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The Need to Study Government Accounting

Firstly, it is a board subject.

Secondly, additional employment opportunity, such as:

a Biggest employer of accounting graduates and CPAs

b Other forms of employment such as computer programmer, financial management analyst
c there are various job opportunities open

The general public can understand and analyze government financial statements published for their scrutiny and better

Government Accounting Definition and Environment

Section 109 of PD 1445 defines government accounting as:

Government Accounting encompasses the processes of analyzing, recording, classifying, summarizing and
communicating all transactions involving the receipts and disposition of government funds and property
and interpreting the results thereof (ARCSCI)

Types of government organizational

1. national government - include all departments, bureaus, offices, boards, commissions, councils, authorities,
administrations, institutions, state colleges and universities and other organizational units under the national
2. local government - political subdivisions of the Philippines having substantial control over local affairs,
consisting of provinces, cities, municipalities and barangays
3. government corporations - agencies organized by law or pursuant to law, vested with functions relating to public
needs whether government or proprietary 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
percent of its capital stock

Government - means the National Government, including the Executive, Legislative, the Judicial Branches and the
Constitutional Commissions. (PD 1177 otherwise known as the Budget Reform Decree of 1077)

Objectives of Government Accounting

Section 10 of PD 1445 sets down the objectives or functions of government accounting

1. To provide information concerning past operations and present conditions - enable the evaluation of the
performance of an agency from one period to the next
2. To provide basis for guidance for future operations - results of the evaluation may guide the manager on what
proper course of action to follow in a future operations
3. To provide for control of the acts of public bodies and offices in the receipt, disposition and utilization of funds
and properties
4. To report on the financial position and the results of operations of government agencies for the information and
guidance of all persons concerned - show the extent of the agency’s financial and non-financial resources

Government accounting is a service activity with the main purpose of providing quantitative information, primarily
financial in nature about the government entity that is useful in:
1. assessing the stewardship and the aspects of performance of public officials for which they are accountable
2. planning, program selection and budgeting
3. making decision involving the effective and efficient allocation and control of government resources

PROCESS - consolidates all activities pertaining to the gathering of data, which are to be used as the basis for fiscal
management decisions
1. bookkeeping, referring to as analysis and recording;
2. posting, grouping or classifying of similar items
3. preparation of periodic financial reports
4. analysis of the financial reports - determine their accuracy and adequacy as well as the efficiency and effectiveness
of agency operations

Users of Government Accounting Information (MALe GeStuRe)

PRIMARY OBJECTIVE OR PURPOSE - to provide information concerning government operation

1. The general public or the citizenry – the group which has interest on the information about government services
2. The legislative body - uses the financial data to see to it that policies are being implemented and that funds are
being properly handled
3. The managers/administrators - responsible for the implementation of the policies and daily conduct of government
affairs. The data will serve as a guide in the performance of their duties
4. The students of public finance and political and other social scientists who need financial information in the
pursuit of their research/studies; and
5. The resource providers of the government such as:
a. donors and grantors - assess how well the objective of a donation or grant have been accomplished;
b. taxpayers - know how the services provided by the government are likely to affect the amount and fees
they will be required to pay; and
c. lenders, suppliers and employees - know whether the government can pay its obligation to them

Accounting Concepts and Conventions

Concepts - provides the rules of accounting that should be followed of all accounts and financial statements. It provides
the foundation for accounting processes

1. Entity Concept – a separate identity apart from its owner

2. Money Measurement Concept – all transactions are assumed to be measured and recorded in stable monetary
units. Only those transactions which can be measured in terms of money are recorded.
3. Modified Accrual Concept – for each accounting period, expenses are recognized when they are incurred not
necessarily when cash is disbursed and income is recognized when earned not necessarily when cash is received
except for transactions where accrual basis is impractical or when other basis may be required by law.
4. Going-Concern Concept – an entity is an on-going concern and will continue in operations for the foreseeable
5. Dual-Aspect Concept – every transaction affects two or more accounts
6. Cost Concept – the value of an asset is to be determined on the basis of historical cost i.e. acquisition cost.
7. Objectivity Concept – recorded in an objective manner, free from the personal bias of either management or the
accountant who prepares the accounts
8. Timeliness Concept – this principle states that the information should be provided to the users at the right time
for decision making purposes

Conventions - custom or generally accepted practice which is adopted either by general agreement or common consent
among accountants

1. Full Disclosure – information relating to the entity’s affairs which are of material interest to the users should be
completely disclosed.
2. Consistency – “the accounting methods and practices should be applied on a uniform basis from period to period”.
3. Conservatism Concept – avoidance of overstating estimates. (3) Qualitative characteristics of financial
statements namely: prudence, neutrality and faithful representation of alternative values.
4. Materiality – strict adherence to GAAP is not required when the items are not significant enough to affect
evaluation, decision and fairness of the financial statements. According to an American Accounting Association,
“an item should be regarded as material if there is reason to believe that knowledge of it could influence decision
of informed parties”.


1. Fund Accounting
2. Obligation Accounting
3. Cash Disbursement Ceiling (CDC) Accounting

Fund Accounting

FUND - a sum of money or other resources set aside for the purpose of carrying out specific activities or attaining
certain objectives in accordance with special regulations, restrictions or limitations and constitutes an “independent fiscal
and accounting entity”.

ENTITY - fund is given a personality of its own, that is, it has its own asset and it can incur obligations or liabilities.


1. General Fund – generally available for all functions of the government
2. Special Fund – segregates specified revenues for limited purposes

Obligation Accounting
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; refers to the accounting
practice, procedures and techniques for recording obligations in the government

Cash Disbursement Ceiling (CDC)

CDC - 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 obligations

Important Characteristics of Government Accounting

1. emphasis on legalities - adherence to legalities more in case a conflict between the GAAP and government
accounting laws ensues
2. emphasis on budget – an item of expenditure may be legal but without budget or funding makes the transaction
3. multiplicity of responsibility
a. LEGISLATIVE BODY – appropriates fund
b. BUREAU OF TREASURY – acts as the bank
c. SPECIFIC GOVERNMENT AGENCY – spends the money
d. COA – keeps the general accounts

Distinction Between Government Entity and a Commercial Enterprise

OWNERSHIP Entire people in a given community Stockholders, partners, owners
PURPOSE Render service at the lowest possible Profits
cost to its constituents
profits realized are retained for public
use and not for use of specific
ORGANIZATION CONGRESS - responsibility and Succession of authority and
authority of a government entity responsibility
OFFICERS AND Stockholders  BOD  staff or
GOVERNMENT - governed in
almost every act by specific laws,
rules and regulations
limitations on executives,
administrative officers and
department heads, through revenue
and appropriations acts
FINANCING Involuntary contributions from its Voluntary contribution from its
constituents in the form of taxes members or stockholders
INCOME Organized primarily to render service, Capital investment of stockholders –
cannot make profits on the services it used to generate return in the form of
renders profits for services rendered or goods

Similarities and Distinctions of Commercial and Government Accounting


1. Recording of Transactions
a. Adopts double-entry bookkeeping system
b. Records the transactions in journals
c. Summarized in general ledger accounts
d. Keeps subsidiary ledgers.
2. Use of Chart of Accounts
3. Preparation of Periodic Reports and Statements
4. Use of Trial Balance of Balances
5. Depreciation Accounting

OBJECTIVE Geared towards income measurement Control government funds
aside Provide data for management
BASIS OF ACCOUNTING Cash or accrual method but not both Modified accrual basis - expenses
shall be recognized when incurred;
Income shall be on accrual basis
except for transactions where accrual
basis is impractical or when other
methods are required by law
PREPARATION OF PERIODIC Balance Sheet Balance Sheet
REPORTS Income Statement Statement of Income and Expenses
Statement of Cash Flows Statement of Government Equity
Statement of Cash Flows
CONTROL MECHANISMS No fund, obligation and CDC Fund Accounting
accounting Obligation Accounting
COLLECTED - not separate and
independent from the accounting of
the use/disbursement of said money
BOOKS OF ACCOUNTS One set except when there are Regular agency books (RA)
branches National government books (NG)
ACCOUNTS AND Nominal accounts Budgetary accounts – appropriations,
TRANSACTIONS Real accounts allotments, obligations
ESTIMATES – considered as memo
SOURCE OF ACCOUNTING Dictated by nature of business and Laws, rules, and regulations
PRACTICE AND PROCEDURES policies of management

Responsibility Center and Accounting Responsibilities

Responsibility Accounting
1. a system that relates the financial results to a responsibility center, which provides access to cost and
revenue information under the supervision of a manager having a direct responsibility for its performance
2. measures the plans (by budget) and the actions (by actual results) of each responsibility center
3. a part, segment, unit or function of a government agency, headed by a manager, who is accountable for a
specific set of activities

Cost centers - established to provide each government agency accessibility to cost information and to facilitate cost
monitoring at any given period.

ACCOUNTING RESPONSIBILITY - entrusted, immediately and primarily, to the head of the government agency or
office (PD 1445)

DUTY OF THE HEAD OF THE AGENCY - to take reasonable steps to minimize, if not to avoid, the risk of losses,
defalcations and other types of irregularities in the utilization of all government resources; supervised by higher
authorities and government bodies

1. 1900 – Insular treasurer
2. General Auditing Office (GAO)
3. Different agencies
4. 1936 – Budget Commission
5. 1938 – GAO
6. 1942 – GAO and Budget Commission
7. PD 898, March 3, 1977 - COA

ACCOUNTING RESPONSIBILITY - shared primarily by the COA, DBM, Department of Finance (Bureau of
Treasury) and government agencies.

Commission on Audit (COA)

1. Audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any or its subdivisions, agencies and
2. Serves as the external auditor of all government agencies
3. A constitutional office and its mandates are provided in Section 2, Article IX-D of the 1986 Constitution of the
4. Keeps the general accounts of the national government
5. Prescribes the standard chart of accounts
6. Promulgates accounting rules and regulations
7. Exercise technical supervision over the accounting functions of each agency
8. Submit to the President and the legislative body within the time fixed by the law, an annual financial report of the
government, its subdivisions, agencies and instrumentalities including government owned or controlled
9. Recommend measures necessary to improve efficiency and effectiveness. (Section 26 of PD 1445).

The Department of Budget and Management (DBM)

1. Determines the accounting and other item of information needed to monitor budget performance
2. Assess effectiveness of the agency operations
3. Prescribes the forms, schedules of submission and other component of reporting system needed to accomplish and
submit the required information
4. Approves the Agency Budget Matrix (ABM)
5. Issues the allotment to agencies in accordance with the approve budget
6. Issues Notice of Cash Allocation (NCA). (Chapter I, Title XVII of EO 292)
7. Responsible for the design, preparation and approval of accounting systems of government agencies (PD No.


1. Prepare the budget and other appropriation proposals

2. Exercise functional supervision over financial and management staffs or agencies
3. Provide technical assistance and compensation, and position classification, management evaluation and other
related areas;
4. Study departments and agencies
5. Develop a reporting system - allow the monitoring of fund releases including the design of report forms to be
accomplished by the agencies through their accounting, budgeting and other units, and to issue rules and
regulations applicable to the accomplishment and submission of those forms; and
6. Conduct training programs in budgeting, organization design, management reporting and control compensation
and position classification and management evaluation

The Department of Finance (DOF) - primarily responsible for the sound and efficient management of the financial
resources of the government, its subdivisions, agencies and instrumentalities; responsible for formulating policies on
financial management and for the generation and management of the financial resources of government

The Bureau of Treasury (BTr)

1. principal custodian of all national government funds
2. performs banking function for the national government
3. receives and keeps government funds
4. controls the disbursements
5. maintains accounts of the financial transactions of national government agencies
6. required to prepare and submit to COA and other fiscal activities, a daily statement of cash receipts,
disbursements and fund balances in the National Treasury
7. manages, controls and services public debt from domestic or foreign sources

The National Government Agencies (NGAs) - required to establish and maintain a system of accounting for their
financial resources and operation; furnish information to fiscal and control agencies such as COA, DBM, and BTr

Generally Accepted Government Accounting Principles (Section 112 of P.D. 1445)

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) - rules, regulations or guidelines being

followed in accounting

These are as follows:

a. the accounting of an agency shall be kept in such detail as is necessary to meet the needs of the agency
and at the same time be adequate to furnish information needed by fiscal or control of the government
(Sec. 111 of PD 1445)
b. the highest standards of honesty, objectivity and consistency shall be observed in the keeping of accounts
to safeguard against inaccurate or misleading information Sec. 111 of PD 1445)
c. the government accounting system shall be on double entry with a general ledger in which all financial
transactions are recorded; Subsidiary records shall be kept where necessary (Sec. 114 of PD 1445)
d. the chart of accounts for government agencies shall be prescribed by the Commission on Audit and shall
be so designed as to:
i. permit agency heads to review their activities according to selected areas or responsibility
ii. allow for a clearer to more precise budgetary control
iii. provide for a wider range of analytical information designed for use in management audit or
legislative review
iv. furnish information regarding the production of income and the investment in capital items which
is of value in fiscal and economic planning
v. enable tighter accounting control to be exercised over agencies’ financial relationship with the
vi. permit a more simplified preparation of trial balance and a simple and more orderly process of
national consolidation
vii. facilitate the application of mechanical accounting procedures for more effective protection
against error and irregularity and yielding economics in operation (Sec. 113 of PD 1445)

e. permit effective budgetary control and to establish uniformity of accounts and shall be classified in
balanced fund groups; The group of each fund shall include all accounts necessary to set forth its
operations and conditions; All financial statements shall follow this classification (Sec. 116 of PD 1445)
f. a common terminology and classification shall be used consistently throughout the budget, the accounts
and the financial reports (Sec. 115 of PD 1445)
g. estimated revenues, remain unrealized at the fiscal year, shall not be booked or credited to the appropriate
surplus or any other accounts (Sec. 118 of PD 1445)
h. all lawful expenditures and obligations incurred during the year shall be taken up in the accounts of
that year (Sec. 119 of PD 1445)



OBJECTIVES OF THE MANUAL. The New Government Accounting System (NGAS) Manual presents the basic
policies and procedures; the new coding system; the accounting systems, books, registries, records, forms, reports, and
financial statements; and illustrative accounting entries to be adopted by all national government agencies effective
January 1, 2002.


a. Uniform guidelines and procedures in accounting for government funds and property;
b. New coding structure and chart of accounts;
c. Accounting books, registries, records, forms, reports and financial statements; and
d. Accounting entries.

2. COVERAGE. All national government agencies.

3. LEGAL BASIS. 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 therefore, 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

*To simplify the government accounting system in order to facilitate the process of recording transactions and the
preparation of financial reports, and ultimately expand the numbers/range of users who can see and understand the
accounting system and the output it produces.

The NGAS is a simplified set of accounting concepts, guidelines and procedures designed to ensure correctness,
completeness and timeliness in the recording of government financial transactions and production of financial reports.

The rationale behind the major changes in government accounting system was brought about by the following needs:

 to make the system more in conformity with international accounting standards

 to pursue eventual computerization which will include responsibility accounting to make it capable of
generating various reports useful to management, lawmakers and the general public
 to generate relevant and periodic financial statements, operations reports
 to help government managers and executives in monitoring the performance of their agency more effectively

Basic Features and Policies

a. ACCRUAL ACCOUNTING. A modified accrual basis

b. 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. 8-digit coding system
d. BOOKS OF ACCOUNTS. 2 books of accounts

1. REGULAR AGENCY (RA) BOOKS – record the receipt and utilization of Notice of Cash Allocation
(NCA) and other income/receipts which the agencies are authorized to use and to deport with Authorized
Government Depository Bank (AGDB) and the National Treasury

Journals: Cash Receipt 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 and Expenses.

2. NATIONAL GOVERNMENT (NG) BOOKS – used to record income which the agencies are not
authorized to use and are required to be remitted to the National Treasury

Journal: Cash Journal (CJ)

General Journal (GJ)

Ledgers: 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.

1. Balance Sheet
2. Statement of Government Equity
3. Statement of Income and Expenses
4. Statement of Cash Flows
5. Notes to Financial Statements


g. ALLOTMENT AND OBLIGATION. Separate registries shall be maintained to control the allotments and
obligations for each of the four classes of allotment class, namely:

1. Registry of Allotment and Obligations – Capital Outlay (RAOCO)

2. Registry of Allotment and Obligations – MOOE (RAOMO)
3. Registry of Allotment and Obligations – Personal Services (RAOPS)
4. Registry of Allotment and Obligations – Financial Expenses (RAOFE)

h. NOTICE OF CASH ALLOCATION (NCA). The receipt of NCA by the agency shall be recorded debit Cash-
National Treasury, Modified Disbursement System (MDS) and credit Subsidy Income from National Government
i. FINANCIAL EXPENSES. Separately classified from Maintenance and Other Operating Expenses (MOOE).
j. PERPETUAL INVENTORY OF SUPPLIES AND MATERIAL. Purchased out of Petty Cash fund charged
directly to the appropriate expense account
k. VALUATION OF INVENTORY. moving average method
m. CONSTRUCTION OF ASSETS. Construction Period Theory. 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 capitalized, and those incurred after the construction form part of operating cost.

1. Registry of Public Infrastructure – Bridges (RPIB)

2. Registry of Public Infrastructure – Roads (RPIR)
3. Registry of Public Infrastructure – Parks (RPIP)
4. Registry of Reforestration Projects – (RRP)

A Summary - prepared and included in the Notes to Financial Statement.

o. DEPRECIATION. Straight-line. Start on the second month after purchase. Residual value ten percent of the
purchase cost. Assets that are no longer being used not be charged any depreciation.
p. RECLASSIFICATION OF ASSETS. Assets no longer being used reclassified to “Other Assets”; not be subject
to depreciation.
r. ELIMINATION OF CONTINGENT ACCOUNTS. Cash shortages and disallowed payments, final and
executory, recorded under the Receivables-Disallowances/Charges
s. RECOGNITION OF LIABILITY. Recognized  goods and services are accepted or rendered and
supplier/creditor bills are received.
t. INTEREST ACCRUAL. Interest income and/or expense shall be accrued as deemed appropriate.
u. ACCOUNTING FOR BORROWINGS AND LOANS. All borrowings and loans incurred shall be recorded to
the appropriate liability accounts.
assets debited/credited to the appropriate asset accounts. Error is committed correcting entry to adjust the
original entry shall be prepared.
w. PETTY CASH FUND. Imprest system. Replenishments charged to the expense account. Equal to the total cash
on hand and the unreplenished expenses. Not be used to purchase regular inventory/items for stock.
x. FOREIGN CURRENCY ADJUSTMENT. Cash deposits in foreign currency and outstanding foreign loans
computed at the exchange rate prescribed by the Bangko Sentral ng Pilipinas at balance sheet date. Any gain or
loss on foreign exchange shall be recognized. Subsidiary ledger for foreign currency obligations reflect the
appropriate foreign currency in which the loan is payable. Liability expressed both in the foreign and local


GENERAL ACCOUNTING PLAN (GAP) - shows the overall accounting system of a government agency/unit.
Includes the source documents, the flow of transactions and its accumulation in the books of accounts and finally their
conversion into financial information/data presented in the financial reports.

1. Budgetary Accounts System;

2. Receipts/Income and Deposit System;
3. Disbursement System; and
4. Financial Reporting System

BUDGETARY ACCOUNTS SYSTEM – encompasses the processes of preparing the Agency Budget Matrix (ABM),
monitoring and recording of allotments received by the agency from DBM, releasing of Sub-Allotment Release Order
(Sub-SARO) to Regional Office (RO) by Central Office (CO), issuance of Sub-SARO to operating units (OUs) by the RO
and recording and monitoring obligations.

1. APPROPRIATIONS - authorizations made by law or other legislative enactment for payments to be made with
funds of the government. Shall be monitored and controlled through registries and control worksheets by the
DBM and COA, respectively.

AGENCY BUDGET MATRIX (ABM) – a document showing the desegregation of agency expenditures into


PLANNING - involves selecting missions and objectives and the actions to achieve them; requires decision making that
is, choosing from among alternative future courses of action.


1. Defines and directs the efforts or the agencies.

2. Organizes people; describes productive relationships between and among them; coordinates all decisions and
actions necessary to service delivery outcomes; determine what kind of organization structure to have and what
kind of people needed to do corresponding tasks toward the attainment of organizational goals.
3. Identifies and estimates the resources
4. Establish effective communication
5. A basis for useful supervision, monitoring and evaluation (control)
6. A basis for further capability of agencies


NATIONAL BUDGET - financial expression of approved programs and projects the government
PROGRAM – a major purpose for which a government entity is established and includes all functions and activities
devoted to the accomplishment of this purpose

Project – a subdivision of a program covering a homogenous group of activities and describes the work to be done

Activity – a definable segment of a project

PUBLIC EXPENDITURE MANAGEMENT (PEM) - an approach that ensures resource allocation is results-based, and
that government is accountable for its performance


1. Aggregate Fiscal Discipline – spend within its means

2. Allocative Efficiency – Spend On The Right Priorities
3. Operational Efficiency – ensure the best value for the people’s money.


1. Medium-Term Expenditure Framework (MTEF) – Link policy, planning and budgeting over the medium-
term. Employs a three-year rolling budget approach
2. Organizational Performance Indicator Framework (OPIF) - Links government expenditure priorities with
desired outcomes and agency performance.
3. Zero-Based Budgeting Approach (ZBB) – close review and evaluation of major ongoing programs and projects

Budgeting enables the government to manage its scarce resources to support priority programs and projects for promoting
economic growth and providing public services

BUDGETING - a part of the process of assigning financial resources to organizational units so that they can carry their
plans and of scheduling the use of these resources and the results to be achieved outlined in the plan; planning and


1. Tool of Accountability – government agencies are responsible for the management of programs for which the
funds are appropriated.
2. Tool of Management – it specifies either directly or indirectly, the cost, time and nature of expected results.
3. Instruments of economic policy

a. Indicates the direction of the economy since it expresses intentions regarding the utilization of resource;
b. Leads to the determination of national growth and investment goals;
c. Promotes macroeconomic balance in the economy;
d. Reduces inequalities;
e. Permits quick and meaningful measurement of its impact on the national economy as a whole.


1. Action is based on study.

2. Cooperation is secured in the entire organization.
3. Policies are established.
4. Programs of activities are related to expected or available resources and economic conditions.
5. Balanced programs are developed.
6. Coordinated effort is attained.
7. Operations are controlled.
8. Weaknesses in the organization are revealed.
9. Wastes are prevented.


NATIONAL BUDGET - government’s estimated income and planned expenditures in a given year.

GOVERNMENT’S INCOME - taxes (income tax, value-added tax, etc) and non-tax revenues (fees and charges,
privatization proceeds, etc)

EXPENDITURES - programs, activities, projects, purchase of goods and services, among others, that the government
will spend on to achieve its socio-economic development objectives.

FISCAL DEFICIT - income is insufficient to finance expenditures


NATIONAL BUDGET - covers the totality of the budgets of national government agencies – not only those of the
Executive branch, but also of Congress, the Judiciary and other Constitutional bodies.; covers the budgetary support given
by the national government to local government units (LGUs), in particular, the Internal Revenue Allotment (IRA); as
well as to government-owned ot controlled corporations (GOCCs) and government financial institutions (GFIs).


The National Budget for a given year is composed of the following:

o NEW GENERAL APPROPRIATIONS – legislated by Congress and enacted by the President every
fiscal year as the General Appropriations Act (GAA). The GAA enacts both programmed and
unprogrammed general appropriations.

1. programmed appropriations – supported by corresponding resources

2. unprogrammed appropriations – can only be executed when the government attains a revenue
windfall (i.e. above target)

o AUTOMATIC APPROPRIATIONS – under specific laws, certain types of expenditures (e.g. debt
interest payments, LGUs IRA) are automatically set or appropriated.

o CONTINUING APPROPRIATIONS – appropriations previously enacted by Congress in the previous

years’ GAA and which continue to be valid. Currently, appropriations for capital outlays and
maintenance and other operating expenditures have a validity of two years.

Section 4 of the Revised Budget Act provides that the budget shall consist of two parts:

1. Current Operating Expenditures; and

2. Capital Outlay.

Fundamental Principles of Fiscal Operations

1 No money shall be paid out of any public treasury or depository except in pursuance of an 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 which the trust was created;
4 Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the financial
affairs, transactions, and operations of the government agency;
5 Disbursements or disposition of government funds and property shall invariably bear the approval of the proper
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 sound management and fiscal
administration shall be observed, provided they do not contravene existing laws and regulations.

The Budget as the Framework of the Accounts

BUDGET - an estimate of the proposed expenditures for specified purposes and embodies the means of financing
them during the same period; provides the means for controlling the estimated amounts to be raised as well as the
proposed amounts to be spent for specified objects; a program that guides all activities relating to collections and
expenditures; the framework of the accounts by which the transactions affecting such collections and expenditures
shall be recorded

Linkage between Government Budgeting and State Accounting

ACCOUNTING SYSTEM - provides the essential information needed to make resource allocation decisions, monitor
budgetary performance, and assess the effectiveness of operations
BUDGET - provides the framework within which transactions should be recorded, classified and summarized in the
accounting system to permit comparison of actual results with budgeted standards

A substantial output of the accounting system pertains to accountability reports needed to monitor performance in the
execution and accountability phases of the budgetary process

Kinds of Budgets
a Annual Budget – a budget which covers a period of one year
b Supplemental budget – a budget which purports to supplement or adjust a previous budget which is deemed
inadequate for the purpose for which it is intended
c Special budget – a budget of special nature and generally submitted in special forms

a Performance Budget – a budget emphasizing the programs or services conducted and based on functions,
activities and projects which focus attention upon the general character and nature of the work to be done, or upon
the services to be rendered, rather than the things to be acquired
b Line-Item Budget – a budget the basis of which are the objects of expenditures such as salaries and wages,
travelling expenses, freight, etc.


a Zero-Based Budgeting – a process which requires systematic consideration of all programs, projects and
activities with the use of the defined ranking procedures; activities are analyzed and presented in “decision
packages” or key budgetary inclusions
Zero-based - yearly analysis, evaluation and justification of each activity, project or program, starting from a
“zero” performance and budgeting level; does not accept the prior year’s budget as a starting point for analysis
b Incremental Approach – a budget where only additional requirements need justification
c Capital Budgeting Approach - a budgeting technique which consists of a two-tiered strategy, as follows:
c.1 Setting a baseline budget that will correspond to the minimum level of operating requirements
c.2 Prioritization of the allocable balance (i.e. what is left of the budget ceiling after deducting the baseline
budget) among the proposed projects and programs of agencies.

Agency baseline – the cost of performing regular agency functions, excludes the costs of non-recurring programs

Government-wide baseline – the budget impact of decisions or policies enunciated by the government that require priority
Examples are:
a Proposed salary adjustment
b Miscellaneous personnel benefits, including retirement benefits
c Mandatory allocations to local governments
d Projected level of support to GOCCs
e Estimated provisions for contingencies due to calamity, foreign exchange fluctuations and other adjustments

FAPs baseline – the budgetary requirements, of ongoing programs/projects with foreign financial assistance.

Priority Program/Project Fund - the remaining balance after deducting the baseline budget requirements of the national


a Regional budgeting – a budget prepared consistent with the regional organization of the national government
b Long-term budget – a budget prepared for a four or five year period or longer
c Key Budgetary Inclusions – refer to the financial commitments of agencies pertaining to a budget year; maintained
for the purpose of (1) controlling major financial commitments 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 track down a
mandatory obligations and insure funding of priority projects.

NATIONAL BUDGET SYSTEM - consists of the methods and practices of the government for planning, programming
and budgeting; include the adoption of sound economic and fiscal policies and the execution of the programs and projects
geared towards the accomplishment of political, economic and social objectives; primary concern is the availability and
use of money to provide the services required or expected from the government .

The two principal objectives of the current budget system are:

 To carry out all government activities under a comprehensive fiscal plan

 To provide for a periodic review and disclosure of the budgetary status

Legal Basis of the Budget System - Budget Reform Decree or PD No. 1177

The Budget Reform Decree requires the following:

1. The formulation of the budget that supports the national development plan and reflects the objectives and strategies of
the plan;
2. The preparation of the budget within the context of the total resources of government
3. The preparation of the annual budget as an integral part of a long-term plan and long-term budget program;
4. The specification of multi-year requirements in each state of the budget process;
5. The preparation of the budget at the regional level, consolidation and review at the department and central levels
6. The implementation and timing of major development projects and the determination of expenditure levels
7. Analysis of budget estimates on a zero-base approach
8. Limiting the time allotted for debate on the budget by the legislative body, thereby ensuring that the budget is approved
before the start of the fiscal year; and
9. Adoption of a management information system for effective performance monitoring and financial evaluation and the
development of standard costs for units of work measurement, in order to effectively evaluate agency programs.

What is a national budget?

NATIONAL BUDGET - the government’s estimate of its income and expenditures; the financial translation of the
program and projects that best promote the development of the country; what the government plans 1) to spend for its
programs and projects and 2) where the money will come from

On what is our national budget spent?

Expenditures by expense class show how much is provided for:

1 Current operating expenditures – appropriations for the purchase of goods and services for the conduct of normal
government operations within a budget year
2 Capital outlays – appropriations for the purchase of goods and services the benefits of which extent beyond the
budget year and which add to the assets of government
3 Net Lending – net advances by the national government for the servicing of government guaranteed corporate debt
and loans outlays by the national government to government corporations; and
4 Debt amortization – contribution to the sinking fund which is utilized for principal repayment of our loans

How may a national budget affect the country’s life?

The national budget also serves as a stabilization role. It pump primes the economy, that is, when the economy is in
recession and private sector activity is weak, the government through its budget speeds up and increases its spending.
The intention is to stimulate demand for goods and purchases and the creation of more job opportunities.

Conversely, during economic booms when the private sector is active and economic growth 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 for goods and credit. The objective is to slow down the rise in interest rates and prices, and
avoid overheating the economy.

Furthermore, the budget serves as a tool for the redistribution of the country’s financial resources. This is most clearly
manifested in the sustained funding for the social services sector. Through various social programs especially those
targeted for the poor, the government hopes to raise the rate of return on human capital; provide immediate relief to the
needy; and extend better opportunities for self-help, livelihood and employment activities.

Why does the budget increase?

Expenditures may increase or decrease depending on the government’s policy of how much it would like to put into the
economy. The more the government intends to raise the country’s level of development, the more expenditure rise.

Furthermore, the maturity of the country’s debt also determines the size of the budget 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 year’s
expenditure program. Also, government’s assumption of liabilities of Government Corporation and financial institutions
contributes to the increase in the allocation of debt servicing. These, in turn, increase the budget deficit which contributes
to higher interest payments and a bigger over-all budget.

Commodity price increase equated to inflation also requires that the budget be adjusted so that it would still be able to buy
the quantity of goods and services that the government is aiming for.

What are the major sources for our national budget?

There are two major sources of funds

1 Revenues
a Tax
i Excise tax
ii License and business tax
iii Income tax
iv Import duties
v Other taxes and duties
b Non-tax - fees and service incomes of various government agencies, foreign
2 Borrowings
a Domestic borrowings - sources from the auction of Treasury bills, notes and
b Foreign borrowings
i Project loans - foreign loans obtained to finance a specific project
ii Program loans - multi-purpose foreign loans

Why does the government borrow from foreign sources? Why can’t it make do with what is collected locally.

Relying only on domestic or local resources to finance such projects will limit our government’s capacity to provide this
needed support. If the government takes too large a share of domestic resources, local private demand will have less for
their own projects and activities. As a result, credit will be tight, interest charges will be high and prices of goods and
services will go up.

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

It should be emphasized that our national government uses borrowing proceeds solely to finance carefully selected capital
projects supportive of the country’s development goals


The Philippine Constitution requires the President “to submit to Congress, within 30 days from the opening of every
regular session as the general appropriations bill, a budget of expenditures and sources of financing, including receipts
from existing and proposed revenue measures”.
The annual preparation of the National Budget also ensures that all government spending is reviewed and justified
anew each year. Even so, the government also adopts a three-year perspective (see succeeding section on Medium-Term
Expenditure Framework). This ensures that the National Government remains strategic in managing its resources.
The execution and accountability phases are implemented simultaneously year-round.

1. The Budget Call

a. a document which reminds the different agencies in the government to prepare their respective budgets in
accordance with approved overall budget ceilings and parameters
b. contains budget parameters (including macroeconomic and fiscal targets and agency budget ceilings) as
set beforehand by the Development Budget Coordination Committee (DBCC)
c. policy guidelines and procedures in the preparation and submission of agency budget proposals

At the beginning of the budget preparation year, the Department of Budget and Management (DBM) issues the
National Budget Call to all agencies (including state universities and colleges) and a separate Corporate Budget
Call to all GOCCs and GFIs.

The DBCC - determines the overall expenditure levels, the revenue projection, the deficit levels and the financing
plan; submits these to the Cabinet and to the President for approval.

The DBCC is composed

1 Chairman - Budget Secretary
2 Members - Economic Planning Secretary, Bangko Sentral ng Pilipinas, Finance Secretary
3 Assisted - Executive Technical Board.

The DBM - holds consultation with agencies on the allocation of the sectoral and sub-sectoral expenditure
ceilings set by the DBCC; PURPOSE – for setting indicative expenditure ceilings of department and component
agencies; minimize the possibility of bloated agency budget proposals as well as allow agencies greater flexibility
in prioritizing their funding requirements.

The agencies issue guidelines to their regional offices which are expected to conduct regional budget hearings in
close coordination with the Regional Development Council (RDC)
The regional offices submit their RDC-approved budget to their respective head offices in Manila which in turn,
collate all the regional budget proposals submitted by their different regional offices all over the Philippines and
consolidate these into a single agency budget proposal of the department.

Early Preparation

Budget Call - issued in December (versus against April in the past)

Submission of the President’s budget a day after the State of the Nation Address (in contrast to the earlier
practice of submitting it late in the 30-day window that the Constitution prescribes).

2. Stakeholder Engagement – seeks to increase citizen participation in the budget process

“Bottom-Up Budgeting”

3. Technical Budget Hearings – conducted after departments and agencies submit their Agency Budget Proposals to the
DBM; agencies defend their proposed budgets before a technical panel of DBM, based on performance indicators on
output targets and absorptive capacity. The DBM bureaus then review the agency proposals and prepare

4. Executive Review – The recommendations are presented before an Executive Review Board which is composed of
the DBM Secretary and senior officials. Deliberations here entail a careful prioritization of programs and
corresponding support. Implementation issues are also discussed and resolved.

5. Consolidation, Validation and Confirmation – DBM then consolidates the recommended agency budgets and
recommendations into a National Expenditure Program (NEP) and a Budget of Expenditures and Sources of
Financing (BESF). As part of the consolidating process, the deliberations by the DBCC will determine the agency
and sectoral allocation of the approved total expenditure ceiling, in line with the macroeconomic and fiscal program.
Heads of major departments are invited to this meeting.

6. Presentation to President and Cabinet - The proposed budget is presented by DBM together with the DBCC, to the
President and Cabinet for further refinements or reprioritization. After the President and Cabinet approve the
proposed National Expenditure Program, the DBM prepares and finalizes the budget documents to be submitted to

7. The President’s Budget – ends with the submission of the proposed national budget – the “President’s Budget” – to
Congress. The President’s Budget consists of the following documents:
 President’s Budget Message – the President explains the policy framework and priorities in the budget.
 Budget of Expenditures and Sources of Financing (BESF) – contains the macroeconomic assumptions,
public sector context (including overviews of LGU and GOCC financial positions), breakdown of the
expenditures and funding sources for the fiscal year and the two previous years.
 National Expenditure Program – contains the details of spending for each department and agency by
program, activity or project, and is submitted in the form of a proposed General Appropriations Act.
 Details of Selected Programs and Projects – contains a more detailed disaggregation of key programs,
projects and activities in the NEP
 Staffing Summary – contains a summary of the staffing complement of each department and agency


1. House Deliberations
The House of Representatives, in plenary, assigns the President’s Budget to the House Appropriations Committee. The
Committee and its Sub-Committees then schedule and conduct hearings on the budgets of the departments and agencies
and scrutinize their respective programs and projects. It then crafts the General Appropriations Bill (GAB).
In plenary session, the GAB is sponsored, presented and defended by the Appropriations Committee and Sub-Committee
Chairmen. As in all other laws, the GAB is approved on Second and Third Reading before transmission to the Senate.
(Note: In the First Reading, the President’s Budget is assigned to the Appropriations Committee.)
2. Senate Deliberations
Conducts its own committee hearings and plenary deliberations on the GAB; formally start after the House of
Representatives transmits the GAB. For expediency  Senate Finance Committee and Sub-Committees usually start
hearings on the GAB even as House deliberations are ongoing.
The Committee submits its proposed amendments to the GAB to plenary only after it has been formally transmitted by the
3. Bicameral Deliberations
Once both Houses of Congress have finished their deliberations, they will each constitute a panel to the Bicameral
Conference Committee. This committee will then discuss and harmonize the conflicting provisions of the House and
Senate Versions of the GAB. A Harmonized Version of the GAB is thus produced.
4. Ratification and Enrollment
The Harmonized or “Bicam” Version is then submitted to both Houses, which will then vote to ratify the final GAB for
submission to the President. Once submitted to the President for his approval, the GAB is considered enrolled.
5. The Veto Message
The President and DBM then review the GAB and prepare a Veto Message; GAB  only legislative measure where the
President can impose a line-veto (in all other cases, a law is either approved or vetoed in full).
6. Enactment
When the GAA is not enacted before the fiscal year starts, the previous year’s GAA is automatically reenacted.
“Spending” the Budget; people’s money is actually spent
1. Release Guidelines and Program. The budget execution phase begins with DBM’s issuance of guidelines
on the release and utilization of funds
2. Budget Execution Documents (BEDs) - outline agency plans and performance targets; include the physical and
financial plan, monthly cash program, estimate of monthly income, and list of obligations that are not yet due and
demandable; submitted at the start of the budget execution
3. Allotment and Cash Release Programming
DBM prepares an Allotment Release Program (ARP) to set a limit for allotments issued to an agency and on the
aggregate; corresponds to the total amount of the agency-specific budget under the GAA, as well as Automatic
Cash Release Program (CRP) - formulated alongside  to set a guide for disbursement levels for the year and for
every month and quarter.
4. Allotment Release
Allotments - authorize an agency to enter into an obligation, are either released by DBM to all agencies
comprehensively through the Agency Budget Matrix (ABM) and individually via Special Allotment Release
Orders (SAROs).
 ABM - disaggregates all programmed appropriations for each agency into two main expenditure categories:
“not needing clearance” and “needing clearance.” The ABM is the comprehensive allotment release document
for appropriations which do not need clearance, or those which have already been itemized and fleshed out in the
SARO - identified as “needing clearance” are those which require the approval of the DBM or the President; an
agency needs to submit a Special Budget Request to the DBM with supporting documents. Once approved, a
SARO is issued
5. Incurring Obligations
Obligations - liabilities legally incurred, which the government will pay for
The GAA as Allotment Release
The Aquino Administration plans to design the annual General Appropriations Act as the comprehensive allotment
release document itself. This is being pursued in order to significantly speed-up the process of releasing the Budget
and implementing the programs and projects that it funds. This entails the disaggregation of all budget items into full
detail, as well as the elimination of all lump-sum funds, save for a few exceptions such as the Calamity Fund. In other
words, this reform significantly reduces the need for SAROs.
6. Cash Allocation
To authorize an agency to pay the obligations it incurs, DBM issues a disbursement authority. Most of the time, it
takes the form of a Notice of Cash Allocation (NCA); and in special cases, the Non-Cash Availment Authority
(NCAA) and Cash Disbursement Ceiling (CDC).
 NCA - a cash authority issued periodically by the DBM to the operating units of agencies to cover their cash
requirements; specifies the maximum amount of cash that can be withdrawn from a government servicing bank
for the period indicated; based on an agency’s submission of its Monthly Cash Program and other required
Others Disbursement Authorities. NCAAs - issued to authorize non-cash disbursements. CDCs - issued to
departments with overseas operations, allowing them to use income collected by their foreign posts for their
operating requirements.
7. Disbursement – the actual spending
Modified Disbursement Scheme - where disbursements of national government agencies chargeable against the
Treasury are made through government servicing banks

BUDGET ACCOUNTABILITY - happens alongside the Budget Execution phase; DBM - monitors the efficiency of
fund utilization, assesses agency performance and provides a vital basis for reforms and new policies.
1. Performance and Target Outcomes
These performance measures are set alongside the preparation of the National Budget; and these are indicated in the
OPIF Book of Outputs
2. Budget Accountability Reports (BARs) - submitted by agencies on a monthly and quarterly basis; shows how agencies
used their funds and identify their corresponding physical accomplishments; include quarterly physical and financial
reports of operations; quarterly income reports, a monthly statement of allotments, obligations and balances; and monthly
report of disbursements.
No Report, No Release – if does not submit BAR
3. Review of Agency Performance
The DBM - reviews the financial and physical performance of agencies. Actual utilization of funds and physical
accomplishments - evaluated against their targets; Agency Performance Reviews (APRs) - conducted quarterly or
every semester; Budget Performance Assessment Review (BPAR) - conducted to determine each agency’s
accomplishments and performance by the year-end. The DBM regularly reports results to the President.
4. Audit - COA
Ensures agency accountability in the use of public funds; COA’s audit reports in confirming agency performance,
determining budgetary levels for agencies and addressing issues in fund usage.
5. Performance-Based Incentive System – recognize and reward good performance among government employees – to
improve the efficiency of service delivery across all government institutions
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, they are asserting or claiming that they have complied with the
foregoing accountability requirements.

What are Assertions?

Assertion is the expressed or implied representation by management that is reflected in their transactions,
accounts, financial statements, records, reports and that they are claiming that 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 the appropriate authorities,
management is making claim that so much amount has been disbursed or so much amount have been collected in payment
of goods and services received or rendered in 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 the following:
1 Existence or Occurrence - assets or liabilities of the audited agency actually exist at a given date, and whether
recorded transactions have occurred during the given period.
2 Completeness –all transactions and accounts that should be presented in the financial statements are included.
3 Rights and Obligations - assets are actually owned by the agency and liabilities are the obligation of the agency at
a given date.
4 Valuation or Allocation - the asset, liability, revenue and expenses components have been included in the financial
statements at appropriate amounts.
5 Presentation and Disclosure – particular components of the financial statements are properly classified, described
and disclosed.

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

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

Performance of government entities is measured from the point of view of economy, efficiency and effectiveness.

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 most advantageous to the government.

Efficiency refers to the relationship between goods or services produced and resources used to produce them. The
measurement of efficiency involves the determination of whether an agency is managing or utilizing its resources in an
efficient manner

Effectiveness is concerned with the relationship between the outputs and the goals of the agency. Measuring effectiveness
will determine whether the desired results are achieved

Accounting for Budgetary Accounts

Budgetary accounts consist of the appropriations, allotments and obligations. Appropriations refer to an authorization
made by law or other legislative enactment, directing the payment of goods and services out of government funds under
specified conditions or for special purposes. Allotment is the authorization issued by the DBM to the agency, which
allows it to incur obligations for specified amounts, within the legislative appropriation.
In order that the appropriation may be released, the agency, in consultation with the DBM, is required to prepare and to
submit the Agency Budget Matrix (ABM), the official document 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 broken
down by allotment class/expenses. The ABM shall contain, among others, the following information:
a. The amount to be released categorized under “Not Needing Clearance” column, (ABM)
b. The amount that will be released through the issuance of Special Allotment Release Order ( SARO)
categorized under “Needing Clearance” column including continuing appropriations based on the Statement
of Allotments, Obligations and Balances (SAOB).

Annual Cash Program - provide cash to finance the programs reflected in the ABM and the prior year’s accounts
payable; with approved total comprehensive release by DBM to be released to the agency

For request “Non-Needing Clearance”, the Notice of Cash Allocation (NCA) is issued as requested. Pursuant to the Tax
Remittance Advice (TRA) - the NCA released to the agency is reduced by the amount of the taxes withheld to be
remitted by the DBM for the Agency thru the 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 allotments and 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 it shall also maintain.

The agency shall journalize the NCA it receives as debit to Cash-National Treasury-MDS and credit to Subsidy Income
from the National Government.

Records of the DBM

Approval and issuance of the ABM and the SARO

1. Registry of Appropriations and Allotments (RAPAL) - enter the pertinent data on releases for each
government agency
2. Registry of Allotments and NCA (RANCA) – allotments and NCA issued; the control and monitoring
record of the DBM and shall furnish the BTr a copy of the NCA.

Records of the BTr

Receipt of the NCA from DBM - enter it in the Registry of NCA and Replenishment (RENREP). It shall also enter the
transfer of cash from its bank account(s) to the appropriate MDS account.

Records of the Agency

Receipt of the approved ABM and ARO - the Budget Officer shall record the allotment to the respective registries
through the Allotment and Obligation Slips (ALOBS).
Maintain four registries 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)

Accounting of Obligations:

Obligation refers to a commitment by a government agency arising from an act of a duly authorized official which binds
the government to the immediate or eventual payment of a sum of money.

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

Head of the Budget Unit - certify the availability of allotment and obligations incurred in the ObR or budget and
utilization in the BUR. Obligations shall be taken up in the registries maintained by the Budget Unit through the ALOBS
prepared/processed by the office; 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 is available, returns the documents to the
office concerned, if there is an available balance of allotment 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 the obligation is incurred as evidenced by
the approved ALOBS. Obligations shall be posted in the “Obligation Incurred” column of the RAOs to arrive at the
balance of allotment still available at a given period.

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

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

A new ALOBS for the following adjustments of obligations as negative entries in the Obligation 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 shall be furnished to the Budget

The Accountant shall credit “Cash-National Treasury-MDS” each time a payment is made charged against the NCA and
debit the specific account being paid for, either asset or expense account.

Illustrative Entry:

a Receipt of Allotment Posting in the allotment column to the respective Registries.

b Incurrence of obligation Posting in the obligation column of the RAO’s

ex. RAOPS for PS obligations or expenditures

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

Upon receipt of the NCA, the accountant shall record in the books as:
Cash-National Treasury, MDS 108 XX
Subsidy Income from National Government 651 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 and deposits in the books of accounts of the agency.

The sources of income and collections made by Agency are:

1 Taxes 4. Borrowings
2 Operating and Service Income 5. Miscellaneous Receipts
3 Grants and Donations

Methods of Accounting for Income:

1 Accrual Method – used when income is realized (earned) during the accounting
Period regardless of cash receipt. Account Receivable is set up
and the general or specific income accounts according to nature
and classification are credited.

2 Modified Accrual – income of an agency is recorded as “Deferred Credits to Income”

and the appropriate receivable account is debited. The income
account is recognized upon receipt of collection and the “Deferred
Credits 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 is
credited upon collection of the cash or its equivalent.
All collecting officers shall deposit intact all their collections with AGDB daily or not later than 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 transactions of the agency like the receipt and
utilization of Notice of Cash Allocation (NCA), and collections of income and other receipts which the agency are
authorize to use. This shall consist of journals and ledgers, as follows:
Cash Receipts Journal (CRJ)
Cash Disbursement Journal (CDJ)
Check Disbursement Journal (CkDJ)
General Journal (GJ)

General Ledger (GL)
Subsidiary Ledgers (SL)

2 National Government books – this shall be used to record collections, which the agency cannot use but are required to
be remitted to the Bureau of the Treasury. These shall consist of the following:
Cash Journal
General Journal
General Ledger
Subsidiary 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 limitations
4 Income from sale of equipment.
5 Grants and donations intended for agency use.
6 Miscellaneous collections.

Illustrative Accounting Entries:

1. 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 separate books of accounts NG Books.

1 Receipt of cash payment of hospital fees

Cash – collecting officers 102 xxx

Due to National Treasury 411 xxx
Hospital fees 596 xxx

2 Remittance to the treasury

Due to National Treasury 411 xxx

Hospital fees 596 xxx
Cash-collecting officers 102 xxx

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

Accounts Receivables xx
Rent/Lease income xx

2 Record collection of rent payment.

Cash – collecting officer xx
Accounts Receivable xx

3 Record deposit in the bank.

Cash in Bank – LCCA xx

Cash – collecting officer xx

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

Repairs and Maintenance –Buildings xx

Cash-National Treasury, MDS xx

3. 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 latter’s project shall be remitted by the recipient agency, the IA, to the BTr. The IA shall request
the necessary NCA from the DBM)

6.a Receipt of the check from the SA.

Cash – collecting officers 102 xx

Due to Other NGAs( SA) 416 xx
6.b Remittance of cash to the BTr

Due from National Treasury 131 xx

Cash-collecting officers 102 xx
6.c Receipt of NCA from DBM

Cash-National Treasury, MDS 106 xx

Due from National Treasury 131 xx

6.d Purchase of technical equipment

Technical & Scientific Machinery

And Equipment 226 xx
Cash-National Treasury, MDS 106 xx
6.e Submission of liquidation report to the SA.

Due to Other NGAs 416 xx

Technical and Scientific
Machinery & Equipment 226 xx

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

Due to Other NGAs 416 xx

Cash-National Treasury, MDS 108 xx

4. Authority with Limitations

If the authority is subject to the limitation that any excess shall be remitted to the National Treasury, such
collections for seminar and convention fees, the collections shall be recorded in the NG books. The expenses
shall be journalized, the balance/excess to be remitted to the National Treasury.

1 Record collection of (ex.) seminar fees.

Cash – collecting officer 102 xx

Seminar/Training fees 622 xx

2 Record deposit of collection.

Cash in Bank – Local Currency 111 xx
Cash – collecting officer 102 xx

3 Record payment of expenses.

Office supplies expense 755 xx

Cash in Bank – Local Currency 111 xx

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

Seminar/training fees 622 xx

Cash in Bank–Local Currency 111 xx

4 Record transfer in the NG Bks the unused collections.

Cash – collecting officer 102 xx

Due 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 one and for the repair and maintenance of existing vital
equipment. It should be noted that the purchase of cars and vans is subject to the prior authority required under the
existing rules.


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

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

The proceeds from sale were accordingly remitted to the National Treasury through the bank. The agency
received Special Allotment Release Order (SARO) in the amount of P500,000 for the purchase of a new car with Notice
of Cash Allocation (NCA) in the amount of P450,000, 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 tax was
afterwards remitted to the Bureau of Internal Revenue through a Tax Remittance Advice (TRA).

To record sale of motor vehicle.

Cash – collecting officer 102 300,000

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

Record Remittance of collection to the NT through the bank:

Gain on Sale of Asset 623 50,000
Government 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.

Record the NCA received:

Cash – NT, MDS 107 450,000
Subsidy 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 214500,000

Accounts Payable 401 500,000

To record full payment of obligation:

Accounts Payable 401500,000

Due to BIR 412 50,000
Cash – NT, MDS 107 450,000

To record remittance of withholding tax through TRA.

Due to BIR 412 50,000

Subsidy Income from
National Government 631 50,000


Chart of Accounts – is a list of account titles and codes that guides the bookkeeper in recording government transactions.
- It provides the framework within which the accounting records are constructed.

Standard Chart of Accounts (SGCA) – is a list of general ledger accounts prepared for the use of National, Local and
Government Owned or Controlled Corporations design to achieve the objectives of uniformity in
accounting and reporting, facility in consolidating financial reports and adaptability in
- It consists of Balance sheet accounts and Budget/Operation accounts.

Coding – the systematic assignment of number, letters or other symbols to distinguish items within a given classification
from each other.
Purposes: 1. To save time and clerical work in recording items of accounts, funds, projects, allotments and
2. To facilitate location of accounts in the general and subsidiary ledger;
3. To facilitate systematic arrangement and classifying of accounts; and
4. To comply with the requirements of mechanized accounting.

The Chart of Accounts consists of three-digit codes grouped as follows:

Accounts Account Codes
Assets 100-299
Asset Contra Accounts 300-399
Liabilities 400-499
Equity 500-549
Income 550-699
Tax Revenue –
National Taxes 550-579
Local Taxes 580-599
General Income –
Permits and Licenses 600-609
Service Income 610-629
Business Income 630-649
Subsidy Income 650-659
Other Income 660-679
Gain or Loss Accounts 680-699
Expenses 700-999
Personal Services 700-749
MOOE 750-969
Financial Expenses 970-999


The cash transactions affect every classification within the financial statements – assets, liabilities, and residual equity,
income and expenses by checks.
Disbursements constitute all cash paid out during a given period either in currency (cash) or by check; the settlement of
government payables/obligation by cash or by check; covered by Disbursement Voucher (DV), Petty Cash Voucher, or

How to Distinguish Disbursement from Expenditures?

EXPENDITURES - the obligations incurred by the Agency; includes both the amount actually paid and those incurred
and recorded as liabilities to be paid in the future
DISBURSEMENTS - payments made for such government obligations by cash or check.

Typical transactions for disbursements include the following major classes of payments:
A Current Operating Expenses
1 Personal Services
- Salaries and wages
- Other Compensation
- Personnel benefits
- Other personnel benefits

2 Maintenance and Other Operating Expenses

- travelling expenses
- training and scholarship program
- supplies and material expenses
- repairs, etc….

3 Financial Expenses
- bank charges
- commitment fees
- documentary stamps
- interest and other financial charges

B Capital Expenditures – these expenditures need allotment for CO; involves investments and procurement of
assets that is expected to be used for a longer period of time.

C Inter-agency fund transfers - covers the transfer of funds to other agencies for the implementation of specific
projects; taken up in the books under “Due to –“ by the receiving agency and “Due from – “ by the releasing

Basic Requirements for Disbursement:

1 Existence of a lawful and sufficient allotment certified as available by the budget officer.
2 Existence of a valid obligation certified by the Chief Accountant/Head of Acctg. Unit;
3 Legality of transactions and conformity with laws, rules and regulation.
4 Approval of the expense by the Chief of Officer or by his duly authorize representative; and
5 Submission of proper evidence to establish the claim.

DISBURSEMENT SYSTEM – involves the preparation and processing of disbursement voucher; preparation and
issuance of check, payment of cash, granting, utilization, and liquidation/replenishment of cash advances.

All disbursement of the government require the certification as: 1) to validity, propriety, legality of the claim by the
head of office who has control of the funds , and 2) certification that funds are available for the purpose.

Modes of disbursement in the government:

1 by check – thru MDS checks or commercial checks
2 by cash – cash advances granted to disbursing officer and petty cash fund
3 Advices to Debit account (ADA)

Disbursement by Checks – Checks shall be drawn only on duly approved DV or PCV; reported and recorded in the
books of accounts only when actually released to the respective payees.
Two types of checks:
1 Modified Disbursement System (MDS) checks – issued by government agencies chargeable against the account
of the Treasurer of the Phil which are maintained with different MDS Government Servicing Banks; covered by
Notice of Cash Allocation, an authorization issued by the DBM to all government agencies to withdraw cash from
the National Treasury through the issuance of MDS checks or other authorized mode of disbursements.
2 Commercial checks – issued by government agencies chargeable against the agency checking account with
GSBs; covered by income/receipts authorized for deposits with AGDBs and funding checks received by RO/OUs
from CO/ROs respectively.

All checks issued including cancelled checks shall be recorded chronologically in the Check Disbursement Record
(CKDR) and indicate the date checks were actually released.
All checks actually released to the claimants including the cancelled ones  included in the Report of Checks
Issued  the Cashier. All unreleased and cancelled  enumerated in the “List of Unreleased Checks” to be
attached to the RCI.

Receipt of NCA – this entry will that the NCA received is the share of the agency in the income of the National
Government; proof that there was an allocation of cash for the Agency by the National Treasury; may be net of the amount
of the taxes to be withheld by the agency
Cash – National Treasury, MDS XXXX
Subsidy Income from NG XXXX

Disbursement by Cash - shall be made from cash advance drawn and maintained in accordance with COA rules and
regulations; based on duly approved payrolls/disbursement vouchers. May either for:
1 personal services or salaries and wages – equal to the net amount due the officials and employees; fully
liquidated within 5 days after the pay period; UNCLAIMED WAGES  remitted and receipted to close the
cash advance account
2 travels – accounted for as Due from officers and Employees; subject to liquidation upon completion
EXPENSES INCURRED  LIQUIDATION REPORT FORM shall be prepared by the employee
concerned and submitted to the accounting unit as a basis for JEV preparation ; close the receivable
b EXCESS CASH ADVANCE – refunded and an Or shall be issued to acknowledge receipt; noted in
submitted to liquidate cash advance previously granted; DV prepared to claim reimbursement of the
deficiency in amount
3 miscellaneous expenses - recorded in separate cashbooks

REPORT OF DISBURSEMENT - serve as the liquidation report of the cash advance granted to the Disbursing Officer.

Petty Cash Fund (PCF) - fund shall be sufficient for emergency and petty expenses of the agency; replenishment 
directly charged to the appropriate expense accounts; equal to the total cash on hand and the unreplenished expenses; not
be used to purchase regular inventory items for stock nor for the liquidation of outstanding cash advances; used only for
disbursements which cannot be conveniently paid by check.

Disbursement through Petty Cash Fund - shall be through the PC Voucher which shall be approved by authorized
officials and signed by the payee to acknowledge receipt of the amount from the PC Custodian ; DV  prepared to
replenish the fund.
At the end of the year, the PCC shall submit to the Accounting unit all outstanding PCVs. In case the fund could not be
replenished for lack of funds, a JEV shall be prepared to recognize all unreplenished expenses in the books and the PCF
account shall be credited.
At the start of the year, as soon as cash becomes available, the fund shall be replenished by a debit to account “Petty
Cash Fund” and credit to the appropriate “Cash in Bank” account to restore the fund to its original amount.
PCC resigns or ceases - full accounting/liquidation shall be made.
1 EXCESS CASH - refunded and all the PCVs together with the original supporting documents shall be
surrendered to the Accounting Unit which shall prepare a JEV to take up the expenses in the books and
credit account “Petty Cash Fund”. In no case shall the remaining cash of the former custodian be
transferred to the incoming PCC.
Petty Cash Fund record - used to record all the PCs received by the PCC as well as reimbursements received for
expenses paid; PCV  supported with valid documents to prove the propriety of disbursements, such as ORs, invoices,

Advice to Debit Account (ADA) – a system by which no check is issued to the payee in payment of government
obligations, but instead, the current account number of the payee in the bank where the government maintains a deposit,
shall be obtained by the accounting unit. Payment is to be made  the ADA shall be issued by the Accounting Unit of
the agency to the bank where it maintains an account. All payments  made to the credit of the payee’s account and a
debit to the account maintained by the government agency in the same bank. A JEV  prepared to record the transaction
in the GJ.

Recording the different types of Disbursements:

a. Personal Services
Made through the following:
1. Payroll Fund in the hands of a Disbursing Officer (DO) as cash advance. Payments are made by the DO in cash
to the employees.
2. Payroll Fund deposited in an authorized depository bank, withdrawal by the employees is through the
automated teller machine (ATM).
3. Direct payment to employees by individual check.
Example, Assume the following payroll fund is established:
Salaries and wages P 36,000
Additional Compensation 10,000
Personnel Economic Relief Allowance (PERA) 6,000
Gross P 52,000
Less: Withholding tax P 2,000
GSIS contribution 3,000
PAG-IBIG contribution 3,000
PHILHEALTH contribution 2,000 10,000
Net Payroll P 42,000
a Enters the obligation – RAOPS
b Cash Advance to be granted to the DO
c Recognize the expenses and liabilities
d Obligation and recording of the government share of the mandatory contributions
e Remittance of the deductions to the respective offices.

b Maintenance and Other Operating Expenses

Asset Method - used in recording disbursements when expenditures apply to more than the accounting period.
Example, Assume the following types of expenditures:

Rent: The government signed a contract for the rental of office space with 3 months advance payment of P1,200 starting
The Agency enters the obligation of P1,200 in the RAOMO, and records the payment as:
Prepaid Rent P1,200
Cash – National Treasury, MDS P1,200

Supplies and Materials: Assume the following transactions about office supplies:
1 Issued Purchase Order (PO) for office supplies, P60,000.
a Obligation
b Payment (thru Procurement Service). Compare with purchases made to outside supplier.
c Record the asset received/delivered
d Record the used supplies.
e Remittance of withholding tax thru TRA

The expense shall be taken up upon utilization/consumption.

Cash Advances: Petty Cash Fund, Travelling Expenses
a Obligation
b Record the granting of cash advances
c Record liquidations. Determine if there are refunds, reimbursements or additional claims.
d. remittance of refunds to the Bureau of Treasury and adjust obligations.

Property and Inventory accounting System - consists of the system of monitoring, controlling and recording of
acquisition and disposal of property and inventory.
The system starts with the receipt of the purchases inventory items and equipment. The requesting office need of the
inventory items and equipment after determining that the items are not available in stock shall prepare and cause the
approval of the Purchase Request (PR). Based on the approved PR and after accomplishing all the required
procedures adopting a particular mode of procurement, the agency shall issue a duly approved Purchase Order. The sub-
system are as follows:
1 Receipt, Inspection, Acceptance and Recording Deliveries of Inventory Items and Equipment,
2 Requisition and Issuance of Inventory Items
3 Requisition and Issuance of Equipment

PERPETUAL INVENTORY METHOD – purchase of supplies and materials for stock  recorded as Inventory
account; an inventory control account is maintained in the General Ledger on a current basis.
Regular purchases - recorded under the Inventory account; issuance - recorded based on the Report of Supplies and
Materials Issued. Purchases out of Petty Cash Fund - charged immediately to the appropriate expense accounts.
Perpetual inventory records  Supplies Ledger Cards for each inventory stock; Property, Plant and Equipment
Ledger Cards for each category of plant, property and equipment including work and other animals, livestock, etc.
Subsidiary ledger cards  contain the details of the General Ledger accounts.
Property and Supply Officer/Unit - maintain Property Cards (PC) for property, plant and equipment, and Stock Cards
(SC) for inventories. The balance in quantity per PC and SC - reconcile with the ledger cards of the Accounting Unit.

Moving Average Method - used for costing inventories. Accounting Unit - responsible in computing the cost of
inventory on a regular basis.

Financial Expenses - expenses not used in the actual operation of the agency such as interest expenses, bank charges, etc.

Purchase and/or Construction of Fixed Assets

all costs incurred to bring them to the location necessary for their intended use ; recorded as Asset after inspection and
acceptance of delivery.

CONSTRUCTION PERIOD THEORY – used in recording fixed assets

Depreciation - taken up starting on the month succeeding the month of purchase or completion of construction; Straight-
line method; rate of depreciation - depend on the nature of the assets, guidelines for this shall be issued by the COA.

Recording of fixed assets - the Construction Period Theory shall be followed. All expenses during the construction
period shall be capitalized.
During the construction period  property, plant and equipment shall be classified and recorded as “Construction in
Progress” with the appropriate asset classification
As soon as these are completed  the “Construction in Progress” account shall be transferred to the appropriate asset
“Public Infrastructures” and “Reforestation Projects” accounts  closed to “Government Equity” account; asset -
recorded in the Registry of Public Infrastructures/Reforestation Projects at the end of the year.

Purchase/Construction of Fixed Assets

Example: Purchase of office equipment either thru the Procurement Service / outside suppliers.
1. Issue PO for the office equipment
2. Record the obligation, RAOCO
3. Record payment (Procurement Service/outside supplier) or recognize the liability and taxes withheld
4. Record the asset received/delivered
5. Remit taxes withheld upon receipt of TRA

Construction of Building by Contract

1 Signed the construction contract. Record the obligation – RAOCO
2 Record performance bond posted by the contract(cash-5%, bank guarantee-10%,
And surety bond-30% of the contract cost)
3 Grant 15% advances to the contractor if requested
4 Payment based on the percentage of completion billed
5 Imposed retention fees and observed if needed up to the last claims
6 Required withholding taxes to be deducted for every billing
7 Record completion and turn-over
8 Return the performance bond, retention fees and remittance of withholding taxes

Miscellaneous Transactions

Accounting for loss of cash and property - may be due to malversation, theft, robbery, fortuitous event or other causes;
CASH SHORTAGE  reported through the Report of Cash Examination. The Auditor issues an audit report in case of
shortage in property accountability. As soon as a shortage is definitely established, the auditor shall issue a
memorandum pertaining thereto and the accountant shall draw a JEV to record the shortage as a receivable from the
accountable officer concerned.

In case of loss of property due to other causes like theft, force majeure , etc., a report thereon shall be prepared by the
accountable Officer concerned for purposes of requesting relief from accountability. No accounting entry shall be made
but the loss shall be disclosed in the notes to financial statements pending result or request for relief from accountability.

Grant of Relief from Accountability – Grant of relief from accountability due to shortage or loss of fund  a copy of
the decision shall be forwarded to the Chief Accountant who shall draw a JEV to record the transaction; debited to the
Loss of Assets account and credited to the appropriate receivable account; Request for relief is denied  immediate
payment of the shortage shall be demanded from the AO. Restitution - acknowledged by the issuance of an official
Request for relief from accountability for loss of property caused by fire, theft, etc, is granted - a copy of the
decision shall be forwarded to the Chief Accountant for the preparation of the JEV; same journal entry; Request for
relief is denied - taken as receivable from the accountable officer and shall be credited to the appropriate asset account.
Accounting for Cash Overage - the amount shall be forfeited in favor of the government and an official receipt shall be
issued by the cashier; taken up as Miscellaneous Income.

Accounting for stale checks - outstanding for over six months from date of issue or as prescribed.
A stale check shall be marked cancelled on its face and reported as follows:
1. Unclaimed stale checks still with Cashier - cancelled and reported in the List of Unreleased Checks as cancelled, which
is attached to the RCI.
2. In the hands of the payees or holders in due course and requested for replacements - new checks maybe issued upon
submission of stale checks to the accounting unit. A certified copy of the previously paid DVs shall be attached to the
request for replacement. A JEV shall be prepared to take up the cancellation. The replacement check shall be reported
in the RCI.

Accounting for Disallowance - taken up in the books of accounts only when they become final and executory. The
accountant shall prepare the JEV to take up the Receivable-Disallowance/Charges and credit the appropriate expense
account for the current year or Prior Year’s Adjustment account if pertaining to expenses of previous years.
Cash settlement for disallowances - acknowledged through the issuance of an official receipt and reported by the cashier
in the RCD.

Accounting for overpayments - refunds shall be demanded of the employees concerned.


Financial Reporting System. This financial Reporting System (FRS) includes the preparation and submission of trial
balances, financial statements and other reports needed by fiscal and regulatory agencies. The sub-systems are as follows:
1. Preparation and Submission of Trial Balances and Other Reports
2. Preparation and Submission of Financial Statements
The Trial Balance shows the equality of debit and credit balances of all general ledger accounts as of a given period. It is
prepared and submitted monthly, quarterly and annually. At the end of the fiscal year, the pre-closing and the post-closing
trial balances shall be prepared.
Purposes of the Trial Balance. The trial balance is prepared to:
1. prove the mathematical equality of the debits ad credits after posting;
2. uncover errors in journalizing and posting; and
3. serve as basis for the preparation of the financial statements

The Pre-closing trial balance shall be prepared after recording the adjusting journal entries in the General Journal and
posting the same to the General Ledger. It shows the adjusted balances of all accounts as of a given period. This is also
described as the adjusted trial balance.
Adjusting or Correcting Journal Entries. Under the matching principle, adjustments shall be made for economic activities
that have taken place but are not yet recorded at the time when the financial statements are prepared. Such adjusting
journal entries are made to ensure that revenues and expenses are recorded in the period when they are earned or incurred.
Adjustments are two main types: accrued items and deferred items.
Adjustment for Accrued Item. It is an adjusting entry for an economic activity already undertaken but not yet recorded into
an asset and revenue accounts or a liability and expense accounts. It requires asset/revenue adjustments and
liability/expense adjustments.

Asset/Revenue Adjustment. It involves earned revenues not yet recorded as assets and income at the end of the accounting
period. Examples are receivables for revenues already earned but not yet collected nor billed as of the year end.
Account Title Account Code Debit Credit
------------- ------------ ----- -----
Interest Receivables 117 500
Interest Income 612 500

Liability/Expense Adjustment. It involves expenses, which exist already but remain unpaid at the end of the accounting
period. Examples are salaries, wages and other expenses already incurred but not yet paid.
Account Title Account Code Debit Credit
------------- ------------ ----- ------
Salaries and Wages-Regular 701 1,000
Due to Officers and
Employees 423 1,000
Adjustment for Deferred Items. These are adjusting entries transferring data previously recorded in an asset account to an
expense account, or data previously recorded in a liability account to a revenue account. It also requires asset/expense
adjustments and liability/revenue adjustments.
Asset/Expense Adjustments. These pertains to assets, portion of which shall be recorded as expense of the agency at the
end of the accounting period. Examples are prepaid expenses, bad debts and depreciation.

Account Title Account Code Debit Credit

------------- ------------ ----- ------
Original Entry:
Prepaid Rent 171 1,000
Cash-National Treasury,
MDS 107 1,000

Adjusting Entry:
Rent Expenses 786 900
Prepaid Rent 171 900

Bad Debts. Trade receivables shall be valued at their face amounts minus, whenever appropriate, allowance for doubtful
accounts. Bad debts expense and/or any anticipated adjustments, which in the normal course of events will reduce the
amount of receivables from the debtors to estimated realizable values, shall be set up at the end of the accounting period.
The Allowance for Doubtful Accounts shall be provided in an amount based on collectibility of receivables balances and
evaluation of such factors as aging of the accounts, collection experiences of the agency, expected loss experiences and
identified doubtful accounts
The determination of bad debts expense shall be derived from computations based on percentages and aging of accounts
receivables as follows:
Age of Accounts Percentage
--------------- ----------
1-60 days 1%
61-180 days 2%
181-1 year 3%
More than 1 year 5%
An adjusting journal entry to take up bad debts expense is as follows:

Account Title Account Code Debit Credit

------------- ------------ ----- ------
Bad Debts 901 1,000
Allowance for Doubtful
Accounts 301 1,000
Depreciation for Property, Plant and Equipment. The cost of property, plant and equipment are allocated to the periods
benefited through the provision of accumulated depreciation. Depreciation is the systematic and gradual allocation of the
depreciable amount of assets over its useful life.
Method of Depreciation. Depreciation shall be computed using the Straight Line Method. Depreciation shall start on the
second month from purchase. A residual value equivalent to ten percent of the cost shall be set. Annual depreciation is
computed as follows
Annual Depreciation = Assets Cost less Estimated
Residual/Salvage Value
Estimated Useful Life

Asset Cost - Purchase or Acquired Value of the Asset

Estimated Salvage Value - 10% of the asset cost
Estimated Useful Life - Estimated number of years the asset
shall be used as determined by the Commission on Audit

A sample adjusting journal entry for depreciation expense is as follows:

Account Title Account Code Debit Credit
------------- ------------ ----- ------
Depreciation-Office Equipment 907 1,000
Accumulated Depreciation-
Office Equipment 307 1,000
Reversion of the unused or utilized Subsidy Income from National Government at the end of the year due to the DBM
policy that NCA will only be valid within the year of issue except NCA for accounts payable, which is valid one month
after its issuance. There is no need to issue an MDS Check when reverting the account.
Account Title Account Code Debit Credit
------------- ------------ ----- ------
Subsidy Income from National
Government 631 100
Cash-National Treasury, MDS 107 100

Closing Journal Entries. Closing journal entries are general entries which close out the balances of all
nominal/temporary and intermediate accounts at the end of the accounting period. The nominal and intermediate
accounts that shall be closed at the end of the accounting period are as follows:
1. Close the balance of the Subsidy Income from National Government account to Income and Expense
Summary account.
Account Title Account Code Debit Credit
------------- ------------ ----- ------
Subsidy Income from National
Government 631 1,000
Income and Expense Summary 999 1,000

2. Close the balance of all income accounts to Income and Expense Summary account.

Account Title Account Code Debit Credit

------------- ------------ ----- ------
Other business Income 618 500
Other Income 659 400
Income and Expense Summary 999 900

3. Close the balance of all expense accounts to Income and Expense Summary account.

Income and Expense Summary 999 800

Salaries and Wages-Regular Pay 701 800

4. Close the balance of the Income and Expense Summary account to the Retained Operating Surplus account.

Income and Expense Summary 999 1,100

Retained Operating Surplus 1,100

5. Close the balance of the Prior Year's Adjustments accounts to Retained Earnings Surplus account.

Prior Year's Adjustment 684 200

Retained Operating Surplus 200

6. Close the balance of the Retained Operating Surplus to Government Equity account.

Retained Operating Surplus 1,300

Government Equity 471 1,300

7. Close Public Infrastructures or Reforestation Projects accounts to Government Equity account and transfer
the corresponding amount to the respective registries.

Government Equity 471 1,300

Public Infrastructures/ 251-260
Reforestation Projects 261-262 1,300

For the purpose of preparing the financial statements for the first, second and third quarters, the closing entries
nos. 1 to 6 shall be prepared using the worksheet.

The Post-Closing Trial Balance. The Post-closing Trial Balance shall be prepared after recording the closing
journal entries in the General Journal and Posting to the General Ledger. It contains a listing of all general ledger
accounts that remain open after the closing process is completed.


Generation of Financial Statements and Supporting Schedules. Financial statements and their supporting schedules are
the products of the government accounting processes. These are the principal comprehensive means by which the
information accumulated and processed in the state accounting system is periodically communicated to those who use
them. The financial statements generally prepared in the National Government are: the Balance Sheet, Statement of
Income and Expenses, Statement of Government Equity, and Statement of Cash Flows.
Responsibility for Financial Statements. Responsibility for the fair presentation and reliability of financial statements
rests with the management of the reporting agency. This responsibility is discharged by applying generally accepted state
accounting principles that are appropriate to the entity's circumstances, by maintaining effective system of internal control
and by adhering to the chart of accounts prescribed by the Commission on Audit.
To achieve fair presentation and reliable information of the financial statements, the following standards shall be
a. FAIRNESS OF PRESENTATION. This refers to the overall propriety in disclosing financial information. Full
disclosure in financial aspects requires observance of the following standards of reporting:

All essential facts relating to the scope and purpose of each report and the period involved shall be included
and clearly displayed.
- All financial data presented shall be accurate, reliable, and truthful. The requirement for accuracy does
not rule out the inclusion of reasonable estimates when the making precise measurements is
impracticable, uneconomical, unnecessary, or conducive to delay. All appropriate steps shall be taken
to avoid bias, unclear facts, and presentation of misleading information.
- Financial reports shall be based on official records maintained under an adequate accounting system
that produces information objectively and discloses the financial aspects of all events or transactions
taking place. Where financial data or reports based on sources other than the accounting systems are
presented, their basis shall be clearly explained.
- The financial data reported shall be derived from accounts that are maintained in all material respects
on a consistent basis from period to period; material changes in accounting policies or methods and
their effect shall be clearly explained.
- Consistent and non-technical terminology shall be used in financial reports to promote clarity and
b. COMPLIANCE. The report shall be in accordance with prescribed government requirements and
international accounting standards of reporting.
c. TIMELINESS. All needed reports shall be produced promptly to be of maximum usefulness.
d. USEFULNESS. Financial reports shall be carefully designed to present information that is needed and
useful to reports users.
The Statement of Management Responsibility for Financial Statements shall serve as the covering letter in
transmitting the agencies financial statements to the Commission on Audit, Department of Budget and
Management, other oversight agencies and other parties. It shows the agency's responsibility for the preparation
and presentation of the financial statements. The statement shall be signed by the Director of Finance and
Management Office or Comptrollership Office, or the Chief of Office who has direct supervision and control over
the agency's accounting and financial transactions, and the Head of Agency or his authorized representative.
BALANCE SHEET. The Balance is a formal statement which shows the financial condition of the agency as of a
certain date. It includes information on the three elements of financial position - assets, liabilities, and government
equity. It shall be prepared from information taken directly from the year-end Post-Closing Trial Balance. The
Balance Sheet shall be supported with the following schedules/statements;
- Schedules of Accounts Receivables (SAR)
- Schedules of Accounts Payables (SAP)
- Schedules of Public Infrastructures (SPI)
- Other schedules as may be required.

Although the allotments and obligations of the agency are not recorded in the books of accounts, the Statement of
Allotments, Obligations and Balances (SAOB) shall be submitted to the Commission on Audit by the Budget
Officer/Agency Officer concerned. This statement shall to be included among the aforementioned schedules for
information of government officials and oversight agencies.
STATEMENT OF INCOME AND EXPENSES. The Statement of Income and Expenses shows the results of
operation/performance of the agency at the end of a particular period. This statement shall be prepared by the
Accounting Unit from information taken directly from the Pre-Closing Trial Balance.
STATEMENT OF GOVERNMENT EQUITY. The Statement of Government Equity shows the financial
transactions, which resulted to the change in Government Equity account at the end of the year.
STATEMENT OF CASH FLOWS. The Statement of Cash Flows is a statement summarizing all the cash
activities of an agency. This includes the operating, investing and financing activities of the entity and provides
information on the cash receipts and cash payments during the period. The primary purpose of the Statement of
Cash Flows is to give relevant information on the agency's overall cash position, liquidity and solvency. Using the
Statement of Cash Flows, managers, investors, and creditors could easily assess if the agency could meet its
obligations in operating, investing and financing activities.
PREPARATION OF THE STATEMENT OF CASH FLOWS. To facilitate the preparation of the Statement of
Cash Flows, the use of a Working Paper is encouraged. It shall show the increase or decrease in the cash account
between two periods.
The net increase in cash provided by 1) operating 2) investing and 3) financing activities in addition to the cash
balance at the beginning shall equal to the cash balance at the end of the period.
1) OPERATING ACTIVITIES. Operating activities involves the principal resources producing activities of
the enterprise and other activities that are not investing or financing (SFAS 22). Generally, these include the
cash effect on transactions that enter in the Income and Expense Summary account.
2) INVESTING ACTIVITIES. Investing activities involves the acquisition and disposal of long-term assets
and other investments not included in cash equivalent (SFAS 22). These activities include cash transactions
covering non-operating assets, such as the purchase of property, equipment, short and long-term
investments and other non-current assets.
Non-cash investing activities are not included in the statement of cash flows.
3) FINANCING ACTIVITIES. Financing activities are derived from the equity capital and borrowings of the
agency (SFAS 22). These include cash transactions involving the government equity and non-operational
Non-cash financing activities are not included in the statement of cash flows.
The increase or decrease in the cash accounts are analyzed and the following computations are made:


Cash Inflows
- Receipt of Notice of Cash Allocation (NCA) from the DBM
- Receipt of Notice of Transfer of Allocation to Agency RO/OU from CO
- Cash receipts from all sources of revenues
- Receipt of Inter-Agency cash transfers (Due to)
- Cash receipts from the sale of goods or rendition of services
- Cash receipts of interest income, rental income, dividend income, etc.
- Receipt of payment for liquidated damages
- Receipt of refund of deposits
- Receipt of refunds of cash advance or excess payments
- Collection of receivables
- Cash receipt of grants and donations
- Receipt of cash dividends from enterprises (e.g. PLDT)
Cash Outflows:
- Payments of accounts payable
- Cash purchase of merchandise for sale
- Cash advances granted for travel
- Inter-agency transfers (Due from)
- Notice of Transfer of Allocation to Agency RO/OU issued by the NGA Main Office to RO/OU and/or
attached agencies through Government Servicing Banks.
- Return of unused NCA
- Cash payment for operating expenses
- Remittance of taxes withheld not covered by TRA and other deductions (if any)
- Cash purchase of supplies and equipment
- Cash payment of retirement benefits
- Cash payment of claims for damages
- Cash payment of liabilities incurred in operations
- Cash payments for interest


Cash Inflows:
- Proceeds from sale of marketable stocks and bonds
- Cash proceeds from the sale/disposal of equipment and other property, plant and equipment.
- Redemption of long-term investments or repayment by GOCC/GFI of long-term loans
Cash Outflows:
- Purchase of property, plant and equipment
- Purchase of land
- Investment in stocks/bonds
- Investment in GOCC/GFI
- Exposure as other long-term investments


Cash Inflows:
- Cash received from domestic and foreign loans
- Issuance of treasury bills
Cash Outflows:
- Payment of domestic and foreign loans
- Redemption of treasury bills outstanding
- Payment of cash dividend
The net increase in cash provided by operating activities, investing activities and financial activities for the year, and the
cash balance at the start of the year, shall equal the cash balance at the end of the year. Such amount shall tally with the
total cash account shown in the balance sheet.
NOTES TO FINANCIAL STATEMENTS. Notes to Financial Statements are integral parts of financial statements, which
pertain to additional information necessary for fair presentation in conformity with generally accepted accounting
principles. These may explain the headings captions or amounts in the statements of present information that cannot be
expressed in money terms, and description of accounting policies.

Information shall be presented in a way that will facilitate understanding and avoid erroneous implications. The headings,
captions and amounts shall be supplemented by enough additional data so that the meaning would be clear and not
overshadowed by so much information that important matters are buried in mass trivia.
Where Notes to Financial Statements appear on a separate page, indicate the phrase "See accompanying Notes to
Financial Statements" placed at the bottom of said statements.
Material changes in classification of accounts shall be indicated and explained as notes to financial statements.
The four types of disclosure considered necessary are as follows:
a. CUSTOMARY OR ROUTINE DISCLOSURE. Information about measurement bases of important assets,
restrictions on assets and government equity, important long-term commitments not recognized in the body of the
statements, information on terms of owner's equity and long-term debt, and certain other disclosures required by
pronouncements of the Philippine Institute of Certified Public Accountants, Accounting Standards Council, and
regulatory bodies that have jurisdiction are necessary for full disclosure.
b. DISCLOSURE OF CHANGES IN ACCOUNTING PRINCIPLES. Changes in accounting principles, practices, or
the methods of applying them, together with the financial effect, and the justification for the change shall be
disclosed in the financial statements or a note thereto.
In particular, it shall include any of the following:
- Selection from existing acceptable alternatives
- Principles and methods peculiar to the agency
- Unusual application of generally accepted accounting principles.
c. DISCLOSURE OF SUBSEQUENT EVENTS. Disclosure of events that affect the agency directly and that occur
between the date of, or end of the period covered by, the financial statements and the date of completion of the
statements is necessary if knowledge of the events might affect the interpretation of the statements, even though
the events do not affect the propriety of the statements themselves.
d. DISCLOSURE OF ACCOUNTING POLICIES. Description of the accounting policies adopted by the reporting
entity is required as an integral part of the financial statements. It is usually captioned "Summary of Significant
Accounting Policies", and placed as first item in the Notes. It shall be limited to description of the policies and no
quantitative data shall be included.
Examples of accounting policy disclosures commonly required:
- Consolidation principles
- Accounting for long-term investments
- Adoption of policy on increasing benefit entitlements of the program members.
The effect of the increase shall be disclosed.
- Basis of revenue recognition

In general, disclosures shall include important judgment as to appropriateness of principles relating to recognition
of revenues and allocation of asset costs to current and future periods.
INTERIM REPORTS. Interim reports are the financial statements required to be prepared at any given period or at a
financial reporting period without closing the books of accounts. The following interim financial statements shall be
prepared and submitted quarterly with the Notes to Financial Statements:
a. Statement of Income and Expenses;
b. Balance Sheet; and
c. Statement of Cash Flows.
The interim financial statements shall be prepared employing the same accounting principles used for annual reports.
Adjusting and closing journal entries shall be prepared. However, only the adjusting journal entries are recorded in the
books of accounts. To facilitate the preparation of the interim financial statements, the use of the worksheet is
Sec. 82. WORKSHEET. A worksheet is a tool for accumulating and sorting information needed for the preparation of the
financial statements. It is a columnar sheet used to adjust and close account balances for the preparation of the financial
statements. The format of the worksheet shall be as follows:
Agency Name
As of ______________, 20__

Unad Adjusted Closing Statemen Post Balance

justed Adjustments Or Pre- Entries t Closing Sheet
Trial Adjusted Of Trial
Bal. Trial Income Bal.
Bal. & Exp
Title Cod Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr

a. Account Title and Code columns show the accounts of the General Ledger.
b. The Unadjusted Trial Balance columns reflect the amount balances of the General Ledger accounts.
c. Adjustments columns show adjusting journal entries effected for the accounts.
d. Adjusted/Pre-Closing Trial Balance columns show the balances of all the accounts after adjustments are
added/deducted from the balances of accounts in the unadjusted trial balance.
e. Closing Entries debit and credit columns show the amounts debited and credited to close the nominal accounts.
f. Statement of Income and Expenses columns show all the debit and credit amount balances of the nominal accounts
(subsidies, income and expenses) and intermediate accounts.
g. Post-Closing Trial Balance columns show the debit and credit amount balances of all accounts after posting the
closing entries.
h. Balance Sheet columns show all the debit and credit amount balances of all real accounts in the post-closing trial
balance (assets, liabilities, and government equity).