ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 43

Module 3

ACCOUNTING FOR LGUS

Overview

The New Government Accounting System Manual presents the basic policies and
procedures; the new coding system and chart of accounts; the accounting books, reports/forms
and financial statements, and illustrative accounting entries to be adopted by all local government
units effective January 1, 2002.

Module Objectives

After successful Completion of this module, you should be able to:

Define various terms in government budgeting and accounting;

Describe the government budget/process system;
Know and understand the budgetary cycle;
Understand the coding system in the Revised Chart of Accounts (RCA);
Familiarize themselves with the functions of the different government agencies
responsible for the formulation and control of government funds.
Journalize the receipt and revenues earned for real property tax, special education tax,
business income, service income and miscellaneous income
Prepare simple trial balance.
Prepare financial statements.
Compute depreciation and other problems related with PPE
Solve other problem related with accounting for LGUs

The objective of the New Government Accounting Manual for LGUs are to prescribe the
following:

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

The new government accounting system has the following basic features and policies, to wit:

Accrual Accounting. A modified accrual basis of accounting is used. Under this

method, all expenses shall be recognized when incurred. Income shall be on accrual
basis (e.g. Share from Internal Revenue Collections) except for transactions where
accrual basis is impractical (e.g. Market Fees) or when other methods may be required
by law.

One Fund Concept. This system adopts the one fund concept. Separate fund accounting
shall be done only when specifically required by law or by a donor agency or when
44 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

otherwise necessitated by circumstances subject to prior approval of the Commission.

As required under Sections 308, 309 and 310 of the Local Government Code, separate
books shall be maintained for the General Fund, Special Education Fund and Trust Fund.

Special Accounts in the General Fund. Special accounts in the General Fund
complete with subsidiary ledgers, shall be maintained for the following:

Public utilities and other economic enterprises;

Loans, interests, bonds issued, and other contributions for specific purposes;
Development projects funded from the Share in the Internal Revenue Collections; &
Such other special accounts which may be created by law or ordinance.

Chart of Accounts and Account Codes. A new coding structure and a new chart of
accounts was prescribed on COA Circular 2015-009 dated December 01, 2015 and
adopted the Unified Account Code Structure (UACS).

Books of Accounts. The Books of Accounts are as follows:

Journals
Cash Receipts Journal (CRJ)
Cash Disbursements Journal (CDJ)
Check Disbursements Journal (CKDJ)
General Journal (GJ)

Ledgers
General Ledger (GL)
Subsidiary Ledgers, where applicable for:
Cash
Receivables
Inventories
Investments
Property, Plant and Equipment
Liabilities
Income
Expenses

All the above records shall be maintained by the accounting unit of the LGUs. However,
treasurers and disbursing officers shall also maintain their respective cash records such
as:

Cashbook - Cash in Treasury

Cashbook - Cash in Bank
Cashbook - Cash Advances

The Treasurers/Collectors shall prepare the Report of Collections and Deposits (RCD)
daily and the Report of Accountability for Accountable Forms (RAAF) monthly.
ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 45

Financial Statements. The following statements shall be prepared:

Balance Sheet
Statement of Income and Expenses
Statement of Cash Flows
Notes to Financial Statements shall accompany the above statements.

Trial Balance. The two money-column trial balance shall be used.

Appropriations, Allotments and Obligations. Journal entry shall no longer be

prepared to record the appropriations, receipt of allotments and incurrence of obligations.
In lieu of this, separate registries shall be maintained by the Accounting Unit to control
the appropriations, allotments and obligations for each of the four classes of
expenditures, namely:

Registry of Appropriations, Allotments and Obligations - Capital Outlay (RAAOCO)

Registry of Appropriations, Allotments and Obligations - Maintenance and Other
Operating Expenses (RAAOMO)
Registry of Appropriations, Allotments and Obligations - Personal Services
(RAAOPS)
Registry of Appropriations, Allotments and Obligations - Financial Expenses
(RAAOFE).

Financial Expenses. Financial expenses such as bank charges, interest expenses,

commitment fees and other related expenses shall be separately classified from
Maintenance and Other Operating Expenses (MOOE).

Perpetual Inventory of Supplies and Materials. Supplies and materials purchased for
inventory purpose shall be recorded using the perpetual inventory system. Regular
purchases shall be coursed thru the inventory account and issuances thereof shall be
recorded as they take place except those purchased out of petty cash fund which shall
be for immediate use and not for stock. Such case shall be charged immediately to the
appropriate expense accounts.

Valuation of Inventory. Cost of ending inventory of supplies and materials shall be

computed using the moving average method.

Maintenance of Supplies and Property, Plant and Equipment Ledger Cards. The
Accounting Unit shall maintain Supplies Ledger Cards by stock number and Property,
Plant and Equipment Ledger Cards by category of assets.

Construction of Assets. For assets under construction, the Construction Period Theory
shall be applied for costing purposes. Bonus paid to the contractor for completing the
work ahead of time shall be added to the total cost of the project. Liquidated damages
charged and paid for by the contractor shall be deducted from the total cost of the asset.
Any related expenses incurred during the construction of the project, such as, license
fees, permit fees, clearance fees, etc. shall be capitalized.
46 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Public Infrastructures. Public infrastructures are assets for use of the general public,
such as roads, bridges, waterways, railways, plazas, monuments, etc. A Registry of
Public Infrastructures (RPI) shall be maintained according to classification to record all
infrastructures for use of the general public. The following are the Registries to be
maintained, classified by category of property, plant and equipment:

Registry of Public Infrastructure - Bridges (RPIB)

Registry of Public Infrastructure - Roads (RPIR)
Registry of Public Infrastructure - Plazas, Monuments, etc. (RPIP)

During construction these infrastructures shall be recorded in the books under the
account "Construction in Progress". Upon completion, the completed asset shall be
transferred to the account "Public Infrastructure". At the end of the year, completed
assets under "Public Infrastructure" shall be transferred to the respective registry.

Completed public infrastructures funded out of a loan shall, however, be retained in the
books of accounts until the loan is fully paid. A Summary of all Public Infrastructures
(based on the different registries) shall be prepared annually and included in the Notes
to Financial Statements.

Depreciation. The straight-line method of depreciation shall be used. A residual value

equivalent to ten percent (10%) of the cost shall be set-up and depreciation shall start on
the second month after purchase/completion of the property, plant and equipment. Public
infrastructures shall not be charged any depreciation.

Reclassification of Obsolete and Unserviceable Assets, as well as Assets No

Longer Used by the Agency to "Other Assets" Account. Assets declared by proper
authorities as obsolete and unserviceable, including assets of the agency no longer used,
shall be reclassified to "Other Assets" account from the corresponding inventory and
property, plant and equipment accounts.

Allowance for Doubtful Accounts. An Allowance for Doubtful Accounts shall be set up
for estimated uncollectible receivables. This will allow for a fair valuation of receivables.
Allowance for Doubtful Accounts shall be provided only for trade receivables.

Elimination of Contingent Accounts. Contingent accounts shall no longer be used. All

financial transactions shall be recorded using the appropriate accounts. Cash shortages
and disallowed payments shall be recorded under receivable accounts "Due From
Officers and Employees" and "Receivables- Disallowances/Charges", as the case may
be.

Recognition of Liability. Liability shall be recognized at the time goods and services
are accepted or rendered and supplier/creditor bills are received.

Interest Accrual. Whenever applicable and appropriate, interest income and/or expense
shall be accrued and recognized in the books of accounts.
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 47

Accounting for Borrowings and Loans. All borrowings and loans incurred shall be
recorded direct to the appropriate liability accounts.

Elimination of corollary and negative entries. The use of corollary and negative
entries shall be stopped. Acquisition/Disposition of assets shall be debited/credited direct
to the appropriate asset accounts. If an error is committed, a correcting entry shall be
prepared to adjust the original entry.

GENERAL ACCOUNTING PLAN

The General Accounting Plan shows the overall accounting cycle in the Local Government
Unit. Transactions shall emanate from the different offices/departments of the local government
units (LGUs). These offices/departments will provide/produce the source documents and other
accounting forms leading to the perfection of the transaction, whether it be budgetary,
collections or disbursements. The source documents and accounting forms shall be the basis
for the preparation of reports by the Office of the Treasurer. The Office of the Accountant shall
record the transactions to the registries or to the corresponding books of original entry. Posting
to the books of final entry and preparation of the financial reports shall also be undertaken by
the Office of the Accountant.

The General Accounting Plan is presented as to the following type of transactions:

a. Appropriations, Allotments and Obligations

b. Collections and Deposits
c. Disbursements
By cash
By check
d. Miscellaneous and Other transactions

BUDGETARY ACCOUNTS

Budgetary accounts are composed of appropriations, allotments and obligations.

Appropriation. It refers to an authorization made by ordinance, directing the payment of goods

and services from local government funds under specified conditions or for specific purposes.

The local sanggunian approves the annual budget thru the issuance of appropriation
ordinance. On the first business day of the fiscal year, the entire annual budget of the local
government unit shall be recorded in the Registry of Appropriations, Allotments and Obligations
(RAAO). The appropriations, in the amounts approved by the legislative body and confirmed by
the reviewing authorities, are recorded in the registries maintained by the accountant where
they may be compared with the actual developments of the period.

Budgetary reserves which are stand by appropriations ready for release in case of calamities,
as well as supplemental budget are similarly recorded in the RAAO. In case the LGU is
operating on a re-enacted budget, said re-enacted budget shall likewise be recorded in the
48 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

registry. Once current budget is approved, the necessary adjustments shall be made in the
registry.

Separate registries shall be maintained for the four classes of expenditures per responsibility
center, to wit:

a. Registry of Appropriations, Allotments and Obligations - Capital Outlays (RAAOCO)

b. Registry of Appropriations, Allotments and Obligations - Maintenance and Other
Operating Expenses (RAAOMO)
c. Registry of Appropriations, Allotments and Obligations - Personal Services (RAAOPS)
d. Registry of Appropriations, Allotments and Obligations - Financial Expenses (RAAOFE)

Allotment. It is the authorization issued by the Local Chief Executive (LCE) to a

department/office of the LGU, which allows it to incur obligations, for specified amounts, within
the appropriation ordinance. Allotments are released quarterly based on the Work and
Financial Plan and Request for Release of Allotment. The Accountant, upon receipt of the
Advice of Allotment, shall enter the allotment in the RAAOs.

Obligation. It refers to the amounts committed to be paid by the LGU for any lawful act made
by an accountable officer for and in behalf of the local government unit concerned.

INCOME/COLLECTIONS AND DEPOSITS

Local accountants and treasurers shall maintain separate books and depository accounts,
respectively, for each fund in their custody or administration. Local treasurer shall maintain
depository accounts in the name of their respective local government units with banks,
preferably government-owned, located in or nearest to their respective areas of jurisdiction.
Earnings of its depository accounts shall accrue exclusively thereto. Officers of the local
government authorized to receive and collect monies arising from taxes, revenue, or receipts of
any kind shall remit the full amount received and collected to the treasury of such local
government unit which shall be credited to the particular account or accounts to which the
monies in question properly belong.

Sources of Income for LGUs

The main sources of income of LGUs are as follows:

a. Tax revenues, fees and charges

b. Share from Internal Revenue Collections
c. Share from National Wealth

The sources of income are further classified into general income accounts and specific income
accounts.

The following shall comprise the General Income Accounts applicable to LGUs:

Subsidy from Other LGUs

Subsidy from Other Funds
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 49

Subsidy from Special Accounts

Sales Revenue
Dividend Income
Interest Income
Gain on Sale of Securities
Gain on Sale of Assets
Sale of Confiscated Goods and Properties
Foreign Exchange (FOREX) Gains
Miscellaneous Operating and Service Income
Fines and Penalties Government Services and Business Operations
Income from Grants and Donations

The following major classification comprise the specific income accounts for LGUs:

Property Taxes
Taxes on Goods and Services
Other Taxes
Other Specific Income

The following accounting methods shall be adopted in recording income:

a. Accrual Method Accrual method of accounting shall be used to record Share from
Internal Revenue Collections in the books of accounts. Upon receipt of the Notice of
Funding Check Issued from Department of Budget and Management (DBM), Share from
Internal Revenue Collections shall be taken up as Due from NGAs and credited to Share
from Internal Revenue Collections. However, Cash in Bank shall be debited upon receipt
of Bank Credit Advice as to receipt of the Share from Internal Revenue Collections
regardless of whether or not the Notice of Funding Check Issued has been received from
DBM.

b. Modified Accrual Modified accrual method of accounting shall be used for real
property taxes. At the beginning of the year, Real Property Tax Receivable and Special
Education Tax Receivable shall be established. This is in view of the need to record in
the books not mere income estimates from real property taxes but actual receivables
from said taxes. However, to avoid appropriating uncollected revenues which might
result to huge cash overdraft, the same shall be credited to Deferred Real Property Taxes
Income/Deferred Special Education Tax Income. Real Property Tax Income/Special
Education Tax Income shall be recognized upon receipt of collection.

c. Cash Basis Cash basis of accounting shall be used for all other taxes, fees, charges
and other revenues.

BASIS OF RECORDING REAL PROPERTY TAX AND SPECIAL EDUCATION TAX

Real Property Tax Receivables/Special Education Tax Receivables shall be established at the
beginning of the year ba
50 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

the beginning of the year, the Treasurer shall furnish the Chief Accountant of a duly certified list
showing the name of taxpayers and the amount due and collectible for the year. Based on the
list, the Chief Accountant shall draw a Journal Entry Voucher (JEV) to record the debit to Real
Property Tax Receivable/Special Education Tax Receivable and crediting to Deferred Real
Property Tax Income/Deferred Special Education Tax Income.

Upon collection of Real Property Taxes from taxpayers, the account Deferred Real Property
Tax Income/Deferred Special Education Tax Income shall be debited while the Real Property
Tax Income due to the municipality is recognized/credited. The share of the Province and
Barangay shall also be credited to Due to LGUs.

Every end of the week, thereafter the Municipal Accountant shall furnish the Provincial
Accountant with a summary of the JEVs showing the breakdown of the amounts Due to LGUs.
The summary, which shall be supported with copies of the JEVs, shall be the basis of the
Provincial Accountant to draw the JEV taking up the RPT Income. The account Due from LGU
shall be debited and Real Property Tax Income credited.

At the end of the month, the Municipal Accountant shall likewise prepare the Abstract of Real
Property Tax to facilitate the distribution of real property tax collection. A copy of the abstract
shall be furnished the Provincial Accountant, for purposes of reconciliation with the weekly
summary of JEVs.

PRO-FORMA ACCOUNTING ENTRIES

Real Property Tax Basic

A. Books of Municipality
1. Setting-up of receivable
Real Property Tax Receivable xxx
Deferred Real Property Tax xxx

2. Receipt of payment
Cash Local Treasury xxx
Real Property Tax Receivable xxx

3. Distribution of Collection, Municipal-40%,Province-35%, Barangay-25%

Deferred Real Property Tax xxx
Real Property Tax xxx
Due to LGUs xxx

4. Deposit of Collections
Cash in Bank-LCCA xxx
Cash Local Treasury xxx

5. Remittance of Share
Due to LGUs xxx
Cash in Bank-LCCA xxx
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 51

B. Books of the Province

1. Upon receipt of the Summary of the JEV from the Municipal Accountant
Due from LGUs xxx
Real Property Tax xxx

2. Upon receipt of share

Cash in Bank-LCCA xxx
Due from LGUs xxx

Business and Service Income

1. Receipt of income
Cash-in Treasury xxx
Garbage Fees xxx
Receipts from Market Operations xxx

2. Deposits of collections
Cash in Bank-LCCA xxx
Cash Local Treasury xxx

Share from Internal Revenue Collections

1. Receipt of Notice of funding Check Issued from the DBM and credit
memo from the bank for Share from Internal Revenue Collections
Cash in Bank-LCCA xxx
Share from Internal Revenue Collections(IRA) xxx

2. Receipt of Notice of Funding Check Issued

Due from NGAs xxx
Share from Internal Revenue Collections(IRA) xxx

Borrowings
1. Receipt of Borrowed Funds from Bank
Cash in Bank-LCCA xxx
Loans Payable-Domestic xxx

Interest Expenses xxx

Bank Charges xxx
Cash in Bank-LCCA xxx
(Enter the obligation for Interest Expenses and Bank Charges in the RAAOFE)

2. Payment of loan amortization

Loans Payable-Domestic xxx
Cash in Bank-LCCA xxx

DISBURSEMENTS- refer to the settlement of government payables/obligations by cash or by

check.
Typical transactions for which disbursements are made as follows:

1. Personal Services
52 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

2. Maintenance and Other Operating Expenses

3. Capital Outlay
4. Financial Expenses

Disbursements shall be covered by Disbursement Vouchers (DV) or payrolls and paid

either by check or in cash.

PRO-FORMA ACCOUNTING ENTRIES

PERSONAL SERVICES
1. Cash advance for personal services

Enter obligation in RAAOPS

Advances for Payroll xxx

Cash in bank-LCCA xxx

2. Liquidation of cash advance for payroll

Salaries and Wages-Regular xxx
PERA xxx
Due to BIR xxx
Due to GSIS xxx
Due to PAG-IBIG xxx
Due to PHILHEALTH xxx
Advances for Payroll xxx

3. Government Share for GSIS and PAG-IBIG

Enter obligation in the RAAOMO

Life and Retirement Insurance Contributions xxx

PAG-IBIG Contributions xxx
PHILHEALTH Contributions xxx
ECC Contributions xxx
Due to GSIS xxx
Due to PAG-IBIG xxx
Due to PHILHEALTH xxx

MAINTENANCE AND OTHER OPERATING EXPENSES

Payment of rent/utilities

Enter obligation in RAAOMO

Rent Expenses xxx

Electricity Expenses xxx
Telephone Expenses-landline xxx
Cash in bank-LCCA xxx
Due to BIR xxx

CAPITAL OUTLAY
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 53

EQUIPMENT

1. Issuance of PO for office equipment to dealer

Enter obligation in RAAOCO

2. Receipt of office equipment

Office Equipment xxx
Cash in Bank-LCCA xxx
Due to BIR xxx

Readings:
https://www.coa.gov.ph/index.php/2013-06-19-13-06-41/manuals/category/163-for-
local-government-units
https://www.coa.gov.ph/phocadownload/userupload/Issuances/Circulars/Circ2015/anne
x_a_charts_of_account.pdf

QUESTIONS

1. What registries are maintained by the local government accounting units to control the
appropriations, allotments and obligations?

2. What are the different classifications of funds in the local government?

3. Enumerate the sources of funds in the local government.

4. Briefly explain the basic features and policies relating to local government units.

RESEARCH ACTIVITIES

A. Select one specific local government accounting unit: municipality, city or a

province; and then do the following classroom activities:

1. Discuss the budgetary process.

2. Analyze the most recent financial statements.

3. Compare the accounting system with the published accounting manual on local
government units.

B. Select one specific Barangay in your locality. Discuss the following:

1. Budgetary procedures

2. Accounting system

3. Financial statements