PART V

DISBURSEMENT SYSTEM

ACCOUNTING FOR DISBURSEMENT AND RELATED TRANSACTIONS

This part covers the rules and regulations to be followed in the disbursement of public funds, the
monitoring of receipt and utilization of NCA/NTA, preparation and processing of DV/Payroll;
preparation and issue of checks; payment by cash; granting, utilization and liquidation/replenishment of
cash advances; payment through ADA; and remittance of taxes withheld through Tax Remittance
Advice (TRA.)
Definition of Terms.
The following are terms used to mean as follows:
a. Accounts Payable – refers to valid and legal obligations of NGAs/OUs, for which, goods or services
or projects have been delivered/rendered/completed and accepted, regardless of the year
when these obligations were incurred.
b. Advice to Debit Account – refers to an authorization issued by the NGA/OU appearing in the lower
portion of the List of Due and Demandable Accounts Payable-Advice to Debit Account
(LDDAP-ADA). It serves as instruction to the Modified Disbursement System, Government
Servicing Banks (MDS-GSBs) to debit a specified amount from its available NCA balance
under regular MDS sub-account for payment of creditors/payees through the Expanded
Modified Direct Payment Scheme (ExMDPS).
c. Agency – refers to any department, bureau or office of the national government, or any of its branches
and instrumentalities, or any political subdivision, as well as any GOCCs, including its
subsidiaries, or other self-governing board or commission of the government.
d. Commercial Check – refers to a check issued by government agencies chargeable against the agency’s
checking account with AGDBs. These are covered by income/receipts authorized to be
deposited with AGDBs; and funding checks received by Operating Units from Central or
Regional or Division Offices, respectively.
e. Disbursements –constitute all cash paid out during a given period in currency(cash) or by check or
ADA. It may also mean the settlement of government payables/obligations by cash, check
or ADA. It shall be covered by DV/Petty Cash Voucher (PCV)/Payroll.
f. Direct Payment System – refers to the payment procedure whereby the MDS-GSB shall, upon receipt
of NCA an LDDAP-ADA from DBM pay the Credit Card Company (CCC) not earlier than
24 hours but not later than 48 hours, through direct credit to the CCC current account.
g. Implementing Agency – refers to the agency to which the funds are transferred for the purpose of
prosecuting/implementing the project.
h. Inter-Agency Transferred Fund – refers to cash or money transferred to an Implementing Agency (IA)
for the undertaking of a project by Source Agency (SA) in which the allotment was
released.
i. List of Due and Demandable Accounts Payable-Advice to Debit Account – refers to an accountable
form integrating the Advice to Debit Account (ADA) with the LDDAP, which is a list
reflecting the names of creditors/payees to be paid by the NGA/OU and the corresponding
amounts of the unpaid claims.
j. Modified Disbursement System (MDS) Check – refers to a check issued by government agencies
chargeable against the account of the Treasurer of the Philippines, which are maintained
with different MDS AGDBs. MDS checks are covered by NCA.
k. Modified Disbursement System, Government Servicing Banks – refers to the authorized government
servicing banks, such as Land Bank of the Philippines (LBP), Development Bank of the
Philippines (DBP), and Philippine Veterans Bank (PVB), to which DBM issues the NCAs
for crediting to the MDS sub-accounts of NGAs.
l. Petty Cash Fund – refers to the amount granted to duly designated Petty Cash Fund Custodian for
payment of authorized petty or miscellaneous expenses which cannot be conveniently paid
through checks/LDDAP-ADA.
m. Project –refers to an undertaking, whether construction work, research or training program, computer
engagement or other authorized activities which an agency shall prosecute or implement in
favor or in behalf of another agency.
n. Regular Cash Advance – refers to the amount granted to cashiers, disbursing officers, paymasters,
and or other accountable officers for the payment of expenses such as salaries and wages,
commutable allowances, honoraria and other similar payments to officials and employees.
o. Special Cash Advance – refers to the amount granted on the explicit authority of the Head of the
Agency only to duly designated disbursing officers or employees for other legally authorized
purposes, such as payment of current operating expenditures, including salaries, wages and
allowances, travel expenditures, and maintenance and other operating expenses, of the field
office or for special purpose/time-bound undertaking of the agency when it is impractical to
pay the same by check.
p. Source Agency – refers to the agency to which the allotment has been originally released and in whose
behalf or benefit the project will be prosecuted/implemented.
q. Tax Remittance Advice – refers to a serially-numbered document prescribed by the DBM that should
be used by the NGAs in the remittance of withheld taxes on funds coming from DBM. This
form is being distributed by the BIR to be accomplished by the NGAs. The same shall be
duly certified by the Chief Accountant and approved by the Head of the concerned NGA or
his duly authorized representative, and attached to every withholding tax return filed as
payment for taxes withheld. This shall be the basis for the BIR and the Bureau of the
Treasury (BTr) to record the tax collection in their respective books of accounts.

Most of the transactions in the government involves the receipt and disbursement of cash. The
cash transactions affect every classification within the financial statements – assets, liabilities, residual
equity, income and expenses.by check. Thus it is essential that cash transactions are recorded correctly
for reliability in the financial statement.

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/obligation by cash or by check. It shall
be covered by Disbursement Voucher (DV), Petty Cash Voucher, or Payroll.

How to distinguish Disbursement from Expenditures?

Expenditures are the obligations incurred by the Agency. It includes both the amount actually
paid and those incurred and recorded as liabilities to be paid in the future. While Disbursements are
payments made for such government obligations by cash or check.

Typical transactions for disbursements include the following major classes of payments:
A. Current Operating Expenses
1. Personal Services
- Salaries and wages
- Other Compensation
- Personnel benefits
- Other personnel benefits
2. Maintenance and Other Operating Expenses
- travelling expenses
- training and scholarship program
- supplies and material expenses
- repairs, etc….
3. Financial Expenses
- bank charges, commitment fees, documentary stamps
- interest and other financial charges
B. Capital Expenditures – these expenditures need allotment for CO. As opposed to the current
operating expenses, this involves investments and procurement of assets that
is expected to be used for a longer period of time.
C. Inter-agency fund transfers - this covers the transfer of funds to other agencies for the
implementation
of specific projects. This is taken up in the books under “Due to –“ by the
receiving agency and “Due from – “ by the releasing agency.

Basic Requirements for Disbursement:

1. Existence of a lawful and sufficient allotment certified as available by the budget officer.
2. Existence of a valid obligation certified by the Chief Accountant/Head of Acctg. Unit;
3. Legality of transactions and conformity with laws, rules and regulation.
4. Approval of the expense by the Chief of Officer or by his duly authorize representative; and
5. Submission of proper evidence to establish the claim.
Sec. 6 of GAM for NGAS. Basic Government Accounting and Budget Reporting Principles.
Each entity shall recognize and present its financial transactions and operations conformably to the
following:
a. Generally accepted government accounting principles in accordance with the PPSAS and pertinent
laws, rules and regulations;
b. accrual basis of accounting in accordance with the PPSAS;
c. budget basis for presentation of budget information in the financial statements (FSs) in accordance
with PPSAS 24;
d. RCA prescribed by COA;
e. double entry bookkeeping;
f. financial statements based on accounting and budgetary records; and
g. fund cluster accounting.

Disbursement System – involves the preparation and processing of disbursement voucher; preparation
and issuance of check, payment of cash, granting, utilization, and liquidation or replenishment of
cash advances.

All disbursement of the government requires the certification as:

1) to validity, propriety, legality of the claim by the head of office who has control of the funds; and
2) certification that funds are available for the purpose.

Modes of disbursement in the government:

1. by check – thru MDS checks or commercial checks
2. by cash – cash advances granted to disbursing officer and petty cash fund.
3. Advices to Debit account
4. Tax Remittance Advice
5. Direct Payment Method

Disbursement by Checks – Checks shall be drawn only on duly approved DV or PCV. These shall be
reported and recorded in the books of accounts only when actually released to the respective payees.

Two types of checks are being issued by government agencies:

1. Modified Disbursement System (MDS) checks – issued by government agencies chargeable
against the account of the Treasurer of the Phil which are maintained with different MDS
Government Servicing Banks. These are covered by Notice of Cash Allocation, an authorization
issued by the DBM to all government agencies to withdraw cash from the National Treasury
through the issuance of MDS checks or other authorized mode of disbursements.
2. Commercial checks – issued by government agencies chargeable against the agency checking
account with GSBs. These are covered by income/receipts authorized for deposits with AGDBs
and funding checks received by RO/OUs from CO/ROs respectively.

Accounting Books, Records, Forms and Reports to be Prepared and Maintained.

All checks drawn during the day, whether released or unreleased including cancelled checks shall be
recorded chronologically in the Checks and ADA Disbursements Record (CkADADRec) maintained by
the Cash/Treasury Unit. The dates the checks were actually released shall be indicated in the appropriate
column provided for in the CkADADRec. All checks/ADA drawn whether released or unreleased shall
be included in the Report of Checks Issued (RCI) or Report of ADA Issued (RADAI), which shall be
prepared daily by the Cashier. The RCI/RADAI together with the original copies of the supporting
documents (SDs) shall be submitted to the Accounting Division/Unit for the preparation of JEV. At the
end of the year, a Schedule of Unreleased Commercial Checks shall be prepared by the Cashier for
submission to the Accounting Division/Unit. An adjusting accounting entries for unreleased commercial
checks are made.

Recording of Check Disbursements by Field Offices without Complete Set of Books.

Field Offices (FOs) without complete set of books shall record chronologically in the Cash in Bank
Register (CBReg) all checks issued/charged to deposits with the AGDB. The certified copy of the
CBReg together with the required SDs shall be submitted within five days after the end of each month to
the concerned mother unit (central/regional/division office) by the FOs (a unit under the
central/regional/ division office) for review and recording of the transactions in the books of accounts.
All unreleased and cancelled as of the reporting date shall be enumerated in the “List of Unreleased
Checks”to be attached to the RCI.

Notice of Cash Allocation.

The NCA shall be the authority 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
MDS checks, ADA or other modes of disbursements.

a. No MDS check/ADA shall be issued without the covering NCA. Hence, the total MDS checks/ADA
issued shall not exceed the total NCA received. To maximize the available NCAs of the agency, the
Common Fund System policy shall be adopted whereby cash allocation balances of agencies under
the Regular MDS Account may be used to cover payment of current year’s accounts payable i.e.,
goods and services which have been delivered and accepted during the year charged against
appropriations of prior year/s, after satisfying their regular operating requirements as reflected in
their Monthly Cash Program.
b. NCA issued and credited to the Special MDS Accounts of agencies for payment of retirement
gratuity/terminal leave benefits as well as prior years’ accounts payable shall be valid within the
period prescribed under existing rules and regulations. The NCA shall be monitored through the
maintenance of the Registry of Allotments and Notice of Cash Allocation (RANCA) by the
Budget/Unit.
c. NCA issued and credited to the Special MDS Accounts for Trust to cover payments of authorized
claims shall be valid within the period prescribed under existing regulations.
d. For NCA issued for foreign assisted projects such as grants from foreign country with a separate
MDS account maintained by the spending agency with Government Servicing Banks (GSBs), MDS
check/ADA shall be issued only for specific purpose until full implementation of the project, subject
to pertinent DBM issuances prescribing the validity of the NCA.

The agency received Notice of Cash Allocation for payment of its obligations. It maybe either for
payment of prior year’s or current year obligations, the same are recorded as:

Cash –Modified Disbursement System, Regular 10104040 XXX

Subsidy from National Government 40301010 XXX

This entry will show that the NCA received, is the share of the Agency in the income of the National
Government, and it is a proof that there was an allocation of cash for the Agency by the National
Treasury.

The NCA received by the agency is net of the amount of taxes to be withheld by the agency.

Disbursements by Cash. Cash disbursements constitute payments out of cash advances granted to the
regular and special disbursing officers for personal services, petty expenses and MOOE for field
operating requirements. All cash payments shall be covered by duly approved DVs/payrolls/petty cash
vouchers (PCVs). The cash advances may be granted to the cashiers/disbursing officers/officials and
employees to cover the following: salaries and wages, travels, special time-bound undertakings and
petty operating expenses. The granting and liquidation of cash advances shall be governed by the
following existing COA rules and regulations and other pertinent issuances:
a. No cash advance shall be given unless for a legally authorized specific purpose;
b. A cash advance shall be reported on and liquidated as soon as the purpose for which it was given
has been served;
c. No additional cash advance shall be allowed to any official or employee unless the previous cash
advance given to him/her is first settled/liquidated or a proper accounting thereof is made;
d. Except for cash advance for official travel, no officer or employee shall be granted cash advance
unless he/she is properly bonded in accordance with existing laws or regulations. The amount of
cash advance which may be granted shall not exceed the maximum cash accountability covered by
his/her bond;
e. Only permanently appointed officials shall be designated as disbursing officers;
f. Only duly appointed or designated disbursing officer may perform disbursing functions. Officers
and employees who are given cash advances for official travel need not be designated as Disbursing
Officers;
g. Transfer of cash advance from one accountable officer to another shall not be allowed; and
h. The cash advance shall be used solely for specific legal purpose for which it was granted. Under no
circumstance shall it be used for encashment of checks or for liquidation of a previous cash advance.
Recording the different types of C ash Disbursements:

A. Cash Advance for Payroll. Advances for Payroll shall be granted to Regular Disbursing Officers
for payment of salaries, wages, honoraria, allowances and other personnel benefits of officials and
employees. The Advances for Payroll shall not be used for encashment of checks or for liquidation
of previous or other types of cash advances. It shall be equal to the net amount of the processed
payroll corresponding to the pay period. Liquidation of the advances shall be made within five (5)
days after the end of the pay period. Any unclaimed salaries/allowances shall be refunded and issued
official receipt to close the account. Or the payment of salaries shall be thru ATM.

Under the new accounting system payment of salaries and wages and other remuneration to the
personnel of the AGENCY may be made through the following:
1. Payroll Fund in the hands of a Disbursing Officer(DO) as cash advance. Payments are made by
the DO in cash to the employees.
2. Payroll Fund deposited in an authorized depository bank, withdrawal by the employees is
through the automated teller machine (ATM).
3. Direct payment to employees by individual check.

Example, Assume the following payroll fund for salaries and wages paid thru ATM:

Salaries and wages P 600,000

Personnel Economic Relief Allowance (PERA) 40,000
Gross P 640,000
Less: Withholding tax P 49,260
GSIS contribution 54,000
PAG-IBIG contribution 2,500
PHILHEALTH contribution 10,000 115,760
Net Payroll P 524,240
=======
a) Enters the obligation – RAOD-PS
Obligate the P640,000 salaries and wages for the month and post in the RAOD-PS.

b) Recognize the expenses and liabilities (Thru ATM)

Salaries and wages – Regular 50101010 600,000

PERA 50102020 40,000
Due to BIR 20201010 49,260
Due to GSIS 20201020 54,000
Due to PAG-IBIG 20201030 2,500
Due to PhilHealth 20201040 10,000
Due to Officers and Employees 20101020 524,240

d) To record check issuance for ATM employee’s accounts

Due to Officers and employees 20101020 524,240

Cash – MDS, Regular 10104040 524,240

e) To record remittance of mandatory contributions including withholding taxes supported with

approved TRA from DBM.

Due to GSIS 20201020 54,000

Due to Pag-ibig 20201030 2,500
Due to PhilHealth 20201040 10,000
Cash – MDS, Regular 10104040 66,500

Due to BIR 20201010 49,260

Cash – TRA 10104070 49,260
Government Counterpart:

f) Obligation and recording of the government share of mandatory contributions. The agency
paid P 1,000 for ECC
Obligate the government counterpart of the mandatory deductions, 72,000 (12% X P600,000)
For GSIS life and retirement. ECC of P1,000.

g) To record payment and remittance of the corresponding counterparts

ECC Insurance premiums 50103040 1,000
Ret and Life Ins Premium 50103010 72,000
Pag-ibig contribution 50103020 2,500
PhilHealth contribution 50103030 10,000
Cash – MDS, Regular 10104040 85,500

Other JE if course thru Advances to DO:

1. Obligate the amount of P640,000 and record in RAOD-PS.

2. Set-up salary deductions and Due to Officers and Employees
Salaries and wages – Regular 50101010 600,000
PERA 50102020 40,000
Due to BIR 20201010 49,260
Due to GSIS 20201020 54,000
Due to PAG-IBIG 20201030 2,500
Due to PhilHealth 20201040 10,000
Due to Officers and Employees 20101020 524,240

2. To record grant of advances to cover payment of salaries and wages.

Advances for Payroll 19901020 524,240
Cash-MDS, Regular 10104040 524,240

3.. To recognize liquidation of Advances for Payroll based on the RCDisb

Due to Officers and Employees 20101020 524,240
Advances for Payroll 19901020 524,240

4. Follow and copy entry (e) for remittances of mandatory deductions and withholding taxes thru TRA.

Refund if there is unclaimed salaries and wages in order to avail of another cash advance to pay
salaries and wages. Ex. P24,000 unclaimed salaries is being refunded.
a) recognize liquidation :
Due to O and E 20101020 500,240
Advances for Payroll 19901020 500,240
b) record the refund:
Cash - Collecting Officers 10101010 24,000
Advances for Payroll 19901020 24,000
c) record the deposit/remittance to the treasury:
Cash – Treasury/Agency Deposit, Reg.10104010 24,000
Cash – collecting officer 10101010 24,000

d) Adjust for the refunded amount:

Due to O and E 20101020 24,000
Salaries and wages – Reg 50101010 20,000
PERA 50102020 4,000
d) Adjust the obligation for the refund by a negative entry in RAOD-PS totaling P24,000.

B. Petty Cash Fund(PCF)

The Petty Cash Fund (PCF) to be set up shall be sufficient for the recurring petty operating expenses
of the agency for one month. It shall be maintained using the Imprest System. All replenishments shall
be directly charged to the expense account and at all times, the PCF shall be equal to the total cash on
hand and the un-replenished expenses. The PCF shall be replenished as soon as disbursements reach at
least 75% or as needed. The following are the accounting policies regarding cash advance for PCF:
a. The fund shall be kept separately from the regular cash advances/collections and shall not be used for
payment of regular expenses such as rentals, subscriptions, light and water bills, purchase of supplies
and materials for stock purposes, and the like. Payments out of PCF, which shall be made through a
Petty Cash Voucher (PCV), should be allowed only for amounts not exceeding P15,000 for each
transaction, except when a higher amount is allowed by law and/or specific authority by the COA.
Splitting of transactions to avoid exceeding the ceiling shall not be allowed. All disbursements out of
PCF shall be covered by duly accomplished and approved PCV supported by cash invoices, ORs or
other evidence of disbursements;

b. The unused balance of the PCF shall not be closed/refunded at the end of the year. The fund shall be
closed only upon termination, separation, retirement or dismissal of the Petty Cash Fund Custodian
(PCFC), who in turn shall refund any balance to close his/her cash accountability; and

c. At the end of the year, the PCFC shall submit to the Accounting Division/Unit all unreplenished Petty
Cash Vouchers (PCVs) for recording in the books of accounts.

The PCF shall not be used to purchase regular inventory items for stock nor for the liquidation of
outstanding cash advances. It shall be used only for disbursements which cannot be conveniently paid by
check.

Disbursement through Petty Cash Fund - shall be through the PC Voucher which shall be approved
by authorized officials and signed by the payee to acknowledge receipt of the amount from the PC
Custodian. A DV shall be prepared to replenish the fund.

At the end of the year, the PCC shall submit to the Accounting unit all outstanding PCVs. In case the
fund could not be replenished for lack of funds, a JEV shall be prepared to recognize all un-replenished
expenses in the books and the PCF account shall be credited. At the start of the year, as soon as cash
becomes available, the fund shall be replenished by a debit to account “Petty Cash Fund” and credit to
the appropriate “Cash-MDS, Regular/Cash in Bank, LCCA” account to restore the fund to its original
amount.

In case the PC Custodian resigns or ceases as the custodian of the fund, full accounting/liquidation
shall be made. Any excess cash shall be refunded and all the PCVs together with the original supporting
documents shall be surrendered to the Accounting Unit which shall prepare a JEV to take up the
expenses in the books and credit account “Petty Cash Fund”. In no case shall the remaining cash of the
former custodian be transferred to the incoming PCC.

The Petty Cash Fund record shall be used to record all the PCs received by the PC Custodian as well
as opening of PCF at the beginning of the year or when a new PC Custodian is designated to replace the
previous one. All PCV shall be supported with valid documents to prove the propriety of disbursements,
such as ORs, invoices, etc.

Example of Petty Cash Fund transaction:

P15,000 was maintained by the agency under the Imprest system. As of Dec. 31, 2022 the used
petty cash supported with receipts amounting to P11,000 remained unreplenished. The receipted use of
PC consisted of the following:
Office supplies expense P 5,000
Repairs and maintenance –Transp. Equiptment 2,500
Repairs and maintenance – Machinery Equipt 3,000
Transp and delivery exp 500

Record the Transaction: (The PC custodian retires effective Dec. 31/2022)

a. Obligation – RAOD-MO, P15,000

b. Record the granting of cash advances

Petty Cash 10101020 15,000
Cash – MDS, Regular 10104040 15,000
 c. Record un-replenished expenses, return and close the cash on hand.
Office supplies expense 50203010 5,000
Rep and maintenance – Transp. Equipt 50213060 2,500
Rep and maintenance – Mach Equipt 50213050 3,000
Transportation and delivery expenses 50299040 500
Petty Cash 10101020 11,000

d. Return the cash on hand, P4,000.

Cash- collecting officer 10101010 4,000
Petty Cash 10101020 4,000

. Cash – Treasury/Agency Deposit, Regular 10104010 4,000

Cash – collecting officer 10101010 4,000

e. Adjust the obligation for the returned PCF thru a negative entry in the obligation column
in the amount of P4,000.
Or
Note: If a replenishment is requested and an MDS check will be issued, there is a need to obligate the
total amount to be replenished. If only partial amount of PC fund is to be replenished and closed
to PC account at the end of the year, the granting of the PC equivalent amount at the beginning
of the year shall be obligated and restore the total amount of the original PCFund.

The journal entry at the beginning of the following year:( Example: P20,000 is the PCF granted
while P14,000 is the total amount of expenses paid from the PCF but not replenished at the end
of the year. The expenses was recorded and partially closed the PCF account. Then, a check is
being issued at the beginning of the current year to restore the (PCF).

a) obligate the amount of P14,000- RAOD-MO

b) Petty Cash 10101020 14,000

Cash – MDS, Regular 10104040 14,000

After the above journal entry, the petty cash fund is restored to P20,000.

Regular Journal Entries for Disbursements Out of Petty Cash

PCF granted is P 30,000.

1. Obligate P30,000 of PCF in RAOD-MO.

2. Granting of PCF:
Petty Cash 10101020 P30,000
Cash – MDS, Regular 10104040 P30,000

3. Replenishment was requested totalling P25,000 of various expenses:

Travelling exp. – local 50201010 P 9,000
Office supplies expenses 50203010 8,000
Fuel, oil and lubricants 50203090 2,000
Postage and Courier expenses 50205010 2,500
Other maintenance and optg exp 50299990 3,500
Cash – MDS, Regular 10104040 25,000
To record the replenishment of PC based on the DV, RPPCVs and SDs

C. Cash advances granted for travel shall be accounted for as Advances to Officers and Employees
(19901040) and these are subject to liquidation upon 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 officers/employees concerned and submitted to the accounting unit as
basis for JEV preparation. This shall close the receivable account. If there are changes in the itinerary of
travel, a revised itinerary of travel shall be prepared and will support the liquidation of cash advance for
travel.

The excess cash advance shall be refunded and an OR shall be issued to acknowledge receipt thereof
and shall be noted in the Liquidation Report. In the case the amount of cash advance is less than the
travel
expenses incurred, a Liquidation Report shall be submitted to liquidate the cash advance previously
granted and a DV shall be prepared to claim reimbursement of the additional travelling expense.
The Report of Disbursement shall serve as the liquidation report of the cash advance granted to the
Disbursing Officer.

(Example of travelling expense thru cash advance transactions:)

The Regional Director of COA X was directed to attend an Executive Committee Conference
in Manila. The travel was for 3 days but it was cut short by 1 day due to an emergency meeting at
the regional office . An Itinerary of Travel was prepared showing the following information:
Transportation expense (1st and last day) and other incidental
Expenses during the duration of the travel period P 1,600
Per diem (1,800 x 3 days) 5,400
Plane fare (rd trip) 12,000
An amended itinerary was made and showed a reduction of the
Per diem equivalent to P ( 1,800 )

Jounal Entries:

1. Obligate the cash advance for travel to the RAOD-MO amounting to P19,000.

2. To record the granting of cash advances based on IT and Approved Travel Documents:
Advances to Officers and Employees 19901040 P19,000
Cash-MDS, Regular 10104040 P19,000

3. To record liquidation upon return from travel and submission of LR:

Traveling Expenses-Local 50201010 P 17,200
Advances to Officers and Employees 19901040 P 17,200

4. To record refunds after issued with OR:

Cash – collecting officers 10101010 1,800
Advances to Officers and Employees 19901040 1,800

5. To remit the collections to the BTr:

Cash-Treasury/Agency Deposit, Regular 10104010 1,800
Cash – collecting officer 10101010 1,800

6. Adjust by a negative entry in the obligation column the refund amounting P1,800.

Adjust the obligation by posting a negative entry in the obligation column of the Registry. The
obligation for travelling expenses shall be added/deducted for the actual amount of travelling
expenses incurred.

For additional claim of travelling expenses maybe due to an extended official stay, obligate the
equivalent amount of the extended stay and it has to be processed in the accounting office for
payment/reimbursement. It should be an official travel duly supported with proper documentation.
If the travel is not fully supported, the auditor will disallow the claim upon post-audit of said
transaction.

Advice to Debit Account (ADA) –

This is a system by which no check is issued to the payee in payment of government obligations, but
instead, the current account number of the payee in the bank where the government maintains a deposit,
shall be obtained by the accounting unit. If payment is to be made, the ADA shall be issued by the
Accounting Unit of the agency to the bank where it maintains an account. All payments shall be made
to the credit of the payee’s account and a debit to the account maintained by the government agency in
the same bank. A JEV shall be prepared to record the transaction in the GJ. (Refer to COA Circular
No. 2018-14, 12/28/18)
Supplies and Materials: Assume the following transactions regarding purchase of office supplies:
1. Issued Purchase Order (PO) for office supplies,
a. Obligation
b. Payment (thru Procurement Service). Compare with purchases made to outside supplier.
c. Record the asset received/delivered
d. Record the used supplies.
e. Remittance of withholding tax thru TRA if procurement not thru the Procurement Service

Like the prepaid expenses, the expense shall be taken up upon utilization/consumption.

Property and Inventory Accounting System - consists of monitoring, controlling and recording
system for acquisition and disposal of property and inventory.

The system starts with the receipt of the purchased inventory items and equipment. The requesting
office determines their need of inventory items and equipment. Check if the items are not available in
stock and shall prepare and cause the approval of the Purchase Request (PR). Based on the approved
PR, follow the procedures in adopting a particular mode of procurement. After the canvass, the supplier
will be awarded and the agency shall issue a duly approved Purchase Order. Procedures relative to the
obligation of the purchase order and payment of the deliveries shall follow the procedures of obligation
accounting system and disbursement system.
The sub-system are as follows:
1. Receipt, Inspection, Acceptance and Recording Deliveries of Inventory Items and Equipment,
2. Requisition and Issuance of Inventory Items
3. Requisition and Issuance of Equipment

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. Under the
perpetual inventory method, an inventory control account is maintained in the General Ledger on a
current basis, and issuance thereof shall be recorded based on the Report of Supplies and Materials
Issued.

Purchases out of Petty Cash Fund shall be charged immediately to the appropriate expense accounts.
The accounting Unit shall maintain perpetual inventory records, such as the Supplies Ledger Cards
for each inventory stock, Property, Plant and Equipment Ledger Cards for each category of plant,
property and equipment including work and other animals, livestock, etc. The subsidiary ledger cards
shall contain the details of the General Ledger accounts.

For check and balance, the Property and Supply Officer/Unit shall maintain Property Cards (PC) for
property, plant and equipment, and Stock Cards (SC) for inventories. The balance in quantity per PC
and SC should always reconcile with the ledger cards of the Accounting Unit.

The Moving Average Method of costing shall be used for costing inventories. This is the method of
calculating cost of inventory on the basis of weighted average on the date of issue. The Accounting Unit
shall be responsible in computing the cost of inventory on a regular basis.

Example:
The agency process their 6 months requisition of office supplies amounting to P500,000. The
purchase was made to the Procurement Service of DBM, hence, no bidding was conducted, while
P150,000 purchase of equipment (2 air-conditioning units) was made to an outside supplier or to
SM Applicance Center considering the lowest bid offer and no available stock in the Procurement
Service Office. These were delivered and inspected. There is enough allotment balance in obligating the
purchases. A week after the delivery, P220,000 of office supplies were used in operation and recorded
by the accountant supported by MRSMI.

Purchase (Procurement Service)

1. Obligate P500,000 and post under the obligation col. in the RAOD-MO.

2. Record the advance payment of the purchase to the Procurement Service Office.
Due from NGAs 10303010 500,000
Cash, MDS – Regular 10104040 500,000
3. To record the acceptance of the delivery of office supplies.
Office supplies inventory 10404010 500,000
Due from NGAs 10303010 500,000

4. To record issues of office supplies to different requisitioner as per request.

Office supplies expense 50203010 220,000
Office supplies inventory 10404010 220,000

Purchase ( Other Supplier)

1. After the conduct of bidding/canvass, the purchase will be awarded to the lowest bidder/supplier
after a demo is being conducted(if applicable) and Purchase Order is being prepared to be signed
by both the agency and supplier.

2. Upon delivery of the equipment, obligate the amount, P150,000, (RAOD-CO) for the purchase of
equipment to an outside supplier supported by the PO and posted to the registry under the obligation
column for CO.

3. To record the delivery and acceptance of the delivered equipment:

Office equipment 10605020 150,000
Due to BIR 20201010 9,000
Accounts Payable 20101010 141,000

4. To record payment of office equipment.

Accounts Payable 20101010 141,000
Cash – MDS Regular 10104040 141,000

5. To record remittance to BIR supported with approved TRA.

Due to BIR 20201010 9,000
Cash – TRA 40301010 9,000

(If the purchase was charged to a trust account and not come from an NCA when paid, no
obligation is necessary and payment shall be charged to the Cash in Bank – LCCA account)

Under NGAS, the Asset Method will be used in recording disbursements when expenditures apply to
more than the accounting period.

Example, Assume the following types of expenditures:

Rent: The government signed a contract for the rental of office space with 1 year advance payment
of P1,200 starting November. (1 yr, 11/18-10/19)

The Agency enters the obligation of P1,200 in the RAOD-MO, and records the payment as:
Prepaid Rent 19902020 P1,200
Accounts Payable 20101010 P1,200

Accounts Payable 20101010 P1,200

Cash – MDS, Regular 10104010 P1,200

To record the expense as of end of the year or you can include in making the adjustment at the end
of the year.
Rent expense 50299050 200
Prepaid rent 19902020 200

Payment of utilities:
Ex. The agency received their bills of the following:
PLDT P12,000 BIR - 240
MCWD 5,000 100
VECO 18,000 360
Record the transaction.
a. Obligate the billed accounts and post under the obligation col. ROD-MO.

b. Record the bills

Telephone expenses 50205020 12,000
Water expenses 50204010 5,000
Electricity exp 50204020 18,000
Accounts Payable 20101010 35,000

c. Record payment of the above bills.

Accounts Payable 20101010 35,000
Due to BIR 20201010 700
Cash – MDS, Regular 10104010 34,300

d. To record remittance to BIR supported with approved TRA.

Due to BIR 20201010 700
Cash – TRA 10104070 700

Financial Expenses
These are expenses which are not used in the actual operation of the agency such as interest
expenses, bank charges, etc.

Purchase and/or Construction of Fixed Assets

Property, Plant and Equipment and Inventory Accounts acquired through purchase shall include
all costs incurred to bring them to the location necessary for their intended use, like transportation cost,
freight charges, installation costs, etc. These are recorded in the books of accounts as Asset after
inspection and acceptance of delivery.

Construction Period Theory

Fixed assets are charged against capital outlay. Since corollary entry is no longer made, the asset
account is taken up upon purchase. Under the depreciation accounting, depreciation will be taken up
starting on the month succeeding the month of purchase or completion of construction. Straight-line
method will be used. The rate of depreciation shall depend on the nature of the assets, guidelines for
this shall be issued by the COA.

In recording the fixed assets, the Construction Period Theory shall be followed. All expenses
such as interests, license fees, etc., during the construction period shall be capitalized.

During the construction period property, plant and equipment shall be classified and recorded
as “Construction in Progress” with the appropriate asset classification. As the construction is
completed, the “Construction in Progress” account shall be transferred to the appropriate asset
account.

Accounts “Public Infrastructures” and “Reforestation Projects” are recorded in the Registry
of Public Infrastructures/Reforestation Projects at the end of the year.

Purchase/Construction of Fixed Assets

Example: Purchase of office equipment either thru the Procurement Service / outside suppliers.
1. Issue PO for the office equipment
2. Record the obligation, RAOD-CO
3. Record payment (Procurement Service/outside supplier) or recognize the liability
and taxes withheld
4. Record the asset receive/delivered
5. Remit taxes withheld upon receipt of TRA

Construction of Building by Contract

1. Signed the construction contract. Record the obligation – RAOD-CO
2. Record performance bond posted by the contract(cash-5%, bank guarantee-10%,
and surety bond-30% of the contract cost)
 3. Grant 15% advances to the contractor if requested
4. Payment based on the percentage of completion billed
5. Imposed retention fees and observed if needed up to the last claims
6. Required withholding taxes to be deducted for every billing
7. Record completion and turn-over
8. Return the performance bond, retention fees and remittance of withholding taxes

Infrastructure Assets. Besides the five criteria for recognizing PPE, infrastructure assets have the
following additional characteristics:
a. Part of a system or network;
b. Specialized in nature and do not have alternative uses;
c. Immovable; and
d. May be subject to constraints on disposal.

In accordance with PPSAS 17, public infrastructures shall be recognized as PPE in the entity’s
financial statements. These shall be recorded in the books of accounts as infrastructure Assets such as
road networks, sewer system, water and power supply systems, communication networks, etc.

Example.
The agency wanted to expand its building. The project was included in the approved budget
amounting to P7,500,000. It was awarded to a financially capable contractor and made to start in May
15, 2021 to be completed 4 months after. However, there were delays in the completion, which made
the agency charged a liquidating damages totaling P25,000.

There were deficiencies noted during the inspection conducted when it was 35% completion and
claimed the payment of its first billing after being processed. The 2nd billing followed when it
was 65% completion and final billing when it was 100% completion.

Journalize the following:

1. Obligate P7,500,000 construction and post in the obligation column of the RAOD-CO.

2. To record the receipt of cash from the contractor paid as performance bond (cash bond of 5%).
Cash – collecting officer 10101010 375,000
Guaranty/Agency Deposit-Trust 20401040 375,000
(5% X P7,500,000)

3. To record the temporary deposit of the performance bond to the National Treasury.
Cash – Treasury/Agency Deposit – Trust 10104030 375,000
Cash – collecting officer 10101010 375,000

4. To record the 15% of the contract amount as advances to contractor.

Advances to contractors 19902010 1,125,000
Cash – MDS, Regular 10104040 1,125,000
(P7,500,000 x 15% = 1,125,000)

5. To record the 1st progress billing, 35% completion.

Construction in Progress – Bldg and
Other Structures 10610030 2,625,000
Accounts Payable 20101010 2,231,250
Advances to Contractors 19902010 393,750

6. To record payment of the 1st billing.

Accounts Payable 20101010 2,231,250
Cash - MDS, Regular 10104040 1,736,625
Guaranty/Security and Dep Payable 20401040 262,500
Due to BIR 20201010 232,125
(Retention fees)
13
7. To record the receipt of 2nd billing.
Construction in Progress – Bldg
& Other Structures 10610030 2,250,000
Accounts Payable 20101010 1,912,500
Advances to contractors 19902010 337,500

8. To record payment of the 2nd billing.

Accounts Payable 20101010 1,912,500
Cash – MDS, Regular 10104040 1,489,250
Guaranty/Security and Dep Payable 20401040 225,000
Due to BIR 20201010 198,250

9. To record the receipt of the final billing.

(Cost – 7,500,000 – LD 55,000, Advances 393,750)

Construction in Progress – Bldg and

Other Structures 10610030 2,570,000
Accounts Payable 20101010 2,176,250
Advances to contractor 19902010 393,750

10. To adjust obligation by negative entry in the obligation column of the RAOD-CO, reducing the
original amount by P25,000 LD.

11. Record the final payment.

Accounts Payable 20101010 2,176,250
Cash – MDS, Regular 10104040 1,697,800
Guaranty/Security and Dep Payable 20401040 257,000
Due to BIR 20201010 221,450

12. To record the turn-over and acceptance of the building extension.

Contract amount 7,500,000
Less: LD 55,000
Net cost 7,445,000
Building 10604010 7,445,000
CIP – Bldg and Other Structure 10604030 7,445,000

13. To record remittance of withholding taxes thru TRA.

Due to BIR 20201010 651,825
Cash – TRA 10104070 651,825

14. To record receipt of NCA for deposited performance bond to be returned.

Cash – MDS, Trust 10104060 375,000
Cash – Treasury/Agency Deposit, Trust 10104030 375,000

15. To record release of performance bond.

Guaranty/Security Deposits Payable (PB) 20401040 375,000
Cash – MDS, Trust 10104060 375,000

15. Refund of retention fees to contractor.

Guaranty/Security Deposits Payable (RF) 20401040 744,500
Cash – MDS, Regular 10104040 744,500

16. Adjust the obligation thru a negative entry the amount of P55,000 representing Liquidating
Damages deducted from the contract cost originally obligated.

Reforestation Projects. With the implementation of PPSAS, reforestation projects are recognized as
Land Improvements, Reforestation Projects in the books of accounts of the DENR or other entity.
Initial Costs for Reforestation Projects. The following constitutes the initial costs of Land
Improvements-Reforestation Projects:
a. Survey, Mapping and Planning (SMP)
b. Nursery Operation and Seedling Production or Procurement
c. Plantation Establishment (Site preparation, hauling of seedlings and planting)
14
Physical Count of PPE. The entity shall have a periodic physical count of PPE, which shall be done
annually and presented on the Report on the Physical Count of Property, Plant and Equipment
(RPCPPE) as at December 31 of each year. This shall be submitted to the Auditor concerned not later
than January 31 of the following year. Equipment found at station and losses discovered during the
physical count shall be reported to the Accounting Division/Unit for proper accounting/recording.

Miscellaneous Transactions

These are the transactions that are unique and not recurring in the ordinary course of government
operations. These seldom take place or should not happen at all.

1. Issuance of office supplies, equipment and materials. To record issuances. it shall be supported
by a Monthly Report of Supplies and Materials Issued (MRSMI) prepared by the property custodian
regularly. This summarizes all requisitioned and issued inventory items to various requisitioner. For
issued equipment to an employee, a Memorandum Receipt (MR) must be issued to evidence that the
recipient must keep the property with utmost care since it will be his accountability and responsibility.
The MR is renewable every 3 years in order to update the current holder/ownership if ever there are
transfers made.
Office Supplies expense 50203010 XXX
Office Supplies inventory 10404010 XXX

2. Depreciation for Property, Plant and Equipment. The cost of property, plant and equipment are
allocated to the periods benefited through the provision of accumulated depreciation. Depreciation
is the systematic and gradual allocation of the depreciable amount of assets over its useful life.

To compute and record depreciation,

a. Shall use straight-line method.
b. Shall start on the second month after purchase of the property
c. Apply 5% residual value of the purchase cost.
d. Serviceable assets that are no longer used shall not be charged any depreciation

Annual Depreciation = Assets Cost less Estimated Residual/Salvage Value

Estimated useful life

Asset Cost - Purchase or Acquired Value of the Asset

Estimated Salvage value - 5% of the purchase price
Estimated Useful life – estimated number of years the asset shall be used as
determined by the agency
Example:
1. DSWD purchased an equipment costing P25,000 last 5/12/2016. The usefulness of the
equipment was determined for 5 years. Compute the description as of 9/30/2019. No
depreciation was recognized and recorded in prior years from the date of purchase.

Depreciation = P25,000-(5% of P25,000) = P4,750/yr

5 yrs.
=P4,750/12mos. = P359.83/mo.

Depreciation as of 9/30/2018:
2016 = 7mos X P395.83 = P 2,770.81
2017-18 = P4,750 X 2 yrs = 9,500.00
2019 = 9 mos X P395.83 = 3,562.47
P 15,833.28
=========
Journal Entry:
Depreciation- Machinery & Equipment 50501050 P3,562.47
Accumulated Surplus 30101010 12,270.81
Accumulated Dep’n- M & E 10605021 P15,833.28

2. On Dec. 31, 2019, the agency transfer the equipment to other region.
Required: a. JE recording the transferred equipment and JE to be made by the
Receiving agency.
15

Transferor Book
Accumulated Surplus 30101010 P 12,270.81
Depreciation – M & E 50501050 4,750.00
Accum. Dep’n – M & E 10605021 7,979.19
Machinery & Equipment 10605000 P25,000

Transferee Book
Machinery & Equipment 10605000 P 7,979.19
Accumulated Dep’n – M & E 30101010 P 7,979.19

3. Bad Debts – shall be recorded for uncollectibles from trade/business receivables. The determination
of bad debts expense is derived from percentage and aging of accounts receivables as follows:
Age of accounts Percentage
1-60 days 1%
61-180 2%
181- 1 yr 3%
More than 1 yr 5%
Example:
A national government agency has a total accounts receivable of P150,000 which remained
outstanding for 3 yrs. It was approved by COA for write off.

a. Record the corresponding allowance for bad debts.

Impairment loss – Loans and receivables 50503020 P 7,500
Allowance for impairment – A/R 10301011 P 7,500

b. Record the write off:

Allowance for impairment – A/R 10301011 7,500
Accounts Receivable 10301010 7,500

4. Sale of assets no longer used in operation:

Example: Office equipment
Cost P4,500 P4,500
Accum. Dep’n 4,050 4,050
Book value 450 450
Selling price 400 500
-------- --------
Loss ( 50 ) Gain 50
===== ====
a. Sale at a loss
Cash – collecting officer 10101010 P400
Accum. Dep’n – OE 10605021 4,050
Other Losses 50504990 50
Office Equipment 10605020 P 4,500

To remit:
Cash-Treasury/Agency Deposit, Regular 10104010 400
Cash-collecting officer 10104010 400

To close:
Accumulated Surplus 30101010 400
Cash-Treasury/Agency Dep, Regular 10104010 400

b. Gain on sale
Cash- collecting officer 10101010 500
Accum. Dep’n.-OE 10605021 4,050
Office Equipment 10605020 4,500
Other Gains 40501990 50

To remit:
Cash-Treasury/Agency dep, Regular 10104010 500
Cash-collecting officer 10101010 500
16
To close:
Accumulated surplus 30101010 500
Cash-Treasury/Agency Dep., Regular 10104010 500

5. Accounting for Overpayments. Sometimes overpayments or even double payment of expenditures

do happen in agencies. These could be avoided with proper controls but some could not be avoided
because of built-in procedures. One example is the payment of payroll. Payrolls are prepared in
advance and some agencies pay their employees through the banking system (ATM). All these were
done before reports of attendance were submitted, making it impossible to know the exact amount to be
paid in case there were absences without pay during the pay periods. In case of overpayments, refunds
shall be demanded of the employees concern.

Example: Refund of overpayment taken up as receivable.

Due from officers and employees 10305020 100
Salaries and wages, regular 50101010 100

Cash – collecting officers 10101010 100

Due from officers and employees 10305020 100

Cash - |Treasury/Agency Dep., Regular 10401010 100

Cash – collecting officers 10101010 100

Accumulated surplus 30101010 100

Cash – Treasury/Agency Dep., Regular 10401010 100

Adjust obligation for the refunds….

6. Accounting for Cash Overage. In case the cash examination of the auditor disclosed an overage, the
amount shall be forfeited in favor of the government and an official receipt shall be issued by the
cashier. The cash overage shall be taken up as Miscellaneous Income.

To take up cash shortage discovered during cash examination, P500.

Cash-collecting officers 10101010 500

Other Business Income 40202990 500

To remit:
Cash-Treasury/Agency Dep., Regular 10401010 500
Cash-collecting officer 10101010 500

To close”
Accumulated Surplus 30101010 500
Cash –Treasury/Agency Dep., Regular 10401010 500

7. Accounting for stale checks. Checks may be cancelled when it became stale. The depository bank
considers a check stale, if it has been outstanding for over six months from date of issue or as
prescribed.

A stale check shall be marked cancelled on its face and reported as follows:
1. Unclaimed stale checks which are still with Cashier shall be cancelled and reported in the List of
Unreleased Checks as cancelled. The List of Unreleased Checks is attached to the RCI.
2. For stale checks which are in the hands of the payees or holders in due course and requested for
replacements, new checks maybe issued upon submission of stale checks to the accounting unit.
A certified copy of the previously paid DVs shall be attached to the request for replacement. A
JEV shall be prepared to take up the cancellation. The replacement check shall be reported in the
RCI.
17
Stale MDS checks issued in the current year for replacement, P15,000
Check cancellation:
Cash- MDS, Regular 10104040 P 15,000
Accounts Payable 20101010 P15,000

Adjust obligation. (Check what type of expenditure being paid and the RAOD).

Check Replacement: (If replaced, no adjustment in the obligation)

Accounts Payable 20101010 15,000
Cash-MDS, Regular 10104040 15,000

Stale MDS checks issued in prior years for replacement:

Check cancellation:
Accumulated Surplus 30101010 15,000
Accounts Payable 20101010 15,000

Check Replacement:
Accounts Payable 20101010 15,000
Cash-MDS, Regular 10104040 15,000

Stale commercial checks issued in the current year and prior years for replacement, P5,000:
Check cancellation:
CIB-LCCA 10102020 5,000
Accts. Payable 20101010 5,000

Check replacement:
Accts. Payable 20101010 5,000
CIB-LCCA 10102020 5,000

8. Accounting for Disallowance. Disallowances shall be taken up in the books of accounts only when
they become final and executory. The accountant shall prepare the JEV to take up the Receivable-
Disallowance/Charges and credit the appropriate expense account for the current year or Accumulated
Surplus account if pertaining to expenses of previous years.

Cash settlement for disallowances shall be acknowledged through the issuance of an official receipt
and reported by the cashier in the RCD.

9. Accounting for loss of cash and property. This may be due to malversation, theft, robbery, fortuitous
event or other causes. Cash shortage discovered during cash examination conducted by auditors is
reported through the Report of Cash Examination. The Auditor issue an audit report in case of shortage
in property accountability. As soon as a shortage is definitely established, the auditor shall issue a
memorandum pertaining thereto and the accountant shall draw a JEV to record the shortage as a
receivable from the accountable officer concerned.

In case of loss of property due to other causes like theft, force majeure ,etc., a report thereon shall be
prepared by the accountable Officer concerned for purposes of requesting relief from accountability. No
accounting entry shall be made but the loss shall be disclosed in the notes to financial statements
pending result or request for relief from accountability.

Grant of Relief from Accountability. When a request for relief from accountability for shortage or loss
of funds is granted, a copy of the decision shall be forwarded to the Chief Accountant who shall draw a
JEV to record the transaction. The loss shall be debited to the Loss of Assets account and credited to the
appropriate receivable account. In case the request for relief is denied, immediate payment of the
shortage shall be demanded from the AO. Restitution shall be acknowledged by the issuance of an
official receipt.

In case the request for relief from accountability for loss of property caused by fire, theft, etc, is
granted a copy of the decision shall likewise be forwarded to the Chief Accountant for the preparation of
the JEV. The loss shall be debited to the Loss of Assets account and credited to the appropriate asset
account. If request for relief is denied, the loss shall be taken as receivable from the accountable officer
and shall be credited to the appropriate asset account.
18