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ACCOUNTING FOR DISBURSEMENTS AND

RELATED TRANSACTIONS

The disbursement activities of the National Government Agencies shall start from the receipt of
Notice of Cash Allocation (NCA) from the Department of Budget and Management Stated differently, the
government agency cannot pay its payables/obligations without Notice of Cash Allocation, because the
agency receivers NCA for payment of its obligations. Whether a separate NCA is received for current year
obligations or a different one for prior year(s) obligations, the NCA received is recorded as a debit to Cash
– National Treasury, MDS and a credit to Subsidy Income from National Government. As discussed in
Chapter 2, this entry will show that the NCA received is the share of the agency by the National Treasurer.
The NCA received by the agency may be net of the amount of the taxes to be withheld by the agency,
because of the Tax Remittance Advice (TRA) System. The NCA may be used for payment of personal
services, maintenance and other operating expenses, financial expenses, capital outlay, and other
miscellaneous transactions.

Disbursements System

Disbursements constitute all cash paid out during a given period either in currency (cash) or by
check. It may also mean the settlement of government payables/obligations by cash or by check. It shall be
covered by Disbursement System involves the preparation and processing of disbursement voucher,
preparation and issuance of check; payment by cash; granting, utilization, and liquidation/replenishment of
cash advances.

The basic requirements applicable to all types of disbursements made by the national government
agencies are as follows:

1. Existence of a lawful and sufficient allotment certified as available by the Budget Officer.
2. Existence of a valid obligation and conformity with laws, rules and regulations.
3. Legality of transactions and conformity with laws, rules and regulations.
4. Approval of the expense by the Chief of Office or by its duly authorized representative.
5. Submission of proper evidence to establish the claim.

Per COA Circular 2006-003 dated January 31, 2006. The head of the accounting unit shall also
prepare the Daily Cash Position Report, shown below:

Republic of the Philippines


COMMISSION ON AUDIT
DAILY CASH POSITION REPORT
As of ___________________

Cash allocation xxxx


Add: Collection which the agency is authorized to use
Service income xxxx
Business income xxxx
Other income xxxx
Total collections xxxx
Total cash received for the day xxxx
Less: Disbursements
Personal services xxxx
Maintenance and other operating expenses xxxx
Capital outlay xxxx
Finance expenses xxxx
Total disbursements xxxx
Net cash available for the day xxxx
Add: Cash beginning balance xxxx
Total cash available to date xxxx

Disbursements by Checks

Checks shall be drawn only on duly approved disbursement voucher or pretty cash voucher. These
shall be reported and recorded in the books of accounts only when actually released to the respective
payees.

The following are the two types of checks being issued by government agencies:

1. Modified Disbursement Systems (MDS) Checks – issued by government agencies chargeable


against the account of the Treasurer of the Philippines, which are maintained with different MDS –
Government Servicing Banks. These are the covered by Notice of Cash Allocation, an
authorization issued by the Department of Budget and Management to government agencies to
withdraw cash from the National Treasury through the issuance of MDS checks or other authorized
mode of disbursements.

Illustration: The Central Office of Agency X paid its accounts payable arising from its electric bills
for the period in the amount of P20, 000. The journal entry to record payment is

Books of Central Office:


Account
Account Title Code Debit Credit
Accounts payable 401 20, 000
Cash – National Treasury, MDS 108 20, 000

2. Commercial Checks – issued by the government agencies chargeable against the Agency
Checking Account with government servicing banks. These are covered by income/receipts
authorized to be deposited with authorized government depository banks; and funding checks
received by Regional Offices/Operating Units from Central Offices/Regional Offices, respectively.

Illustration: The Central Office of Agency X transfers subsidy to its Regional Office through
funding check in the amount of P500, 000. The journal entry to record the transfer is
Books of Central Office:
Account
Account Title Code Debit Credit
Subsidy to Regional Office 872 500, 000
Cash – National Treasury, MDS 108 500, 000

Books of Regional Office:

Account
Account Title Code Debit Credit
Cash in Bank – Local Currency,
Current Acct. 111 500, 000
Subsidy from Central Office 653 500, 000

Disbursements by Cash

Disbursements by cash shall be made from cash advances drawn and maintained in accordance
with Commission on Audit rules and regulations. Cash payments shall be made based on duly approved
payroll/disbursements vouchers.

In compliance to COA Accounting Circular No. 2006-001 dated November 9, 2006, the following
cash transactions shall be analyzed and the accounts shall be reclassified to the appropriate account:

Transactions Appropriate Account Account Description


Cash advance for payroll Payroll Fund (Code 106) Cash Advance to
(This transaction is previously disbursing officers for
recorded as (Cash – Disbursing salaries and wages and
Offices) other benefits of officers
and employees
Cash advance for Advances to Officers and Cash advances granted
special purpose/time employees (Code 148) for travel and for
bound undertaking special purpose/time
(This transaction is bound undertaking
Previously recorded as
Cash – Disbursing
Officer or as Due from
Officers and Employees

Illustration: The Agency X established a payroll fund, which is composed of salaries and wages – regular
pay, P200, 000 PERA P20, 000; and deductions, such as: withholding taxes P12, 000 and GSIS Life and
Retirement premium P18, 000, Philhealth Premiums P2, 000, Pag-ibig premium P1, 000. Accordingly, an
amount of P187, 000 was advanced by the agency’s disbursing officer. The following journal entries were
made in the books of Agency X.
To record the grant of cash advance to disbursing officer:

Account
Account Title Code Debit Credit
Payroll Fund 106 187, 000
Cash – National Treasury, MDS 108 187, 000

To record liquidation of cash advances and expenses:

Account Title Account Code Debit Credit


Salaries and wages – regular pay 701 200, 000
Personal Relief Allowance 711 20, 000
Due to GSIS 413 18, 000
Due to BIR 412 12, 000
Due to PAG-IBIG 414 1, 000
Due to PHILHEALTH 415 2, 000
Payroll Fund 106 187, 000

Cash Advances for Travel

COA Circular No. 2006-001 provides that cash Advances granted for travel shall be accounted for
as Advances to officers and Employees (as amended) and these are subject to liquidation upon travel
completion. For liquidation of travel where the amount of cash advance is equal to or more than the travel
expenses incurred, the Liquidation Report form shall be prepared by the concerned officers
officers/employees and submitted to the Accounting Unit as basis for Journal Expense Voucher
preparation. The excess of cash advance shall be refunded and an official receipt shall be issued to
acknowledge receipt thereof. In case the amount of cash advance previously granted and a disbursement
voucher shall be prepared to claim reimbursement of the deficiency in amount.

Illustration:

The budget officer of Agency X was granted cash advance in the amount of P10, 000. He is attend
a seminar in the Department of Budget and Management head office. Accordingly, the obligation incurred
for this purpose was appropriately recorded in the Registry of allocation and Obligation – Maintenance and
Other Operating Expenses (RAOMO) in the amount of P10, 000.

After that seminar, the budget officer liquidated his cash advance by preparing the Liquidation
Report form and reported total expenses related to that official travel in the amount of P9, 500.

To record cash advance granted to travel.

Account
Account Title Code Debit Credit
Advances to Officers and Employees 148 10, 000
Cash – National Treasury, MDS 108 10, 000
To record liquidation of cash advance – travel.

Account
Account Title Code Debit Credit
Travelling expenses - local 751 9, 500
Advances to Officers and Employees 148 9, 500

To record refund of cash advance – travel.

Account
Account Title Code Debit Credit
Cash – Collecting Officer 102 500
Advances to Officers and Employees 148 500

To adjust obligation in RAOMO for the unexpected cash advance in the amount of P500 (Assuming the
total allotment received was P50, 000.)

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


MAINTENANCE AND OTHER OPERATING EXPENSES (RAOMO)
AGENCY X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
50, 000 50, 000
751 10, 000 40, 000
751 (500) 40, 500

Disbursements through Petty Cash Fund

Petty cash fund shall be maintained under the imprest systems. The fund shall be sufficient for the
non-recurring, emergency and petty expenses of the agency. Disbursements from the fund shall be through
the Petty Cash Voucher (PCVP), which shall be approved by authorized officials and signed by the payee
to acknowledge the amount received. The official receipt or its equivalent is attached to the PCV.

Illustration:

The Agency X obligated an amount of P1, 000 to establish its Petty Cash Fund. Afterwards, an
amount of P50 was incurred for emergency purchase of sign pen, which is not currently available in
stockroom.

To record obligation in the Registry of Allotments and Obligations for the establishment of P1, 000 Petty
Cash Fund.
REGISTRY ALLOTMENTS AND OBLIGATIONS
MAINTENANCE AND OTHER OPERATING EXPENSES (RAOMO)
AGENCY X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
50, 000 50, 000
751 10, 000 40, 000
751 (500) 40, 500
104 1, 000 39, 500

To record establishment of Petty Cash Fund.

Account
Account Title Code Debit Credit
Petty Cash Fund 104 1, 000
Cash – National Treasury, MDS 108 1, 000

To record obligation for the replenishment of Petty Cash Fund.

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


MAINTENANCE AND OTHER OPERATING EXPENSES (RAOMO)
AGENCY X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
50, 000 50, 000
751 10, 000 40, 000
751 (500) 40, 500
104 1, 000 39, 500
755 50 39, 450

 If no replenishment before the year-end, the journal entry would be

Account
Account Title Code Debit Credit
Office supplies expense 755 50
Petty Cash Fund 104 50

Note that adjustment is necessary at year-end in order to report the expenses incurred and the
actual size of the petty cash fund. Without this adjustment, expenses will be understated while the petty
cash fund is overstated.

 If replenishment was made in the ensuing year, the journal entry would be
Account
Account Title Code Debit Credit
Petty Cash Fund 104 50
Cash – National Treasury, MDS 108 50

 If replenishment was made in the ensuing, the journal entry would be

Account
Account Title Code Debit Credit
Office supplies expense 755 50
Cash – National Treasury, MDS 108 50

Inventory Accounting System

Under the New Government Accounting System, the Asset Method will be followed in recording
disbursement s when expenditures apply to more than just the accounting period. Examples of these
disbursements are insurance, interest, and rent where the prepaid (asset) accounts shall be debited. The
expense shall be recorded upon utilization/consumption. However, when insurance, interest, rent, etc. will
be fully used up/consumed within the current accounting period, the disbursements shall be taken as
expense. Supplies and materials purchased out of the Petty Cash Fund for immediate use or on
emergency shall not be used to purchase supplies for stock.

In case of semi-expendable items, upon purchase, these will be taken up as fixed assets or
inventory depending on the nature of the items. It should be noted that under the new accounting system,
Inventories-Semi-Expendable Supplies Account is no longer included in the new chart of account.

Also under the new accounting system, except for personal services, accounts payable account
shall be recognized upon receipt of goods and services and accordingly credited when payment is made.
However, in accordance with matching principle, accrued payable account for salaries and wages will be
recognized at the end of the year when expenses are already incurred but not yet paid.

Purchase of supplies and materials for stock, regardless of whether or not they are consumed
within the accounting period, shall be recorded as Inventory account following the Perpetual Inventory
Method. Under this method, detailed perpetual inventory records, in addition to the usual ledger accounts
are maintained for each inventory item, and an inventory control account is maintained in the general
ledger on a current basis. The perpetual inventory record for each item must provide information for
recording receipts, issues and balance on hand, usually both in units and peso amounts. With this
information, the physical quantity and the valuation of goods on hand at any time are available from the
accounting records.

The moving average method of costing shall be used for costing the inventories. It is a method of
calculating the cost of inventory on the basis of weighted average on the date of issue. It is used to provide
a new cost after each purchased and/or when items are issued/ used.
COA Circular No. 2005-002 dated April 14, 2005 provides that small tangible items with estimated
useful life of more than one year shall be recorded as inventories upon acquisition and shall be expensed
upon issuance.

LIST OF TANGIBLE ASSETS THAT MAY BE CONSIDERED AS INVENTORIES

Description Life in years


a. Office Supplies
Blackboard/Whiteboard 5
Copy holder clamp type with adjustable arm 5
Cutter 5
Desk tray 3
Eraser-Blackboard 3
Mechanical pencil 2
Mini calculators 3
Pen 2
Pencil sharpener 3
Puncher 5
Ruler 3
Scissors 3
Staple wire remover 2
Stapler 2
Tape dispenser 3

b. Animal / Zoological Supplies


Cage 3
Chopping board 2
Cooking pot 3
Feeders 3
Kitchen knife 3
Net 2
Padlock 3
Plastic pails 2
Waterer 3
Water jug 2
Water hose 2

c. Medical, Dental, and Laboratory Supplies


Ambo bag 3
Baking pan 5
Basin (kidney, et al) 3
Bed sheets 1
Blade holder 3
Chart holder 3
Clamp, towel 5
Depressor, tongue 3
Dressing jar 3
Elevator, Langeback, pereosteal 5
Enema can 5
Flashlight 3
Footstool 5
Forceps 5
Gowns (laboratory) 3
Kerosene lamp 2
Kettle 3
Knife 3
Needle holder 5
Obstetrical set 5
Scissors 3
Steam inhalator 5
Tong 3
Tracheotomy tube 3
Tray 3
Tackle box 5
Utility cart 5
Vice grip 5
Waste basket 3
Water jug 1
Weighing scale 5
Whiteboard 5
Amalgam carrier 5
Bone chisel 5
Bone file 3
Dental straight stout elevator 5
Dental syringe 3
Excavator, dental periosteal 5
Mouth mirror 3
Mortar and pestle 5
Plastic instruments for gum separator 3
Plugger, Amalgam 3
Scaler 5
Screen protector 5
Surgical mallet 3

d. Textbook and Instrument Materials


Textbooks 5
Instructional materials 2

e. Military and Police Supplies


Ammo magazine 3
Anti-riot helmets 5
Badge 3
Bayonet 3
Beret 3
Blanket 3
Boots 3
Bullet proof vest 5
Collapsible barracks 5
Combat shoes 3
Compass 3
Flashlight 3
Gun holster 5
Handcuffs 5
Hunting knife 5
Jungle bolos 5
Medical aidman kit 3
Mosquito net 3
Night vision goggle 3
Pillow and pillow case 3
Pistol belt 3
Probation 3
Protective shield (CDM) 3
Radio battery pack 3
Raincoats 3
Steel helmet 5
Sword 5
Telescope 5
Tent 3
Truncheons 5
Water canteen 3

f. Other supplies
Computer Peripherals:
Computer cover 2
Computer screen 5
Diskette storage 2
Mouse 2
Mouse pad 2
Printer cable 5
Printer head 5
Printer sharing device 5
Surge protector 5

Common Janitorial Supplies:


Dust pan 2
Mop handle 2
Pail 2
Trash can 5
Wastebasket 5

Other Inventory Items


Tea set 3
Cups and saucers 3
Desk tray 3
Dinner plates 3
Emergency lights 3
Rugs, carpets and mats 5
Spoon and forks 5
Stool 5
Pitcher and glass confectionary 3

Hardware and Construction Supplies:


Hammer 5
Saw 5
Plane 5
Paint roller 1
Paint brush 1
Chisel 5
Long nose pliers 5

Electrical Supplies
Extension cord 2

School Chairs, Desk and Tables (wood)


Chairs 5
Desks 5
Tables 5

Monobloc Furniture
Chairs 5
Tables 5

Other tangible assets not included in the above list shall be classified as Property and Equipment,
subject to depreciation.

Per COA Circular No. 2009-001 dated February 12, 2009, a copy of any purchase order
irrespective of amount, and each and every supporting document, shall, with five (5) working days from
issuance thereof, be submitted to the auditor concerned. Within the same period, the auditor shall review
and point out to management defects and/or deficiencies, if any. In case of doubt as to reasonableness of
the price of the items purchased, the auditor shall conduct a canvass thereof making use of price
references provided, among others, be legitimate suppliers, the procurement, service, the technical
services office, other government agencies with similar procurement and those posted in the internet.

Illustration:

Agency ABC issued purchased order for office supplies for stock in the amount of P30, 000, and
appropriately entered the obligation in the Registry of Allotments and Obligations – maintenance and Other
Operating Expenses. Upon delivery by the supplier, Agency ABC paid the purchase order, net of P3, 000
withholding tax. Eventually, office supplies amounting to P10, 000 were issued for office use.

To record payment of the purchase order previously obligated.

Account
Account Title Code Debit Credit
Office supplies inventory 155 30, 000
Due to BIR 412 3, 000
Cash- National Treasury, MDS 108 27, 000

NOTE: Under the general rule, obligation/expenditure is recorded in the appropriate


registries only upon issuance or a purchase order, contract or other documents showing a
commitment of the agency. In the above journal entry, no accounts payable was set up, payment
was charged to inventory account.

To record issuance of office supplies

Account
Account Title Code Debit Credit
Office supplies expense 755 10, 000
Office supplies inventory 155 10, 000

Purchased and Construction of Fixed Assets

Fixed assets are charged against capital outlay. The of fixed assets acquired through purchased
shall include all costs incurred to bring them to the location necessary for their intended use, such as
transportation costs, installation, etc. these are recorded in the books of accounts as assets after inspection
and acceptance of delivery. Since corollary entry is no longer in use under the new accounting system, the
asset is recognized upon purchase.

COA Circular No. 2009-001 provides that within five (5) working days from the execution of a
contract by the government or any of its subsidiaries, agencies or instrumentalities, including GOCC and its
subsidiaries, a copy of said contract and each of all the documents forming part thereof shall be furnished
to the auditor of the agency concerned. In case of agencies audited on the engagement basis, submission
of copy of the contract and its supporting documents shall be to the auditor of the mother agency or parent
company, as the case may be.

The auditor shall review the contract within a period ranging from five to twenty working days from
receipt, depending on the complexity of the contract. The auditorial review shall consist in the evaluation of
compliance with the requirements of applicable laws, rules and regulations, completeness of documentary
requirements and an in initial evaluation that the contract covenants are not disadvantageous to the
government. Without waiting for the lapse of the period herein established, the auditor concerned shall call
the immediate attention of management regarding defects and deficiencies noted in the contract and
suggest such corrective measures as are appropriate and warranted. Where the defect or deficiency is not
susceptible of rectification and renders the contract totally or partially void, the head of the agency shall be
notified within twenty four hours from such determination indicating the reasons therein.

Within five working days after the auditorial review, the auditor shall forward the contract and its
supporting documents for technical review to the Technical Audi Specialist (TAS) assigned in the auditing
unit or to the Regional Technical Services Office (RTSO), as the case may be, accompanied by the
relevant checklist of documentary requirements mentioned.

The TAS shall complete the technical review thereof as follows:

Contract Amount Period


P5M and below 5 working days
Above P5M up to P20M 14 working days
Above P20M 21 working days

Illustration:

The Bureau X of the national government received capital outlay allotment and Notice of Cash
Allocation (NCA) from the Department of Budget and Management in the amount of P500, 000 and P300,
000, respectively. Accordingly, Bureau X records the obligation in RAOCO for the issuance of purchase
order for office equipment in the amount of P200, 000, including freight charge of P10, 000. Later, the
supplier delivered the office equipment and after inspection and acceptance of delivery, Bureau X paid the
obligation, net of withholding tax of P19, 000.

To record receipt of allotment in RAOCO

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
50, 000 50, 000
To record the Notice of Cash Allocation received

Account
Account Title Code Debit Credit
Cash – National Treasury, MDS 108 300, 000
Subsidy Income from National Government 651 300, 000

To record obligation incurred for the purchase of office equipment.

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
500, 000 500, 000
221 200, 000 300, 000

To record receipt of office equipment with charge invoice

Account
Account Title Code Debit Credit
Office equipment 221 200, 000
Subsidy Income from National Government 401 200, 000

To record full payment of the delivered office equipment

Account
Account Title Code Debit Credit
Accounts payable 401 200, 000
Due to BIR 412 19, 000
Cash – National Treasury, MDS 108 181, 000

Construction Period Theory

In recording the fixed assets acquired through construction, the Construction Period Theory shall
be followed. Under this, all expenses incurred during the construction period, such as interest, license fees,
etc., shall be capitalized. Bonus paid to the contractor for completing the work ahead of schedule shall be
added to the total cost of the project. However, liquidation damages charged to the contractor for delayed
completion of the project should be deducted from the total cost.

Illustration:
The Bureau X of the national government received capital outlay allotment and Notice of Cash
Allocation (net Tax Remittance Advice) from the Department of Budge and Management in the amount of
P20, 000, 000 and P15, 000, 000, respectively.

Bureau X entered into construction contract for the construction of an office building with a contract
price of P10, 000, 000. Upon signing of the contract, Bureau paid the contractor 15% mobilization fee. After
a month of construction, Bureau X received the first billing for 40% accomplishment in the amount of P4,
000, 000 and the contractor was paid of the amount due.

Upon completion of the project, Bureau X received the second/final billing. After inspection of the
project, the contractor was paid in full and the building was recorded in the books of Bureau X. accordingly,
the withholding tax payable was remitted to the Bureau of Internal Revenue through Tax Remittance Advice
System.

To record receipt of allotment in RAOCO

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
20, 000, 000 20, 000, 000

To record the Notice of Cash Allocation received, net of TRA

Account
Account Title Code Debit Credit
Cash – National Treasury, MDS 108 15, 000, 000
Subsidy Income from National
Government 651 15, 000, 000

To record obligation in RAOCO

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
20, 000, 000 20, 000, 000
211 10, 000, 000 10, 000, 000
To record payment of 15% mobilization fee to the contractor.

Account
Account Title Code Debit Credit
Advances to Contractors 181 1, 500, 000
Cash – National Treasury, MDS 108 1, 500, 000

To record receipt of first billing – 40% accomplishment

Account
Account Title Code Debit Credit
Construction in Progress – Agency Assets 264 4, 000, 000
Advances to Contractors 181 1, 500, 000
Accounts Payable 401 2, 500, 000

To record payment of the first billing

Account
Account Title Code Debit Credit
Accounts Payable 401 2, 500, 000
Due to BIR 412 400, 000
Cash – National Treasury, MDS 108 2, 100, 000

To record receipt of the second/final billing – 100% accomplishment

Account
Account Title Code Debit Credit
Construction in Progress – Agency Assets 264 6, 000, 000
Accounts Payable 401 6, 000, 000

To record full payment

Account
Account Title Code Debit Credit
Accounts Payable 401 6, 000, 000
Due to BIR 412 6, 000, 000
Cash – National Treasury, MDS 108 5, 400, 000

To take up building completed in the books of Bureau X

Account
Account Title Code Debit Credit
Buildings 211 10, 000, 000
Construction in Progress – Agency Assets
264 10, 000, 000
To record remittance of withholding tax through issuance of TRA

Account
Account Title Code Debit Credit
Due to BIR 412 1, 000, 000
Subsidy Income from National
Government 651 1, 000, 000

Public Infrastructures

Assets for use of the general public, such as roads, bridges, waterways, railways, etc. shall be
classified as Public Infrastructures. During the construction period, the costs for the construction shall be
recognized as a debit to Construction in Progress with the appropriate asset classification. As soon as the
project is completed, the Construction is credited (cancelled from the books) and the asset is entered in a
separate registry, the Registry of Public Infrastructures (RPI). A registry of Public Infrastructure shall be
maintained according to classification to record all infrastructures to use of the general public. Assets under
this category are not subject to depreciation.

The following are some of the registries to be maintained, classified by category of fixed assets:

1. Registry of Public Infrastructures – Bridges (RPIB)


2. Registry of Public Infrastructures – Roads (RPIR)
3. Registry of Public Infrastructures – Plazas, Monuments, etc. (RPIP)

Illustration:

When Agency A, a national government agency, received its capital outlay allotment and NCA (net
of Tax Remittance Advice) from the Department of Budget and Management in the amount of P25, 000,
000, the agency contracted Earth Mover Construction, Co. for the construction of roads in its area of
responsibility in the total contract price of P20, 000, 000. Earth Mover was required by the agency to post a
performance bond of P1, 500, 000 cash and deposited the performance bond to the Bureau of Treasury
through an Authorized Government Depository Bank (AGDB).

Upon signing of the contract price was appropriately obligated and a mobilization fee equal to 15%
of the contract price was released to the contractor. When the project is 50% completed, a progress billing
was received by the agency; accordingly, the accounts payable was recorded and was eventually paid, net
of 10% retention fee and 10% withholding tax. When the project was completed, a final billing was received
by the agency; and the accounts payable was recorded and was eventually paid, net of 10% retention fee
and 10% withholding tax. When the project was completed, a final billing was received by the agency; and
the accounts payable was recorded after inspection and acceptance of the project. However, due to delay
in the construction of the roads, a penalty was imposed. Accordingly, a liquidation damage of P500, 000
was deducted from the contract price for the amount paid by the agency, net of withholding tax. Finally, the
performance bond and the retention fee were refunded by the agency to the contractor, while the
withholding tax was remitted to the Bureau of Internal Revenue.
To record receipt of performance bond

Account
Account Title Code Debit Credit
Cash – Collecting Officer 102 1, 500, 000
Performance Bonds Payable 421 1, 500, 000

To record deposit of performance bond to the Bureau of Treasury

Account
Account Title Code Debit Credit
Due from National Treasury 131 1, 500, 000
Cash – Collecting Officer 102 1, 500, 000

To enter obligation in RAOCO

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
25, 000, 000 25, 000, 000
251 20, 000, 000 5, 000, 000

To record payment of 15% mobilization fee

Account
Account Title Code Debit Credit
Advances to Contractors 181 3, 000, 000
Cash – National Treasury, MDS 108 3, 000, 000

To record the first billing – 50% complete.

Account
Account Title Code Debit Credit
Construction in Progress - Roads 266 10, 000, 000
Accounts Payable 401 7, 000, 000
Advances to Contractors 181 3, 000, 000
To record payment of the first billing

Account
Account Title Code Debit Credit
Accounts Payable 401 7, 000, 000
Due to BIR 412 1, 000, 000
Guaranty Deposits Payable 426 1, 000, 000
Cash – National Treasury, MDS 108 5, 000, 000

To record final billing – 100% compete (net of liquidation damages)

Account
Account Title Code Debit Credit
Construction in Progress - Roads 266 9, 500, 000
Accounts Payable 401 9, 500, 000

To adjust obligation in RAOCO for the liquidation damages

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
25, 000, 000 25, 000, 000
251 20, 000, 000 5, 000, 000
(500, 000) 5, 500, 000

To record full payment

Account
Account Title Code Debit Credit
Accounts Payable 401 9, 500, 000
Due to BIR 412 950, 000
Cash – National Treasury, MDS 108 8, 550, 000

To record turn-over and acceptance of roads

Account
Account Title Code Debit Credit
Public Infrastructures 251 19, 500, 000
Construction in Progress - Roads 266 19, 500, 000
To record refund of performance bond

Account
Account Title Code Debit Credit
Performance Bond Payable 427 1, 500, 000
Cash – National, MDS 108 1, 500, 000

To record refund of retention fee

Account
Account Title Code Debit Credit
Guaranty Deposits Payable 426 1, 000, 000
Cash – National Treasury, MDS 108 1, 000, 000

To record remittance of withholding tax through TRA

Account
Account Title Code Debit Credit
Due to BIR 412 1, 950, 000
Subsidy Income from National Govt. 651 1, 950, 000

General Repair / Construction of Fixed Assets by Administration

One of the troublesome parts in accounting is whether expenditures on existing property, plant and
equipment should be capitalized or expensed. Such expenditures may be classified as capital expenditure
or revenue expenditure. A capital expenditure is an asset and therefore capitalized; while revenue
expenditure is an expense. To determine whether it is capital or revenue expenditure, the common criterion
followed is: An expenditure that benefits only the current period is a revenue expenditure and therefore
reported as an expense. An expenditure that benefits the current and future periods is a capital expenditure
and therefore reported as an asset. Stated differently, expenditures are capitalized as assets, when these
extend the life of the property; increase the capacity of the property, or improve the efficiency, usefulness
and safety of the property.

For construction or general repair (where the life of the asset is extended) of fixed assets, such as:
building, motor vehicles, other structures, etc., undertaken by administration, the materials purchased shall
be entered in the Construction Materials Inventory account. This account is credited with the materials
issued for the construction, with the corresponding debit upon payment of labor for the construction. Upon
completion of the project, the Construction In Progress account is adjusted to the appropriate fixed assets
account. It should be noted that only one construction on progress account for the construction of agency
assets is used. Subsidiary ledgers for each classification of assets shall be maintained.

Illustration:
The Bureau X of the national government agency received capital outlay allotment and Notice of
Cash Allocation (net of tax remittance advice) from the Department of Budget and Management in the
amount of P10, 000, 000 and P8, 000, 000, respectively.

Upon approval of the project proposal for the general repair of the administration building,
purchase order for materials was issued in the amount of P4, 000, 000. At the date of delivery, construction
materials were inspected and paid in full. Materials of P3, 500, 000 were issued and used in the
construction. Payroll for labor cost in the amount of P1, 500, 000 less 10% withholding tax was submitted to
the administration, and cash advance was granted to disbursing office for the eventual payment of payroll.
Withholding tax payable was remitted to the Bureau of Internal Revenue and upon approval of the
accomplishment report by the head of the agency; the capital expenditures were taken in the books of
Bureau X.

To record receipt of allotment in RAOCO

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
10, 000,000 10, 000,000

To record the Notice of Cash Allocation received, net of TRA.

Account
Account Title Code Debit Credit
Cash – National Treasury, MDS 108 8, 000, 000
Subsidy Income from National Government 651 8, 000, 000

To record obligation of materials purchased in RAOCO.

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
10, 000,000 10, 000,000
168 4, 000, 000 6, 000, 000
To receipt of construction materials with the charge invoice.

Account
Account Title Code Debit Credit
Construction Materials Inventory 168 4, 000, 000
Accounts Payable 401 4, 000, 000

To record payment of materials, net of 10% withholding tax.

Account
Account Title Code Debit Credit
Accounts Payable 408 4, 000, 000
Due to BIR 412 400, 000
Cash – National Treasury, MDS 108 3, 600, 000

To record issuance of materials for use in the construction.

Account
Account Title Code Debit Credit
Construction in Progress – Agency Assets 264 3, 500, 000
Construction Materials Inventory 168 3, 500, 000

To record obligation of payroll in RAOCO.

REGISTRY OF ALLOTMENTS AND OBLIGATIONS


CAPITAL OUTLAY (RAOCO)
BUREAU X

Account Allotment Obligation


Date Ref P.P.A Code Received Incurred Balance
10, 000,000 10, 000,000
168 4, 000, 000 6, 000, 000
264 1, 500, 000 4, 500, 000

To record cash advance (net of 10% withholding tax granted to disbursing officer.

Account
Account Title Code Debit Credit
Cash – Disbursing Officers 102 1, 350, 000
Cash – National Treasury, MDS 108 1, 350, 000
To record liquidation of cash advance by disbursing officer.

Account
Account Title Code Debit Credit
Construction in Progress – Agency Assets 264 1, 500, 000
Due to BIR 412 150, 000
Cash – Disbursing Officers 102 1, 350, 000

To record remittance of withholding taxes for materials and labor.

Account
Account Title Code Debit Credit
Due to BIR 412 550, 000
Subsidy Income from National Government 651 550, 000

NOTE: If the Notice of Cash Allocation was not reduced by Tax Remittance Advice, the journal entry to
record remittance of withholding tax would be

Account
Account Title Code Debit Credit
Due to BIR 412 550, 000
Cash – National Treasury, MDS 108 550, 000

To take up the asset account in the books of Bureau X

Account
Account Title Code Debit Credit
Buildings 211 5, 000, 000
Construction in Progress – Agency Assets 264 5, 000, 000

Purchased of Land and Building

When land and building are purchased at a single cost, the basket price is allocated to the land and
building on the basis of their relative fair value or appraised value. Although, assessed value is not a fair
value, it may be used for purposes of allocation. It is incorrect to maintain a single account for land and
building because land does not depreciate but building depreciates. If land with an old building, which is to
be demolished, is acquired at a single cost, the single cost is allocated to the land account only.

Depreciation

Under the new accounting system, the account “Accumulated Depreciation” shall be used.
Depreciation expense shall be recorded starting on the month following the date of acquisition or delivery
regardless of the payment scheme using the straight-line method. The rate of depreciation shall be
dependent on the nature of the assets to be depreciated and a residual value equal to ten percent (10%) of
the capitalized cost shall be maintained. The useful lives of these depreciable assets, as provided by the
Commission on Audit, are shown in Chapter 1.

As discussed earlier, the depreciation of equipment or structure which has undergone major repair
or upgrading (in case of computer equipment) which prolongs their serviceable shall be adjusted to include
the additional cost incurred. The life span shall also be adjusted. Assets falling under the category of Public
Infrastructures / Reforestation Projects and books, as well as serviceable assets that are no longer being
used are not subject to depreciation. Serviceable assets no longer being used shall be reclassified to
“Other Assets” account.

Fully depreciated fixed assets shall be reclassified to the account “Fully Depreciated Assets” Each
fully depreciated assets shall be assigned a maintaining residual book value of P1, 000.00.