ac 518 summer term 2013 1st hand-out (1)

7/28/2019 AC 518 Summer Term 2013 1st Hand-Out (1)

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A C 5 1 8 - S u m m e r C l a s s 2 0 1 3 Page 1

University of San Carlos

School of Business and Economics

Department of Accountancy

AC 518 Adv anced Financial Acco unt ing and Report ing, Part 3

Summer Class 2013

The National Government of the Philippines

The government is the largest financial organization in terms of assets, liabilities, capital,sources of income and items of expenditures. It is also the largest entity in terms of number andquality of personnel, facilities and instrumentalities, which are used to serve the social, politicaland economic needs of the nation. The government has as many departments, commissions or

offices as necessary to be able to carry out its functions, like promotion of social welfare,development of national wealth, defense of the state from internal and external aggression,promotion of justice, promotion of trade and industry, general government and protection ofprivate rights of the people.

Government Acco unting Defined (Section 109 of PD 1445)

Government Accountingencompasses the processes of analyzing, recording, classifying,summarizing and communicating all transactions involving the receipt and disposition ofgovernment funds and property and interpreting the results thereof. Government accounting isa service activity.

Three (3) types of governmental organizational units:

National Government Agency(NGA) are agencies that includes all departments,bureaus, offices, boards, commissions, councils state colleges and universities.

Local Government Unit(LGU)- political subdivisions of the Philippines havingsubstantial control over local affairs, consisting of provinces, cities, municipalitiesand barangays.

Government Owned or Controlled Corp(GOCC)- are agencies organized by law orpursuant to law, vested with functions relating to public needs whether governmentor propriety in nature, owned by the government directly or through its

instrumentalities either wholly or, where applicable as in case of stock corporation,to the extent of at least fifty one % of its capital stock.

FUNCTIONS OF GOVERNMENT ACCOUNTING

To provide quantitative information primarily financial in nature about the operations of thegovernment, both national and local, to be used by the administration in making decisions for amore effective and efficient public service.


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OBJECTIVES

1.To provide quantitative information concerning past operations and present conditions.2.To provide a basis for guidance for future operations.3.To provide for control of the account of public entities and officers in the receipt, disposition

and utilization funds and properties, and4.To report on the financial position and the result of the operations of the government agencies

for the information of all persons concerned.

Users of Government Accounting Information:1. The General public or citizenry2. The Governing and oversight bodies: The President, Cabinet, COA, Legislative Body.3. The managers/administrators who are in-charge of carrying out the policy and daily

conduct of government affairs.4. The students of public finance5. The resource providers of the government such as:

Donors or grantors

Lenders, suppliers and employees whose main concern is to know whether thegovernment can pay its obligations to them.

DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL ENTERPRISES

1. Ownership - Private enterprises are owned by a relatively few stockholders, partners, orowners. The government represent the entire people in a given community.

2. Purpose - Private enterprises are organized primarily to make profits. The governmentis set up mainly to render service at lowest possible cost to its constituents.

3. Organization - The organization of a private enterprise is a succession of authority andresponsibility starting from its stockholders who delegate them to a duly elected board ofdirectors which in turn organize its own staff of officers in whom the responsibility of managingthe affair of business is reposed. The responsibility and authority of a government entity in our

system lies in Congress.

4. Financing - Private enterprise is supported for its finance primarily by the voluntarycontribution from its members or stockholders which constitute as their share of capital orinvestment in the business. The government is vested the exclusive right to demand involuntarycontributions from its constituent in the form of taxes.

5. Income - In private enterprise, the capital investment of stockholders are made togenerate return in the form of profits for services rendered or good sold. The government whichis organized primarily to render service, cannot make profits on the services it renders. Tosupport the estimated annual cost of government, taxes are levied.

DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING

1. ObjectiveCA is geared towards income measurements aside from control of company

resources,GA - is control of government funds to see to it that they are properly utilized and

provide data to management for decision.

2. Basis of Accounting -CA either cash or accrual method is used but not a combination of both.


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GA - the modified accruals basis of accounting is used.

3. Preparation of periodic reportsCA Statement of Financial position, Statement of Cash FlowsGA - Balance sheet, statement of income and expenses, statement of government

equity and statement of cash flows.

4. Control MechanismCA none

GA Fund accounting, obligation accounting and CDC accounting

5. Books of AccountsCA - only one set is keptGA - two books are kept (a) Regular Agency (RA) Book and (b) National

Government(NG) Books.

6. As to accounts and transactionsCA - Nominal and Real Accounts are used.GA - includes budgetary accounts such as Appropriation, Allotments and

Obligations are maintained.

7. Source of Accounting practice and proceduresCA - dictated by nature of business and policies of managementGA - laws, rules and regulations

Decision-making Process in Government

The decision-making process in government is an important aspect of the environment of stateaccounting because accounting information is intended to be useful in making economicdecisions and in making reasoned choices among alternative courses of action.

The ultimate authority for decision-making in the Philippine government rests with the people.This authority is exercised through duly elected representatives, acting as agents of the people.

It is the sovereign right of the people to change them if the authority is misused or abused.

The President, as chief executive, formulates national policies, which specify the goals ofgovernment and determine the courses of action that the government should take in differentaspects of public affairs.

On the basis of national policy, the President submits a budget to the legislative body forconsideration and processed until approved and passed into a law.

At all levels of government, decision-making should comply with existing laws and regulations.Questions and issues involving the settlement of money claims, determination of dispute or

settlement of a controversy on the issue as to legality and/or propriety of such claims aresubmitted for resolution to the COA in connection with the discharge of its audit function.Questions involving legal interpretation and/or application of law are submitted for decision tothe courts.

Salient Features of Government Accounting

The financial resources of the Government are very limited. It relies heavily on collectedtaxes. This means that it has to operate through a system of fiscal and accounting controls. Thefollowing control mechanisms adopted as sub-systems of government accounting are not


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adopted in commercial accounting:

Fund Accounting

Obligation Accounting

Cash Disbursement Ceiling (CDC) Accounting

Fund Accounting. A fund is a sum of money or other resources set aside for thepurpose of carrying out specific activities or attaining certain objectives in accordance with

specific regulations, restriction, and limitations.

The two major classification of funds as to purpose for which they may be used:1. General Fund one which is generally available for all functions of the

government.2. Special Fund - one which, by legislative action, segregates specified revenues

for limited purposes.

Obligation Accounting. As a control mechanism of government accounting system,obligation accounting provides the ceiling of the maximum extent by which an agency can incurobligations or commit the resources of the government in the performance of its functions. Withobligation accounting, an agency can operates only within the amount actually released to it bythe DBM, which is within or covered by the amount approved appropriation.

Obligation accounting refers to the accounting practice, procedures and techniques forrecording obligations in the government.

Cash Disbursement Ceiling Accounting. The cash disbursement ceiling accounting isanother control mechanism of government accounting system. The cash operations of thegovernment under the cash disbursement ceiling accounting are limited within the boundaries ofthe appropriations release to government agencies in the form of allotments, and any additionalamount granted by the DBM to liquidate or pay existing valid obligation.

Account ing Respons ib i l i ty - Under PD 1445, accounting responsibility for allgovernment funds and property is entrusted, immediately and primarily, to the head of thegovernment agency or office. It is the duty of the head of the agency to take reasonable stepsto minimize, if not to avoid the risk of losses, defalcations and other types of irregularities in theutilization of all government resources (to safeguard the resources of the government under hiscustody) and periodic reporting to concern authorities. His responsibility, however, issupervised by higher authorities and government bodies.

The officer in possession or custody of government funds or property by reason of hisduties are accountable for the safekeeping thereof. As such, he shall be properly bonded.

The Head of the agency is made immediately and primarily responsible for allgovernment funds and property pertaining to his agency. Secondary responsibility is made toreston the persons entrusted with the actual possession or custody of the funds or property.

They are the accountable officers and are immediately responsible to the agency head.

The imposition of primary responsibility on the agency head for government funds andproperty is in keeping with the concept of fiscal responsibility which now lodge with agencyhead.

The head of the agency shall exercise the diligence of a good father or a family insupervising accountable officers to prevent the incurrence of loss of government funds andproperty, otherwise, he shall be jointly and solidarily liable with the person primarilyaccountable thereof.


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Although supervisory work of government accounting is vested upon to the Commissionon Audit, accounting responsibilities in the government, by virtue of the provision of theConstitution of the Philippines, laws, Presidential Decrees and other issuances, are sharedprimarily by the Commission on Audit(COA), Department of Budget and Management, (DBM),Department of Finance (Bureau of Treasury) and government agencies.

The Commission on Audit serves as the external auditor of the government agencies.It is a constitutional office and its mandates are provided in Section 2, Art. IX-D of the 1987

Constitution of the Philippines. The COA examine, audit and settle all accounts pertaining torevenues or receipts and expenditures or uses of government funds and property, keeps thegeneral accounts of the national government , prescribes the standard chart of accounts,promulgates accounting rules and regulations and exercise technical supervision over theaccounting functions of each agency. The office is mandated by the Constitution to submit tothe President and the legislative body within the time frame fixed by law, an annual audit reportof the government, its subdivision, agencies and instrumentalities including government ownedor controlled corporations and recommend measures necessary to improve efficiency andeffectiveness.

The DBM is responsible for the design, preparation, and approval of the accountingsystems of government agencies, determines the accounting and other item of information

needed to monitor budget performance and assess effectiveness of the agency operation. Itprescribes the forms, schedules of submission and other component of reporting systemneeded to accomplish and submit the required information. It acts on agenciesrecommendations for the modification or changes to prescribed systems for procedures to effectsimplicity and/or meet the requirements of the peculiarities of the agencies concerned. Itapproves the Agency Budget Matrix and issues the allotments to agencies in accordance withthe approved budget and issues Notice of Cash Allocation.

The Bureau of Treasury (BTr) performs banking function for the national government.It receives and keeps government funds, controls the disbursements thereof and maintainaccounts of the financial transactions of national government agencies. It is required to prepareand submit to the COA and other fiscal activities, a daily statements of cash receipts,

disbursements and fund balances in the National Treasury.

The National Government Agencies (NGAs) consist of various organizational unitssuch as departments, bureaus, commissions, boards, offices, tribunals, councils, institutions,state colleges or universities and establishments.

These agencies are required to establish and maintain a system of accounting for their financialresources and operation in accordance with pertinent rules and regulations. Accounts shouldbe kept in such details as is necessary to meet the need of agency management and furnishinformation to fiscal and control agencies such as COA, DBM and BTr.

Relationship between Accountability, Responsibility and Authority

Accountability is the obligation of a public officer/employee to answer for theresponsibility conferred on him/her. It is her Responsibility to respond to the concerns ofindividuals or groups, the public he/she is to serve, within the overall context of his/herobligations for which he/she has the appropriate Authority.

In government,authority is often used interchangeably with the term "power". However,their meanings differ: while "power" is defined as 'the ability to influence somebody to dosomething that (s)he could not have done', "authority" refers to a claim of legitimacy, the
http://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Power_%28philosophy%29http://en.wikipedia.org/wiki/Legitimacy_%28political%29http://en.wikipedia.org/wiki/Legitimacy_%28political%29http://en.wikipedia.org/wiki/Power_%28philosophy%29http://en.wikipedia.org/wiki/Government


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justification and right to exercise that power.

Accountability Requirements From Public Officer/Employees

Section 1 of PD 1445 provides:It is the declared policy of the State that all governmentresources shall be managed, expended and utilized in accordance with law and regulations andsafeguard against loss or wastage through illegal or improper disposition, with a view toensuring efficiency, economy and effectiveness in the operations of government. Theresponsibility to see to it that such policy is faithfully adhered to rests directly with the chief or

head of the government agency concerned.

This declaration articulates the concern of the state for the safekeeping of the publicsresources. It focuses on how the resources shall be handled by those given the public trust tomanage, spend or use such resources.

Pursuant to this policy the State requires from public officers and employees the following:1. Compliance with laws and regulations

- Laws and rules- Agency policies- Agency manuals of operations; and- Provisions of contracts, MOA

2. Safeguarding of government resources from loss and waste3. Achieving goals and objectives

Assertions of Compliance with Accountability Requirements

When public officers and employees submit to the Commission their transactions,accounts, financial reports and statements and other performance and operation reports, theyare asserting or claiming that they have complied with the foregoing accountabilityrequirements.

What is Assertions?

Assertion is the expressed or implied representation by management that is reflected intheir transactions, accounts, financial statements, records, reports and that they are claimingthat they have complied with the accountability requirements of the state policy.

Assertions on Compliance with Laws and Rules

When expenditures, disbursements, receipts and collections are reported to theappropriate authorities, management is making claim that so much amount has been disbursedor so much amount have been collected in payment of goods and services received or renderedin accordance with laws, rules, applicable policies and practices.

Assertion on Resources Duly Safeguarded

When the agencies issue their financial reports and statements they are asserting thefollowing:

1. Existence or Occurrence - This deals with whether assets or liabilities of the auditedagency actually exist at a given date, and whether recorded transactions have occurredduring the given period.

2. Completeness This deals with whether all transactions and accounts that should bepresented in the financial statements are included.


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3. Rights and Obligations - This deals with whether assets are actually owned by theagency and liabilities are the obligation of the agency at a given date.

4. Valuation or Allocation - This deals with whether or not the asset, liability, revenue andexpenses components have been included in the financial statements at appropriateamounts.

5. Presentation and Disclosure This deal on whether particular components of thefinancial statements are properly classified, described and disclosed.

Assertions on Achievement of Goals and Objectives (Performance or Value for MoneyAccountability)

When the agencies prepare and submit to proper authorities their reports on theperformance of an activity or a project, the agency is asserting that they used and managed theresources for that activity or project in an economical, efficient and effective manner.

Performance of government entities is measured from the point of view ofeconom y, eff ic iencyand effect iveness.

Economy refers to the reasonableness of cost incurred. Measuring economy will determine

whether the agency has been performing at the least possible cost or under the terms mostadvantageous to the government.

Eff ic iency refers to the relationship between goods or services produced and resources usedto produce them. The measurement of efficiency involves the determination of whether anagency is managing or utilizing its resources in an efficient manner as well as establishing thecauses of any inefficiencies, including inadequacy in management information systems,administrative procedures or organizational structure.

Effect ivenessis concerned with the relationship between the outputs and the goals of theagency. Measuring effectiveness will determine whether the desired results are achieved,whether the objectives set by the agency are met, and whether the agency has considered

alternatives that yield desired results at a lower cost.

Generally Accepted (State) Accounting Principles

Accounting principles are propositions, a general law or rule adopted, which on the basisof reasons, demonstrated usefulness and general acceptance as the best way of carrying outthe function and achieving the objectives of financial accounting.

Objectives:1. Guide the accountants in identifying, measuring and communicating financial accounting

information;

2. Assure proper reporting and reasonable degree of uniformity and comparability amongthe financial statements of different government entities; and

3. Provide auditors with the framework for making judgment about the fairness of financialstatements on the basis of some uniform standards.

Significant differences in principles between state accounting and commercial accounting:1. Government activities are non-profit oriented;2. State accounting places greater emphasis on accountability, stewardship and control;

and3. State accounting is based on laws, rules and regulations.


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A principle is generally accepted if it has substantial authoritative support. There are twosources of support: primary and secondary sources

Primary sources:

1. Pronouncement of the Commission on Audit - COA is mandated by the PhilippineConstitution to promulgate accounting rules and regulations to facilitate the keepingand enhance the informational value of the accounts of the government.

2. Provision of law - Sec. 112 of the PD 1445 provides that generally acceptedaccounting principles should be observed in government accounting entities asprovided they do not contravene existing laws and regulations.

Secondary source:

From the pronouncements and issuances by other government agencies.

The Government Auditing Code of the Philippines requires that each governmentagency shall record its financial transactions and operations in conformance with the generallyaccepted accounting principles and accordance with pertinent laws and regulations. The

principles to be followed by government entities includes the following:

1. The accounts of the agency shall be kept in such detail and at the same time beadequate to furnish the information needed by fiscal or control agencies of thegovernment.

2. The highest standard of honesty, objectivity and consistency shall be observed in thekeeping of accounts to safeguard against inaccurate or misleading information.

3. The government accounting system shall be on double-entry basis with the generalledger in which all financial transactions are recorded, Subsidiary record shall be keptwhere necessary.

4. The Chart of Accounts has three-digit coding system and provides for responsibilityaccounting.

5. The Chart of Accounts categorizes Personal Services, Maintenance and OtherOperating Expenses and Financial Expenses as Expenses, obligation charged to capitaloutlay are recorded to appropriate asset accounts when the liability and the payment aretaken-up.

6. Matching Principles, The principle that requires the matching of revenues and expensesis adopted.

- Modified accrual method is used

- Depreciation accounting for property, plant and equipment using the straight linemethod is followed.- Allowance for doubtful accounts is taken up. Dormant accounts are transferred o

a separate registry,- Asset method is followed for prepaid expenses.

7. On financial statement:

1. Fairness of presentation this refer to the overall propriety of disclosing financialinformation. Full disclosures in financial aspects requires observance of thestandards of reporting.


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2. Compliance the report shall be in accordance with prescribed governmentrequirements and international accounting standard of reporting.

3. Timeliness all needed reports shall produced promptly to be of maximumusefulness.

4. Usefulness financial reports shall be carefully designed to present informationthat is needed and useful to reports users.

8. Obligation accounting is modified, allotments and obligations are no longer journalized.Separate registries are maintained to control these accounts and the appropriation.

9. All lawful expenditures and obligation incurred during the year shall be taken up asaccounts of that year.

MANUAL ON THE NEW GOVERNMENT ACCOUNTING SYSTEMFor National Government Agencies

ACCOUNTING POLICIES

Sec. 1. OBJECTIVES OF THE MANUAL. The New Government Accounting System(NGAS) Manual presents the basic policies and procedures; the new coding system; theaccounting systems, books, registries, records, forms, reports, and financial statements; andillustrative accounting entries to be adopted by all national government agencies effectiveJanuary 1, 2002. The objectives of the Manual are to prescribe the following:

a. Uniform guidelines and procedures in accounting for government funds andproperty;

b. New coding structure and chart of accounts;c. Accounting books, registries, records, forms, reports and financial statements; andd. Accounting entries.

Sec. 2. COVERAGE. This Manual shall be used by all national government agencies.

Sec. 3. LEGAL BASIS. This Manual is prescribed by the Commission on Auditpursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of thePhilippines which provides that:

"The Commission on Audit shall have exclusive authority, subject to the limitations in thisArticle, to define the scope of its audit and examination, establish the techniques andmethods required therefore, and promulgate accounting and auditing rules andregulations, including those for the prevention and disallowance of irregular,unnecessary, excessive, extravagant, or unconscionable expenditures, or uses ofgovernment funds and properties".

BASIC FEATURES AND POLICIES

Sec. 4. BASIC FEATURES AND POLICIES. The NGAS has the following basicfeatures and policies, to wit:

a. Accrual Accounting. A modified accrual basis of accounting shall be used. Underthis method, all expenses shall be recognized when incurred and reported in thefinancial statements in the period to which they relate. Income shall be on accrualbasis except for transactions where accrual basis is impractical or when othermethods required by law.


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b. One Fund Concept. This system adopts the one fund concept. Separate fundaccounting shall be done only when specifically required by law or by a donoragency or when otherwise necessitated by circumstances subject to prior approvalof the Commission.

c. Chart of Accounts and Accounts Codes. A new chart of accounts and codingstructure with a three-digit account numbering system shall be adopted. (SeeVolume III, The Chart of Accounts)

d. Books of Accounts. All national agencies shall maintain two sets of books, namely:

Regular Agency (RA) Books. These shall be used to record the receiptand utilized of Notice of Cash Allocation (NCA) and other income/receipts whichthe agencies are authorized to use and to deposit with Authorized GovernmentDepository Bank (AGDB) and the National Treasury. These shall consist of

journals and ledgers, as follows:Journals

* Cash Receipts Journal (CRJ)* Cash Disbursement Journal (CDJ)* Check Disbursement Journal (CkDJ)* General Journal (GJ)

Ledgers* General Ledgers (GL)* Subsidiary Ledgers (SL) for:

* Cash* Receivables* Inventories* Investments* Property, Plant and Equipment* Construction in Progress* Liabilities* Income* Expenses

National Government (NG) Books. These shall be used to record incomewhich the agencies are not authorized to use and are required to be remitted to theNational Treasury.

These shall consist of:* Cash Journal (CJ)* General Journal (GJ)* General Ledger (GL)* Subsidiary Ledger (SL)

With the implementation of the computerized agency accounting system, only the

General Journal shall be used together with the ledgers by both books.

e. Financial Statements. The following statemets shall be prepared:* Balance Sheet* Statement of Government Equity* Statement of Income and Expenses* Statement of Cash Flows

Notes to Financial Statements shall accompany the above statements.


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f. Two-Money Column Trial Balance. The two - money column trial balance showingthe account balances shall be used.

g. Allotment and Obligation. Obligation accounting is modified to simplify proceduresin the incurrence and liquidation of obligations and the recording of the budgetaryaccounts (allotments and obligations incurred and liquidated). Separate registriesshall be maintained to control the allotments and obligations for each of the fourclasses of allotments, namely:

* Registry of Allotments and Obligation - Capital Outlay (RAOCO)

* Registry of Allotments and Obligations - Maintenance andOther Operating Expenses (RAOMO)

* Registry of Allotments and Obligations - Personal Services (RAOPS)* Registry of Allotments and Obligations - Financial Expenses (RAOFE)

h. Notice of Cash Allocation (NCA). The receipts of NCA by the agency shall berecorded in the books as debit to account "Cash-National Treasury, ModifiedDisbursement System (MDS)" and credit to account "Subsidy Income fromNational Government". (Refer to the latest issuance by DBM as regards toreleases of NCA)

i. Financial Expenses. Financial expenses such as bank charges, interest expenses,

commitment charges and other related expenses shall be separately classifiedfrom Maintenance and Other Operating Expenses (MOOE).

j. Perpetual Inventory of Supplies and Materials. Supplies and materials purchasedfor inventory purpose shall be recorded using the perpetual inventory system.Regular purchases shall be coursed thru the inventory account and issuancesthereof shall be recorded as the take place except those purchased out of PettyCash Fund which shall be charged directly to the appropriate expense accounts.

k. Valuation of Inventory. Cost of ending inventory of supplies and materials shall becomputed the moving average method.

l. Maintenance of Supplies and Property, Plant and Equipment Ledger Cards. Forappropriate check and balance, the Accounting Units of agencies, as well as theProperty Offices, shall maintain Supplies Ledger Cards/Stock Cards by stocknumber and Property, Plant and Equipment Ledger Cards/Property Cards bycategory of property, plant and equipment, respectively.

m. Construction of Assets. For assets under construction, the Construction PeriodTheory shall be applied for costing purposes. Bonus paid to the contractor forcompleting the work ahead of time shall be added to the total cost of the project.Liquidated damages charged and paid for by the contractor shall be deducted fromthe total cost of the project. Any related expenses incurred during the constructionof the project, such as taxes, interest, license fees, permit fees, clearance fee, etc.

shall be capitalized, and those incurred after the construction shall form part ofoperating costs.

n. Registry of Public Infrastructures/Registry of Reforestation Projects. For agenciesthat construct public infrastructures, such as roads, bridges, waterways, railways,plaza, monuments, etc., and invest on reforestation projects, a Registry of PublicInfrastructures (RPI). Registry of Reforestation Projects (RRP) shall be maintainedfor each specific infrastructures/reforestation project.

A Registry of Public Infrastructures - Summary shall be maintained for each


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classification of projects. Examples are:* Registry of Public Infrastructures - Bridges (RPIB)* Registry of Public Infrastructures - Roads (RPIR)* Registry of Public Infrastructures - Parks (RPIP)

A Schedule of Public Infrastructures/Reforestation Projects shall be prepared atyear-end and included in the Notes to Financial Statements.

o. Depreciation. The straight-line method of depreciation shall be used. Depreciationshall start on the second month after purchase of the property, plant and

equipment, and a residual value equivalent to ten percent of the purchase costshall be set-up. Public infrastructures/reforestation projects as well as serviceableassets that are no longer being used shall not be charged any depreciation.

p. Reclassification of Assets. Serviceable assets no longer being used shall bereclassified to "Other Assets" account and shall not be subject to depreciation.

q. Allowance for Doubtful Accounts. An Allowance for Doubtful Accounts shall be setup for estimated uncollectible trade receivables to allow for their fair valuation.

r. Elimination of Contingent Accounts. Contingent accounts shall no longer be used.All financial transactions shall be recorded using the appropriate accounts. Cashshortages and disallowed payments, which become final and executory, shall be

recorded under receivable accounts "Due From Officer and Employees" or"Receivables-Disallowances/Charges", as the case may be.

s. Recognition of Liability. Liability shall be recognized at the time goods and servicesare accepted or rendered and supplier/creditor bills are received.

t. Interest Accrual. Whenever practical and appropriate, interest income and/orexpense shall be accrued and recognized in the books of accounts.

u. Accounting for Borrowings and Loans. All borrowings and loans incurred shall berecorded to the appropriate liability accounts.

v. Elimination of corollary and negative journal entries. The use of corollary andnegative journal entries shall be stopped. Acquisition/Disposition of assets shall bedebited/credited to the appropriate assets accounts. If an error is committed,correcting entry to adjust the original entry shall be prepared.

w. Petty Cash Fund. The Petty Cash Fund shall be maintained under the imprestsystem. As such, all replenishment shall be directly charged to the expenseaccount and at all times, the Petty Cash Fund shall be equal to the total cash onhand and unreplenished expenses. The Petty Cash Funds shall not be used topurchase regular inventory/items for stock.

x. Foreign Currency Adjustment. Cash deposits in foreign currency and outstanding

foreign loans shall be computed at the exchange rate prescribed by the BangkoSentral ng Pilipinas at balance sheet date. The total cash deposits and foreignloans payable shall be adjusted at the end of each month and any gain or loss onforeign exchange shall be recognized. The subsidiary ledger for foreign currencyobligations shall reflect appropriate foreign currency in which the loan is payable.The liability shall be expressed both in the foreign and local currency.


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ACCOUNTING SYSTEM

Sec. 5 General Accounting Plan. The General Accounting Plan (GAP) shows the overallaccounting system of a government agency/unit. It includes the source documents, the flow oftransactions and its accumulation in the books of accounts and finally their conversion intofinancial information/data presented in the financial reports.

The following accounting systems are:

a. Budgetary Accounts System;b. Receipts/Income and Deposits System;c. Disbursement System; andd. Financial Reporting System

Budgetary Accounts System - The Budgetary Accounts System encompasses the processes ofpreparing the Agency Budget Matrix (ABM), monitoring and recording of allotments received bythe agency from the DBM, releasing of Sub-Allotment Release Order (SARO- to RegionalOffices (RO) by Central Office (CO), issuance of Sub-SARO to operating units (OUs) by the ROand recording and monitoring obligations.

Budgetary Accounts - Consist of the appropriations, allotments and obligations. Appropriationsrefer to the authorization made by law or other legislative enactment for payments to be madewith funds of the government under specified conditions and/or for specified purposes.

Appropriations shall be monitored and controlled through registries and control worksheets bythe DBM and COA, respectively.

Agency Budget Matrix (ABM) - The ABM refers to a document showing the disaggregation ofagency expenditures into components like, among others, by source of appropriation, byallotment class and by need of clearance.

THE NATIONAL BUDGET

Government budget defined

A government budget is a plan for financing the government activities of a fiscal yearprepared and submitted by responsible executive to a representative body whose approval andauthorization are necessary before the plan can be executed. It is more than mere estimate orstatement of receipts and expenditures; it is a definite proposal to be approved or rejected.

Basically, budgeting is planning and controlling. Careful plans for the future should belaid and those who direct the operation of the government must be held strictly responsible forcarrying out the plan.

Purposes of budgeting:1. Establish in advance the objective or end result of the budget period.2. Provides the means of coordinating the activities of the various sub-divisions and

departments of the business.3. Provide a period-to-period basis of comparison to show whether the plan is being

realized and if not realized indicate when changes must be made if current objectivesare to be obtained.

4. To serve as basis for orderly management of public finances.


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Fundamental Principles of Fiscal Operations

Budget activities are governed by legal provisions/fundamental principles relating to thefinancial transactions and operations of the government. The principles, as provided for by laware:

1. No money shall be paid out of any public treasury or depository except in pursuance ofan appropriation law or other specific statutory authority;

2. Government funds or property shall be spent or used solely for public purposes;

3. Trust funds shall be available and may be spent only for the specific purpose of whichthe trust was created;

4. Fiscal responsibility shall, to the greatest extent, be shared by all those exercisingauthority over the financial affairs, transactions, and operations of the governmentagency;

5. Disbursements or disposition of government funds and property shall invariably bear theapproval of the proper officials;

6. Claims against government funds shall be supported with complete documentation;7. All laws and regulations applicable to financial transactions shall be faithfully adhered to;

and

8. Generally accepted principles and practices of accounting as well as of soundmanagement and fiscal administration shall be observed, provided they do notcontravene existing laws and regulations.

The Budget as the Framework of the Accounts

The budget is an estimate of the proposed expenditures for specified purposes andperiod, and embodies the means of financing them during the same period. It provides themeans for controlling the estimated amounts to be raised as well as the proposed amounts tobe spent for specified objects. It is a program that guides all activities relating to collections andexpenditures; It is the framework of the accounts by which the transactions affecting suchcollections and expenditures shall be recorded; thus, the proper classification of income and

expenditures should be reflected in the accounts so that recorded data may give adequatesupport to future budget estimates.

Linkage Between Government Budgeting and State Accounting

A close linkage exists between government budgeting and state accounting. The accountingsystem provides the essential information needed to make resource allocation decisions,monitor budgetary performance, and assess the effectiveness of operations. The budgetprovides the framework within which transactions should be recorded, classified andsummarized in the accounting system to permit comparison of actual results with budgetedstandards.

A substantial output of the accounting system pertains to accountability reports needed tomonitor performance in the execution and accountability phases of the budgetary process. Thecontent, form, and other requirements of such reports are prescribed by the DBM. TheCommission on Audit issues rules and regulations that may be applicable when the reportingrequirements affect accounting functions.

Kinds of Budgets

1. As to Naturea. Annual Budget a budget which covers a period of one year. It is the basis of an


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annual appropriation.

b. Supplemental budget a budget which purports to supplement or adjust a previousbudget which is deemed inadequate for the purpose for which it is intended. This is thebasis for a supplemental appropriation.

c. Special budget a budget of special nature and generally submitted in special forms onaccount of the fact that itemizations are not adequately provided in the Appropriation Actor that amounts are not at all included in the Appropriations Act.

2. As to Basisa. Performance Budget a budget emphasizing the programs or services conducted and

based on functions, activities and projects which focus attention upon the generalcharacter and nature of the work to be done, or upon the services to be rendered, ratherthan the things to be acquired, such as personal services, supplies and equipment. It ismanagement-oriented measures actual or estimated results in the basis, terms ofbenefits accruing to the public and their costs.

b. Line-Item Budget a budget the basis of which are the objects of expenditures such assalaries and wages, travelling expenses, freight, supplies, materials and equipments,

tec.

3. As to Approach and Techniquea. Zero-Based Budgeting a process which requires systematic consideration of all

programs, projects and activities with the use of the defined ranking procedures. InZBB, activities are analyzed and presented in decision packages or key budgetaryinclusions.

The term zero-base refers to the yearly analysis, evaluation and justification of eachactivity, project or program, starting from a zero performance and budgeting level. ZBBdoes not accept the prior years budget as a starting point for analysis. The analysis ofthe levels of funding and performance as well as the expected impact of the objectives at

each level will give enough leeway for management to decide whether to eliminateentirely a low priority to make way for a new one or to cut back the performance andfunding level of the program to permit another to expand.

b. Incremental Approach a budget where only additional requirements need justification.It focuses on analysis of incremental changes in the budget and may be done within thecontext of performance and program budgeting.

c. Capital Budgeting Approach - a budgeting technique which consists of a two-tieredstrategy, as follows:

c.1 Setting a baseline budget that will correspond to the minimum level of operating

requirements at which each agency of the national government will be able to perform itsbasic functions; and

c.2 Prioritization of the allocable balance (i.e. what is left of the budget ceiling afterdeducting the baseline budget) among the proposed projects and programs of agencies.

Agency baseline refers to the cost of performing regular agency functions, including anallowance for inflation, but excluding the cost of non-recurring programs andprojects.

Government-wide baseline refers to the budget impact of decisions or policies


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enunciated by the government that require priority funding. These items are nottraditionally reflected in the individual budgets of agencies but are shown asa lump sum to be distributed later on the basis of prescribed rules or procedures.

Examples are:a. Proposed salary adjustmentb. Miscellaneous personnel benefits, including retirement benefitsc. Mandatory allocations to local governmentsd. Projected level of support to GOCCs

e. Estimated provisions for contingencies due to calamity, foreign exchangefluctuations and other adjustments

FAPs baseline refers to the budgetary requirements, of ongoing programs/projects withforeign financial assistance.

Priority Program/Project Fund - the remaining balance after deducting the baselinebudget requirements of the national government.

4. Other forms of budget

a. Regional budgeting is a budget prepared consistent with the regional organization of

the national government, wherein the DBM identifies by region the expendituresof government agencies and releases funds also on a regional basis.

b. Long-term budget is a budget prepared for a four or five year period or longer; longerrange estimate of revenue and expenditures requirements.

c. Key Budgetary Inclusions refer to the financial commitments of agencies pertaining to abudget year. KBIs are maintained for the purpose of (1) controlling major financialcommitments so that funds are not misappropriated or to prevent juggling of funds,(2) to disclose the funds and have a clear picture of the expenditures; and (3) to trackdown a mandatory obligations and insure funding of priority projects.

National Budget System

The National Budget System consists of the methods and practices of the government forplanning, programming and budgeting. It shall include the adoption of sound economic andfiscal policies and the execution of the programs and projects geared towards theaccomplishment of political, economic and social objectives. Its primary concern is theavailability and use of money to provide the services required or expected from the government.

Legal Basis of the Budget System

The legal basis of the current national budget system is the Budget Reform Decree or PD No.1177. The first premise of the Budget Reform Decree is that the national budget is aninstrument for development and as such requires careful design and implementation of budgetpreparation, legislation, execution and accountability.

What is a national budget?

A national budget is the governments estimate of its income and expenditures. It is the financialtranslation of the program and projects that best promote the development of the country. It iswhat the government plans 1) to spend for its programs and projects and 2) where the money


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will come from. It is based on what the government thinks it will spend during the year and thesources of what it hopes to have as funds either from the revenues or from borrowings withwhich to finance such expenditure.

On what is our national budget spent?

Our national budget is allocated for the implementation of various programs andprojects, the operation of government offices, payment of salaries of government employeesand payment of public debts. These expenditures may be looked at in terms of expense class,

sector, implementing unit of government and region.

Expenditures by expense class show how much is provided for:

1. Current operating expenditures appropriations for the purchase of goods and servicesfor the conduct of normal government operations within a budget year (e.g. salaries,maintenance and other operating expenses, interest payments etc.)

2. Capital outlays appropriations for the purchase of goods and services the benefits ofwhich extent beyond the budget year and which add to the assets of governmentincluding investments in the capital stock of government owned-or controlledcorporations.

3. Net Lending net advances by the national government for the servicing of governmentguaranteed corporate debt and loans outlays by the national government to governmentcorporations; and

4. Debt amortization contribution to the sinking fund which is utilized for principalrepayment of our loans.

How may a national budget affect the countrys life?

The national budget also serves as a stabilization role. It pumpprimes the economy, that

is, when the economy is in recession and private sector activity is weak, the governmentthrough its budget speeds up and increases its spending. The intention is to stimulate demandfor goods and purchases and the creation of more job opportunities.

Conversely, during economic booms when the private sector is active and economicgrowth is high, the government through the budget, assumes a more conservative spending,taxing, and borrowing stance so as not to compete with the private sector in the demand forgoods and credit. The objective is to slow down the rise in interest rates and prices, and avoidoverheating the economy.

Furthermore, the budget serves as a tool for the redistribution of the countrys financialresources. This is most clearly manifested ion the sustained funding for the social services

sector. Through various social programs especially those targeted for the poor, thegovernment hopes to raise the rate of return on human capital; provide immediate relief to theneedy; and extend better opportunities for slef-help, livelihood and employment activities.

Why does the budget increase?

Expenditures may increase or decrease depending on the governments policy of howmuch it would like to put into the economy. The more the government intends to raise thecountrys level of development, the more expenditure rise.

Furthermore, the maturity of the countrys debt also determines the size of the budget


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and how it differs from year to year. When the loans which were incurred in the past fall due,scheduled payments for a given year are included in the years expenditure program. Also,governments assumption of liabilities of government corporation and financial institutionscontributes to the increase in the allocation of debt servicing. These, in turn, increase thebudget deficit which contributes to higher interest payments and a bigger over-all budget.

Commodity price increase equated to inflation also require that the budget be adjustedso that it would still be able to buy the quantity of goods and services that the government isaiming for.

What are the major sources for our national budget?

There are two major sources of funds: 1) revenues and 2) borrowings.

Revenues consist of tax and non-tax collections.Tax revenues are classified as follows:

a. excise taxb. license and business taxesc. income taxesd. import dutiese. other taxes and duties

Non-tax revenues include fees and service incomes of various governmentagencies, foreign grants, including those from the sale of transferred,surrendered and privatized assets by the Asset Privatization Trust and thePresidential Commission on Good Government.

Borrowings come from domestic and foreign sources. Domestic borrowings aresources from the auction of Treasury bills, notes and bonds. Foreign borrowings,in turn are classified either asproject and program loans being offered by foreigncreditors such as the Asian Development Bank and the International Bank forReconstruction and Development. Project loans are foreign loans obtained tofinance a specific project such as the building of roads or bridges, while Program

loans are multi-purpose foreign loans for the enhancement of a specific sector andconditioned on basic changes in certain economic, monetary or fiscal policies,among others.

Why does the government borrow from foreign sources? Why cant it make do with what iscollected locally.

Our government has to provide for the requirements of capital outlays projects such asroads and bridges, that are important to the attainment of our development objectives. Ineffect, capital outlays are investments for continuous economic activities and for futureexpansions. They generate local production and income.

Relying only on domestic or local resources to finance such projects will limit ourgovernments capacity to provide these needed support. If the government takes too large ashare of domestic resources, local private demand will have less for their own projects andactivities. As a result, credit will be tight, interest charges will be high and prices of goods andservices will go up.

The absence of a long-term domestic capital market and the limited savings in thecountry, moreover, render the domestic resources insufficient to finance the enormousrequirements of development. By borrowing from foreign sources, the government takesadvantage of long-term loans which are readily available abroad with lower interest rates in


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international capital markets.

It should be emphasized that our national government uses borrowing proceeds solely tofinance carefully selected capital projects supportive of the countrys development goals. Wisely chosen and efficiently implemented, these projects are expected to build up theproductive capacity of our economy and eventually pay back the loans obtained.

BUDGET PROCESS

How is the government budgeting undertaken?

Government budgeting is undertaken using a process that consists of four (4) phases,namely: 1) budget preparation

2) budget legislation or authorization3) budget execution or implementation4) budget accountability or review

Budget Preparation

This process starts with the determination of budgetary priorities and activities guided by ournational development plan, within the ceilings or constraints imposed by available revenuesand borrowing limits and inclusion of amounts needed for approved priorities and activities intothe expenditure levels.

The Development Budget Coordinating Committee (DBCC) determines the overall expenditurelevels, the revenue projections, the deficit levels and the financing plan. The DBCC submitsthese to the Cabinet and to the President for approval.

The DBCC is composed of the Budget Secretary as Chairman and the Economic PlanningSecretary, the Bangko Sentral ng Pilipinas and the Finance Secretary as members. It isassisted by an Executive Technical Board.

Once approved, the DBM issued a Budget Call, a document reminding the different agenciesin the government to prepare their respective budgets in accordance with approved overallbudget ceilings and parameters. Upon receipt of the budget call, the agencies are alsoexpected to have already started conducting their own internal budget consultations to firm upand to fit in their departmental plans and priorities for the specific year with the overall sectoraldevelopment strategy of government, as laid down in the Medium Term Development Plan.

DBM hold consultations with agencies to set indicative expenditure ceiling of department oragencies as set by DBCC to be used in preparation of official budget estimates to avoid.minimize bloated agency budget proposal

Agencies issue guidelines to their regional offices which are expected to conduct regionalbudget hearings with RDC and NGO. In this hearing, programs, plans and priorities in theregions are reviewed which will be incorporated in the budget proposal.

The regional offices submit their RDC approved budget to their respective head offices inManila which, in turn, collate all the regional budget proposals submitted by their differentregional offices all over the Philippines and consolidate these into a single agency budgetproposal of the department.

The DBM conducts consultation-workshops with RDCs and department heads on their criteria


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for the allocation of the agency budget to their regional offices. The intention is to ensure thatthe regional distribution of the national budget is consistent with the development plans anddirections of the regions. This is in line with the allied policies of decentralization and creatinggreater popular participation in government concerns.

The DBM then undertakes a series of review activities to evaluate the merits of the budgetproposals and determine the areas where possible cuts could be made. The objective is tomake the overall expenditure level consistent with that determined by the DBCC and approvedby the President.

Budget Legislation or Authorization

The President submits the overall budget that he/she approved to Congress in the form of adetailed Expenditure Program (National Expenditure Program) accompanied by the Budget ofExpenditures and Sources of Financing, The Presidents Budget Message and the Regional

Allocation of the Expenditure Program.

In Congress, the proposed budget goes first to the House of Representatives, which assignsthe task of initial budget review to its Appropriations Committee.

The House Committee summons the different national agencies of the government to explain

and to justify their budget. The proposed budget is then presented to the House Body as a bill(Gen. Appropriations Bill).

From the House of Representatives, the budget bill goes to the Senate and is referred to theSenate Finance Committee. The Senate Finance Committee, likewise, asks the variousagencies to explain their respective budgets as contained in the budget bill. It then proposesamendments to the House Budget Bill to the Senate Body for approval.

To thresh out differences and arrive at a common version, a conference committee is createdcomposed of members coming from both houses.

Once a common budget bill has been approved by both houses voting separately, it is

submitted to the President for signing into law. It then known as a General Appropriations Act.,which mandates the DBM, as the staff arm of the President to execute or implement theexpenditures program.

Budget Execution or Implementation

This is the operational aspect of budgeting. After the President signs the GAA into law, theDBM requires the different agencies of government to prepare the Agency Budget Matrix(ABM) to be accompanied by the Annual Cash Program.

The allotment (based on the ABM) is the authority of the government agency to incurobligations and enter into contract. It is possible that sometimes the allotment is issued for the

funding of projects even if these will take one year to finish. This is done to enable the agencyto enter into contracts and begin the projects. However, pursuant to DBM Circular Letter#2008-11, the releases ofNotices of Cash Allocation (NCAs) is being modified. NCAs tocover regular requirements of agencies shall be comprehensively released with a monthlybreakdown of NCA requirements of the agency receiving NCA directly from DBM. Basis ofreleases is the Monthly Cash Program (MCP), a budget execution document, reflects the monthlydisbursement requirement of OUs.

All NCAs programmed and credited for the month whether part of the comprehensive release orconstituting the additional NCA releases, shall be valid only until the last working dayof the


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said month, thus, any un utilized NCA corresponding to the book balance (net of outstandingchecks) shall automatically lapse at the end of that month.

DBM shall provide the MDS-GSB and agency concerned, a monthly schedule of the NCAreleases, ex. Monthly NCA requirement of the agency.

Upon receipt of the NCA, the MDS-GSB shall ensure that the amount programmed for themonth, if there is any, shall be credited immediately to the Regular MDS accounts of theagency. Thereafter, the NCA requirements for the subsequent months shall be credited on the

first working day of the month consistent with the schedule to be provided by DBM.

The NCA specifies the maximum amount of withdrawal that an agency can make from thegovernment servicing bank for the period indicated.

DOF and DBM will meet every month to confirm or adjust the estimated cash availability and theprogram of NCA releases. In the event that cash balance of the government reaches a levelwhere the budget cost cannot be met, DBM implements the across-the-board budget reduction.

(Refer to th e DBM Circular L etter #528 for the guid elines of NCA Releases for FY 2011)

Budget Accountability

This refers to the evaluation of actual performance and initially approved work targets.Obligation incurred, personnel hired and work accomplished are compared with the plans andtargets submitted by the agencies at the time that their respective budgets are prepared. Thiswork is entrusted with the DBM and COA.

Budget accountability is concerned with tracking and monitoring of actual expenditures,revenue, assets and liabilities of the government and is carried out largely through theaccounting function. It consists of the periodic reporting by agencies of their performance, topmanagement review of government activities and the fiscal and policy implications, and theactions of the COA in assuming the fidelity of officials and employees in the handling of receiptsand expenditures.

Accounting for budgetary accounts

Budgetary accounts consists of the appropriations, allotments and obligations.Appropriations refers to an authorization made by law or other legislative enactment, directingthe payment of goods and services out of government funds under specified conditions or forspecial purposes. Allotment is the authorization issued by the DBM to the agency, whichallows it to incur obligations for specified amounts, within the legislative appropriation.

In order that the appropriation may be released, the agency, in consultation with theDBM, is required to prepare and to submit the Agency Budget Matrix (ABM), the officialdocument used as the basis in the release of the obligational authority. This is prepared by

appropriation/financing sources to support expenditures to be made during the year brokendown by allotment class/expenses. The ABM shall contain, among others, the followinginformation:

a. The amount to be released categorized under Not Needing Clearance column,b. The amount that will be released through the issuance of Special Allotment Release

Order (SARO) categorized under Needing Clearance column including continuingappropriations based on the Statement of Allotments, Obligations and Balances(SAOB).

An Annual Cash Program, which shall provide cash to finance the programs reflected


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in the ABM and the prior years accounts payable, is also submitted with the ABM. Uponapproval of the total comprehensive release by the DBM, it will be released to the agency.

For request Non-Needing Clearance, the Notice of Cash Allocation (NCA) is issued asrequested. Pursuant to the Tax Remittance Advice (TRA) system as provided in Joint CircularNo. 1-200 of the DOF, DBM and COA dated January 3, 2000, the NCA released to the agencyis reduced by the amount of the taxes withheld to be remitted by the DBM for the Agency thruthe TRA based on the request of the agency duly supported by the Summary of Taxes Withheld(STW).

Control and Recording of Appropriations, Allotments. Obligations and the NCA

The COA does not journalize the appropriations. The control of the release of allotmentsand the NCA shall be made by the DBM and the BTr, thru the registries that they shall maintain.The Agency shall also monitor the allotments and the obligations it incurs in the registry that itshall also maintain.

The agency shall journalize the NCA it receives as debit to Cash-National Treasury-MDSand credit to Subsidy Income from the National Government. In effect it identifies the share ofthe agency in the income of the National Government.

Records of the DBM

Upon the approval and issuance of the ABM and the SARO, the DBM shall enter thepertinent data on releases for each government agency in the Registry of Appropriations and

Allotments (RAPAL). The DBM shall maintain the Registry of Allotments and NCA (RANCA) forthe allotments and the NCA issued to the agency. The RANCA shall be the control andmonitoring record of the DBM and shall furnish the BTr a copy of the NCA.

Records of the BTr

Upon receipt of the NCA from DBM, the BTr shall enter it in the Registry of NCA and

Replenishment (RENREP). It shall also enter the transfer of cash from its bank account(s) tothe appropriate MDS account.

Records of the Agency

Upon receipt of the approved ABM and ARO, the Budget Officer shall record theallotment to the respective registries through the Allotment and Obligation Slips (ALOBS).

Although the agency will not journalize its appropriation and allotments, it shall maintain fourregistries for the obligations it incur:

- Registry of Allotment and Obligations Capital Outlay (RAOCO)- Registry of Allotment and Obligations Maintenance and Other Operating

Expenses (RAOMO)

- Registry of Allotment and Obligations Personal Services (RAOPS)- Registry of Allotment and Obligations Financial Expenses (RAOFE)

Recording of Allotments

Upon receipt of the approved ABM and ARO, it shall be recorded in the respectiveregistries through the Allotment and Obligation Slips (ALOBS). Separate registries shall bemaintained for the four classes of Program/Project/activity(PPA) to wit:


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RAO-PS

RAO-MO

RAO-CO

RAO-FE

Account ing of Obl igations:

Obligation refers to a commitment by a government agency arising from an act of a dulyauthorized official which binds the government to the immediate or eventual payment of a sumof money. The agency is authorized to incur obligations only in the performance of activitieswhich are in pursuits of its functions and programs authorized in appropriation acts/laws withinthe limit of the ARO.

The Head of the Requesting Unit shall prepare the Obligation Request (ObR) or BudgetUtilization Request (BUR) and Disbursement Voucher. He shall certify on the necessity andlegality of charges to appropriations/allotment under his direct supervision as well as the validity,propriety and legality of supporting documents.

The Head of the Budget Unit shall certify the availability of allotment and obligationsincurred in the ObR or budget and utilization in the BUR. Obligations shall be taken up in theregistries maintained by the Budget Unit through the ALOBS prepared/processed by the office.The Budget Officer verifies the completeness of the documents. If complete, then prepares the

ALOBS. Verifies the availability of the allotment based on the RAOs. If no allotment isavailable, returns the documents to the office concerned, if there is an available balance ofallotment to cover the obligations, prepares the ALOBS and record in the appropriate RAOs.

The obligation is recognized and will be entered in the appropriate RAO when theobligation is incurred as evidenced by the approved ALOBS. Obligations shall be posted in theObligation Incurred column of the RAOs to arrive at the balance ofallotment still available at agiven period. There is no need to prepare a new ALOBS for corrections/adjustments made bythe accounting unit after the processing of the claims but before payment is made.

Adjustment in the RAOs shall be effected thru a positive entry (if additional obligation isnecessary) or a negative entry (if reduction) in the Obligation Incurred column.

The Head of the Accounting Unit, for contract or purchase order, shall certify theavailability of funds based on the ObR or BUR duly certified by the Budget Officer and certify theavailability of cash and completeness of supporting documents in the DV.

A new ALOBS for the following adjustments of obligations as negative entries in theObligation Incurred column shall be made:

1. Refund of cash advance granted during the year;2. Overpayment of expenses during the year;

3. Disallowances/charges which become final and executory

To support the negative entries, a certified copies of OR for the overpayment/refunds shallbe furnished to the Budget Unit.

The Accountant shall credit Cash-National Treasury-MDS each time a payment ismade charged against the NCA and debit the specific account being paid for, either asset orexpense account.


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Illustrative Entry:

a. Receipt of Allotment Posting in the allotment column to the respectiveRegistries.

b. Incurrence of obligation Posting in the obligation column of the RAOsEx. RAOPS for PS obligations or expenditures

Notice of Cash Allocation(NCA) specifies the maximum amount of withdrawal that anagency can make from the National Treasury through the issuance of MDS checks or otherauthorized mode of disbursement. This is issued by DBM based on the Annual Cash Programor as requested and prescribed under the Modified Disbursement System (MDS).

Upon receipt of the NCA, the accountant shall record in the books as:

Cash-National Treasury, MDS 106 XXSubsidy Income from National Government 631 XX

Income/Collections and Deposits System

This system covers the processes of acknowledging and reporting income/collections,deposits of collections with Authorized Government Depository Bank (AGDB) or through the

AGDB for the account of the Treasurer of the Philippines, and recording of collections anddeposits in the books of accounts of the agency.

The sources of income and collections made by Agency are:1. Taxes 4. Borrowings2. Operating and Service Income 5. Miscellaneous Receipts3. Grants and Donations

Methods of Accounting for Income:

1. Accrual Method used when income is realized (earned) during the accountingPeriod regardless of cash receipt. Account Receivableis set upand the general or specific income accounts according to natureand classification are credited.

2. Modified Accrual income of an agency is recorded as Deferred Credits to Incomeand the appropriate receivable account is debited. The incomeaccount is recognized upon receipt of collection and the DeferredCredits to Income account is adjusted accordingly.

3. Cash Basis - shall be used for all other taxes, fees, charges and other revenues

where accrual method is impractical. The income account iscredited upon collection of the cash or its equivalent.

All collecting officers shall deposit intact all their collections with AGDB daily or not laterthan the next banking day and shall record all the deposits made in the Cash Receipts Record.

Only National Government Agencies shall maintain two sets of books:

1. Regular Agency books this shall be used to record the regular transactionsof the agency like the receipt and utilization of Notice of Cash

Allocation (NCA), and collections of income and other receipts


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which the agency are authorize to use. This shall consist of journals andledgers, as follows:

Journals:Cash Receipts Journal (CRJ)Cash Disbursement Journal (CDJ)Check Disbursement Journal (CkDJ)General Journal (GJ)

Ledgers:General Ledger (GL)Subsidiary Ledgers (SL)

2. National Government books this shall be used to record collections, whichthe agency cannot use but are required to be remitted to the Bureau ofthe Treasury. These shall consist of the following:

Cash JournalGeneral JournalGeneral LedgerSubsidiary Ledger

Receipt and Collection Process

1. The Collecting Officer (CO)receives payment from creditors and issues Official Receipt.2. The CO records collections in Cash Receipt Record.3. The CO deposits collections.4. The CO records deposit in Cash Receipt Record.5. The CO prepares the Report of Collections and Deposits and forwards to accounting unit

with copies of official receipts and validated Deposit Slips.6. The accounting unit prepares Journal Entry Voucher (JEV) and records in the Cash

Receipts Journal.

Types of collections as to authority to use:

1. Without authority to use.2. With authority to use.3. Authority with limitations4. Income from sale of equipment.5. Grants and donations intended for agency use.6. Miscellaneous collections.

Illustrative Accounting Entries:

A. Without Authority to Use (NG Bks)

As a general rule, all revenues regardless of amount and frequency of collection are to

be remitted to the National Treasury. Such income shall be recorded in a separatebooks of accounts NG Books.

1. Receipt of cash payment of hospital fees

Cash collecting officers 102 xxxDue to National Treasury 411 xxxHospital fees 596 xxx


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2. Remittance to the treasury

Due to National Treasury 411 xxxHospital fees 596 xxx

Cash-collecting officers 102 xxx

B. With Authority to Use (RA Bks)

For agencies which are authorized to use income for their operations, the collections

shall be recorded as income in the Regular Agency (RA) books

1. Collection of prior years receivables

Cash- collecting officers 102 xxAccounts Receivables 121 xx

2. Issuance of bill for the rent of an office space.

Accounts Receivables 111 xxRent/Lease income 574 xx

3. Record collection of rent payment.

Cash collecting officer 102 xxAccounts Receivable 111 xx

4. Record deposit in the bank.

Due from National Treasury 122 xxCash collecting officer 102 xx

5. Release of NCA by DBM after request is be made to the Bu of Treasury to use thedeposited collections as augmentation of MOOE.

Cash-National Treasury, MDS 106 xxDue from National Treasury 122 xx

6. Record disbursement for the repair (use of income).

Repairs and Maintenance -Buildingsand other Structures 804 xx

Cash-National Treasury, MDS 106 xx

7. Cash from another agency to implement its project (Inter-agency Transferred Funds).Under existing regulations, the collections made by an Implementing Agency (IA) of cash

from a source agency (SA) to implement the latters project shall be remitted by therecipient agency, the IA, to the BTr. The IA shall request the necessary NCA from theDBM)

7.a Receipt of the check from the SA.

Cash collecting officers 102 xxDue to Other NGAs( SA) 416 xx


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7.b Remittance of cash to the BTr

Due from National Treasury 131 xxCash-collecting officers 102 xx

7.c Receipt of NCA from DBM

Cash- National Treasury, MDS 106 xxDue from National Treasury 131 xx

7.d Purchase of technical equipment

Technical & Scientific MachineryAnd Equipment 226 xx

Cash-National Treasury, MDS 106 xx

7.e Submission of liquidation report to the SA.

Due to Other NGAs 416 xxTechnical and ScientificMachinery & Equipment 226 xx

If there is still a balance or refund of fund balances of completed projects.

Due to Other NGAs 416 xxCash-National Treasury, MDS 108 xx

C. Authority with Limitations

If the authority is subject to the limitation that any excess shall be remitted to theNational Treasury, such collections for seminar and convention fees, the collections

shall be recorded in the NG books. The expenses shall be journalized, thebalance/excess to be remitted to the National Treasury.

1. Record collection of (ex.)seminar fees.

Cash collecting officer 102 xxSeminar/Training fees 622 xx

2. Record deposit of collection.

Cash in Bank Local Currency 111 xxCash collecting officer 102 xx

3. Record payment of expenses.

Office supplies expense 755 xxCash in Bank Local Currency 111 xx

To close the balance or unused income in RA and transfer to NG Bks .

Seminar/training fees 622 xxCash in BankLocal Currency 111 xx


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4. Record transfer in the NG Bks the unused collections.

Cash collecting officer 102 xxDue to NT 411 xx

( Seminar/Training fees 622- xx

5. Record remittance of excess to the Bu of Treasury through bank.

Due to NT 411 xx(Seminar/training fees 622 xx)

Cash collecting officer 102 xx

Income from Sale of Equipment

Proceeds from the sale of non-serviceable, obsolete and other unnecessary equipment,including cars, vans and the like, may be requested for appropriation to purchase a new oneand for the repair and maintenance of existing vital equipment. It should be noted that thepurchase of cars and vans is subject to the prior authority required under the existing rules.

Illustration:

The Agency A of the national government sold a non-serviceable car with the followinginformation:

Cost P500,000Accumulated depreciation 250,000Sales Price 300,000

The proceeds from sale were accordingly remitted to the National Treasury through thebank. The agency received Special Allotment Release Order (SARO) in the amount ofP500,000 for the purchase of a new car with Notice of Cash Allocation (NCA) in the amount ofP450,000, net of withholding tax of P50,000. After approval of the purchase order issued, the

motor vehicle was delivered and accordingly, paid in full, net of withholding tax. The said taxwas afterwards remitted to the Bureau of Internal Revenue through a Tax Remittance Advice(TRA).

To record sale of motor vehicle.

Cash collecting officer 102 300,000Accumulated Depreciation-

Land Transport Equipt 314 250,000Land Transport Equipment 214 500,000Gain on Sale of Asset 623 50,000

Record Remittance of collection to the NT through the bank:Gain on Sale of Asset 623 50,000Government Equity 471 250,000

Cash Collecting Officer 102 300,000

Receipt of SARO for the request to purchase a new one:

Record in the RAOCO under the Allotment Received column.


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Record the NCA received:

Cash NT, MDS 107 450,000Subsidy Income from NG 631 450,000

To record obligation in the RAOCO:

Post the amount of obligation in the Obligation Column of the RAOCO.

To record accounts payable for the motor vehicle delivered:

Land Transport Equipment 214 500,000Accounts Payable 401 500,000

To record full payment of obligation:

Accounts Payable 401 500,000Due to BIR 412 50,000Cash NT, MDS 107 450,000

To record remittance of withholding tax through TRA.

Due to BIR 412 50,000Subsidy Income fromNational Government 631 50,000

ac 518 summer term 2013 1st hand-out (1)

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