backbone of the Government
Accounting System. Nearly all the original entries which record the business of
Government pass through these two books. There is, however, an important
qualification to make to the last point the Vote Book is not really a “book of prime
entry” because the Vote Book is actually a set of “memorandum” accounts and is
itself not part of the double entry system. This is because of the way in which the
computer system operates, but this will be explained shortly. Firstly, what is the
Vote Book? Well. It is a loose leaf book that contains a sheet for each “item”
(subdivision or account) of a Vote in particular Ministry or District so for instance,
there is a page for “Travelling and Accommodation Expenses and another page for
“Purchase of Additional Equipment”.
Operation
At the beginning of the Financial year, the Vote Book Controller (the Officer who
operates the Vote Book) written in the Following information.
Name of the all holder - This is the Officer entrusted with the “AIE”
(Authority to incur Expenditure” and no funds may be committed or spent
until this AIE has been received)
Name and computer code number of the account (item of the vote)
Total amount voted by Parliament for the item
In the course of the year the Vote Book Controller enters the following de tails in
respect of each transaction.
a) Commitments: These are the expected costs of any orders placed for goods
or services, or the amount of any imprest given, and a running total is kept.
It can be seen that the above system, when operated properly, makes it very
difficult for excess spending to occur - the balance available has to be ascertained
even before an order is placed, no payment can be made it the balance available is
sufficient, and each month the Vote Book Controller suppliers the AIE-holder with
a statement of the balance available on his vote.
The Vote Book is a memorandum account (an account for memory purposes only).
The entries in the different columns are vital importance in themselves, but they do
not form part of the double-entry system, and persons maintaining the Vote Book
does not need to know anything about debits r credits. How, then, does this
information become part of the double entry system? This is achieved through the
operation of the computer pregame, the original documents which are used for the
entries in the Vote Book are passed to the data-capture section a Vote Book is
subsequently entered as accredit in the Cash Book; when that payment voucher is
keyed into the computer, the computer effects the double-entry
Each month the computer produces complete ledger accounts from the information
it has stored and it is the responsibility of the Vote Book Controller then to
reconcile his manual VOTE Book with the computerized ledger account.
The Vote Book is a memorandum account and not part of the normal double entry
accounting. Total funds allocated to a specific purpose and the amounts spent are
compared from time to time. This ensures a control that expenditure will not
exceed amounts appropriated. Example
Note: that all these are memorandum accounts that will be closed after issuance of
financial statements.
When the supplier invoices for the ordered merchandise or services is received by
the governmental units it is recorded and the related encumbrance is reversed.
Dr. Expenditure
Cr. Voucher Payable
The encumbrance technique is a memorandum method for assuring that the total
expenditure for fiscal year does not exceed appropriations. Encumbrance journal
entries are not necessary for normal expenditures such as salaries and wages,
utilities and rent. The encumbrance technique used in accounting for governmental
units has no counterpart in accounting for business enterprises.
GOVERNMENT EXPENDITURE
Recurrent
Revenue expenditure incurred by government on normal activities
Development
Incurred for the establishment of new infrastructure agricultural and industrial
projects, water, power projects, roads etc. This is essentially the Capital Budget.
4) Spending by Ministries.
Specific amounts are appropriate by parliament to different ministries, which
should be used to perform their duties. Ministries should not spend amounts
in excess of their appropriations without the approval of parliament. In ach
ministry exists a function control intended to ensure that spending is
according to appropriations and - for correct purposes. Starting 2000 this
function has been strengthened by the development to very ministry of
finance officer employed by and answerable to treasury. The finance officers
are responsible for ensuring that each ministry spends only its
appropriations.
8) Annual Estimates. Towards the end of the Government’s fiscal year, it will
be time to prepare annual estimates for the preceding year and the cycle will
start.
Note: all cheques received by the government departments are considered as ash
and these are entered in the cash column on debit side of the cashbook. These
cheques are banked later on and then a debit made to the Bank and a credit to cash.
Year-end Accounts
By 1st October each year for months after the end of the financial year, each
Ministry must present its final accounts to the controller and Auditor-General.
a) Statement of Revenue
b) Appropriation Account and
c) Funds Accounts
These relate to the various funds administered by different ministries and are not
dealt with here because fund accounting is done on purely-commercial lines
(producing for each fund an Income and Expenditure A/c and a Statement of
Assets and Liabilities).
Ministry of Health
Appropriation account for the year ending 30th June 2014
Expense details Approved Actual Amount Amount
estimate expenditure under overspent
spent
Personal emoluments XX XX XX XX
ANNUAL ACCOUNTS
1. General Account of Vote (GAV) account
2. Exchequer account
Exchequer Account. This account records the amounts authorized from the
consolidated fi.md regarding a specific vote and amounts withdrawn from this
account by the Paymaster General.
Cash (PMG) Account. This account records the withdrawals from exchequer and
amounts spent during a particular year.
Journal Entries
A mount Authorized in the vote on account
Dr. Exchequer
Cr. GAV A/c
Amounts withdrawn
Dr. Paymaster General A/c
Cr. Exchequer A/c
Organizations that prepare income and expenditure are for example NSSF, NHIF,
and Window and orphans scheme.
Example: ports Authority: post office savings bank posts and telecommunications;
railways; power and lighting company ltd.
The main provision of the state corporations in respect of annual accounts are
stated under:
(i) Every state corporation should prepare its revenue and expenditure
accounts for the financial year not later than the end of February every
year
(ii) This account should be accompanied by proposals for funding all projects
to be undertaken by the corporations in the following year
(iii) All annual estimates and proposals for funding projects should both be
implemented until Minister and Treasury have approved them Sec 13
states that the assets of a state corporation if they are current assets in th6
normal course of business carried out by that corporation may be
disposed off.
(iv) Every state corporation should keep proper books in order to record the
property, undertakings, funds, activities, contracts, transactions and other
business of the cooperation.
The act holds the board of directors of a state corporation responsible for the
proper management of the affairs of a state corporation and accountable for the
moneys, the financial and the management of state corporations as per section 15
(1) of the act.
Sec 16 (1) requires that every state corporation to make provision for the renewal
of depreciating assets by the establishment of funds and for contribution to such
reserve and stabilization funds as may be necessary.
FINAL ACCOUNT
1) Revenue Account
This account is also called the revenue and expenditure accounts. This account
shows the details of total income and expenditure of a state corporation for any
particular financial year.
It is prepared in lieu of profit and the loss statement.
3) Balance sheet
Balance sheet of a state corporation gives the details of the assets and liabilities of
the corporation at a specific date.
State Corporation in Kenya prepare their final accounts in the form of published
accounts a prescribed in the companies Act (486).
Question one
Records maintained by Ministry gave the following information at the close of
business on
30th June 2014
Approved Actual
estimates expenditure
£ £
Gross expenditure 8,897,100 9,419,724
Approved Actual
estimates receipts applied
Appropriations-in-Aid (48,800) (48,800)
Net total Vote 8,848,300 9,370,924
Required:
a) Show separately the bookkeeping entries;” involving the above amount as
they would appear in the following accounts. Exchequer ‘Account,’ general
account o Vote (GAV), Paymaster General Account, Heads and Items and
Appropriations-in-Aid Account.
b) Show necessary closing of the year entries using the accounts given in (a)
above.
(ii) The amount paid to the Exchequer during the year was £1,200,000,
which the balances carried forwarded on 30 June 2004 was £1,264,000
(iii) Cash in transit and with agents on 30 June 2004 was £ 7,200 and £6,300
respectively.
(iv) Oil drilling revenue.in arrears at the end of the year was as follows:
o For the current year £3,000
o For the past one year £6,000
o Outstanding for more than two years £1,300
Required:
a) Prepare a Revenue statement, suitable for publications, for the year
ended 30 June 2004.
b) Comment on the balances of revenue on hand