GOVERNMENT ACCOUNTS

Sources of Government Revenue

The government revenue means the amounts which are received by the Government
during particular year. In other words, the Income of the government is known as
public or Government revenue. These may be classified as:-
a) Internal sources
b) External sources

These sources are explained as under:

Internal Sources
Internal sources consist of those amounts which are received by the Government
internally or from the individuals of the country. The main internal sources of revenue
of Kenya Government are:

Direct Taxation
This taxation includes income tax, corporation tax and capital gains tax. About 30% of
Kenya Government’s revenue comes from direct taxation,

Indirect Taxation
The indirect taxation includes;-
Sales tax on domestic manufacturers
Sales tax on imports
Import duties
Excise duties
Export duties

Indirect taxation is the major source of Government revenue from, internal sources. This
taxation contribute, about 55% of Government revenue in Kenya,

Licence Foes
The Government of Kenya receive fee from business and trading licences, licence fees
under Traffic Act and other miscellaneous licences. This source contributes about 5%
Government revenue in Kenya.
Fines
Fines and penalties is another sources of revenue. These fines and penalties are imposed
on the individuals for not obeying the laws of the penalties are imposed on the
individuals for not obeying the laws of the country. These sources contribute abo
revenue of Kenya Government.

Income from Property

The forests, mines, and national parks are considered as the Government property. The
income from sue properties is another source government revenue. This source
contributes about 5% of total income of Kenya government from internal sources.

Sales of Goods and Services

The Government also receives income from the sale of different goods and services.
About 3% to 4% income of Government of Kenya comes from this source.

Other Sources
In addition to the above sources, the Government receives income from some other
miscellaneous sources. These sources contribute a small amount of Government
revenue.

External Sources
External sources of Government revenue consist of external loans and grants. These
loans and grants are obtained by the government for development purposes. These
loans and grants are the main sources of income of capital budgets. These loans and
grants are obtained from different countries and international organizations. The Kenya
Government obtains loans and grants mainly from U.S.A West Germany, Japan.
Netherlands, Denmark, U.K. and so on. The main international organizations which
provide loans to Kenya are World Bank, African Development Bank, International
Monetary Fund Arab League, European Economic Community, International
Development Agencies and O.P.E.C.

Government Expenditure
Government expenditure means those amounts which are spent by the Government for
different purposes. The Government expenditure may be classified as:-
(a) Recurrent expenditure
(b) Development expenditure

These are explained as

Recurrent Expenditure
Recurrent expenditure means revenue expenditure. This expenditure is incurred by the
government on normal activities. The amounts which are spent by the government on
regular services like defence, health, education, administration, etc is referred as
recurrent expenditure. The main expenditure heads of recurrent expenditure are the
followings:

General Public Administration

This expenditure is incurred on general administration of the country. About 10% to
15% of total expenditure in Kenya is incurred for this purpose.

Defence
Defence of the country is of great importance for its stability. The Government of Kenya
spends about 10% of recurrent expenditure on the defence. This percentage is very low
as compared1 to other countries.

Education
Education is the main priority of Kenya Government. About 20% to 25% of recurrent
expenditure is incurred on education.

Health
The Government spends on health facilities. About 6% of recurrent expenditure is
incurred for providing health services.

Social Welfare
The Government of Kenya spends on social services like housing, sports etc. The share
of this head in total recurrent expenditure is about 2%.

Economic Services
The government of Kenya spends huge amounts on providing economic services. The
Government services include agriculture, forestry, fishing, mining, electricity, gas,
water, transport and communication etc. about 13% to 16% of total recurrent
expenditure is incurred for this purpose.

Other Services
There are some miscellaneous item, of recurrent expenditure. About 30% of total
expenditure is incurred for this purpose.

Development Expenditure
Development expenditure is incurred for the establishment of new agricultural and
industrial projects, installation of new plant and machinery, construction of new water
and power projects, construction of new roads and buildings, purchase of new
equipment etc. Development expenditure is mainly financed from external loans and
grants, Internal borrowing is also another source of financing the development
expenditure. Development expenditure is shown in capital budget.

Recording Government Revenue and Expenditure

Although the recording of government revenue and expenditure is based on the
concept of double entry but the procedure of recording transactions in the Government
sector is different from a commercial enterprise. In the Government sector, the theory of
fund accounting is followed, A fund is an independent fiscal and accounting entity with
resources and obligations, Each Government unit can be regarded as a fund and
complete accounting records are maintained for each fund, There are various
Government ministries and in each ministry there are various departments. For
example, the ministry of commerce has the following departments:

General administration and planning

Department of internal trade
External trade services
Inspectorate of weights and measures,

Each department of the ministry of commerce can be regarded as a separated fund

Major steps in Government accounting in Kenya are the following:

Annual Estimates
These estimates arc prepared by these are submitted to the Treasury, These estimates
include revenue and expenditure figures for the next year.

Presentation of Budget
The Minister of Finance present the budget for the next financial year before the
parliament in the month of June every year. The financial year of the Government start
from 1st July and ends on 30th June next year. The budget contains from July and ends
on

Spending by Ministries
Some specific amounts are appropriated by the Parliament to different Ministries. The
Government ministries can spend the amounts appropriated to them. Appropriated
amounts can be used by the ministries to perform their duties. There are different vote
numbers which are assigned to different ministries. These votes may be further divided
into recurrent (R) and Development (D) votes. These vote numbers are used for
reference purposes. For exam pie, vote R -11 and D 11 are recurrent and development
vote numbers of the Ministry of Health. Similarly; vote R-12 and D -12 are recurrent and
development vote numbers of the Ministry of Local Governments. In each ministry,
there are sub-votes for different departments of any ministry.

Amounts appropriated to one ministry can be allocated for different purposes. The
ministries cannot spend amount in excess of their appropriations without the approval
of the parliament.

Internal Control
In each ministry, there is a system of internal control. The main purpose of this control
is to ensure that the spendings are according to appropriations and for correct
purposes.

Audit by Controller and Auditor General

The Controller and Auditor General is responsible to audit the accounts of various
Government departments. The main purpose of this audit is to ensure that all moneys
appropriated have been spent for correct purposes. This report is presented to the
Government together with annual appropriation accounts.

Public Accounts Committee

Public accounts committee consists of members of Parliament. Controller and Auditor
General presents his report about the audit of Controller and Auditor General in his
report

It is composed of a chairman and at least three other members. The Controller and
Auditor General acts as an adviser to the committee in its investigations. The report of
this committee is placed before the Assembly and the Treasury is responsible for
implementing its recommendations.

Consolidated Fund
All revenues or other moneys raised or received by the government are paid into one
fund and this fund is known as consolidated fund. No money can be withdrawn from
the consolidated fund without the approval of the Parliament. From the consolidated
fund, the Parliament approves the annual budget of the Government. The
Appropriation hill is introduced in the Parliament after the approval of the budget. The
main purpose of this bill is to issue from the consolidated fund the amounts necessary
to meet the expenses of different ministries. These amounts are appropriated to the
different ministries for the several services. Sometimes, the funds appropriated to
different ministries are insufficient. In such cases, supplementary appropriation bill is
presented. If the appropriation bill passed does not come into operation for some time
then the Parliament may by a Vote on Account authorize withdrawal of money from
the consolidated fund not more than one half the sums included in the budget in order
to enable the Government authorities to carry on the Government services.
The consolidated fund is the main source from which funds are provided to the
different departments of the Government. This fund provides a limit within which the
amounts can be spent during a particular year. This fund helps to control the
expenditure of the Government.

Appropriations in Aid
Appropriations in Aid are particular classes of revenue which the Treasury authorizes
an Accounting officer to use, in addition to the amounts to be issued from the
exchequer, to meet expenditure. Appropriations in Aid are scheduled in the annual
Appropriation Act and any excess over the authorized sum for Appropriations in Aid
will be due to the Exchequer unless the authorized sum is increased by supplementary
appropriation.

Paymaster General
The Paymaster General is the principal paying agent of the Government and is
considered as the banker for all Government departments. All revenues of the
Government arc' paid into Exchequer Account. It means the consolidated fund
constitutes the credit side of the exchequer account. The Exchequer Account is kept at
the Central Bank of Kenya Nairobi and only the treasury can operate on this account.
The
Paymaster General makes the payment on behalf of the government. For this purpose,
the paymaster General arranges with the Treasury for the withdrawn of cash from
Exchequer at regular intervals. The amounts withdrawn are Percent on behalf of the
Government, the withdrawal of paymaster General arranges with the Treasury for
amounts withdrawn are Exchequer at regular intervals, The amounts withdrawn are
transferred from the Exhequer Account to the made in respect cheques issued, by
different ministries. The Paymaster General maintains a separate account for each
accounting unit or branch so as to show the total receipts and payment in respect of
those account.

The Treasury maintains records to show the amounts paid into the exchequer under
each revenue head and the amounts issued from the exchequer in respect of each vote.
It is important that issues from the exchequer should be almost equal to the total
expenditure as shown in the annual Appropriation Account for each vote. The
Paymaster General withdraws these amounts from the Exchequer Account in respect of
each vote and makes payments out of these amounts.

CASH BOOK
Cash book is that book in which all receipts and payments of cash are recorded. Each
Accounting unit maintains a cash book. There are different types of receipts and
payments in different ministries, for example, main source of receipts in the Ministry of
Education is school fees and in the Ministry of Transport and Communication motor
vehicle licence fees and so on. The layout of cash book of different ministries or
Government departments is shown as under:-

Diagram

The cash book. These cheques are banked later on and then:
DR: Bank a/c
CR: Cash a/c

Vote Book
Vote book is used by each fund in the government sector. Vote book is that book in
which various accounts are opened. These accounts related to various expenditure
heads and sources of revenue. Vote book is just like a ledger.

In a vote book, the vote number of any particular department or ministry is used. The
amounts appropriated to that department for different purposes are recorded into the
respective accounts. When expenditure is incurred for any specific purpose, it is
recorded into respective account. The total funds allocated for a specific purpose and
the amounts spent are compared from time to time. This system helps to ensure that the
expenditure incurred does not exceed the amounts appropriated for a specific purpose.
For various expenses, different code numbers are used. Some code numbers are given
as under:-
110 - Travelling and Accommodation expenses
120 - Postal and Telegram expenses
121 - Telephone expenses
130 - Official entertainment
174 - Stationery

In a vote book, Account number 110 will show total appropriation for Travelling and
Accommodation expenses and total amounts spent for this purpose upto a specific date.

The format of vote book is shown as under:-

Vote Book
A/C No.____________ A.IE. No_______________
Allocation
Commitments
Dale Supplier Ref: Estimated Pule PV Amount Total balance
coil No. Paid payment Available

Analysis Cash Book

Analysis cash book is like the petty cash book and is usually used for the purpose of re-
imbursement to the holder of a standing imprest. It shows the amount authorized as
standing imprest, the payments made under various types of items and balance at
hand. In other words, the anaylsis cash book analyses the amounts spent from the
standing imprest which is due for re-imbursement.

The layout of analysis cash book is shown as under:-

Analysis Cash Book
Receipts Date Particulars A.I.E. PAYEE A/C Amount

Annual Accounts
Each accounting unit or department of the Government prepares some annual accounts.
These accounts are of diversified nature. The accounts prepared by different
departments are not of the same kind. These accounts may consist of:
a) Income and Expenditure Account
b) Statement of Assets and Liabilities
c) General Account of Vote (G JX.V.) Account
d) Exchequer Account
e) Cash (P.M.G.) Account
f) Appropriation Account
g) Revenue Account

The Procedure of preparing the above accounts is explained by the help of the following
examples:
Income and Expenditure Account
The department involved in providing some commercial services prepare income and
expenditure accounts. This account is similar to income and expenditure accounts of
non-trading organization in this account surplus or deficit income is calculated.

Example 3
The following balances were extracted from the books of pension fund for the year 30
June 1994
 DR CR
Sh sh

Payment to members 500,000

Payment of management expenses 150,000
Member’ contribution 800,000
Interest on investment 400,000
Investment Account 2000,000
Fund Account 1800,000
Cash
Paymaster General Account 350,000
3,000,000 3,000,000

Required
Prepare income and Expenditure Account for the year ended 30 June 1994 and a balance
sheet as at that date:

Answer
Income and Expenditure Account for the year ended 30June 1994

sh sh
Payment to members 500,000 Members contribution 800,000
Management expenses 150,000 Investment income 400,000
Surplus income 550,000
1,200,000 1,300,000

Balance sheet as at June 1994

sh sh
Fund a/c: investments 2,000,000
 Balance b/f 1,800,000
Add: cash
Surplus income 550,000 2,350,000 Payment general account 350,000
2,350,000 2,350,000

Statement of assets and liabilities

A statement of assets and liabilities is similar to balance sheet of commercial enterprises.
Each accounting unit preparer a consolidated statement of its assets and liabilities as at
30June each year.

General Account of vote

G.A.V account shows the amount authorized by the parliament to a specific vote and
total expenditure incurred during a particular year.

Exchequer Account
This account records the amount authorized from the consolidated fund regarding a
specific vote and amounts withdrawn from this account by the paymaster general.

Cash (P.M.G) Account

This account records the withdrawal from exchequer and amounts spend during a
particular year.
The double entry system followed in case of the above accounts is as under:

Amount authorized in the vote on Account:

DR: Exchequer Account
CR: G.A.V. Account

Amount withdrawal:
DR: paymaster General’s Account
CR: Exchequer Account
Annual Expenditure paid
DR: G.A.V. Account
CR: Expenditure account

Appropriations in Aid (A.I.A) Receipts

DR: Appropriations in Aid Account
CR: G.A.V Account

Excess Appropriations in Aid receipts over the approved estimates:

DR: G.A.V. Account
CR: Excess Appropriations in Aid Account

Statement of Assets and Liabilities

Liabilities £ Assets £
G.A.V 190,000 Exchequer A/C 110,000
Excess A.I.A 5,000 Cash (P.M.G) a/c 85,000
195,000 195,000

Appropriation Account
Appropriation account shows the estimated expenditure, actual expenditure, amounts
under spent and amounts over spent for a particular year. The main purpose of this
account is to analyses the differences between estimated expenditure and actual
expenditure. These differences are explained by the accounting officer in the form of
footnotes. Over or underspending is explained only if there is significant difference
between estimated expenditure and actual expenditure.
Example 6
The estimate and expenditure details relating to a ministry as at 30 June 1994 were as
follows:
Original Actual
Estimate Expenditure
£ £
000 - Personal Emoluments 80,000 90,000
050 - House allowances 15,000 13,000
080 - Passages and leave 5,000 4,500
110 - Travelling expenses 22,000 23,000
140 - Electricity and water 6,000 6.500
220 - Purchase of Plant and equipment 50,000 40,000
650 - Appropriations in Aid 15,000 12,000

Supplementary estimates authorized during the year were as follows:

£
000 - Personal Emoluments 8,000

110 - Travelling expenses (2,000) reduction

Required:
Prepare Appropriation Account for the year ended 30 June 1994
Appropriation Account for the year ending 30 June 1994
Approved Actual Amount Amount
Estimate Expenditure underspent overspent
000 Personal £ £ £ £ £
emolument
original 80,000
supplementary 8,000 88,000 90,000 2,000
050 House 15,000 13,000 2,000
allowances
080 Passages and 5,000 4,500 500
 leave
110 Traveling
expenses
original 22,000
supplementary (2,000) 20,000 23,000 3,000
140 Electricity and 6,000 6,500 500
water
220 Purchase and 50,000 40,000 10,000
plant and
equipment
Gross total 184,000 177,000 12,500 5,500

Approved Actual
Estimate Receipts
£ £
Less 15,000 12,000
Appropriations
in Aid (A.I.A)
Net total 169,000 165,000

Surplus of gross estimate over expenditure 7,000

Deficiency of A.IA. 3,000
Net surplus to be surrendered to Exchequer 4,000

Revenue Account
Revenue account shows the estimated and actual receipts in respect of a specific
revenue head of the Government, The significant differences between estimated and
actual receipts are explained by the accounting officer in the form of footnotes to
revenue account.
Example 7
From the following information, prepare a Statement of Revenue for the year ended 30
June 1994:

Revenue Head - 150 – 155:

Estimated Actual
Receipts Receipts
£ £
531 - Renting Buildings and equipment 850,000 870,000
532 - Fees for trading licenses 430,000 400,000
533 - Fees for export and import licenses 740,000 780,000
534 - Other receipts 235,000 210,000

The following additional details are made available:

i. Balance on hand as at 30 June 1993 £ 247,000
ii. Balance on hand as at 30 June 1994 £ 160,000
Revenue Head 150 -155
Statement of Revenue
For the year ended 30 June 1994
Estimated Actual
Receipts Receipt £
£ £
Payments to
Renting Buildings and equipment 850,000 870.000
exchequer 2347.000
Fees for trading licenses 430,000 400,000
Balance c/d as on 30 160.000
Fees for export and import licenses 740.000 780,000
June 1994
Other receipts 235,000 210.000

2255.000 2260,000

Balance b/f as on 30 June 1993 247,000

2507,000 2507,000

In this example, the balancing figure will be considered as payment to exchequer.

GAV ( Controlling budget- I/E)

Actual Exp. XX NET ESTIMATE(BUDGETED-AIA(Budgeted)
ACTUAL AIA XX
EXCESS AIA

EXCHEQUER ACC (AMOUNT AUTHORISED FROM CONSOLIDATED FUND)

NET ESTIMATE(BUDGETED-AIA(Budgeted) XX WITHRAWAL XX

PAYMASTER GENERAL ACCOUNT

WITHDRAWALS XX ACTUAL EXPENDITURE
ACTUAL AIA

1. Amount Authorised in Vote : DR. EXCHEQUER A/C CR. GAV A/AC

2. Amount Withdrawn : DR. PAYMASTER GEN CR. EXCHEQUER
A/C
3. Amount of Expenditure : DR, GAV A/C CR. PMG/exp
4. AIA RECEIPT : DR. AIA CR. GAV
5. EXCESS AIA : DR. GAV CR. EXCESS AIA