Chapter 7

• listing of general ledger accounts

with their corresponding debit
and credit balances
• listed in order presented in RCA
• submitted monthly, quarterly,
and annually

CHAPTER 7 2
 1. Prove mathematical equality of
the debits and credits after
posting
2. Check accuracy of the postings
3. Uncover errors in journalizing
and posting
4. Serve basis for the preparation
of FS

CHAPTER 7 3
• made at the end of an accounting period to allocate revenue and
expenses to the period in which they actually occurred

CHAPTER 7 4
TWO TYPES

1. Accrued Items – AJE for economic activities already undertaken but

not yet recorded as asset and revenue accounts or a liability and
expense accounts

CHAPTER 7 5
TWO TYPES: Accrued Items

a. ASSET/REVENUE ADJUSTMENTS – involve assets and income, existing

but not recorded

Account title Code Debit credit

Interest Receivable 10301050 2000
Interest Income 40202210 2000
CHAPTER 7 6
TWO TYPES: Accrued Items

b. LIABILITY/EXPENSE ADJUSTMENTS – involve liabilities and expenses,

existing but not recorded

Account title Code Debit credit

Salaries and Wages – regular 50101010 25000
Due to Officers and Employees 20101020 25000

CHAPTER 7 7
TWO TYPES

2. Deferred Items – AJE transferring data previously recorded in asset

account to expense account, or data previously recorded in liability
account to revenue account

CHAPTER 7 8
TWO TYPES: Deferred Items

a. ASSET/EXPENSE ADJUSTMENTS – include prepaid expenses, bad

debts, and depreciation

Account title Code Debit credit

Rent/Lease Expense 50299050 5000
Prepaid Rent 19902020 5000
CHAPTER 7 9
TWO TYPES: Deferred Items

b. LIABILITY/REVENUE ADJUSTMENTS – involve unearned revenue

received as asset, even before income is actually earned

Account title Code Debit Credit

Other Deferred Credits 20501990 3000
Rent/Lease Income 40202050 3000

CHAPTER 7 10
 1. Unused NCA
2. Petty Cash Fund
3. Unreleased Commercial
Checks
4. Allowance of Impairment
Losses of Asset Accounts
5. Depreciation Expenses
6. Other adjustments

CHAPTER 7 11
 - entry for lapsed regular NCA and
issued for payment of AP/terminal
leave, shall be:

Account title Code Debit Credit

Subsidy from National 40301010
Government xxx
Cash – MDS, regular 10104040 xxx

CHAPTER 7 12
 - unused NCA issued for the
release of performance/bidders/
bail bonds deposited with the
National Treasury

Account title Code Debit Credit

Cash – Treasury/Agency 10104030
Deposit, Trust xxx
Cash – MDS, trust 10104060 xxx

CHAPTER 7 13
 - unreplenished PCF expenses
shall be reported and supporting
papers submitted to Accounting
division/unit, to recognize
expenses incurred to the period to
which they relate

CHAPTER 7 14
 Replenishment
Account title Code Debit Credit
Petty Cash Expenses xxx
Cash – MDS Regular 10104040 xxx

Without Replenishment
Account title Code Debit Credit
Petty Cash Expenses xxx
Petty Cash 10101020 xxx

CHAPTER 7 15
 • Schedule of UCC shall be prepared by the
cashier for submission to the accounting
division/unit
• Revered back to cash accounts
• Prepared to recognize the restoration of
the cash equivalent to the unreleased
checks and recognize the recognition of
liab/payb account

CHAPTER 7 16
 Account title Code Debit Credit
Cash in Bank, Local 10102020
Currency, Current xxx
AP 20101010 xxx

• at the start of the subsequent year,

another entry shall be drawn to reverse
the previous entry made and recognize
the availability of the checks for release

CHAPTER 7 17
 • According to GAM, Section 9, when an
uncertainty arises about the collectability of
an amount already included in revenue, the
uncollectible amount or amount in respect of
which recovery has ceased to be probable is
recognized as an expense, rather than
adjustment of the amount of revenue
originally recognized

Account title Code Debit Credit

Impairment loss – loans and 50503020 5000
receivable
Allowance for Impairment – 10301011 5000
AR
CHAPTER 7 18
 • Depreciation is the systematic allocation of
depreciable amount of the PPE over its
useful life.
• Useful life is defined as the asset’s
expected utility to the entity
• Depreciation is recognized even if FV > CA
as long as the RV < CA
• Changes in Accounting Estimate shall be
treated currently and prospectively
• DEPRECIATION METHODS: straight line,
diminishing balance, and units of
production method
CHAPTER 7 19
 ASSET Cost Useful Depreciation
Life
Buildings 50 000 000 50 950 000

Machinery 150 000 5 28 500

Account title Code Debit credit

Depreciation Expense – 50501040 950 000
building
Accumulated depreciation – 10604011 950 000
building

Account title Code Debit credit

Depreciation Expense – 50501050 28 500
machinery
Accumulated depreciation – 10605011 28 500
CHAPTER 7 20
machinery
• Be prepared after posting the AJE in the GJ and to the GL
• Shows the adjusted balances of all accounts as at a given period
• Shall be supported with the Schedule of SL balances of the controlling
accounts

CHAPTER 7 21
• Close out the balances of all nominal/temporary and intermediate
accounts at the end of the year
• Reduce the balance of nominal and intermediate accounts to zero

CHAPTER 7 22
a. Revenue and Expense accounts – Revenue and Expense Summary
b. Revenue and Expense Summary – Accumulated Surplus/Deficit
c. Cash – Treasury/Agency Deposit, Regular – Accumulated
Surplus/Deficit
d. Other closing entries

Quarterly closing entries shall be prepared but shall not be recorded in

the books of accounts
CHAPTER 7 23
- Prepared after preparing and posting the closing JE in the GJ and GL.

CHAPTER 7 24
Financial statements are a
structured representation of
the financial position and
financial performance of an
entity.

CHAPTER 7 25
OBJECTIVES
- To provide information about the financial position, financial
performance and cash flows of an entity that is useful to a wide range of
users in making and evaluating decisions about the allocation of
resources.
- They can also have a predictive or prospective role which provide
information useful in predicting the level of resources required for
continued operations, the resources that may be generated by
continued operations, and the associated risks and uncertainties.
CHAPTER 7 26
FOR INDIVIDUAL ENTITY/ DEPARTMENT FSs - the head of the entity/
department central office or regional office or operating unit or his/her
authorized representative jointly with the heads of the
finance/accounting division/unit.

FOR DEPARTMENT/ENTITY FSs AS A SINGLE ENTITY - the head of the

entity/department central office jointly with the head of the finance
unit.

CHAPTER 7 27
• Serve as the covering letter in transmitting the agency's financial
statements to the COA, DBM, other oversight agencies and other
parties.
• Acknowledges the agency's responsibility for the preparation and
presentation of the financial statements.
• Signed by the Director of Finance and Management Office or
Comptrollership Office, of the Chief of Office, and the Head of Agency
or his/her authorized representative.

CHAPTER 7 28
• Name of the reporting entity or other means of identification, and any
change in that information from the preceding reporting date;
• Whether the fs cover the individual entity or a group of entity;
• Reporting date or the period covered by the financial statements, whichever
is appropriate to that component of the financial statements;
• Name of fund cluster;
• Reporting currency; and
• Level of rounding used in presenting amounts in the financial statements.

CHAPTER 7 29
Set of financial statements to be submitted:
• Statement of Financial Position
• Statement of Financial Performance
• Statement of Changes in Net Assets/Equity
• Statement of Cash Flows
• Statement of Comparison of Budget and Actual Amounts
• Notes to the Financial Statements, comprising a summary of significant
accounting policies and other explanatory notes

CHAPTER 7 30
1. Understandability 7. Substance over Form
2. Relevance 8. Neutrality
3. Materiality 9. Prudence
4. Timeliness 10.Completeness
5. Reliability 11.Comparability
6. Faithful Representation

CHAPTER 7 31
• Each entity of the National Government maintains complete set of
accounting books by fund cluster which is reconciled with the records
of cash transactions maintained by the BTr
• The BTr accounts for the cash, public debt and related transactions of
the National Government.
• Each entity maintains budget registries which are reconciled with the
budget records maintained by the DBM and the Government
Accountancy Sector(GAS), COA.

CHAPTER 7 32
• The COA, through the GAS:
1. Maintains budget records showing the overall approved budget
of the NG and its execution/implementation;
2. Consolidates the FSs and budget accountability reports of all
NGAs and BTr with COA's records to come up with an Annual
Financial Report(AFR) for the NG; and
3. Prepares other financial reports required by law for submission to
oversight agencies.

CHAPTER 7 33
 • Fair presentation requires the faithful
representation of the effects of
transactions, other events, and
conditions in accordance with the
definitions and recognition criteria for
assets, liabilities, revenue and expenses
set out in PPSASs.
• An entity whose financial statements
comply with PPSASs shall make an
explicit and unreserved statement of
such compliance in the notes.

CHAPTER 7 34
 • When the management strongly believes
that compliance with the requirement of
PPSAS would result in misleading
presentation that it would contradict the
objective of the FAs set forth in PPSAS,
the entity may depart from that
requirement if the relevant regulatory
framework allows, or otherwise does not
prohibit, such a departure.

CHAPTER 7 35
 • Financial Statements shall be
prepared on a going concern basis
unless there is an intention to
liquidate the entity or to cease
operating, or if there is no realistic
alternative but to do so.
• When fs are not prepared on a going
concern basis, that fact shall be
disclosed, together with the basis on
which the financial statements are
prepared and the reason why the
entity is not regarded as a going
concern.
CHAPTER 7 36
The presentation and classification of
items in the financial statements shall
be retained from one period to the
next.

CHAPTER 7 37
 Each material class of similar items shall be
presented separately in the financial
statements. Items of dissimilar nature or
function shall be presented separately,
unless they are immaterial.

CHAPTER 7 38
Assets and liabilities, and revenue
and expenses, shall not be offset
unless required or permitted by a
PPSAS.

CHAPTER 7 39
 • Financial statements shall be presented at
least annually.
• When an entity's reporting date changes and
the annual financial statements are presented
for a period longer or shorter than one year,
an entity shall disclose, in addition to the
period covered by the financial statements:
1. The reason for using a longer or shorter
period; and
2. The fact that comparative amounts for
certain statements are not entirely
comparable.
CHAPTER 7 40
Formal statement which shows the financial condition of the entity as
at a certain date
Elements: Assets, Liabilities and Equity
Taken directly from the year-end Post-Closing Trial Balance
Shall be presented in comparative, detailed and condensed format

CHAPTER 7 41
 CONDENSED STATEMENT OF DETAILED STATEMENT TO FINANCIAL
FINANCIAL POSITION POSITION
Presents Statement of Financial Position accounts in the Revised Chart of
Accounts :
only the major sub-classification All as a line item

Submitted at yearend :
concerned auditor Government Accountancy Sector,
COA
Disclosed in the Notes to financial
statements

CHAPTER 7 42
 CURRENT:
1. It is expected to be realized in, or is held for sale or
consumption in, the entity’s normal operating cycle;
2. It is held primarily for purpose of being traded;
3. It is expected to be realized within twelve months
after the reporting period;
4. It is cash or cash equivalent, unless it is restricted from
being exchanged or used to settle a liability for at least
twelve months after the reporting date.

NON-CURRENT:
All other assets shall be classified as non-current.

CHAPTER 7 43
 CURRENT:
1. It is expected to be settled in the entity’s normal
operating cycle.
2. It is held primarily for purpose of being traded;
3. It is due to be settled within twelve months after the
reporting period;
4. The entity does not have an unconditional right to
defer settlement of the liability for at least twelve
months after the reportiong period.

Due to be settled within twelve months after the reporting period,

even if:
1. The original term was for a perod longer than twelve months
2. An agreement to refinance , or to reschedule payments, on a
long-term basis is completed after the reporting date, but before
CHAPTER 7
the financial statements are authorized for issue. 44
 NON-CURRENT
• All other liabilties shall be classified as non-
current

CHAPTER 7 45
• Shows the results of operation/performance of the entity at the end of
a particular period.
• Inormation taken directly from Pre-closing Trial Blance
• Shall be preapred in detailed and comparative condensed format
• Expenses classification
• Nature of expense method

CHAPTER 7 46
• Aggregates expenses in the Statement of Finacial Performance
according to their nature and are not reallocated among various
functions within the entity.
• Function of the expense method
• Classifies expenses according to the program or purpose for which
they are made
• All items of revenue and expense recognized in aperiod shall be
included in surplus or deficir unless a PPSAS requires otherwise

CHAPTER 7 47
• Shows the changes in equity between two accounting periods
reflecting teh increase or decrease in teh entity’s net assets during the
year
• PPSAS NO. 1
Requires all items of revenue and expenses recognized in a period
to be included in surplus or deficit unless another IPSAS requires
otherwise.

CHAPTER 7 48
Face of the statement:
1. Surplus or deficit for the period;
2. Each item of revenue and expense for the period that, as required by other
standards, is recognized directly in neqt/assetequity, and the total of theses
items;
3. Total revenue and expense for the period;
4. The effects of cahnges in accounting policies and corrections of errors for
each component of net asset/equity disclosed; and
5. The balance of accumulated surpluses or deficits at the beginning of the
period and at the reporting date, and the changes during the period.

CHAPTER 7 49
• PPSAS NO 1.
Presentation of Financial Statement requires a comparison of
budget amounts and the actual amounts arising from execution of
the budget to be included in the financial statements of the entities
that are required to, or elect to, make publicly available their
approved budget(s). And for which they are, therefore, held
publicly accountable

CHAPTER 7 50
• Present the following:
1. The original (approved appropriations, prior year’s not yet due
and demandable obligations) and final budget (continuing
appropriations, transfers, realignment and withdrawals) amounts;
2. The actual amounts on a comparable basis; and
3. By way of note disclosure, an explanation of the material
differences between the budget and actual amounts, which are
not included in the finacial statements

CHAPTER 7 51
• Differences classified:
1. Basis Differences
2. Timing diffrences
3. Entity differences

CHAPTER 7 52
• Summarizes the cash flows ffrom operaying, investing and financing
activities of an entity during a given period.
• Provide users with a basis to assess:
1. The ability of the entty to generate cash and acsh equivalents, and
2. The needs of the entity to utilize those cash flows

ADD A FOOTER 53
Classifications:
a. Operating activities
• Derived from the principal-generating activities of the entity
• Key indicator to which extent the operations are funded by way
direct or indirect taxes; or, from the recipent of goods and
services provided by the entity
• Two methods:
1. Direct method
2. Indirect method
CHAPTER 7 54
b. Investing Activities
• Involves the acquisition and disposal of non-current assets and
other investment not included in cash equivalents
• Give a view on the extent to which outflows have been made for
resources that are intended to contribute to the entity’s future
service delivery

CHAPTER 7 55
c. Financing Activities
• Concerning buildup of equity capital or borrowings of the entity
• Indicators of claims of future cash flows by providers of the capital
to the entity

CHAPTER 7 56
• Provides additional information and help clarify the items presented in
the finacial statement
• Provides narrative description or disaggregation of items in the
financial statements and information about them that do not qualify
for recognition.

CHAPTER 7 57
• The notes shall
a. Present information about the basis of the prepartion of the financial
statements and teh specific accounting policies used.
b. Disclose the information required by ipsass that is not presented on
the face of the statement of financial position, financial performance,
changes of net assets/equity, and cash flows; and
c. Provide additional information taht is not presented on the face of the
statement of financial position, financial performance, changes of net
assets/equity, and cash flows, but that is relevent to an understanding
of any of them.
CHAPTER 7 58
- PPSAS 14, those events, both favorable and unfavorable, that occur
between the end of the reporting period and the date the financial
statements are authorized for issue.

The reporting period is set every end of calendar year while the date on
which the financial statements are authorized for issue is the date when
the Statements of Management’s Responsibility is approved by the Chief
Executive or by his authorized representative and the Head of Finance
Department.
CHAPTER 7 59
TWO TYPES

A. Adjusting Events After the Reporting Period

- Those that provide evidence of conditions that existed at the end of the
reporting period.
B. Non-adjusting Events After the Reporting Period
- Those that are indicative of conditions that arose after the reporting
period.

CHAPTER 7 60
Examples of non-adjusting events that require disclosure, among others:
1. An acquisition or disposal of a major controlled entity;
2. Announcement of a plan to discontinue an operation;
3. Major purchases and disposal of assets; and
4. Casualty losses

CHAPTER 7 61
DISCLOSURES

As provided by PPSAS 14:

a. The date when the FSs were authorized for issue and who gave
that authorization; If another body has the power to amend the
FSs after issuance, it shall be disclosed as well.
b. If an entity receives info after the reporting period, but before
the date of authorization for issuance of the FSs, about
conditions that existed at the reporting date, the entity shall
update disclosures that relate to these conditions in the light of
the new info.
CHAPTER 7 62
DISCLOSURES

As provided by PPSAS 14:

c. The entity shall disclose the following for each material
category of non-adjusting event after the reporting period:
1. The nature of the event; and
2. An estimate of its financial effect or a statement that such
an estimate cannot be made.

CHAPTER 7 63
Accounting Policies – the specific principles, bases, conventions, rules
and practices applied by an entity in preparing and presenting FSs.

• An entity shall select and apply accounting policies consistently for

similar transactions, other events and conditions, unless PPSAS
specifically requires specific accounting policies.

CHAPTER 7 64
According to PPSAS 3, change is not allowed in PPSAS unless the change:
1. Is required by PPSAS; or
2. Results in the FSs that provide reliable and more relevant
information about the effects of transactions, other events and
conditions on the entity’s financial position, performance or cash
flows.

CHAPTER 7 65
The following are considered changes in accounting policies:
1. Change from one basis of accounting to another; and
2. Change in the accounting treatment, recognition or measurement of
a transaction, event or condition within a basis of accounting

CHAPTER 7 66
PPSAS 3: Changes in accounting policies are accounted for under specific
transitional provisions, if any, in PPSAS.

Absence of STP = Retrospective Application, except if impracticable;

Impracticable = Prospective/Impracticable Application

CHAPTER 7 67
DISCLOSURES

a. The title of the standard;

b. When applicable, the change in accounting policy is in accordance
with its transitional provisions;
c. The nature of the change in accounting policy;
d. When applicable, a description of the transitional provisions;
e. When applicable, the transitional provisions that might have an
effect on future periods;
CHAPTER 7 68
DISCLOSURES
f. For the current period and each prior period presented, to the extent
practicable, the amount of the adjustment for each financial statement
line item affected;
g. The amount of the adjustment relating to periods before those presented,
to the extent practicable; and
h. If retrospective application is impracticable, the circumstances that led to
the existence of that condition and a description of how and from when
the change in accounting policy has been applied.

PPSAS 3: Financial statements of subsequent periods need not repeat these

disclosures.
CHAPTER 7 69
PPSAS 3: Changes in accounting estimates result from new information
or new developments and, accordingly, are not correction of errors.

• Estimation involves judgments based on the latest available, reliable

information.

CHAPTER 7 70
Estimation may be required for the following:
a. Tax revenue due to government
b. Bad debt expense
c. Inventory obsolescence
d. FV of financial assets/liabilities
e. Useful lives, or expected pattern of consumption of the future
economic benefits or service potential embodied in depreciable
assets
f. Warranty obligations
CHAPTER 7 71
Change in accounting policy
Normally results from a change in
measurement basis(e.g., FIFO to
Average)
Change in accounting estimate
Normally results from changes on how
the expected inflows/outflows of
economic benefits from assets/liabilities
are realized/incurred.

PPSAS 3: When it is difficult to distinguish a change in accounting policy

from a change in accounting estimate, the change will be treated as a
change in accounting estimate.
CHAPTER 7 72
The effect of a change in an accounting estimate shall be recognized
prospectively by including it in surplus or deficit in:
a. The period of the change, if it affects the period only; and
b. The period of the change and future periods, if the change affects
both.
To the extent that a change in an accounting estimate gives rise to
changes in assets and liabilities, or relates to an item of equity, it shall be
recognized by adjusting the carrying amount of the related asset,
liability or equity item in the period of change.
CHAPTER 7 73
DISCLOSURES
a. The nature and amount of a change in an accounting estimate that
has an effect in the current period or is expected to have an effect
on future periods, except for the disclosure of the effect on future
periods when it is impracticable to estimate that effect; and
b. If the amount of the effect in future periods is not disclosed because
estimating it is impracticable, the entity shall disclose that fact.

CHAPTER 7 74
CLASSIFICATION
1. Current period errors – errors committed and discovered within the
same period.
2. Prior period errors – omissions from, misstatements in, the entities’
FSs for one or more prior periods arising from failure to use, or
misuse of reliable info that:
a. Was available when FSs for those periods were authorized for issue
b. Could reasonably be expected to have been obtained and takes into
account in the preparation and presentation of those FSs
CHAPTER 7 75
RETROSPECTIVE RESTATEMENT of prior period errors by:
a. Restating the comparative amounts for prior period(s) presented in
which the error occurred; or
b. If the error occurred before the earliest prior period presented,
restating the opening balances of assets, liabilities and equity for the
earliest prior period presented.

The correction of prior period error is excluded from the computation of

income and expense for the period in which the error is discovered.
CHAPTER 7 76
LIMITATION OF RETROSPECTIVE RESTATEMENT
a. When impracticable to determine either the period-specific effect or
cumulative effect of the error
1. Impracticable as to period-specific effects = earliest period practicable
2. Impracticable as to cumulative effect = prospective restatement from
the earliest date practicable

CHAPTER 7 77
DISCLOSURE: Prior Period Errors
a. The nature of the prior period error;
b. For each period presented, to the extent practicable, the amount of the
correction for each FSs line item affected;
c. The amount of the correction at the beginning of the earliest prior period;
and
d. If retrospective restatement is impracticable for a particular prior period,
the circumstances that led to the existence of that condition and a
description of how and from when the error has been corrected.
CHAPTER 7 78
– The FSs that are required to be prepared at any given period or at a
financial reporting period without closing the books of accounts, such
as:
a. Statement of Financial Position
b. Statement of Financial Performance
c. Statement of Cash Flows
d. Statement of Changes in Equity
e. Statement of Comparison of Budget and Actual Amount
f. Notes to Financial Statements
ADD A FOOTER 79
The following shall be submitted to Government Accounting Sector
(GAS), COA, in addition to the components of FSs:
1. Pre-closing Trial Balances
2. Post-closing Trial Balances
3. Other schedules
a. Regional Breakdown of Income
b. Regional Breakdown of Expenses

ADD A FOOTER 80
 Entity/Office Statement/Report Deadline Submit to:
a. Provincial Offices and Operating Units
Monthly Trial Balances (TBs) and Ten days after the end of Auditor, Regional
Supporting Schedules the month Accountant
(SSs)
Quarterly TBs, FSs, SSs Ten days after the end of Auditor, Regional
the quarter Accountant
Year-end TBs, FSs, SSs On or before January 20 Auditor, Regional
of the following year Accountant

ADD A FOOTER 81
 Entity/Office Statement/Report Deadline Submit to:
b. Regional Branch/Offices
Monthly TBs, SSs Ten days after the end of Regional Auditor, Central
the month Office Chief Accountant
Quarterly TBs, FSs, SSs Ten days after the end of Regional Auditor, Central
the quarter Office Chief Accountant
Year-end TBs, FSs, SSs (combined On or before January 31 Regional Auditor, Central
RO and Ous) of the following year Office Chief Accountant

ADD A FOOTER 82
 Entity/Office Statement/Report Deadline Submit to:
c. Central/Head/Main Offices
Monthly TBs, SSs Ten days after the end of Auditor, DBM,
the month Management
Quarterly TBs, FSs, SSs Ten days after the end of Auditor, DBM,
the quarter Management
Year-end TBs, FSs, SSs (combined On or before February 14 COA Auditor, DBM, COA-
Co, RO and OUs) of the following year GAS

ADD A FOOTER 83
ADD A FOOTER 84