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Chapter 8: Accounting for Local Government Units (LGU’s).

Prepared by : Lloyd Jaiky

Basic Accounting policies that are normally applied in Local Government Units:

1) Accrual Accounting – Modified Accrual Accounting basis developed by the International Public-Sector
Accounting Standards Board (IPSASB).

2) One Fund Concept – Shall be done only when specifically required by the law or by a donor agency or when
otherwise necessitated by circumstances subject to prior approval of the commission.
3) Special Accounts in the General Fund – transactions of this category are supported by subsidiary ledgers.
Examples include;
i. Public utilities and other enterprises
ii. Loans, interest, bonds issued and other contributions for specific purposes
iii.Development projects funded from the share in the internal Revenue collections; and
iv.Other special accounts, which may be created by law of ordinance
4) Chart of Accounts and Account codes – a coding structure and a chart of accounts with three-
digit account numbering system shall be adopted.

5) Books of Accounts – LGU’s shall maintain the following books of accounts;

Journals
1. Cash Receipts journal
2. Cash Disbursement journal
3. Check disbursement journal
4. General journal

Ledgers

i. General ledger
ii. Subsidiary ledgers
a.Cash
b.Receivables
c.Inventories
d.Investment
e. Property, Plant and Equipment

f. Liabilities
g. Income
h. Expenses

Cash records maintained by treasurers and disbursing officers.

1. Cash book – Cash in treasury


2. Cash book – Cash in bank
3. Cash book – cash advances
6) Financial statements

a. Balance sheet
b. Statement of Revenue and expenses
c. Statement of cash flows
d. Statement of Government Equity

Notes to FS shall accompany the FS.


7) Appropriation, Allotments and Obligations – specific registries are maintained to control the
Appropriations, allotments and obligations for each of the four (4) classes of government
expenditures;

I. Registry of Appropriations, Allotments and Obligations – Capital outlay (RAAOCO)

II. Registry of Appropriations, Allotments and Obligations – Maintenance and other operating
expenses (RAAOMO)

III. Registry of Appropriations, Allotments and Obligations – personnel services (RAAOPS)

IV. Registry of Appropriations, Allotments and Obligations – Financial expenses (RAAOFE)

8) Perpetual inventory of supplies and materials – Supplies and materials purchased for stock shall
be recorded using the perpetual inventory system.

9) Valuation of inventory – valued at cost and computed using the moving average method.
10) Public Infrastructures – maintained under specific registries of public infrastructures (RPI’s) such
as:

a) RPIB – Bridges

b) RPIR – Roads

c) RPIP – Plazas, monuments, etc.

11) Depreciation – Straight-line method is used.

12) Reclassification of Assets – assets officially declared as obsolete and unserviceable are classified
as “other Assets”

13) Recognition of Liabilities - recognized at the time goods and services are accepted or rendered
and supplier/creditor bills are received

14) Accounting for Borrowings and Loans – shall be recorded directly to appropriate liability
accounts.
Accounting for Special Education fund.
Illustration: January 2009, Municipal ABC set up its special education tax receivable of P500,000 of
which 50% is the provincial share. P200,000 of the amount, were collected and deposited with ADB.
Accordingly, Provincial share of P100,000 was appropriately remitted by municipality ABC.

Municipal ABC’s allotments for the period are: Personnel services - P50,000, Maintenance and other
operating expenses – P20,000 and capital outlay – P30,000. In addition, Fund transfer from General fund to
its subsidy was received worth P50,000.
Salaries and wages – P30,000 (Composition; cash grant – P25,000, Withholding tax – P1,050, deductions:
GSIS – P2,850, PAG-IBIG – P600, Phil health – P500)

Obligated items for the Maintenance & Other operating expenses and Capital outlay:
A. MOOE; Traveling expenses - P500, Electricity – P800, Office supplies – P500

B. Capital outlay; office equipment – P30,000 (Useful life = 5 yrs @10% residual value based on cost)
Journal entries

A. To record the Special Education Tax Receivable

Special Education Tax Receivable P500,000


Deferred Special Education Tax Income P500,000

B. To record collection of Special Education Tax Receivable

Cash in Vault P200,000


Special Education Tax Receivable P200,000

C. To record distribution of the Special Education Tax Receivable

Deferred Special Education Tax Income P200,000


Special Education Income P100,000
Due to LGU’s P100,000
D. To record deposit of collections

Cash in Bank – Local Currency current account P200,000


Cash in Vault P200,000

E. To record remittance of share to province

Due to LGU’s P100,000


Cash in Bank – Local Currency Current Account P100,000

F. To record receipt of fund transfer from General Fund

Cash in Bank – Local Currency Current Account P50,000


Subsidy from Other Funds P50,000

G. To record the grant of cash advance for payroll

Payroll fund P25,000


Cash in Bank – Local Currency Current Account P25,000
H. To record payment of salaries and wages

Salaries and Wages – regular pay P30,000


Due to BIR P1,050
Due to GSIS P2,850
Due to PAG-IBIG P 600
Due to Phil health P 500
Payroll Fund P25,000

A. To record remittance of salary deductions

Due to BIR P1,050


Due to GSIS P2,850
Due to PAG-IBIG P 600
Due to Phil health P 500
Cash in Bank – Local Currency Current Account P5,000
J. To record payment of Government share for applicable salary deductions.

Life & Retirement insurance contributions P2,850


PAG-IBIG contributions P 500
Phil health contributions P 600
Cash in Bank – Local Currency Current Account P3,950

K. To record depreciation of office equipment (Adjusting Entry)

Depreciation – Office Equipment P5,400


Accumulated Depreciation – Office equipment P5,400

(P30,000 – 10% = Depreciable Value / 5 yrs = Yearly depreciation)