INTEGRATED INNOVATION AND HOSPITALITY COLLEGE

BUENAMAR ST. NOVALICHES QUEZON CITY

CHAPTER 5.
ACCOUNTING FOR
DISBURSMENT AND RELATED
TRANSACTIONS

SUBMITTED BY:
NAGA, MA.CHRISTINA L.
CUMPIO, RONALYN T.
DISOMANGCOP, ALIAH A.
(BSAIS22A1)
SUBMITTED TO:
MR.LEONARD CAÑAMO CPA, MBA
 ACCOUNTING FOR DISBURSMENT AND RELATED TRANSACTIONS

Disbursements constitute all cash paid out during a given period either in cash
or check. The Disbursement System involves the preparation and process of
disbursement voucher, preparation and issuance of check; payment by cash; granting,
utilization, and liquidation/replenishment of cash advances.

Fundamental Principles for Disbursement of Public Funds

No. 1445, the Government Auditing Code of the Philippines, provides that all financial
transactions and operations of any government entity shall be governed by the following
fundamental principles:

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 for
which the trust was created or the funds received.
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. Disbursement or disposition of government funds or property shalt invariably bear the
approval of the proper officials.
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.
8. Generally accepted principles and practices of accounting as well as of sound
management and fiscal administration shall be observed, provided that they do not
contravene existing laws and regulations.
Basic Requirements for Disbursements and the Required Certifications

Disbursements of government funds shall comply with the following basic requirement
and certifications:

a. Availability of allotment/budget for obligation/utilization certified by the budget

officer/Head of Budget Unit.
b. Obligations/Utilizations properly charged against available allotment/budget by the
Chief Accountant/Head of Accounting Unit;
c. Availability of funds certified by the Chief Accountant.
d. Availability of cash certified by the Chief Accountant. e. Legality of the transactions
and conformity with existing rules and regulations.
f. Submission of proper evidence to establish validity of the claim.
g. Approval of the disbursement by the Head of Agency or by his duly authorized
representative.

Availability of Funds

In accordance with Book IV, Chapter 5, Section 41 of Executive Order No. 292, no
expenditure or obligation shall be incurred in excess of allotments released by the DBM
Secretary. Parties responsible for the incurrence of overdrafts shall be held personally
liable therefore.

Notice of Cash Allocation (NCA)

The Notice of Cash Allocation shall be the authority, issued by DBM to central, regional
and operating units of an agency, to pay operating expenses, purchases of Supplies
and materials, acquisition of PPE, accounts payable, and other authorized
disbursements through the issue of Modified Disbursement System (MDS) checks,
Authority to Debit Account (ADA) or other modes of disbursements.
Notice of Transfer of Allocation (NTA)

The Notice of Transfer of Allocation shall be the authority of the regional and operating
units to pay their operating expenses, purchases of supplies and materials,acquisition of
PPE, accounts payable, and other authorized disbursements through the Issue of MDS
checks, ADA or other modes of disbursements.

Non-cash Availment Authority (NCAA)

The Non-Cash Availment Authority is an authority issued by the DBM to agencies to

cover the liquidation of their actual obligations incurred against available allotments for
availment of proceeds from loans/grants through supplier's credit/constructive cash.

Cash Disbursement Ceiling (CDC)

The Cash Disbursement Ceiling is an authority issued by DBM to the Department of

Foreign Affairs (DFA) and Department of Labor and Employment (DOLE) to utilize their
income collected by their Foreign Service Posts (FSPs) to cover their operating
requirements, but not to exceed the released allotment to the said post.

MODES OF DISBURSEMENTS

NGAS are authorized to disburse/pay based on the (NCA), Notice of Transfer of

Allocation (NTA), Cash Disbursement Ceiling (CD) or other authority that may be
provided by law.

Notice of Cash Allocation The different modes of disbursements are as follows: (a)
checks (MDS or commercial checks), (6) cash (out of cash advance granted to
authorized Disbursing Officer), (C) advice to debit the account, (d) tax remittance
advice, (e) working Fund/CDC, and () direct payment method.

Disbursements by Check

Checks shall be drawn only on duly approved Disbursement Voucher (DV) or Payroll.
These shall be used for payment of regular expensés which cannot be conveniently nor
practically paid using the ADA or not authorized to be paid using the Petty Cash Fund or
advances for operating cxpenses Checks issued shall be reported and recorded in the
books of accounts whether released or unreleased to the respective payees.

There are two types of checks being issued by government agencies as follows:

a.Modified Disbursement System Checks-are checks issued by government

agencies chargeable against the account of the Treasurer of the Philippines, which are
maintained with different MDS-GSBs.

b. Commercial Checks- are checks issued by NGAs chargeable against the Agency
Checking Account with Government Servicing Banks (GSBs). These shall be covered
by income/receipts authorized to be deposited with Authorized Government Depository
Banks (AGDBs)

Accounting for Inventory

A primary issue in accounting for inventories is the amount of cost to be recognized as

an asset and carried forward until sold or consumed. Inventories are required to be
measured at the lower of cost and net realizable value; except inventories acquired
through a non-exchange transaction where their cost shall be measured at their fair
value at acquisition date. The standard further provides that inventories are required to
be measured at the lower of cost and current replacement cost where they are held for
distribution at no charge or for a nominal charge, or, consumption in the production
process of goods to be distributed at no charge or for a nominal charge. Specific
identification method shall be used in assigning cost to inventories that arenot ordinarily
interchangeable; while, Weighted Average shall be used for interchangeable items.

Perpetual Inventory Method

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.The perpetual inventory record for cash item
must provide information for 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.
Semi-expendable Property

The Government Accounting Manual (GAM) provides that tangible items below the
capitalization threshold of P15,000 shall be accounted as semi-expendable property.
Semi-expendable property which were recognized as Property, Plant and Equipment
Shall be reclassified to the affected accounts. These tangible items shall be
recognizedas expenses upon issue to the end-users. In order to estabiishaccountability
Inventory Custodian Slip (ICS) shall be issued to end-users of Semi-expendable
Property. Accountability will extinguish upon return of the item to the Property and
Supply Division/Unit or in case of loss, upon approval of the reliet from property
accountability.

Inventory Accounting System

According to Section 13, Chapter 8- Inventories, GAM, the inventory accounting system
consists of the system of monitoring, controlling and recording of acquisition and
disposal of inventory. Inventory accounting system starts with the receipt of the
purchased inventory items.

The sub-systems for inventory accounting include:

1.Receipt, inspection, acceptance and recording deliveries of inventory items.

2. Requisition and issue of inventory items.

3. Transfer and/or disposal of inventory items.

Recognition Principle

Section 3, Chapter 10- Property, Plant and Equipment, GAM provides that the cost of
an item of PPE shall be recognized as an asset if, and only if

1. It is probable that future economic benefits or service potential associated with the
items will flow to the entity; and

2. The cost or 1air value can be measured reliably.

3. Beneficial ownership and control clearly rest with the government.

4. The asset is used to achieve government objectives.

5. It meets the capitalization threshold of P15,000. The capitalization threshold of

PI5,00, as initially discussed in the preceding section, represents the minimum cost of
an individual asset recognized as a PPE on the Statement of Financial Position.

MODES OF ACQUISITION

Property, Plant and Equipment maybe acquired through purchase, construction,

exchange transacton, non-exchange transaction, transfer, and finance lease Purchase
PPE can be purchased on cash basis, on account, on installment basis, with
promotional items, and at a lump sum price.

1. When acquired on cash basis

2. When an asset is acquired on account subject to a cash discount

3. The cost of an item of PPE is the cash price equivalent or its fair value at the date of
acquisition.

4. lf promotional items are received upon purchase of PPE and it is the same as the
PPE purchased, the total purchase price shall be allocated to the total units purchased
plus the promotional item.

5.In case of lump sum price acquisition, the total ccst paid shall be allocated to the
asset acquired based on the relative fair value of the asset acquired.
Construction

A project may be constructed by administration or by contractor. All expenses incurred

in relation to the construction of the PPE shall be taken up in the books as Construction
in Progress (CIP) with the appropriate asset classification. As soon as the construction
is completed, the Construction in Progress account shall be closed to the proper asset
account.

At the end of the construction, any PPE acquired and used in the construction shall be
classified to the appropriate PPE account based on the depreciated cost. Such cost
shall be deducted from the cost of completed/constructed PPE.

Exchange Transaction

Exchange transaction may be exchange with commercial substance or exchange

without commercial substance. Where the exchange transaction is with commercial
substance, an item of PPE is measured at its fair value.

Non-exchange Transaction

PPE acquired through a non-exchange transaction, such as: donation, president

proclamation, taxes, transfer and grants, its cost shall be measured at its fair value at
the date of acquisition. If the fair value cannot be determined, the asset shall recorded
at a nominal value

Finance Lease

A finance lease is a kind of lease that transfers substantially all the risks and rewards
incident to ownership of an asset. The depreciable amount of a leased asset is
allocated to each accounting period during the period of expected use on a systematic
basis consistent with the depreciation policy the lessee adopts for depreciable assets
that are owned. If there is a reasonable certainty that the lessee will obtain ownership
by the end of the lease term, the period of expected use is the useful life of the asset.