Accounting for LGU

Group 5: Castor, Lazaro, Lee, Necosia

Local Government Unit
(LGU)
Institutional units whose fiscal, legislative and
executive authority extends over the smallest
geographical areas distinguished for
administrative and political services
BUDGET PROCESS

Preparation

Authorization

Execution

Accountability
 Preparation
 The local treasurer shall submit to their local chief executive a
certified statement
 Each head of office shall submit a statement of the proposed
expenditures recommended by him for his office of the local chief
executive.
 Upon the receipt of the statements of income and expenditures
and the budget proposals, the local chief executive prepares the
budget for the issuing year and submits the same to the local
council on or before the deadline set for the submission of the
budget.
 Legislative Authorization
(Budget Legislation)

 On or before the end of the fiscal year/, the local council approves
through the enactment of an appropriate ordinance (it is based on
the statement of certified estimated income and budget proposals
submitted by the local chief executive)

 The approval by the council of local government units requires the

affirmative votes of the majority of all members thereof.
 Execution and Accountability

The chief financial officer, the treasurer of the local government

unit shall provide technical and staff services in execution and
accountability phases of the budget process.

Real Estate

CHANGES IN ANNUAL BUDGET
Changes in the annual budget may be
made within the fiscal year by the way
of the supplemental budget , which is
enacted in the same manner as the
annual budget.
FAILURE TO ENACT AN ANNUAL
BUDGET
Whenever the local legislative body fails
to pass the annual budget before the
beginning of the ensuing fiscal year or
when the enacted budget is declared
unenforceable by the reviewing officer,
the annual appropriation for the salaries
and wages of existing positions,
statutory, and contractual obligations
and essential operating expenses
authorized in the annual budget are
deemed re-enacted.
 BUDGETARY ACCOUNTING
oThe fundamental state accounting principles and
procedures used in recording the financial transactions and
the operations of the local government unit is the same to
the national government accounting.

oThe estimated revenue, receipts and appropriations, in the

amount approved the local legislative body and confirmed by
the reviewing officers, are recorded in the books, where
these are compared with the actual developments during the
period.
BUDGETARY ACCOUNTING
APPROPRIATION
it refers to the authorization made by the ordinance,
directing the payment of goods and services from
the local government funds under the specified
conditions or specific purposes.

ALLOTMENT
is the authorization issued by the local chief executive
to the local government unit, which allows it to incur
obligations from specified amounts within the
appropriation of the ordinance.

OBLIGATION
it refers to the amounts committed to be paid by the
government unit for any lawful act made by an
accountable officer for and in behalf of the local
government unit concerned.

Real Estate
 FINANCIAL STATEMENT

1.BALANCE SHEET
2.STATEMENT OF INCOME AND EXPENSES
3.STATEMENT OF CASH FLOWS
4.NOTES TO FINANCIAL STATEMENTS
INCOME/ COLLECTION AND DEPOSITS

oLocal accountants and treasurers shall maintain separate

books and depository accounts, respectively, for each fund in
their custody or administration.

oDepository accounts should be named after the respective

local government unit with banks .
MAIN SOURCES OF INCOME

Tax revenues, fees, charges

Share from internal revenue collection

Share from national wealth

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Real Estate
 GENERAL INCOME ACCOUNTS
● Subsidy from other funds
● Subsidy from special accounts
● Sales revenue
● Dividend revenue
● Interest income
● Gain on sale of assets
● Sale of confiscated goods and properties
● Foreign exchange gains
● Miscellaneous operation and service income
● Fines and penalties- government service and business operations
 SPECIAL INCOME ACCOUNTS

● Property Taxes
● Taxes on Goods and Services
● Other taxes
● Other specific income
DISTRIBUTION OF SHARES

40%

35%
 USE OF FUNDS
Social Development
It is all about improving the well
being of every individual in
society. Health, education of the
Economic Development people
Focuses on business, allocate
resources within Local
Government Unit.

Environmental Management
Use and conservation of natural
resources and environmental
changes.

Real Estate
 ACCRUAL ACCOUNTING

METHODS OF
ACCOUNTING FOR MODIFIED ACCRUAL METHOD
INCOME

CASH
ACCRUAL METHOD
- shall be used to record share from
Internal Revenue Collections in the
books of accounts.
 ILLUSTRATION

Received notice of Funding Check issued from the Department of

Budget and Management, together with credit memo from the bank for the
share from Internal Revenue Collection in the amount of P150,000

Journal Entry:

Account Title Debit Credit

Cash in Bank P150,000

Internal Revenue P150,000

Allotment
MODIFIED ACCRUAL
METHOD
- Shall be used for Real Property
Taxes
- Real Property Tax Receivable
shall and Special Education Tax
Receivable shall be established at
the beginning of the year.
RECEIPTS AND COLLECTION
PROCESS
A.
Receive payment from
● To record real property tax receivable
taxpayers/ creditors and issue
Official Receipt (OR).
Prepare Report of Collections Account Title Accoun Debit Credit
and Deposits. Remit to the t code
Liquidating Officer (if one is Real Property 124 xx
designated) or Treasurer. tax
Receivable

Deferred Real 448 xx

Property Tax
Income
B. Check remittances and
verifies accountable forms of
● To record collections
collectors/tellers. Consolidates
collections and remits to the Account Title Account Debit Credit
Treasurer/Cashier. Prepares Code
Reports of Collections and
Deposits (RCD) Cash in 101 xx
Treasury

Real Property 124 xx

Tax
Receivable
C. Receive remitted ● To record distribution of collections
collections, consolidates the
same and prepares the
Account Title Account Debit Credit
Receipts of Collections and Code
Deposits (RCD). Records in
the Cashbook- Cash in Deferred Real 448 xx
Treasury Property tax
Income

Real Property 711 xx

Tax

Due to LGU’s 431 xx

D. Deposit collections in the
appropriate bank account per
authorized depository bank.
● To record deposits of collections
Records deposit in Cashbook-
Cash in bank
Account Title Account Debit Credit
Code

Cash in Bank- 110 xx

LCCA

Cash in Treasury 101 xx

E. Forward Receipt of
● To record remittance of share
Collections and Deposits to
Accounting Unit with copies
Account Title Account Debit Credit
of OR’s and validated deposit Code
slips
Due to LGUs 431 xx

Cash in Bank- 110 xx

LCCA
CASH BASIS
- All other taxes
- Fees
- Charges
- Other revenues
 OTHER RECEIPTS

REFUND OF RECEIPT OF
BORROWINGS SALE OF PROPERTY, PERFORMANCE
PLANT, EQUIPMENT CASH /BIDDER’S BOND
ADVANCES
are proceeds refers to the - Cash advances for - performance bond
of repayable proceeds from the official travel shall be posted by
sale of fixed assets. recorded as a receivable contractor or
obligations,
Similar to from the concerned supplier to guaranty
generally with full and faithful
commercial official or employee as performance of
interest from
accounting, the Advances to Officers and their work may be
the bank, applicable asset Employees. Refunds in for of cash,
national accounts shall be made shall be credited to certified check or
agency, canceled from the the receivable account surety.
another local books upon previously recorded.
government disposal.
unit, and - Cash advances for
salaries and wages shall
private sector. be recorded as debits to
the account Payroll Fund,
and any refund shall be
credited to the same
account.
Real Estate
 Particular Account Title Acct. Code Debit Credit

BORROWINGS

a. Receipt of borrowed funds from Cash in Bank - LCCA xx 1022

bank. Loans Payable - Current Domestic xx 1000
Principal= 1,000 Bank Charges xx 10
Bank Charges = 10 Interest Expense xx 12
Interest = 12

b. Receipt of borrowed funds from Cash in Treasury xx 1006

other agency. Loans Payable - Current Domestic xx 1000
Principal = 1000 Interest Expense xx 6
Interest Expense = 6

REFUND OF CASH ADVANCES

a. Cash Advance by an Officer for Local Travel

a. To take up the cash advance Due from Officers and Employee xx xx

Cash in Bank - LCCA xx xx

b. To take up refund of cash Cash in Treasury xx xx

advance Due from Officers and Employee xx xx
 Particular Account Title Acct. Code Debit Credit

b. Cash Advance by a Disbursing Officer for Salaries and Wages

a. To take up the cash advance Cash Disbursing - Officers xx xx

Cash in Bank - LCCA xx xx

b. To take up refund of cash Cash in Treasury xx xx

advance Cash Disbursing - Officers xx xx

RECEIPT OF CASH BONDS

a. To take up receipt of performance Cash in Treasury xx xx

bond in cash Performance/Bidder/Bail Bonds Payable xx xx

b. To take up deposit of Cash in Bank - LCCA xx xx

performance bond Cash in Treasury xx xx

c. To take up refund of performance Performance/BIdder/Bail Bonds Payable xx xx

bond Cash in Bank - LCCA xx xx
 ACCOUNTING FOR COLLECTION AND DEPOSITS

oThe local Treasurer/Cashier shall deposit intact all collections with the authorized depository
bank daily or not later than the next banking day.
oHe shall record all deposits made in the cash book.
oHe shall also prepare an RCD.

REPORTING FOR COLLECTION AND DEPOSITS

oCollectors/tellers shall issue a receipt to acknowledge collections made.
oThe original and two copies, together with the duplicates of the official receipts issued,
shall be submitted to the treasurer/cashier to whom the cash collected shall be turned over.
oThe fourth copy of the RCD shall be retained by the collector/teller concerned.
 DISBURSEMENTS

The settlement of governments payable/obligations by cash or check. Typical transactions for

which disbursements are made:

 Personal Services
 Maintenance and Other Operating Expenses
 Capital Outlay
 Financial Expenses

1. PAYMENT BY CHECK
2.PAYMENT BY CASH
3.PAYMENT OUT OF THE PETTY CASH FUND

- The Allotment and Obligation Slip (ALOBS) shall be an integral part of the Disbursement
Voucher.
 PAYMENT BY CHECK

o
Checks shall be drawn only on duly approved disbursements voucher.

o It shall be drawn by the local treasurer and countersigned by the local administrator.

o In case of the absence or incapacity of the said official this duties shall devolve upon their immediate
assistants.

o In case of municipalities where no administrator has been appointed, checks drawn shall be countersigned
by the municipal Mayor.

o In case of expenditures appropriated for the operation of the Sanggunian, checks drawn shall be
countersigned by the provincial Vice Governor, city Vice Mayor, or Municipal Vice Mayor.
 PAYMENT BY CASH

o Disbursements by cash shall be made from a cash advance drawn and maintain in
accordance with Commission on Audit rules and regulations.

oTo account for cash disbursement from regular and special cash advances, the
accountable/disbursing officer shall prepare the Report of Disbursement and submit the original
and duplicate copy with vouchers/payroll/petty cash voucher to the accountant.

o In case of cash advance for travel, the Liquidation Report form shall be prepared by the
officers/employees concerned and submitted to the accounting unit as basis for preparation
of the JEV to record liquidation.
 PAYMENT OUT OF THE PETTY CASH FUND

o Petty cash fund shall be maintained under the imprest system.

o The fund shall be sufficient for the non-recurring, emergency and petty expenses of the LGU for
one month.

o Each Petty Cash Voucher shall not exceed P1,000

Real Estate
 PURCHASE OR CONSTRUCTION OF PPE
Property, Plant and Equipment are charged against appropriation for capital outlay when obligated. PPE acquired
through purchase shall include all costs incurred to bring the asset to location necessary for its intended use.

Classification of PPE:

oAgency Assets – those to be used by the LGU concerned.

oPublic Infrastructures – those to be used by general public.

In recording both types of assets, the Construction Period Theory shall be applied.

Construction Period Theory

License fees and bonus paid to contractors for early completion shall be added to the total cost of the project.
Liquidation damages paid by the contractor for the delay shall be deducted from the total cost.
 PURCHASE OF SUPPLIES

Purchase of supplies and materials for stock, regardless of whether

or not consumed within the accounting period, shall be recorded as
assets using the Inventory account following the perpetual inventory
method. However, supplies and materials purchased out of the Petty
Cash Fund for immediate use or for emergency shall be taken up as
expenses.
 MISCELLANEOUS TRANSACTION

Transactions that is unique and not recurring in the ordinary course of operations of the
government. The following may be considered miscellaneous transactions:

• Loss of cash and property accountability

• Cash overage
• Dishonored checks
• Lost/Destroyed/Stale/Obsolete and Fraudulently Encashed Checks
• Settlement of Suspension/Disallowance/Charges
• Refund of overpayment
 Loss of Cash and Property
o Loss of cash and property may be due to malversation, theft, robbery or other causes.
o In case cash shortage discovered during cash examination conducted by auditor, the auditor
issues an audit report
o In case of loss of property due to other causes,, a report thereon shall be prepared by the
accountable officer.

Cash Overage
In case the cash examination disclosed cash overage, as determined by the auditor, the amount shall be
forfeited in favor of the government and an official receipt shall be issued by the collector/teller. The cash
overage shall be taken up as Other Specific Income.
·
DISHONORED CHECKS
oA check is said to be dishonored when upon its being duly presented for payment, such payment is
refused or cannot be obtained.
oConstructive cancellation of the official receipt covering the dishonored check shall be immediately
effected by the Treasurer

SPOILED AND STALE CHECK

oA check is considered spoil when it is torn, mutilated, defaced or with erasures/errors affecting the
genuineness of any material information contained therein.
o It is stale if it has been outstanding for over six months from date of issue as prescribed by the
depository bank.
o A spoiled or stale check shall be marked cancelled on its face.
 Settlement of Suspension/Disallowance/Charges

Disallowances and charges shall be taken up in the books of accounts only when they
become final and executory.
 Pro-forma Accounting Entries of Miscellaneous Transactions

Particular Account Title Acct. Debit Credit

Code

1. LOSS OF CASH AND PROPERTY ACCOUNTABILITY

To record the loss of fund by a Due from Officers and Employees xx xx

disbursing officer. Cash – Disbursing Officers xx xx

To record relief from accountability Loss of Assets xx xx

Due from Officers and Employees xx xx

In case of denial of request for relief Cash in Vault xx xx

from accountability, cash settlement Due from Officers and Employees xx xx
is required.
 Particular Account Title Acct. Code Debit Credit

2. CASH OVERAGE

In case the cash examination Cash in Treasury xx xx

disclosed cash overage, as Other Specific Income of LGU xx xx
determined by the auditor, the
amount shall be forfeited in favor of
the government and an official
receipt shall be issued by the
collector/teller.

3. DISHONORED CHECK

To record the receipt of advice of Real Property Tax Receivable xx xx

dishonored check Deferred Real Property Tax Income xx xx

Due to LGU – Real Property Tax Income xx xx

To record settlement Real Property Tax Income xx xx
Cash in Bank – LCCA xx xx
 Particular Account Title Acct. Debit Credit
Code
Cash in Vault xx xx
To record cancellation Real Property Tax Receivable xx xx
of official receipt.

4. LOST/ DESTROYED/ STALE/ OBSOLETE CHECKS

Check issued in the current/prior year for replacement

Check cancellation Cash in Bank – LCCA xx xx xx

Accounts Payable xx

Replacement Accounts Payable xx xx xx

Cash in Bank – LCCA xx
 Particular Account Title Acct. Debit Credit
Code

5. SETTLEMENT OF SUSPENSION/ DISALLOWANCE/ CHARGES

Receivables – Disallowances/ Charges xx xx
To record the Office Supplies Expense xx xx
disallowance.

Cash in Vault xx xx
To record the settlement Receivables – Disallowances/ Charges xx xx
 GENERAL FUND

— consists of monies and resources not accruing to any

other fund and shall be available for payments of
expenditures, obligations and purpose not specifically
declared by law as chargeable to or payable from, any other
fund, though transfers of monies or resources there from to
other funds of local government may be made by proper
appropriation.

Real Estate
 SPECIAL EDUCATION FUND
— consist of the respective shares of provinces, cities and municipalities in the
proceeds of the additional one percent (1%) tax on the assessed value of real
property for education purposes under the Real Property Tax Code. This amount
accruing to special education fund shall be automatically released to the local
school.

In case of provinces, the proceeds of the special education fund shall be divided
equally between the provincial and municipal school boars, and municipal school
boards, and allocated as determined and approved by the local school boards
concerned intended only for the following purposes:

Real Estate
 SPECIAL EDUCATION FUND

• Operation and maintenance of public schools

• Construction and repair of school buildings, facilities and

equipment

• Educational research

• Purchase of books and periodicals

• Sports development

Real Estate
 Pro–forma Accounting Entries for Special Education Fund:
Particular Account Title Acct. Code Debit Credit

1. Set-up Special Education Tax Special Education Tax Receivable 125 500,000
Receivable Deferred Special Education Tax Income 449 500,000
Total Receivable = 500,000
Provincial Share = 250,000

2.Collection of Special Education Cash in Treasury 101 200,000

Tax = 200,000 Special Education Tax Receivable 125 200,000

Computation of Shares of LGUs in Deferred Special Education Tax Income 449 200,000
RPT – 50% of 200,000 Provincial Special Education Tax 713 100,000
Share Due to LGU 431 100,000

3. Deposit of collections with Cash in Bank – LCCA 110 200,000

authorized depository bank Cash in Treasury 101 200,000

4. Remittance of share to Province Due to LGUs (Province) 431 100,000

( Special Education Tax) - Cash in Bank – LCCA 110 100,000
100,000
 o Consist of private and public cash received by local
government official as trustee, agent or administrator,
as a guaranty for the fulfillment of some obligation.

TRUST o Shall only be used for the specific purpose for which it
was intended.
FUND o Grants and donation coming from foreign funding
institutions, other levels of government and private
institution/individuals for specific projects/purpose shall
accrue to the Trust Fund. The equity of the local
government unit on projects under a trust agreement
shall also accrue to the Trust Fund. These receipts shall
be credited to the Government Equity account.
 Local Government Units shall maintain special accounts,
through the use of complete subsidiary ledgers for each
number of the same economic enterprises, if any, in the
SPECIAL General fund for following:

o Public utilities and other economic enterprises

ACCOUNT
o Loans, interests, and bond issues and other contributions
IN for specific purposes

GENERAL o Development projects funded from the share of the local

government concerned from the Internal Revenue
FUND Collections

o Other special accounts which may be created by law or

ordinance.
 ACCOUNTING FOR SPECIAL ACCOUNTS

Special accounts shall be maintained through the use of complete subsidiary ledger. In case the
local government unit maintains a number of the same economic enterprise, each shall have its
own set of subsidiary ledger. Accounting procedures for the operations of the special accounts are
adopted for the following purposes:

1. To determine whether the income generated by the public utilities or economic enterprises are
sufficient to meet their respective operating cost.

2. To provide adequate information as to assets, liabilities and equity of each special account.
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