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CITY COLLEGE OF EL SALVADOR

PUBLIC ADMINISTRATION DEPARTMENT

PA 111 – PUBLIC ACCOUNTING AND BUDGETING

2nd Semester A.Y 2021 - 2022

COURSE DESCRIPTION:

In this course, students learn about accounting and budgeting used by government
entities. And we will discuss the laws, regulations, principles, and concepts that govern the
practice of public or government accounting and budgeting. Also, we will understand the
role of various government agencies and regulatory bodies that has authority in the
standards and regulations to be used in public or government accounting and budgeting.
You will be able to differentiate the changes adopted by the government.

COURSE AIMS:

 Define accounting & budgeting terms and concepts.

 Describe the accounting and budgeting process in government.
 Identify the objectives of accounting and budgeting reports in government.
 Apply governmental accounting and budgeting procedures in all government
transactions.
 Apply accounting and budgeting principles for various governmental entities.

COURSE OUTCOMES:

Upon completing this course, you will have an understanding of:

 The characteristics and differences in the government environment necessitate

unique accounting and budgeting.
 The process of setting accounting and budgeting reports for government entities.
 The basis of accounting and budgeting measurement focuses on used by
government entities.
 Fiscal accountability.
 Exchange and no exchange transactions.
 Accounting and Budgeting in national government.
 Accounting and Budgeting in local governments, including:
o Enumerate and understand the Budget Process in national and local level.
o Identify the key role players in the National and Local Budget Process.
o Understand the whole budget process in the national and local government.
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CHAPTER 1

OVERVIEW OF GOVERNMENT ACCOUNTING

Learning Objectives:

Differentiate government accounting from the

accounting for business entities.
State the government entities charged with
accounting responsibility.
Describe briefly the GAM for NGAs.
State the basic principles used in
government accounting.
State the recognition criteria for assets.

Concept of Government Accounting

Government Accounting refers to the accounting system

implemented and followed by the government offices to record
the financial transactions of the government. It includes the records
of government revenue, expenditure, penalties, subsidies, grants,
loans, etc. Government accounting it is the process of recording,
classifying, summarizing and interpreting the financial transactions
of the government.

In the Philippine setting, Under Section 109, of the Presidential Decree (PD) no.
1445, defines Government Accounting as encompasses the processes of analysing,
recording, classifying, summarizing and communicating all transactions involving the
receipt and disposition of government funds and property, and interpreting the results
thereof.

Section 110. Objectives of government accounting. Government accounting shall aim to:

1. Produce information concerning past operations and present conditions;

2. Provide a basis for guidance for future operations;
3. Provide for control of the acts of public bodies and officers in the receipt,
disposition and utilization of funds and property; and
4. Report on the financial position and the results of operations of government
agencies for the information of all persons concerned.
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Like the accounting of business entities, government accounting is also a processes of

producing information that is useful in making economic concerned.

Government Accounting, however places greater emphasis on the following:

1. Sources and Utilization of government funds; and

2. Responsibility, accountability, and liability of entities entrusted with government
funds and properties.

Sources of Government funds include:

1. Receipts from taxes and other fees

2. Borrowings
3. Grants from other governments and international bodies

Utilization of Government funds include:

1. Expenditures on programs, projects, unanticipated losses from calamities and like.

Responsibility over Government Funds and Property

1. The head of a government agency

- Is directly responsible in implementing policies

- Is primarily responsible for government resources entrusted to his agency
2. All those who are exercising authority over a government agency shall share fiscal
responsibility

The following offices are charged with government accounting responsibility:

1. Commission on Audit (COA)

- Has the exclusive authority to promulgate accounting and auditing rules
and regulations.

- Keeps the general accounts of the government, supporting vouchers, and

other documents.
- Submits financial reports to the President and Congress.
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2. Department of Budget and Management (DBM)

- Is responsible for the formulation and implementation of the national
budget with the goal of attaining the nation’s socio-economic objectives.
3. Bureau of Treasury (BTr)

- Functions under Department of finance

- Is cash custodian of the government

- Is authorized to received and keep national funds and manage and
control disbursement thereof

- Is authorized to maintain accounts of financial transactions of all national

government offices, agencies and instrumentalities.
4. Government Agencies

- Are responsible in directly implementing the projects of, and performing

the functions delegated by, the government
- Shall maintain accounting books and budget registries.

- Are required by law to have accounting units/division/department.

 Government agency refers to any department, bureau, or office of
the national government, or any of its branches and
instrumentalities, or any political subdivision, as well as any
government owned or controlled corporation (GOCC), including its
subsidiaries or other self-governing board or commission of the
government.

The GAM for NGAs

An “old” government accounting system had been used for about five decades before it was
replaced by the New Government Accounting System (NGAs) in 2002.

However, on 01 January 2016, the NGAs was replaced by the Government Accounting
Manual for National Government Agencies (GAM for NGAs).

The GAM for NGAs was promulgated primarily to harmonize the government accounting
standards with international accounting standards, particularly the International Public
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Sector Accounting Standards (IPSAS). The IPSASs are based on the International
Financial Reporting Standards (IFRS).

The Philippine Government has adopted the IPSAS through Philippines Public Sector
Accounting Standards (IPPSAS). The provisions of the PPSAS are incorporated in the
GAM for NGAs.

Legal Basis of Gam for NGAs The GAM for NGAs is promulgated by the
Commission on Audit (COA) based on the
authority conferred to it by the Philippine
Constitution.

Coverage of GAM for NGAs The GAM for NGAs provides the basis concept to
be used in:

1. Preparing general purpose financial statements

in accordance with the PPSAS and other
financial reports as may be required by laws,
rules and regulations; and

2. Reporting of budget, revenue and expenditure

in accordance with laws, rules and regulations

Objectives of GAM for NGAs The GAM for NGAs aims to update the following:

1. Standards, policies, guidelines and procedures

in accounting for government funds and
property;
2. Coding structure and accounts; and

3. Accounting books, registries, records, forms,

reports, and financial statements.
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Basic Accounting and Budget Reporting Principles

The financial records and reports of government entities shall comply with the following:

1. Philippine Public Sector Accounting Standards (PPSAS) and relevant laws, rules, and
regulations;

2. Accrual basis of accounting;

- Under accrual basis of accounting, transactions are recognized when they

occur (and not only when cash is received or paid). Therefore, transactions
are recognized in the periods to which they relate.
3. Budget basis for presentation of budget information in the financial statements;
4. Revised Chart of Accounts prescribed by COA;

5. Double Entry bookkeeping;

6. Financial statements based on accounting and budgetary records;

7. Fund cluster accounting

The books of accounts are maintained by fund cluster (i.e., according to the types of
funds being accounted for) as follows:

Code Fund Cluster

01 Regular Agency Fund
02 Foreign Assisted Projects Fund
03 Special Account-Locally Funded/Domestic Grants Fund
04 Special Account-Foreign Assisted/Foreign Grants Fund
05 Internally Generated Funds
06 Business Related Funds
07 Trust Receipt
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QUALITATIVE CHARACTERISTICS

a. Understandability
b. Relevance
c. Materiality
d. Timeliness
e. Reliability
f. Faithful Representation
g. Substance over Form
h. Neutrality
i. Prudence
j. Completeness
k. Comparability

Components of General – Purpose Financial Statements

General – Purpose Financial Statements are those intended to meet the needs of
users who are not in a position to demand reports tailored to meet their particular
information needs.

The Complete set of general-purpose financial statements consists of:

1. Statement of Financial Position

2. Statement of Financial Performance
3. Statement of Changes in Net Assists/Equity
4. Statement of Cash Flows
5. Statement of Comparison of Budget and Actual Amounts
6. Notes to the Financial Statements, comprising a summary of significant accounting
policies and other explanatory notes.
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Recognition of an Asset

An item is recognized as asset if it meets all of the following criteria:

1. It meets the definition of an asset;

2. Probable inflow of future economic benefits; and

3. Reliable measurement of cost or other value (e.g., fair value).

Main Features of Government Accounting

The main feature of government accounting are as follows:

1. Based on the double-entry system: Government accounting is the most scientific

and systematic system of book-keeping. It is based on the double-entry system.
Accordingly, every government financial transactions are recorded showing their
double effects. One aspect of the transaction is debited and the other aspect is
credited for each government financial transaction.
2. Government Regulation: The government accounting is maintained according to
the government rules and regulations. The financial policies, rules and regulations
determine the system of government accounting.
3. Profit and loss: The main objective of the government is to maintain law and rules
in the country. So, it does not, reveal profit and loss but it reveal how public funds
have been used.
4. Banking Transactions: All the funds and transaction of the government are
operated from bank. A separate bank account is opened for the banking
transactions of the government accounting.
5. Budget Heads: All the expenses of the government offices are recorded into
different budget heads. This helps to control the expenditures.
6. Budgetary Control: Government accounting facilities budgetary control. No
government can make expenditure more than the allocated budget amount.
7. Auditing: The government must audit the books of accounts maintained by the
government to avoid misuse and misappropriation of government revenues and
expenditure.
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Salient Features of Government Accounting

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

 Fund Accounting
 Obligation Accounting
 Cash Disbursement Ceiling (CDC) Accounting

Fund Accounting – A fund is a sum of money or others resources set aside for the
purpose of carrying out specific activities of attaining certain objectives in accordance with
specific regulations, restrictions, and limitations

The two major classification of funds as to pursue 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
specific purposes. For which recipient agencies/departments have not yet
identified during budget preparation. Ex: Calamity fund, contingent fund, pension
and gratuity fund.

Obligation Accounting – as a control mechanism of government accounting

system, obligation accounting provides the ceiling of the maximum extent by which an
agency can incur obligations or commit the resources of the government in the
performance of its functions. With obligation accounting, an agency can operates only
within the amount actually released to it by the DBM, which is within or covered by the
amount approved appropriation.

Obligation Accounting refers to the accounting practice, procedures and techniques

for recording obligations in the government.

Cash Disbursement Ceiling Accounting – the cash disbursement ceiling accounting is

another control mechanism of government accounting system. The cash operations of the
government under the cash disbursement ceiling accounting are limited within the
boundaries of the appropriations release to government agencies in the form of allotments,
and any additional amount granted by the DBM to liquidate or pay existing valid
obligation.
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CHAPTE 2

THE GOVERNMENT ACCOUNTING PROCESS

BOOKS OF ACCOUNTS AND REGISTRIES

The books of accounts and registries of government entities consist of:

1. Journals
a. General Journal
b. Cash Receipt Journal
c. Cash Disbursement Journal
d. Check Disbursement Journal

2. Ledgers
a. General Ledgers
b. Subsidiary Ledgers

3. Registries
a. Registries of Revenue and Other Receipt (RROR)
b. Registry of Appropriations and Allotments (RAPAL)
c. Registries of Budget, Utilization, and Disbursements (RBUD)
d. Registries of Allotments, Obligations, and Disbursements (RAOD)
e. Registry of Allotments and Notice of Cash Allocation (RANCA)
f. Registry of Allotment and Notice of Transfer of Allocation (RANTA)

Technically, only the Journals and Ledgers are considered accounting records. The
Registries are budget records. These are used to monitor the budget.

The accounting unit of the agency maintains the Journals and Ledgers while the budgetdivision
of the agency maintains the Registries.
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Budget Registries

1. Registries of Revenue and Other Receipts (RROR)

- used to monitor
- the budgeted amounts,
- actual collections, and
- remittances of revenue and other receipts

2. Registry of Appropriations and Allotments (RAPAL)

- Used to monitor appropriations and allotments.

This is to ensure that allotment will not exceed appropriations.

3. Registries of Budget, Utilization and Disbursements (RBUD)
- Used to record the approved special budget and
corresponding utilizations and disbursements charged
to retained income.

Separate RBUD shall be maintained for each object of

expenditure.

➢ RBUD - PS
➢ RBUD – MOOE
➢ RBUD – FE
➢ RBUD - CO

4. Registries of Allotments, Obligations and Disbursements (RAOD)

- used to monitor
- the allotment received,
- obligations incurred against the corresponding
allotment, and
- the actual disbursements made

This is to ensure that obligations incurred will not exceed

allotments while actual disbursements will not exceedthe
obligations incurred.
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Separate RAODs are also maintained for each object of

expenditure.
➢ RAOD - PS
➢ RAOD – MOOE
➢ RAOD – FE
➢ RAOD - CO

OBJECT OF EXPENDITURES
The classification of expenditures by object are as
follows:

a. Personnel Services (PS) – pertain to all types of

employee benefits, for example, salaries, bonuses,
allowances, cash gifts, etc.
b. Maintenance and Other Operating Expenses
(MOOE) – pertain to various operating expenses other
than employee benefits and financial expenses, for
example, travel, utilities, supplies, etc.
c. Financial Expenses (FE) – pertain to finance costs, for
example, interest expense, bank charges, losses on
foreign exchange transactions.
d. Capital Outlays (CO) – pertains to capitalizable
expenditures, for example, expenditures on the
construction of public infrastructure, acquisition costs of
equipment, etc.
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Keeping of the General Accounts

The COA shall keep the general accounts of the Government and preserve thevouchers
and other supporting documents.

BASIC RECORDING – INCURRENCE OF OBLIGATION

➢ Obligation shall be incurred through the issuance of Obligation Request and

Status (ORS).
➢ The Requesting Office shall prepare this document, supported by valid claim
documents like disbursement vouchers, payrolls, purchase/job orders, itinerary of
travel, etc.
➢ The Head of the Requesting Office Shall certify the necessity and legality of the
obligation and the validity of the supporting documents.
➢ The Head of the Budget Division shall certify the availability of the allotment.

NOTICE OF OBLIGATION REQUEST AND STATUS ADJUSTMENT (NORSA)

If the obligation recorded in the RAOD and ORS need to be adjusted, the subsequent
adjustment shall be made through the use of the Notice of Obligation Request and
Status Adjustment (NORSA).

Up to this point, nothing is recorded yet in the accounting books. The recordings above
are made on the budget registries. Journal entries shall be made only after:
a. the employees have rendered services;

b. the office supplies are delivered and received; and

c. the office equipment is delivered and received.

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Notice that government entities and business entities use the term “obligation” or phrase
“incurrence of obligation” differently.

Government Entity Business Entity

Obligation – is an act of a duly authorized Obligation is another term for liability.
official which binds the government to the
immediate or eventual payment of a sum of
money.

Obligation may be referred to as a

commitment that encompasses possible
future liabilities based on current
contractual agreement.

BASIC RECORDING - DISBURSEMENT AUTHORITY- Notice Of Cash Allocation

The registries use to monitor the NCA are the following:

a. Registry of Allotments and Notice of Cash Allocation (RANCA)

- Used to determine the amount of allotments not
covered by NCA and to monitor the available balance of
NCA.

b. Registry of Allotment and Notice of Transfer of Allocation (RANTA)

- Used to determine the amount of allotments not
covered by Notice of Transfer of Allocation (NTA) and to
monitor the available balance of NTA.

The NCA is posted (recorded) in the RANCA as follows:

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I. JOURNALS

a. General Journal – used to record transaction not recorded in the Special Journals.

Special Journals:

b. Cash Receipt Journal – used to record the Report of Collection and Deposit and Cash
Receipt Register of collecting officers.
➢ Report of Collection and Deposit (RCD) – prepared by a collecting officer to
report his/her collections and deposits to an Authorized Government Depository
Bank (AGDB).
➢ Cash Receipts Register (CRReg) – used by field offices without a complete set of
books to record their cash collections and deposits in the book of their mother
unit (central/regional/division office).

c. Cash Disbursement Journal – used to record the cash disbursements of the

Disbursing Officer.

d. Check Disbursement Journal – used to record the check disbursements of the

Disbursing Officer.

II. LEDGERS

a. General Ledger – summarizes all transactions recorded in the journals.

b. Subsidiary Ledger – show details of each control account in the general ledger.

The NCA specifies the maximum amount of withdrawal that an entity can make from a
government bank for the period indicated. The Collecting Officer shall not issue an
official receipt (OR) for the receipt of NCA.

Since the receipt of the NCA does not constitute a collection that is recordable in the
Cash Receipt Journal, it is recorded in the General Journal.
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The Revised Chart of Accounts

A Chart of Accounts is a list of all the accounts used by an entity. Government entities
shall use the account titles and account codes in the Revised Chart of Accounts issued by
COA.

Each account in the RCA is assigned an 8-digit code as follows:

0 00 00 00 0
Contra-Accounts
General Ledger

General Ledger
Account Group

Account Group
Major Account

Sub-Major
Accounts
Group

Code Account Groups

1 Assets

2 Liabilities

3 Equity

4 Income

5 Expenses
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THE GOVERNMENT ACCOUNTING CYCLE

Here is a list of the things that we will be learning:

1. Appropriation

2. Allotment

3. Incurrence of Obligation

4. Disbursements Authority - NCA

5. Disbursements

6. Billings, Collections & Remittances

7. Unadjusted trial balance

8. Adjusting entries

9. Closing entries

10. Preparation of financial statement

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ASSESSMENT AND EVALUATION TEST

PART 1: TRUE/FALSE Directions (2 POINTS EACH)

Read each statement below carefully. Write your FIRST NAME on the space if you think the
statement is TRUE and write your FAMILY NAME on the space if you think the statement is
FALSE.

1. Compared to the accounting for business entities, government accounting

places greater emphasis on the sources and utilization of government
fundsand the management's stewardship over government resources.
2. Taxes are the main source of funds of the government.
4. Other sources of funds of the government include fees, borrowings, and
grants from other governments and international bodies.
4. Currently, the financial reporting of government entities is based on
NGAs.
5. The principles used in the financial reporting of government entities are
very unique that only a very few of these principles are similar to those
that are
applied to business entities.
6. The principles in the GAM for NGAs are similar to the principles in the
PFRSs.
7. The GAM for NGAs is promulgated by the Philippine Congress under the
authority conferred to it under the Philippine Constitution.
8. A unique financial reporting requirement of government entities is the
use offund cluster accounting. Under fund cluster accounting, separate
books and
reports are prepared for each type of fund held by a government entity.
9. The GAM for NGAs is promulgated primarily to harmonized government
accounting standards with the U.S. GAAP.
10. An item is recognized as an asset if it meets both the "probable" future
economic benefits" and "reliable measurement" criteria, regardless of
whetherthe item is a resource controlled arising from past events.
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PART 2: MULTIPLE CHOICE 1 – 15 (2 POINTS EACH)

1. Which of the following is a unique requirement of government accounting that is

not requiredin the accounting for business entities?
a. The use of double-entry recording system
b. The use of single-entry recording system
c. The use of accrual basis of accounting
d. The presentation of budget information in the financial statements

2. What is the legal basis of the COA in promulgating the GAM for NGAs?
a. PD 1445 State Audit Code of the Philippines
b. The Philippine Constitution
c. RA 9298 The Philippine Accountancy Act of 2004
d. Philippine Public Sector Accounting Standards

3. Which of the following is tasked in keeping the general accounts of the

government,supporting vouchers, and other documents?
a. COA
b. DBM
c. NGAs
d. Congress
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4. The Bureau of Treasury (BTR) is responsible for

a. promulgating accounting and auditing rules and regulations.
b. the formulation and implementation of the national budget with the
goal of attaining thenation’s socio-economic objectives
c. receiving and keeping national funds and managing and
controlling thedisturbances thereof.
d. directly implementing the projects of the government.

5. According to the GAM for NGAs, the basis of accounting to be applied

by governmententities is the
a. Cash basis
b. Accrual basis
c. Modified accrual basis
d. Any of these as a policy choice

6. Government resources must be utilized efficiently and effectively in

accordance with the law. According to P.D. No. 1445, who is directly
responsible in implementing this policy?
a. All employees who are entrusted with the possession of government
resources.
b. The head of the government agency.
c. The COA.
d. All elected officials.

7. The transfer of government funds from one officer to another requires the
prior authorizationof the
a. Commission on Audit
b. Head of Agency
c. The President of the Republic of the Philippines
d. Bureau of Treasury
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8. Mr. A, a government employee entrusted with the custody of government

funds, was instructed by Mr. B, a politician to release funds for the acquisition
of a car as a birthday gift for Mr. B's daughter who will be having her 18 th
birthday next week. To relieve Mr. A from anyliability, what should Mr. A do?
a. Mr. A shall not release the fund but rather notify Mr. B, in
writing, that hisinstruction is illegal.
b. Mr. A shall release the fund, and then notify Mr. B, in writing, that his
instruction is illegal.
c. Mr. A shall release the fund but retains 20% commission.
d. Mr. A shall release the fund but requires Mr. B to promise, in writing, that
the car shall bereturned to the government after his daughter's birthday.

9. Mr. C, a government employee entrusted with the custody of government

funds, has lost thegovernment funds entrusted to him in a force majeure.
What should Mr. C do to relieve him from liability?
a. Mr. C should immediately notify the Head of Agency within 30 days
b. Mr. C should immediately notify COA within 30 days
c. Mr. C should immediately notify Bureau of Treasury within 30 days
d. Mr. C should keep the event a secret and wait for next funds to arrive

10. These refer to the attributes that make information useful to users.
a. Usefulness characteristics
b. Quantitative characteristics
c. Qualitative characteristics
d. Fundamental principles

11. Information loses this qualitative characteristic if it is not reported on a timely

basis.
a. Relevance
b. Reliability
c. Neutrality
d. Materiality
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12. Which of the following qualitative characteristics does an entity

most likely would need tomake some tradeoffs?
a. Faithful Representation and Substance Over Form
b. Materiality and Relevance
c. Relevance and Reliability
d. Understandability and Comparability

13. An entity recognizes an estimated loss from the decline in value of a

property. Which of the following is most likely the qualitative characteristic
being applied by the entity?
a. Reliability
b. Substance over Form
c. Faithful representation
d. Prudence

14. Which of the following is not one of the fund clusters of a government entity?
a. Regular Agency Fund
b. Foreign Assisted Projects Fund
c. Special Account-Locally Funded/Domestic Grants Fund
d. Business Related Funds
e. Petty Cash Fund

15. To achieve a proper balance between relevance and reliability, the

overriding considerationis
a. how users’ needs are best satisfied.
b. relevance is always more important that reliability.
c. reliability is always more important than relevance.
d. greater weight shall be given to relevance compared to reliability.
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