DISCUSSION: GOVERNMENT ACCOUNTING
Budget Process:
1. The Department of Budget and Management (DBM) calls for the preparation and submission of budget of each
government agencies whether national or local. This is known as budget call.
2. Afterwards, the DBM summons the agencies concerned to discuss the proposed budget. This is called budget
hearing.
3. The DBM finalizes and consolidates the budgets presented and submitted the budget to the President for his/her
review with the cabinet members. When the President and his/her cabinet members finalized the budget, it will
be called the President’s Budget and will be submitted to the House of Representative for deliberation of the
budget. It is to be noted that the government uses zero-based budgeting rather than incremental budgeting as well
as ideally a balanced budget is recommended. Balanced budget is a budget where the expenditures are less than the
income/inflow. The President needs to submit the budget within 30 days before the regular session starts.
4. The House of Representative deliberates the budget and will undergo the process of legislation (there will be 1st
to 3rd readings of this proposed bill known as General Appropriation Bill). The Senate, the upper house, will also
have its own version and will likewise deliberate on the budget. Since both houses have their own version, any
conflicts should be resolved through a Bicameral Deliberation. Once resolved, it will be submitted to the President
for approval, however, the President can veto (disapprove) the proposed bill but once approved, it will be called the
General Appropriations Act.
5. When everything is already alright, the DBM will released guidelines and budget execution documents to each
agencies (national and local). Appropriation is the term used to indicate the allotment coming from the General
Appropriations Act (from the legislation). Appropriations received by the agency will be recorded in the Registry
of Appropriations and Allotment (RAPAL). At this point, no journal entries are required.
6. Next, allotment will then be released by DBM to Agency and likewise be recorded in RAPAL and also in Registry
of Allotment, Obligation and Disbursements (RAOD). Allotment is normally less than the appropriation so that
expenditures incurred by the agency will not be more than the appropriation. This is called piecemeal process.
Allotment is subdivided into 4 object of expenditures per fund/cluster. These are:
a. RAOD – Personal Services (PS) – For employee related expenses.
b. RAOD – Capital Outlay (CO) – For PPE
c. RAOD – Maintenance and Other Operating Expenses (MOOE) – For operating expenses and other non-
employee related expenses, PPE and financial expenses.
d. RAOD – Financial Expenses (FE) – For interest expenses incurred from loans.
There are also 7 clusters/fund, the code must be memorized:
Code Fund
1 Regular Agency Fund
2 Foreign Project Assisted Fund
3 Domestic Grant Fund
4 Foreign Grant Fund
5 Internally Generated Fund
6 Commercial Fund / Business Related
7 Trust Fund
7. When an obligation is incurred (possible status), it is not yet journalized until the transaction materialized (the
receipt of the asset and source document will trigger bookkeeping process). The agency needs to accomplish
the obligation request and status (ORS) to proceed on the transaction.
8. In order to settle the obligations incurred, the agency needs to have access in its fund through notice of cash
allocation released by DBM. There will be journal entry to record receipt. Also this will be recorded in Registry
of Allotment and Notice of Cash Allocation (RANCA).
Cash – Modified Disbursement System (MDS) xxxxxxxx
Subsidy Income from National Government xxxxxxxx
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9. The actual fund is in custody of the National Treasurer under Bureau of Treasury (BTr) which is under Department
of Finance.
10. The debit “Cash – MDS” depicts the maximum amount of fund available for the agency which could be less than
the allotment received. Any unused Notice of Cash Allocation (NCA) will be remitted to the Bureau of Treasury.
The entry to record the remittance is the reverse of the receipt of NCA. Meanwhile, every time that the agency
receives cash other than from NCA, the entry will be:
Cash – Collecting Officer xxxxxxxx
Appropriate Account Title xxxxxxxx
11. When the transaction involves withholding taxes, be it because of income tax, business tax or customs and duties,
there will be tax remittance advice (TRA). The TRA implies constructive receipt of withholding tax from BTr and
subsequent remittance thereof:
Cash – MDS xxxxxxxx
Subsidy Income from National Government xxxxxxxx
To record the constructive receipt of withholding tax
Due to BIR xxxxxxxx
Cash – MDS xxxxxxxx
To record the remittance of tax
Due to BIR xxxxxxxx
Subsidy Income from National Government xxxxxxxx
Compound Entry
Philippine Public Sector Accounting Standards (PPSAS)
Started in 2016 and adopted the principles of International Financial Reporting Standards (IFRS). The government
adopted it through its Government Accounting Manual (GAM). Therefore, the government now uses the accrual
basis of accounting rather than modified basis.
There are similarities and differences as well. I will highlight the differences:
Petty Cash Fund – use imprest fund system. Needs replenishment when the used fund is already 75% of the fund. Needs
at least 3 suppliers if the expense to be incurred is P1,000 or more. No more than P15,000 per expense will be incurred. The
custodian is bonded (liable in case there is fund missing) whenever the fund is P5,000 or more.
Bank Reconciliation – use adjusted balance method. The Chief Accountant prepares the bank reconciliation which must
be done within 10 days after receipt of bank statement. The Chief Accountant submits a copy of bank reconciliation to the
Auditor under COA within 20 days from the receipt of bank statement.
Inventory – use perpetual inventory system. For inventory valuation, use specific identification for items that can be
specifically identified from the rest of inventories while moving average from homogeneous items.
Property, Plant and Equipment – same concept with PPE but with additional feature, minimum capitalizable value is
P15,000. If less than P15,000, it will be treated as inventory. Straight line depreciation should be used with residual value
equals 5% of the cost . Useful life is the dependent upon the assessment of the agency but must follow guidelines as presented
below (memorized):
Asset Useful Life
Infrastructure Assets 20 to 50 years
Building and other structures 30 to 50 years
Motor Vehicles 5 to 15 years
Military Vehicles 3 to 20 years
Trains 10 to 20 years
Aircrafts and Aircrafts Ground Equipment 10 to 20 years
Watercrafts 10 to 25 years
Furniture and Fixtures 2 to 15 years
Other PPE 2 to 15 years
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Land Improvements Lower between the useful life of asset to which the
improvement was made or the improvement itself
Leased Assets Same concept of the lease assets
Leasehold Improvements Same concept of leasehold improvements
Service Concession Assets Lower between life of asset or the term of service
Intangible Assets – if indefinite life, tested for impairment at least annually but if definite life, use straight line method for
amortization with zero residual value. Useful life is from 2 to 10 years. As a rule, costs incurred in research phase is
expensed immediately while costs incurred in development phase can be capitalized if 1) feasible 2) has intention to
complete and use the intangible asset 3) has probable economic benefit 4) cost can be measured reliably.
Leases – use the old lease standard such that on the part of lessee: as a general rule operating lease unless qualifies in any
of the four criteria of finance lease (75% rule, 90% rule, option and, transfer of ownership). As far as lessor is concerned,
general rule: operating lease unless qualified as finance lease. When the lease is qualified as finance lease on the part of
lessor, it will be treated as direct financing lease.
Statement of Cash flows – same concept but GAM requires the use of direct method in presenting the cash flows from
operating activities.
Goodluck! Practice on journal entries and preparation of financial statements hahahahahahaha!
- ESV
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