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Notes on Government Accounting (As taken from the

Commission on Audits Manual)


Legal basis for prescribing rules and policies on Government
Accounting: prescribed by the Commission on Audit pursuant to
Article IX-D, Section 2 par. (2) of the 1987 Constitution of the
Republic of the Philippines which provides that:
The Commission on Audit shall have exclusive
authority, subject to the limitations in this Article, to
define the scope of its audit and examination,
establish the techniques and methods required
therefor, and promulgate accounting and auditing
rules and regulations, including those for the
prevention
and
disallowance
of
irregular,
unnecessary,
excessive,
extravagant,
or
unconscionable expenditures, or uses of government
funds and properties". (underscoring supplied)
Basic Features and Policies. The NGAS has the following basic
features and policies, to wit:
a.

Accrual Accounting. A modified accrual basis of


accounting shall be used. Under this method, all
expenses shall be recognized when incurred and
reported in the financial statements in the period to
which they relate. Income shall be on accrual basis
except for transactions where accrual basis is
impractical or when other methods are required by
law.

b.

One Fund Concept. This system adopts the one fund


concept. Separate fund accounting shall be done only
when specifically required by law or by a donor
agency or when otherwise necessitated by
circumstances subject to prior approval of the
Commission.

c.

Chart of Accounts and Account Codes. A new chart


of accounts and coding structure with a three-digit
account numbering system shall be adopted. (See
Volume 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 receipt and utilization of Notice
of Cash Allocation (NCA) and other income/receipts
which the agencies are authorized to use and to
deposit with Authorized Government Depository Bank
(AGDB) and the National Treasury. These shall
consist of journals and ledgers, as follows:

Journals
Cash Receipts Journal (CRJ)
Cash Disbursements Journal (CDJ)
Check Disbursements Journal (CkDJ)
General Journal (GJ)
Ledgers
General Ledger (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 income which the agencies are
not authorized to use and are required to be remitted
to the National 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 statements shall


be prepared:
Balance Sheet
Statement of Government Equity
Statement of Income and Expenses
Statement of Cash Flows
Notes to Financial Statements
accompany the above statements.

shall

f.

Two-Money Column Trial Balance. The two - money


column trial balance showing the account balances
shall be used.

g.

Allotment and Obligation. Obligation accounting is


modified to simplify procedures in the incurrence and
liquidation of obligations and the recording of the
budgetary accounts (allotments and obligations
incurred and liquidated). Separate registries shall be
maintained to control the allotments and obligations
for each of the four classes of allotments, namely:
Registry of Allotments and Obligations Capital Outlay (RAOCO)
Registry of Allotments and Obligations Maintenance and Other Operating
Expenses (RAOMO)
Registry of Allotments and Obligations Personal Services (RAOPS)
Registry of Allotments and ObligationsFinancial Expenses (RAOFE).

h.

Notice of Cash Allocation (NCA). The receipt of


NCA by the agency shall be recorded in the books as
debit to account Cash-National Treasury, Modified
Disbursement System (MDS) and credit to account
Subsidy Income from National Government.

i.

Financial Expenses. Financial expenses such as


bank charges, interest expenses, commitment
charges and other related expenses shall be
separately classified from Maintenance and Other
Operating Expenses (MOOE).

j.

Perpetual Inventory of Supplies and Materials.


Supplies and materials purchased for inventory
purpose shall be recorded using the perpetual
inventory system. Regular purchases shall be coursed
thru the inventory account and issuances thereof shall
be recorded as they take place except those
purchased out of Petty Cash Fund which shall be
charged directly to the appropriate expense accounts.

k.

Valuation of Inventory. Cost of ending inventory of


supplies and materials shall be computed using the
moving average method.

l.

Maintenance of Supplies and Property, Plant and


Equipment Ledger Cards. For appropriate check
and balance, the Accounting Units of agencies, as well
as the Property Offices, shall maintain Supplies
Ledger Cards/Stock Cards by stock number and
Property, Plant and Equipment Ledger Cards/Property
Cards by category of property, plant and equipment,
respectively.

m. Construction of Assets. For assets under


construction, the Construction Period Theory shall be
applied for costing purposes. Bonus paid to the
contractor for completing 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 from the total cost of the project. Any
related expenses incurred during the construction of
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 of operating cost.
n.

Registry of Public Infrastructures/Registry of


Reforestation Projects. For agencies that construct
public infrastructures, such as roads, bridges,
waterways, railways, plaza, monuments, etc., and
invest on reforestation projects, a Registry of Public
Infrastructures (RPI)/Registry of Reforestation
Projects (RRP) shall be maintained for
each
category of infrastructures/reforestation projects.
Examples are:
Registry of Public Infrastructures - Bridges
(RPIB)
Registry of Public Infrastructures - Roads
(RPIR)
Registry of Public Infrastructures - Parks
(RPIP)
Registry of Reforestation Projects (RRP)
A
Summary
of
Public
Infrastructures/Reforestation Projects shall be
prepared and included in the Notes to Financial
Statements.

o.

p.

Depreciation.
The straight-line method of
depreciation shall be used. Depreciation shall start on
the second month after purchase of the property, plant
and equipment, and a residual value equivalent to ten
percent of the purchase cost shall be set-up. Public
infrastructures/reforestation projects as well as
serviceable assets that are no longer being used shall
not be charged any depreciation.
Reclassification of Assets. Serviceable assets no
longer being used shall be reclassified to Other
Assets account and shall not be subject to
depreciation.

q.

Allowance for Doubtful Accounts. An Allowance for


Doubtful Accounts shall be set up 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. Cash shortages and disallowed payments,
which become final and executory, shall be recorded
under receivable accounts Due From Officers and
Employees
or
Receivables-Disallowances/
Charges, as the case may be.

s.

Recognition of Liability. Liability shall be recognized


at the time goods and services are accepted or
rendered and supplier/creditor bills are received.

t.

Interest Accrual. Whenever practical and


appropriate, interest income and/or expense shall be
accrued and recognized in the books of accounts.

u.

Accounting for Borrowings and Loans. All


borrowings and loans incurred shall be recorded to the
appropriate liability accounts.

v.

Elimination of corollary and negative journal


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

w.

Petty Cash Fund. The Petty Cash Fund shall be


maintained under the imprest system. As such, all
replenishments shall be directly charged to the
expense account and at all times, the Petty Cash
Fund shall be equal to the total cash on hand and the
unreplenished expenses. The Petty Cash Fund shall
not be used to purchase 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
Bangko Sentral ng Pilipinas at balance sheet date.
The total cash deposits and foreign loans payable
shall be adjusted at the end of each month and any
gain or loss on foreign exchange shall be recognized.
The subsidiary ledger for foreign currency obligations
shall reflect the appropriate foreign currency in which
the loan is payable. The liability shall be expressed
both in the foreign and local currency.

THE BUDGET CYCLE: There are four (4) phases in managing the
National Budget:

Budget preparation
Budget legislation/Budget authorization
Budget execution
Budget accountability

1.

Budget Preparation Starts with the DBMs budget call


which sets forth the parameters, guidelines and procedures
in the preparation and submission of agency budget
proposal. The agencies submitted proposals are then
subject to the executive review from the cabinet members
and the president to come up with the Presidents Budget.
Budget Legislation The two houses of Congress
(House of representatives and House of Senate) will
deliberate on the Presidents budget in order to come up
with the General Appropriations Bill. A bicameral
proceeding will follow to harmonize the two houses
versions of the GAB to come up with a harmonized or
bicam version of the GAB. The harmonized GAB will be
subject to ratification by the members of both houses. The
ratified GAB will be submitted to the President for review.
Budget Execution The DBM releases the allotments to
the agencies thru the ABM (Agency Budget Matrix) and
AROs (Allotment Release Orders). With the allotments, the
agencies may now incur obligations. In order for the
agencies to pay the incurred obligations, the DBM issues a
disbursement authority in the form of NCA (Notice of Cash
Allocation).

2.

3.

4.

Budget Accountability The DBM monitors the efficiency


of fund utilization, assesses agency performance and
provides a basis for reforms and new policies. Budget
accountability includes the Annual Audit by the COA.

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