Subject: GOVERNMENT ACCOUNTING Bureau of Treasury

CAILA JANE RIVERA Functions under the Department of Finance and is the cash custodian of the government. The BTr is authorized
CHAPTER 1: OVERVIEW OF GOVERNMENT ACCOUNTING to:
Government Accounting encompasses the processes of analyzing, recording, classifying, summarizing and ➢ Receive and keep national funds and manage and control the disbursements thereof; and
communicating all transactions involving the receipt and disposition of government funds and property, and ➢ Maintain accounts of financial transactions of all national government offices, agencies and
interpreting the results thereof. (State Audit Code of the Philippines, P.D. No. 1445, Sec. 109) instrumentalities.
The Objectives of government accounting:
• To produce information concerning past operations and present conditions; Government Agencies
• To provide a basis for guidance for future operations; ❖ Any department, bureau or office of the national government, or any of its branches and instrumentalities,
• To provide for control of the acts of public bodies and officers in the receipt, disposition and utilization of or any political subdivision, as well as any government owned or controlled corporations (GOCC), including
funds and property; and its subsidiaries, or other self-governing board or commission of the government.
• To report on the financial position and the results of operations of government agencies for the ❖ responsible in directly implementing the projects of, and performing the functions delegated by the
information of all persons concerned. government.
❖ Each agency shall maintain accounting books and budget registries which are reconciled with the cash
Responsibility, Accountability and Liability over Government Funds and Property records of the BTr and the budget records of the COA and DBM.
RESPONSIBILITY OVER GOVERNMENT FUNDS AND PROPERTY
➢ Government resources shall be utilized efficiently and effectively in accordance with the law. The head of a Entity – refers to a government agency, department or operating/field unit.
government agency is directly responsible in implementing this policy and is primarily responsible for Financial reporting – is the process of preparation, presentation and submission of general purpose financial
government resources entrusted to his agency. statements and other reports. The objective of financial reporting is to provide information about the entity that
➢ All those who are exercising authority over a government agency shall share fiscal responsibility. is useful to users for accountability purpose and decision making.
NGAS – New Government Accounting System
ACCOUNTABILITY OVER GOVERNMENT FUNDS AND PROPERTY GAM – Government Accounting Manual for NGAs
➢ A government officer entrusted with the possession of government resources is responsible for the IPSAS – International Public Sector Accounting Standards
safekeeping thereof in accordance with the law. Every accountable officer shall be properly bonded. IFRS – International Financial Reporting Standards
➢ The transfer of government funds from one officer to another shall, except as allowed by law, be made only PPSAS – Philippine Public Sector Accounting Standards
after the authorization of the COA. The transfer shall be properly documented in an invoice and receipt.
COVERAGE: The GAM for NGAs provides the basic concepts to be used in:
LIABILITY OVER GOVERNMENT FUNDS AND PROPERTY • Preparing general financial statements in accordance with the Philippine Public Sector Accounting
➢ The unlawful use of government resources shall be the personal liability of the employee found to be Standards (PPSAS) and other financial reports as may be required by laws, rules and regulations.
directly responsible thereof. • Reporting of budget, revenue and expenditure in accordance with laws, rules and regulations.
➢ Every accountable officer shall be liable for all losses resulting from the unlawful use or negligence in the
safekeeping of government resources. OBJECTIVE: The GAM for NGAs aims to update the following:
➢ No accountable officer shall be relieved from liability merely because he has acted under the direction of a • Standards, policies, guidelines and procedures in accounting for government funds and property;
superior officer in unlawfully utilizing the government resources entrusted to him, unless before that act, • Coding structure and accounts; and
he has notified the superior officer, in writing, that the utilization is illegal. The superior officer shall be • Accounting books, registries, records, forms, reports and financial statements.
primarily liable while the accountable officer who fails to serve the required notice shall be secondarily
liable. FUND CLUSTER ACCOUNTING: The books of accounts are maintained by fund cluster
➢ An accountable officer shall immediately notify the COA for any loss of government funds from unforeseen
Code Fund Cluster
events (force majeure) within 30 days. Failure to do so will not relieve the officer of liability.
01 Regular Agency Fund
Accounting Responsibility: The following offices are charged with government accounting responsibility: 02 Foreign Assisted Projects Fund
▪ Commission on Audit (COA)
03 Special Account - Locally Funded / Domestic Grants Fund
▪ Department of Budget and Management (DBM)
▪ Bureau of Treasury (BTr) 04 Special Account - Foreign Assisted / Foreign Grants Fund
▪ Government Agencies 05 Internally Generated Funds

Commission on Audit 06 Business Related Funds

➢ Has the exclusive authority to promulgate accounting and auditing rules and regulations. 07 Trust Receipts
➢ Keeps the general accounts of the government, supporting vouchers, and other documents.
➢ Submits financial reports to the President and the Congress. Qualitative Characteristics of Financial Reporting
▪ Understandability – information is understandable when users can reasonably be expected to comprehend
Department of Budget and Management its meaning. Accordingly, users are assumed to have
❖ responsible for the formulation and implementation of the national budget with the goal of attaining the 1. Reasonable knowledge of the entity’s activities; and
nation’s socio-economic objectives. 2. Willingness to study the information.
▪ Relevance – information is relevant if it can assist users in evaluating past, present or future events or in
confirming or correcting past evaluations. In order to be relevant, information must be timely.
▪ Timeliness – information loses its relevance if there is undue delay in its reporting. The complexity of an
entity’s operations is not a sufficient reason for failing to report on a timely basis.
▪ Reliability – reliable information is free from material errors or bias and can be depended on by users to
represent faithfully that which it purports to represent or could reasonably be expected to represent.
▪ Faithful representation – for information to represent faithfully transactions and other events, it should be
presented in accordance with the substance of the transactions and other events, and not merely their legal
form.
▪ Substance over form – the substance of transactions or other events is not always consistent with their
legal form. If information is to represent faithfully the transactions and other events that it purports to
represent, it is necessary that they be accounted for and presented in accordance with their substance and
economic reality, and not merely their legal form.
▪ Neutrality – information is neutral if it is free from bias. Information shall not be selected or presented in a
manner that is designed to influence the user’s decision in order to achieve a predetermined outcome.
▪ Prudence – is the exercise of a degree of caution when making estimates under conditions of uncertainty,
such that assets or revenues are not overstated, and liabilities or expenses are not understated. However,
prudence does not allow the creation of hidden reserves or excessive provisions, the deliberate
understatement of assets or revenue, or the deliberate overstatement of liabilities or expenses, because
the financial statements would not be neutral and, therefore, not reliable.
▪ Completeness – information should be complete within bounds of materiality and cost.
▪ Comparability – information is comparable when users are able to identify similarities and difference
between that information and information in other reports. Comparability applies to the comparison of
financial statements of different entities and comparison of the financial statements of the same entity over
different periods.
Components of General Purpose Financial Statements
General purpose financial statements are those intended to meet the needs of users who are not in a position
to demand reports tailored to meet their particular needs. (PPSAS 1.3)
➢ Statement of Financial Position;
➢ Statement of Financial Performance;
➢ Statement of Changes in Net Assets / Equity;
➢ Statement of Cash Flows;
➢ Statement of Comparison of Budget and Actual Amounts; and
➢ Notes to the Financial Statements, comprising a summary of significant accounting policies and other
explanatory notes.
Elements of the Financial Statements
➢ Assets – are resources controlled by an entity as a result of past events, and from which future economic
benefits or service potential are expected to flow to the entity.
➢ Liabilities – are present obligations of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits or service
potential.
➢ Equity – is the residual interest in the assets of the entity after deducting all its liabilities.
➢ Revenue – is the gross inflow of economic benefits or service potential during the reporting period when
those inflows result in an increase in net assets/equity, other than increase relating to contributions from
owners.
➢ Expenses – are decreases in economic benefits or service potential during the reporting period in the form
of outflows or consumption of assets or incurrence of liabilities that result in decreases in net assets/equity,
other than those relating to distributions to owners.
CHAPTER 2: THE BUDGET PROCESS.
The National Budget
Government accounting is primarily budgetary accounting. Government accounting does not only aim to provide
information on past events and transactions but also budget information in accordance with PPSAS 24. The
national budget is the government’s estimate of the sources and uses of government funds within a fiscal year.
This forms the basis for expenditures and is the government’s key instrument for promoting its socio-economic
objectives. The formulation and eventual utilization of the national budget are summarized in the budget cycle.
The Budget Cycle
The budget cycle has four phases, namely:
A. Budget preparation
B. Budget legislation
C. Budget execution
D. Budget accountability
A. BUDGET PREPARATION: The Philippines uses a “bottom-up” approach. Under the “bottom-up” budgeting,
several parties participate in the budget preparation, starting from the lowest to the highest levels of the
government.
In 2011, the Philippine Government attempted to start a new tradition by shifting from the old “incremental”
system of budgeting to the “zero-based budgeting approach.
Incremental budgeting Zero-based budgeting
The current year's budget is formulated based on the The current year's budget is formulated without
previous year's budget, which is just adjusted for any regard to the previous year's budget. Government
variance experience in the past, presumably, the agencies are required to justify their current year's
proposed programs and expenditures in the previous proposed programs and expenditures, irrespective of
year are automatically approved in the current year. whether these are new or carried over from the
previous year.
Uses a "roll-over" approach Uses a "back to zero" or "clean slate" approach.
Prone to abuse Promotes efficient and effective utilization of funds
1. Budget Call – the budget preparation starts when the Department of Budget and Management (DBM) issues
a budget call to all government agencies. The budget call contains, among other things , the next fiscal year’s
targets, the agency’s budget ceiling, and other guidelines in the completion and submission of agency budget
proposal.
RELEVANT TERMS:
▪ Balanced budget – prepared in such a way that estimated revenues exceeded estimated expenditures. If
actual revenues exceed actual expenditures, the government earns a surplus. If expenditures exceed
revenues, the government incurs a deficit.
▪ Annual budget – covers a period of one year and forms the basis for the annual appropriation.
▪ Special budget – provides for items not adequately covered or not included in the general appropriations
act.
▪ Line item budget – focuses on specific expenditures such as salaries and wages, travel expenses, freight,
supplies, materials and equipment.
▪ Performance budget – a plan of activities to be undertaken, including their related costs, with the emphasis
on meeting targets and desired results. The main focus is on the work to be done or services to be rendered.
▪ Obligations budget – focuses on expenditures incurred in the current year which are to be paid either in
the same year or in the following year.
2. Budget Hearings – budget hearings are conducted after the agencies submit their budget proposals. Each
agency defends its budget proposal before the DBM. The DBM deliberates on the budget proposals, make
recommendations, and consolidates the deliberated proposals into the National Expenditure Program (NEP) and
Budget of Expenditures and Source of Financing (BESF). The DBM then submits the proposed budget to the
President.

3. Presentation to the Office of the President – the President and Cabinet members review the proposed budget.
After the President approves the proposed budget, the DBM finalizes the budget documents and submitted to
the Congress. At this point, the proposed budget is referred to as the “President’s Budget.”
The “President’s Budget” contains the following documents which are intended to assist the Congress in their
review and deliberation of the proposed national budget.
a. President’s Budget Message – this contains the President’s explanation of the country’s fiscal policy and
budget priorities.
b. National Expenditure Program – this contains the details of all the government entities’ proposed
expenditures in the coming year.
c. Budget of Expenditures and Source of Financing (BESF) – this contains the estimated expenditures
accompanied by estimates of expected source of financing.
d. Other documents aimed to provide further explanation selected items in the NEP (e.g. details of key programs
and projects and staffing summary).
B. BUDGET LEGISLATION: Government funds shall only be spent in pursuance of an appropriation made by law.
Therefore, due process must be undertaken to legalize the proposed budget.
4. House Deliberations – upon the receipt of the President’s Budget, the House of Representatives conducts
hearings to scrutinize the various agencies’ respective proposed programs and expenditures. Thereafter, the
House of Representatives prepares the General Appropriations Bill (GAB).
5. Senate Deliberations – the Senate conduct its own deliberations on the GAB. These normally start after the
Senate receives the GAB from the House of Representatives. However, for expediency, hearings in the Senate
start even as Representatives deliberations are ongoing.
6. Bicameral Deliberations – after deliberations in both houses are finished, a committee called Bicameral
Conference Committee is formed to harmonize any conflicts between the Representatives and Senate version of
the GAB. The harmonized GAB (Bicam version) is submitted back to both Houses for ratification. After ratification,
the final GAB is submitted to the President for enactment.
7. President’s enactment – the President enacts the budget, which is now known as General Appropriations Act
(GAA). Before enactment though, the President may exercise his veto power as conferred to him under the
Philippine Constitution.
1. New General Appropriations – are annual authorization for incurring obligations during a specific budget year,
as listed in the GAA.
2. Continuing Appropriations – are the authorizations to support obligations for a specific purpose or project,
such as multi-year construction projects which require the incurrence of obligations even beyond the budget
year.
3. Supplemental Appropriations – are additional appropriations authorized by law to augment the original
appropriations which proved to be insufficient for their intended purpose due to economic, political or social
conditions supported by a Certification of Availability of Funds from the BTr.
4. Automatic Appropriations – are the authorizations programmed annually or for some other period prescribe
by law which do not require periodic action by Congress.
5. Unprogrammed Funds – are standby appropriations authorized by Congress in the annual GAA which may be
availed only when any of the following instances occur:
a. revenue collections exceed the original revenue targets in the Budget of Expenditures and Sources of
Financing (BESF) submitted by the President to the Congress.
b. new revenues are collected or realized from sources not originally considered in the BESF; or
c. newly-approved loans for foreign-assisted projects are secured or when conditions are triggered for other
sources of funds such as perfected loan agreements for foreign assisted projects.
6. Retained Income/Funds – collections which are authorized by law to be used directly by agencies concerned
for their operation or specific purposes.
7. Revolving Funds – receipts derived from business-type activities of departments/agencies which are
authorized by law to be constituted as such and deposited in an authorized government depository bank. These
funds shall be self-liquidating, and all obligations and expenditures incurred by virtue of said business-type
activity shall be charged against said fund.
8. Trust receipts – receipts by any government agency acting as trustee, agent or administrator for the fulfilment
of some obligations or conditions.
C. BUDGET EXECUTION: This is the phase where government funds are spent.
8. Release guidelines and BEDS – the DBM issues guidelines on the release and utilization of funds while the
various agencies submit their Budget Execution Documents (BEDs). A BED summarizes an agency’s fiscal year
plans and performance targets. It includes the following:
a. Physical and financial plan
b. Monthly cash program
c. estimate of monthly income, and
d. list of obligations that are not yet due and demandable.

The Approved Budget The following are the major recipients of the budget:
Approved budget – is the expenditure authority derived from appropriation laws, government ordinances, and 1. National Government Agencies NGAs) – include all agencies within the executive, legislative and judicial
other decisions related to the anticipated revenue or receipts for the budgetary period. The approved budget branches of government. (e.g. commissions, departments, landbank of the Philippines, Social security system,
consists of the following: etc)
UACS Code UACS Code 2. Local Government Units (LGUs) – include (a) autonomous regions, (b) provinces and cities independent from
New General Appropriations 01 Unprogrammed Funds 05 a province, (c) component cities (cities which are part of a province) and municipalities, and (d) barangays.
3. Government Owned and Controlled Corporations (GOCCs) – corporations that are owned or controlled,
Continuing Appropriations 02 Retained Income / Funds 06 directly or indirectly, by the government and vested with functions relating to public funds.
Supplemental Appropriations 03 Revolving Funds 07
Automatic Appropriations 04 Trust Receipts 08 9. Allotment – the DBM formulates the allotment release program (ARP) to set the limit for allotment releases
during the upcoming year. This is used as a control device to ensure that releases conform to the national budget.
Alongside, is a Cash Release Program (CRP), which sets the disbursement limits for the year, for each quarter and
The Unified Accounts Code Structure (UACS) refers to the standard coding system used in financial reporting of for each month.
the National Government. ➢ Allotment – is an authorization issued by the DBM to government agencies to incur obligations for specified
➢ Appropriation – is the authorization made by the legislative body to allocate funds for purposes specified amounts contained in a legislative appropriation in the form of budget release documents. It is also referred
by the legislative or similar authority. to as Obligational Authority. [It is illegal for a government entity to incur obligations without having first
received the “allotment”. Moreover, the type and amount of obligations to be incurred must conform to
those that are specified in the allotment.]
➢ Obligation - is an act of a duly authorized official which binds the government to the immediate or 2. Ledgers
eventual payment of a sum of money. Obligations maybe referred to as a commitment that encompasses • General Ledgers
possible future liabilities based on current contractual agreement. • Subsidiary Ledgers
3. Registries
The following are the documents used in releasing allotments to government agencies: • Registries of Revenue and Other Receipts
1. General Appropriations Act Release Document (GAARD) – serves as the obligational authority for the • Registry of Appropriations and Allotments
comprehensive release of budgetary items appropriated in the GAA, categorize as For Comprehensive Release. • Registries of Allotments, Obligations and Disbursements
2. Special Allotment Release Order (SARO) – covers budgetary items under for later release (negative list) in • Registries of Budget, Utilization and Disbursements
the entity’s submitted Budget Execution Documents (BEDs), subject to compliance of required
documents/clearances. Release of allotments for Special Purpose Funds (e.g. calamity fund, contingency fund, Budget Registries
E-Government fund, Feasibility studies fund, International commitment fund, Miscellaneous personnel benefits 1. Registries of Revenue and Other Receipts (RROR) – used to monitor the budgeted amounts, actual collections
fund and pension and gratuity fund) are also covered by SAROs. and remittances of revenue and other receipts.
3. General Allotment Release Order (GARO) – is a comprehensive authority issued to all national government 2. Registry of Appropriations and Allotments (RAPAL) – used to monitor appropriations and allotments. This is
agencies, in general, to incur obligations not exceeding an authorized amount during specified period for the to ensure that allotments will not exceed appropriations.
purpose indicated therein. It covers automatically appropriated expenditures common to most, if not all, 3. Registries of Allotments, Obligations and Disbursements (RAOD) – used to monitor the allotments received,
agencies without need of special clearance or approval from a competent authority, i.e. retirement and life obligations incurred against corresponding allotment, and the actual disbursements made. This is to ensure that
insurance premium. obligations will not exceed allotments while actual disbursements will not exceed obligations incurred.
Object of Expenditures
10. Incurrence of Obligations – government agencies incur obligations which will be paid by the government, The classification of expenditures by object are as follows:
e.g. entering into contracts, hiring of personnel, purchase of supplies, etc. ➢ Personnel Services (PS) – pertains to all types of employee benefits, e.g. salaries, bonuses, allowances, cash
gifts, etc.
11. Disbursement Authority – the DBM issues disbursement authority to the government agencies. This is the ➢ Maintenance and Other Operating Expenses (MOOE) – pertains to various operating expenses other than
point where government agencies obtain access to the government funds. employee benefits and financial expenses, e.g. travel, utilities, supplies, etc.
➢ Financial Expenses (FE) – pertain to finance costs, e.g. interest expense, bank charges, etc. financial
Budget Accountability: This phase occurs concurrently with the budget execution phase. As the budget is being expenses also include losses on foreign exchange transactions.
executed, it is regularly monitored to determine the conformance of actual results with planned targets. ➢ Capital Outlays (CO) – pertain to capitalizable expenditures, e.g. expenditures on the construction of public
infrastructures, acquisition of equipment, etc.
12. Budget Accountability Reports – government agencies are required to submit the following accountability 4. Registries of Budget, Utilization and Disbursements (RBUD) – used to record the approved special budget
reports: and the corresponding utilizations and disbursements charged to retained income.
• Monthly report of disbursements
• Quarterly physical report of operation Basic Recordings
• Statement of appropriations, allotments, obligations, disbursements and balances Appropriation
• Summary of appropriations, allotments, obligations, disbursements and balances by object of expenditures Entity A (a government agency) receives its GAA consisting of the following:
• List of allotments and sub-allotments Personnel Services P100,000
• Statement of approved budget, utilizations, disbursements and balances Maintenance and Other Operating Expenses 60,000
• Summary of approved budget, utilizations, disbursements and balances by object of expenditures Financial Expenses 0
• Quarterly report of revenue and other receipts Capital Outlay 200,000
Total Appropriation for the current year 2022 P360,000
13. Performance reviews – the DBM and COA perform reviews of the agencies’ performance and budget
accountability and report to the President. Allotment
Entity A receives its allotment from the DBM consisting of the following:
14. Audit – the COA audits the agencies. Personnel Services P 90,000
Maintenance and Other Operating Expenses 40,000
CHAPTER 3: THE GOVERNMENT ACCOUNTING PROCESS Financial Expenses 0
The government accounting process comprises the activities of analyzing, recording, classifying, summarizing Capital Outlay 170,000
and communicating transactions involving the receipt and disposition of government funds and property, and Total Allotment P300,000
interpreting the results thereof.
Incurrence of Obligation
Books of Accounts and Registries: The books of accounts and registries of government entities consists of: Obligation Request and Status (ORS)
1. Journals Obligations shall be incurred through the issuance of obligation request and status (ORS). The requesting office
• General Journal shall prepare this document, supported by a valid claim documents like disbursement vouchers, payrolls,
• Cash Receipts Journal purchase/job orders, itinerary of travels, etc. The head of the requesting office shall certify the necessity and
• Cash Disbursement Journal legality of the obligation and the validity of the supporting documents. The head of the budget division shall
• Check Disbursement Journal certify the availability of the allotment.
 b. in the books of the BIR and BOC, the constructive receipt of the tax revenue and customs duties; and
Entity A enters into the following contracts: c. in the books of the BTr, the constructive receipt of the taxes and customs duties remitted.
a. Personnel Services – Employment contracts (job orders) amounting to P70,000
b. Maintenance and Other Operating Expenses – Purchase contract for office supplies worth P25,000 Books of Entity A
c. Capital Outlays – Purchase contract for office equipment worth P160,000 Cash – Tax Remittance Advice P 10,000
Subsidy from National Government P10,000
Up to this point, nothing is recorded yet in the accounting books. The recordings are made on the budget
registries. Journal entries shall be made only after: Due to BIR P10,000
a. the employees have rendered services Cash – Tax Remittance Advice P10,000
b. the office supplies are delivered and received; and
c. the office equipment is delivered and received. Books of BIR
Cash – TRA P10,000
Disbursement Authority – Notice of Cash Allocation (NCA) Income Tax P10,000
Entity A receives a Notice of Cash Allocation from the DBM amounting to P200,000, net of tax.
Cash-Modified Disbursing Sytem, Regular P200,000 Books of BTr
Subsidy from National Government P200,000 Subsidy to NGAs P10,000
Cash – TRA P10,000
Disbursements
Salaries and Wages P35,000 Remittance of GSIS, Pag-Ibig and Philhealth
PERA 5,000 Due to GSIS P2,000
Gross Compensation 40,000 Due to Pag-Ibig 2,000
Withholding Tax (10,000) Due to Philhealth 1,000
GSIS (2,000) Cash – MDS, Regular P5,000
Pag-Ibig (2,000)
Philhealth (1,000) BILLINGS, COLLECTIONS & REMITTANCES
Total Deductions (15,000) a. Entity A bills revenue of P100,000 for rent income.
Net P25,000 Accounts Receivable P100,000
Rent / Lease income P100,000
a. set-up of payable to officers and employees upon approval of payroll
Salaries and Wages, Regular 35,000 b. Entity A collects P100,000 from the billed revenue and remitted the collection to the BTr.
Personnel Economic Relief Allowance (PERA) 5,000 Cash – Collecting Officer P100,000
Due to BIR 10,000 Accounts Receivable P100,000
Due to GSIS 2,000
Due to Pag-Ibig 2,000 Cash – Treasury, Regular P100,000
Due to Philhealth 1,000 Cash – Collecting Officer P100,000
Due to Officers and Employees 25,000
P.D. No. 1445 requires that all collections must be remitted to the National Treasury unless another law
b. posting of payable to the section C of obligation request and status specifically allows otherwise.
c. Grant of Cash advance for payroll.
Advances for payroll P25,000 Reversion of Unused Notice of Cash Allocation (NCA)
Cash – Modified Disbursement System (MDS), Regular P25,000 Government entities are required to revert any unused NCA at the end of the accounting period.
Cash - Modified Disbursement System (MDS), Regular
d. posting of the disbursement to the payment column of section C of the ORS and disbursement column of the
RAOD receipt of NCA 200,000.00
e. liquidation of cash advance 25,000.00 advances for payroll
Due to officers and employees P25,000
5,000.00 Remittances
Advances for Payroll P25,000

Remittance of Amounts Withheld 170,000.00 end

Tax Remittance Advice (TRA)
The TRA is used to recognized: Subsidy from National Government 170,000
a. in the books of government agencies, the constructive remittance of tax withheld to the Bureau of Internal Cash-modified disbursement system (MDS), regular 170,000
Revenue (BIR) or Customs Duties withheld by Bureau of Customs (BOC), and the constructive receipt of NCA
for those taxes and customs duties Notice that the entry above is the exact opposite of the entry to record the receipt of the NCA
The Revised Chart of Accounts
A chart of accounts is a list of all the accounts used by an entity. Government entities shall use the account titles Cash – MDS, Regular P600,000
and account codes in the Revised Chart of Accounts (RCA) issued by the COA Subsidy from National Government P600,000
Each account in the RCA is assigned an 8-digit code as follows: To recognize receipt of NCA from the DBM
0-00-00-00-0
Cash – MDS, Regular 25,000
Account Group Subsidy from National Government 25,000
Major Account Group To recognize receipt of NCA from the DBM
Sub-Major Account Group
The NCA is posted (recorded) in the Registry of Allotments and Notice of Cash Allocation (RANCA)
General Ledger Accounts 5. Disbursements
General Ledger Contra Accounts I. PERSONNEL SERVICES (PS)
Code Account Groups a. set-up of payable to officers and employees upon approval of payroll
1 Assets Salaries and Wages 200,000
2 Liabilities Personal Economic Relief Allowance (PERA) 50,000
3 Equity Gross Compensation 250,000
4 Income Withholding tax (20,000)
5 Expenses GSIS (9,000)
Assets Pag-Ibig (2,000)
Cash and Cash Equivalents PhilHealth (1,000)
Cash on Hand Total deductions (32,000)
Cash Collecting Officer NET 218,000
Petty Cash
Cash in Bank – Local Currency Salaries and Wages
Cash in Bank-Local Currency, Current Account – Banco De Oro (BDO) Personal Economic Relief Allowance (PERA)
Cash in Bank-Local Currency, Current Account – BPI Due to BIR
Cash in Bank-Local Currency, Current Account – LBP (24) Due to GSIS
Due to Pag-Ibig
Example: Cash – Collecting Officers 1-01-01-01-0 Due to PhilHealth
Due to Officers and Employees
The Government Accounting Cycle To recognize payable to officers and employees upon approval of payroll
1. Appropriation
2. Allotment b. the payable is recorded in the ORS
3. Incurrence of Obligation c. Grant of Cash Advance for Payroll
4. Disbursement Authority – NCA Advances for Payroll 218,000
5. Disbursement Cash – MDS, Regular 218,000
6. Billings, Collections and Remittances To recognize grant of cash advance for approval
7. Unadjusted Trial Balance
8. Adjusting Entries d. the disbursement is recorded in the ORS and RAOD
9. Closing Entries e. liquidation of payroll fund
10. Preparation of Financial Statements Due to Officers and Employees 218,000
Advances for Payroll 218,000
1. Appropriation: Entity A receives its GAA amounting to P1,000,000 To recognize liquidation of Payroll Fund
▪ The appropriation is posted (recorded) in the Registry of Appropriations and Allotments (RAPAL)
2. Allotment: Entity A receives its allotment amounting to P960,000 from DBM II. MAINTENANCE AND OTHER OPERATING EXPENSES
▪ The allotment is posted (recorded) in the Registry of Appropriations and Allotments (RAPAL) and Registries Purchase of office supplies
of Allotments, Obligations and Disbursements (RAOD) Office supplies inventory 5,000
3. Incurrence of Obligation: Entity A incurs obligations amounting to P700,000 Accounts payable 5,000
▪ The obligations are recorded in the Obligation Request and Status (ORS) documents and Registries of Office supplies inventory 70,000
allotments and Disbursements (RAOD) Accounts payable 70,000
4. Disbursement Authority
Entity A receives the following Notice of Cash Allocation (NCA), net of tax ▪ The payable is record in the ORS
▪ For current year’s appropriation P600,000
▪ For prior years accounts payable and not yet due and demandable obligations P25,000
Payment of accounts payable Payment of accounts payable
Entity A pays the following accounts payable Accounts payable 300,000
Accounts payable 20,000 Less: withholding tax (20,000)
Withholding tax (2,000) Net 280,000
Net 18,000
Accounts payable 300,000
Accounts payable 20,000 Due to BIR 20,000
Due to BIR 2,000 Cash, MDS, Regular 280,000
Cash, MDS, Regular 18,000
IV. Remittance of Tax Withheld
Issuances of office supplies to end-users Entity A remits the taxes withheld through TRA
Entity A issues office supplies worth P63,000 to end users Cash – tax remittance advice 48,000
Office supplies expenses 63,000 Subsidy from national government 48,000
Office supplies inventory 63,000 To recognize the constructive receipt of NCA for TRA
Due to BIR 48,000
Operating Expenses Cash – tax remittance advice 48,000
Entity A pays for the following expenses To recognize the constructive remittance of tax withheld to the BIR through TRA
Water 1,000
Electricity 5,000 6. Billings, Collections and Remittances
Telephone 2,000 Entity A bills the following revenue/income
Janitorial 10,000 Power supply system fees 100,000
Security 12,000 Landing and parking fees 80,000
Total 30,000 Total 180,000
Less: withholding tax (2,000)
Net 28,000 Accounts receivable 180,000
Power supply system fees 100,000
Water expenses 1,000 Landing and parking fees 80,000
Electricity expenses 5,000
Telephone expenses 2,000 Entity A collects the collects the P100,000 accounts receivable from the billing above and remits P90,000 of the
Janitorial expenses 10,000 collection.
Security expenses 12,000 Cash – Collecting officers 100,000
Due to BIR 2,000 Accounts receivable 100,000
Cash, MDS, Regular 28,000
Cash – treasury/ agency deposit 90,000
Cash advance for travel Cash – collecting officers 90,000
Entity A grants cash advance of P2,000 for the traveling expenses of an officer
Advances to officer and employees 2,000 Entity A collects P45,000 accounts receivable from prior year’s billing and remits total collection.
Cash, MDS, Regular 2,000 Cash – collecting officers 45,000
Accounts receivable 45,000
Liquidation of cash advance:
Traveling expenses 1,800 Cash – treasury / agency deposit 45,000
Advances to officers and employees 1,800 Cash collecting officers 45,000

Receipt and deposit of cash of refund of cash advance: Entity A collects unbilled service income of P370,000 and remits P340,000 of the total collection.
Cash – collecting officers 200 Permit fees 200,000
Advances to officers and employees 200 Registration fees 160,000
Cash – Treasury / agency deposit 200 Other service income 10,000
Cash collecting officers 200 Total collection 370,000
III. Capital Outlays (CO)
Purchased of office equipment Cash – collecting officers 370,000
Receipt the delivery of purchased of equipment worth P300,000 from current years obligation: Permit fees 200,000
Office equipment 300,000 Registration fees 160,000
Accounts payable 300,000 Other service income 10,000
To recognize delivery of equipment To recognize collection of unbilled service income
 Traveling expenses – foreign 1,800
Cash treasury/agency deposit 340,000 Office supplies expense 63,000
Cash – collecting officers 340,000 Water expense 1,000
To recognize remittance of income to the BTr Electricity expense 5,000
Telephone expense 2,000
7. Unadjusted Trial Balance Janitorial expense 10,000
An unadjusted trial balance is a list of the accounts in the General Ledger together with their balances. Its purpose Security expense 12,000
is to test the equality of total debits and total credits in the accounts. Depreciation expense – bldgs. 50,000
Depreciation expense – equipment’s 30,000
8. adjusting Entries Impairment loss – A/R 2,000
1. reversion of unused Notice of Cash Allocation (NCA) Revenue and Expense summary 223,200
2. Depreciation expenses: To recognize closing of income and expense accounts
Buildings 50,000
Equipment 30,000 Revenue and expense summary 890,200
3. allowance for impairment of accounts receivable 2,000 Accumulated surplus/(deficit) 890,200
To recognize closing of revenue and expense summary
Subsidy from National Government 6,000
Cash – MDS, Regular 6,000 Chapter 4: Revenues and Other Receipts
To recognize reversion of unused NCA Revenue – is the gross inflow of economic benefits or service potential during the period when those inflows
result in an increase in equity, other than increases relating to contributions from owners; includes only those
Depreciation expense – buildings and other structure 50,000 that are received or receivable by the entity in its own account. Receipts refer to actual cash collections from all
Accumulated depreciation – Bldgs. 50,000 sources during a period.
To recognize depreciation of buildings
Fundamental Principles for Revenue
Depreciation – machinery and equipment 30,000 a. all revenue of an entity shall be remitted to the national treasury and included in the general fund of the
Accumulated depreciation – equipment 30,000 national government unless another law specifically allows otherwise.
To recognize depreciation of office equipment b. all money and property received by a public officer, acting in any capacity or upon any occasion, shall be
accounted for as government funds and property, unless another law specifically states otherwise.
Impairment loss – loans and receivable 2,000 c. amounts received in trust and from business-type activities of the government may be separately recorded
Allowance for impairment – A/R 2,000 and disbursed in accordance with relevant rules.
To recognize loss on accounts receivable d. receipts shall be recorded as revenue of special, fiduciary or trust funds, or funds other than general fund only
when authorized by law.
9. Closing Entries e. a collecting officer shall immediately issue an official receipt (OR) upon collecting a payment of any nature.
The following are necessary closing entries: f. where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash receipts, the COA may
a. closing of the “ cash treasury/agency deposit account to the “accumulated surplus/(deficit) account approve, upon request, the exemption from the use of accountable forms.
b. closing of the “subsidy from national government” account to the “revenue and expense summary” account g. temporary receipts shall never be used to acknowledge the receipt of public funds.
c. closing of the “revenue and expense summary” to the accumulated surplus/(deficit) account h. pre-numbered official receipts (ORs) shall be issued in strict numerical sequence. Duplicate copies shall be the
exact copies of the original.
accumulated surplus/(deficit) 575,200 i. a collecting officer shall accept payments to the government in the form of checks, upon proper endorsement
cash – treasury / agency deposit 575,200 and identification of the payee or endorsee. The collecting officer shall not use government funds to encash
to recognize closing of cash deposit account private checks.
j. receipts of government funds shall be acknowledged in accordance with the law – indicating the date of receipt,
subsidy from national government 667,000 from whom and on what account the fund was received.
revenue and expenses summary 667,000
to recognize closing of subsidy account Types of Funds
▪ General fund – a fund which is available for any purpose other than those which other funds have been
immigration tax 100,000 designated to.
permit fees 200,000 ▪ Special fund – a fund designated for special purposes.
registration fees 160,000 ▪ Trust fund (fiduciary) - fund held by a government agency or public officer acting as trustee, agent, or
other service income 10,000 administrator for the fulfilment of a condition.
power supply system fees 100,000 ▪ Revenue fund – comprises all funds derived from the income of any government agency and available for
landing and parking fees 80,000 appropriation or expenditure in accordance with the law.
salaries and wages 200,000 ▪ Depository fund – fund held in authorized depository bank over which the recipient agency retains control
PERA 50,000 for the lawful purposes for which the fund was received.
▪ Special account in the general fund (SAGF) – established to facilitate the funding of priority activities of the
government. The SAGF is a sourced from specific fees, grants and donations, and other sources identified
under the law. The following are relevant legal provisions regarding the SAGF:
a. all income and collections for SAGF shall be remitted to the Treasury and treated as SAGF
b. the SAGF shall be considered as being automatically appropriated for the purposes authorized by
law, except when the general appropriations act (GAA) provides otherwise.
c. SAGF shall be released to the government agencies subject to the approval of the President.
▪ Special purpose funds (SPFs) – are funds that the President allocates for special programs and projects.
Unlike for other funds, SPFs are not under the accountability of any particular government agency/office
or unit.
Sources of Revenue
a. exchange transactions – are transactions in which one entity receives assets or services, or has liabilities
extinguished, directly gives approximate equal value to another entity in exchange. (PPSAS 9.11) examples: sale
of goods and rendering of services
b. non-exchange transactions – are transactions in which an entity either receives value form another entity
without directly giving approximate equal value in exchange or gives value to another entity without directly
receiving approximate equal value in exchange. (PPSAS 9.11)
examples: tax revenue, fines and penalties and donations
Exchange Transactions
Sale of Goods or Provisions of Services to third parties or other government entities.
a. service income – permit fees, registration fees, franchising fees, licensing fees, legal fees, passport and
visa fees, processing fees, and the like.
b. business income – school fees, examination fees, rent/lease income, communication network fee, income
from hostel/dormitories, sales revenue, hospital fees, share in the profit of joint venture, and the like.
Use by other entity of assets yielding interest, royalties, and dividends or similar distributions.
a. interest income – charges for the use of cash or cash equivalents or amounts due to the entity.
b. royalties – fees paid for the use of entity’s assets such as trademarks, patents, software and copyrights;
c. dividends – share of the National Government from the earnings of its capital/equity investments in
Government Owned or Controlled Corporations (GOCCs) and other entities.
b. Royalties are recognized as they are earned in accordance with the substance of the relevant agreement; and
c. Dividends are recognized when the entity’s right to receive payment is established.
Measurement of Revenue from Exchange Transactions
Revenue from exchange transactions are measured at the fair value of the consideration received or receivable.
Any trade discounts and volume rebates shall be taken into account.
▪ Fair value – is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable willing parties in an arm’s length transaction.
Example:
Entity A sells goods with a list price of P10,000, on account, with the following credit term 10%, 10%, and 5%.
Revenue is recognized as follows:
Accounts receivable 7,695
Sales revenue 7,695
To recognize sale of goods on account
(10,000 x 90% x 90% x 95%)
Exchange of Goods or Services
Exchange of goods or services with:
a. similar nature and value do not give rise to revenue.
b. dissimilar nature and value give rise to revenue measure using the following order of priority;
i. fair value of the goods or services received, adjusted by the amount of any cash transferred.
ii. fair value of the goods or services given up, adjusted by the amount of any cash transferred.
Non-Exchange Transactions
Revenue from non-exchange transactions are derived mostly from taxes, fines and penalties, gifts, donations and
goods in-kind. These are received without directly providing something of equal of value in return.
▪ Taxes – are compulsory payments intended to provide revenue for the government. Taxes do not include
fines and penalties.
▪ Fines and Penalties – are monetary sanctions received as a consequence of breach of laws.
▪ Gifts, Donations and Goods/Services in kind - are voluntary transfers of assets and services that one entity
makes to another, normally free from stipulations.

Recognition of Revenue from Exchange Transactions Recognition of Revenue from Non-Exchange Transactions
Sale of Goods: Revenue from non-exchange transactions are recognized on a cash basis until reliable measurement model is
Revenue from the sale of goods shall be recognized when all of the following conditions are satisfied: developed. Accordingly, the asset and revenue or liability arising from a non-exchange transaction are recognized
i. significant risk and rewards of ownership of the goods are transferred to the buyer; when collected or when these are measurable and legally collectible. (Chapter 5., Sec. 12 GAM for NGAs)
ii. the entity does not retain continuing managerial involvement or effective control over the goods sold;
iii. it is probable that economic benefits will flow to the entity; Tax Revenue is recognized at a gross amount and not reduce for expenses paid through the tax system.
iv. revenue can be measured reliably; and Expenses paid through the tax system are those expenses which should be paid irrespective of whether the
v. cost relating to the transaction can be measured reliably. taxpayer pays taxes or uses a particular mechanism to pay taxes.
Tax revenue shall not be grossed up for the amount of the tax expenditures.
Rendering of Services Tax expenditures are preferential provisions of the tax law that provide certain taxpayers with concessions that
Revenue from the supply of services is recognized on a straight-line basis over the period the services is rendered. are not available to others. Tax expenditures are foregone revenue, not expenses.
However, revenue is recognized by reference to the stage of completion (e.g. percentage of completion method) Type of Tax Taxable Event
if the outcome of the transaction can be estimated reliably, such as when all of the following conditions are
satisfied: a. Income Tax Earnings of taxable income
i. the stage of completion of the transaction at the reporting date can be measured reliably; b. Value-added Tax Undertaking of taxable activity
ii. it is probable that economic benefits will flow to the entity;
c. Goods and Services Tax Purchase or Sale of taxable goods or services
iii. revenue can be measured reliably; and
iv. costing relating to the transaction can be measured reliably. d. Customs Duty Movement of dutiable goods or services across the customs boundary
e. Death Duty Death of the owner of the taxable property
Interest, Royalties and Dividends
a. interest is recognized on a time proportion basis that takes into account the effective yield on the asset; f. Property Tax Passage of time period for which the tax is levied
Transfers: inflows of future economic benefits or service potential from non-exchange transactions, other than Cash in Bank, BSP 10M Cash – MDS
taxes. (PPSAS 23); include fines, gifts, donations of goods or services in-kind, debt forgiveness, bequest, and 10M
grants. All of these transactions transfer resources without approximate equal value in exchange and are not
taxes but some are with conditions. c. completion of the project
Other Deferred Credits 10M Flood Control System
Fines and Penalties: recognized as income in the year they are collected. However, fines are recognized as 10M
revenue when the receivable meets the recognition criteria for asset and are measured at the best estimate of Income from Grants and Donations 10M CIP – Infrastructure Assets
inflow or resources to the entity.An entity collecting fines in the capacity of an agent shall not treat those fines 10M
as revenue.
Pledges: unenforceable undertakings to transfer assets to the recipient entity; not recognized as revenue
Gifts, Donations and Goods in-kind: are recognize as revenue when it is probable that future economic benefits because they do not meet the recognition criteria for asset. If the pledged item is subsequently transferred to
or service potential will flow to the entity. Those that are received without conditions are recognized immediately the recipient entity, it is recognized as a gift or donation. Pledges may warrant disclosure as contingent assets.
as revenue. Those with conditions are initially recognized as liability and recognized as revenue only when the
conditions are satisfied. Concessionary Loans: are loans received by an entity at below market terms. The entity considers whether the
difference between the transaction price (loan proceeds) and the fair value of the loan on initial recognition is
Services in-kind: are not recognized as revenue due to the uncertainties affecting the entity’s ability to control non-exchange transaction.
those services and measure them at fair value. Examples of services in-kind include technical assistance from
foreign bodies, community services rendered by persons convicted of offenses, volunteer services, and the like. Impairment losses and Allowance for Impairment Losses: When an amount already recognize as revenue
Services in-kind may be disclosed in the notes. becomes uncollectible, it is recognized as expense rather than an adjustment to the revenue originally recognize.

Measurements Other Receipts include, but not limited to, the following:
Assets, liabilities and revenue arising from a non-exchange transaction are measured as follows: a. receipt of subsidy from the National Government.
a. assets – at the acquisition date – fair value i. Notice of Cash Allocation
b. liabilities – at present value when the effect of time value of money is material ii. Tax Remittance Advice
c. revenue – at the amount of increase in net assets. If the non-exchange transaction is initially recognized as iii. Non-cash Availment Authority
liability, the subsequent reduction in that liability is recognized as revenue. iv. Cash Disbursement Ceiling

Debt Forgiveness b. receipt of subsidy or assistance from other government agencies

When a lender cancels the debt of a government entity, the debtor recognizes revenue equal to the carrying Cash – Collecting Officer 100,000
amount of the debt forgiven. Subsidy from NGAs 60,000
Assistance from LGU 30,000
Bequest Assistance from GOCC 10,000
Bequest are transfers made according to the provision of a deceased person’s will. A bequest that satisfies the
recognition criteria for assets is recognized as revenue, measured at the fair value of the resources received or Cash – Treasury / Agency Deposit 100,000
receivable. Cash – Collecting Officer 100,000

Grant with Condition c. receipt of excess cash advance granted to officers and employees
As asset received under a grant with condition is initially recognized as liability and recognized as revenue only d. receipt of refund of overpayment of expenses
when the condition is satisfied. e. receipt of performance bond or security bond
a performance bond is a security deposit required from a contractor or supplier to guaranty the full and faithful
Illustration: performance of a contract.
The national government (NG) received a foreign grant of P10M conditioned on the construction of a flood
control system which must be completed within the next 2 years, otherwise the grant must be returned to the Cash Collecting Officers 100,000
grantor. The Department of Public Works and Highways (DPWH) is the implementing entity. Guaranty/Security Deposits Payable 100,000

The journal entries are as follows: Cash – Treasury/Agency Deposit, Trust 100,000
a. receipt of grant Cash Collecting Officer 100,000
books of the NG – BTr books of DPWH
Cash in Bank – BSP 10M Cash, MDS, Regular 10M f. collections made on behalf of another entity
Other Deferred Credits 10M Subsidy from NG 10M g. intra-agency and inter-agency fund transfers

b. disbursement for materials and labor amounting to P10M

books of NG – BTr books of DPWH
subsidy from NG 10M CIP – Infrastructure Assets 10M