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

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
future.
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”.
CONTROL MECHANISM

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.

TWO MAJOR CLASSIFICATIONS OF FUND AS TO PURPOSE

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
impossible
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

GOVERNMENT ENTITY COMMERCIAL ENTERPRISE
OWNERSHIP Entire people in a given community Stockholders, partners, owners
PURPOSE Render service at the lowest possible Profits
cost to its constituents
OPERATES TO MAKE PROFITS -
profits realized are retained for public
use and not for use of specific
individuals
ORGANIZATION CONGRESS - responsibility and Succession of authority and
authority of a government entity responsibility
OFFICERS AND Stockholders  BOD  staff or
ADMINISTRATORS OF officers
GOVERNMENT - governed in almost
every act by specific laws, rules and
regulations
LEGISLATIVE BODIES - place
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
sold

Similarities and Distinctions of Commercial and Government Accounting

Similarities:

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

Distinctions
COMMERCIAL ACCOUNTING GOVERNMENT ACCOUNTING
OBJECTIVE Geared towards income measurement Control government funds
aside Provide data for management decision
BASIS OF ACCOUNTING Cash or accrual method but not bothModified 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
ACCOUNTING OF MONEY CDC Accounting
COLLECTED - not separate and
independent from the accounting of
the use/disbursement of said money
collected
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
entries
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

SUPERVISION
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
instrumentalities
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
Philippines
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
corporations
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. 1376)

POWERS AND FUNCTIONS OF THE DBM (PD 999)

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
Treasury
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)