Lesson 1 Overview of Government Accounting

Government Accounting armarcojoscpa
Lesson 1 Overview of Government Accounting
Learning Objectives
Differentiate government accounting from the accounting for business entities.
State the government entities charged with accounting responsibility.
State the basic principles used in government accounting.
State the recognition criteria for assets.
Introduction
Government Accounting As defined and pursuant to Section 109 of PD 1445, “encompasses the
process of analyzing, classifying, summarizing and communicating all transactions involving the
receipt and disposition of government fund and property and interpreting the result thereof.”
Sec 110. PD 1445. Following objectives of government accounting:
1. To produce information concerning past operations and present conditions;

2. To provide a basis for guidance for future operations;
3. To provide for control of the acts of public bodies and offices in the receipt, disposition and
utilization of funds and property, and
4. To report on the financial position and the results of operations of government agencies for
the information and guidance of all persons concerned.
Like the accounting for business entities, government accounting is also a process of producing
information that is useful in making economic decisions.
Public sector has similar key characteristics to those in the private sector. They are typically
established by legislation and:
· Their objective is to provide goods and services to various recipients or to develop or

implement policy on behalf of governments and not to make a profit;
· They are characterized by the absence of defined ownership interests that can be sold,
transferred or redeemed;
· They typically have a wide group of stakeholders to consider (including the public at large;
· Their revenues are generally derived from taxes or other similar contributions obtained
through exercise of coercive powers; and
· Their capital assets are typically acquired and held to deliver services without the intention
earning a return on them.
Subjects of Government Accounting

The subjects of government accounting include:
1. National Government - consisting of departments, bureaus, commissions, boards, state

colleges and universities.
2. Local Government-provinces, chartered cities, municipalities, and barangays
3. Government-owned or government controlled corporations - which were created by law to
manage specific type of business.
Millan, Z.V. (2018).Government Accounting & Accounting for Non-Profit Organizations.Bandolin Enterprise
Dayag, A.J. (2022).Advanced Financial Accounting and Reporting (Theories & Problems).GIC Enterprises & Co.,Inc
Emphasis of Government Accounting
a. Sources and utilization of government funds; and
Sources: – Receipts from taxes and other fees

– Borrrowings – Grants from other governments and international bodies
Utilization: – Expenditures on programs, projects, unanticipated losses from calamities
and the like.
b. Responsibility, accountability and liability of entities entrusted with government funds and
properties.
Responsibility over Government Funds and Property
1. Government resources shall be utilized efficiently and effectively in accordance with the law.
The head of a government agency is directly responsible in implementing this policy and is
primarily responsible for government resources entrusted to his agency. Those who are
entrusted with the possession of government resources are directly responsible to the head
of the agency.
2. All those who are exercising authority over a government agency shall share fiscal
responsibility.
Accountability over Government Funds and Property
1. A government officer entrusted with the possession of government resources is responsible

for the safekeeping therefor in accordance with the law. Every accountable officer shall be
properly bonded.
2. The transfer of government funds from one officer to another shall, except as allowed by law,
be made only after the authorization of the COA. The transfer shall be properly documented
in an invoice and receipt.
Liability over Government Funds and Property
1. The unlawful use of government resources shall be the persoal liability of the employee
found to be directly responsible therefor.
2. Every accountable officer shall be liable for all losses resulting from the unlawful use or
negligence in the safekeeping of government resources.
3. No accountable officer shall be relieved from liability merely because he has acted under the
direction of a superior officer in unlawfully utilizing the government resources entrusted to
him, unless before that act, he has notified the superior officer, in writing, that the utilization
is illegal. The superior officer shall be primarily liabile while the accountable officer who fails
to serve the required notice shall be secondarily liable.
4. An accountable officer shall immediately notify the COA for any loss of government funds
from unforeseen events (force majeure) within 30 days. Failure to do so will not relieve tha
officer of liability.
The Unsung Heroes

The number of Filipinos going abroad to seek employment is increasing every year. In 2012,
it was estimated that about 10.4 million Filipinos worked abroad.(CNN) Almost all Filipinos know at
least one other Filipino a family member, a relative, or a friend, who is working abroad. We refer to
our overseas workers as unsung heroes. How so?
This is mainly because overseas workers remittances greatly increase the spending in our
country, and the more money is spent, the more taxes the government collects. A portion of the
money we spend on almost everything (food, clothing, bills, entertainment, medicine, rentals, etc.)
represents payment for tax. Taxes are the main source of government funds used in developing our
country.
Working abroad entails great sacrifices, not only for the overseas worker but also for family
members left at home. We need efficient and effective utilization of our government resources so
that someday our countrymen can have better options of finding a livelihood in our country.
Accounting, as a tool for planning and control, contributes to the achievement of this goal by
providing information that is useful in planning the sources and uses of government funds and
comparing actual results with expected results to promote the efficient and effective utilization of
government funds.
Government Accounting Responsiblity
a. Commission on Audit (COA)

b. Department of Budget and Management (DBM)
c. Bureau of Treasury (BTr)
d. Government Agencies
Commission on Audit (COA)
a. Has the exclusive authority to promulgate accounting and auditing rules and regulations.
b. Keeps the general accounts of the government, supporting vouchers, and other documents.
c. Submits financial reports to the President and Congress.
Department of Budget and Management (DBM)
The Department of Budget and Management (DBM) is responsible for the formulation and
implementation of the national budget with the goal of attaining the nation's socio-economic
objectives.
Bureau of Treasury (BTr)
The Bureau of Treasury (BTr) functions under the Department of Finance and is the cash custodian
of the government. The BTr is authorized to:
a. Receive and keep national funds and manage and control the disbursements thereof; and
b. Maintain accounts of financial transactions of all national government offices, agencies and
instrumentalities.
Government Agencies
Government 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 government owned or
controlled corporation (GOCC), including its subsidiaries, or other self-governing board or
commission of the government. (P.D. No. 1445)
The government agencies are responsible in directly implementing the projects of, and performing
the functions delegated by, the government.
Each agency (entity) shall maintain accounting books and budget registries which are reconciled
with the cash records of the BTr and the budget records of the COA and DBM.
Government agencies are required by law to have accounting units/divisions/departments.
Even a barangay (the smallest administrative division in the Philippines) is required to have an
accounting unit, e.g., the barangay's "bookkeeper."
Ø Entity refers to a government agency, department or operating/field unit.

Ø Financial Reporting is the process of preparation, presentation and submission of general
purpose financial statements and other reports. The objective of financial reporting is to
provide information about the entity that is useful to users for accountability purposes and
decision-making.
The GAM for NGAs

An "old" government accounting system had been used for about five decades before it was
replaced by the New Government Accounting System (NGAS) in 2002. However, on January 1,
2016, the NGAS was replaced by the Government Accounting Manual for National Government
Agencies (GAM for NGAS).
The GAM for NGAs was promulgated primarily to harmonize the government accounting standards
with international accounting standards, particularly the International Public Sector Accounting
Standards (IPSAS). The IPSASs are based on the International Financial Reporting Standards
(IFRS).
The International Public Sector Accounting Standards Board® (IPSASB®) works to improve public
sector financial reporting worldwide through the development of IPSAS®, international accrual-
based accounting standards, for use by governments and other public sector entities around the
world.
The Philippine Government has adopted the IPSAS through the Philippine Public Sector Accounting
Standards (PPSAS). The provisions of the PPSAS are incorporated in the GAM for NGAS.
Since the PPSAS are based on the IPSAS, which are in turn based on the IFRSs/PFRSs, most of
the concepts that we will be learning in this book would be very familiar to you.
Legal basis
The GAM for NGAs is promulgated by the Commission on Audit (COA) based on the authority
conferred to it by the Philippine Constitution:
Relevant provision of law:

➤ "The Commission (on Audit) shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and methods
required therefor, and promulgate accounting and auditing rules and regulations, including those for
the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties." (Art. IX-D, Sec. 2(2),
Philippine Constitution)
Coverage
The GAM for NGAs provides the basic concepts to be used in:
a. Preparing general purpose financial statements in accordance with the Philippine Public
Sector Accounting Standards (PPSAS) and other financial reports as may be required by
laws, rules and regulations; and
b. Reporting of budget, revenue and expenditure in accordance with laws, rules and
regulations.
Objective
The GAM for NGAs aims to update the following:
a. Standards, policies, guidelines and procedures in accounting for government funds and
property;
b. Coding structure and accounts; and
c. Accounting books, registries, records, forms, reports and financial statements. (GAM for NGAs;
Chapter 1, Sec. 3)
Basic Accounting and Budget reporting Principles

The financial records and reports of government entities shall comply with the following:
1. Philippine Public Sector Accounting Standards (PPSAS) and relevant laws, rules and
regulations;
2. Accrual basis of accounting; Under the accrual basis of accounting, transactions are
recognized when they occur (and not only when cash is received or paid). Therefore,
transactions are recognized in the periods to which they relate.
3. Budget basis for presentation of budget information in the financial statements;
4. Revised Chart of Accounts prescribed by COA;
5. Double entry bookkeeping;
6. Financial statements based on accounting and budgetary records; and
7. Fund cluster accounting
Code Fund Clusters

01 Regular Agency Fund
02 Foreign Assisted Projects Fund
03 Special Account-Locally Funded/Domestic Grants Fund
04 Special Account-Foreign Assisted/Foreign Grants Fund
05 Internally Generated Funds
06 Business Related Funds
07 Trust Receipts
For example, separate accounting books and budget registries shall be maintained fro Regular
Agency Fund. Another separate accounting books and budget registries shall be maintained for
Foreign Assisted Project Funds, and so on.
Qualitative Characteristics of Financial Reporting

Qualitative characteristics are the attributes that make information useful to users.
a. Understandability – information is understandble when users can reasonably be expected to

comprehend its meaning. Accordingly, users are assumed to have
i. Reasonable knowledge of the entity’s activities; and
ii. Willingness to study the information.
b. Relevance - Information is releval users in evaluating past, present or future events or in
confirming or 12 correcting past evaluations. In order to be relevant, information must also be
timely.
c. Materiality - affects the relevance of information. Information is material if its omission or
misstatement could influence the decisions of users. Materiality depends on the nature or size of
the item or error, judged in the particular circumstances of its omission or misstatement.
d. Timeliness - Information loses its relevance if there is undue delay in its reporting. The
complexity of an entity's operations is not a sufficient reason for failing to report on a timely
basis.
e. Reliability - reliable information is free from material error and bias, and can be depended on by
users to represent faithfully that which it purports to represent or could reasonably be expected
to represent.
Trade-offs between Relevance and Reliability

To provide timely information, it may be necessary to report before all aspects of a
transaction are known, thus impairing reliability. Conversely, if reporting is delayed until all
aspects are known, the information may be highly reliable but of little use to users who need
to make decision in the interim. To achieve a balance between relevance and reliability, the
overriding consideration is how users' needs are best satisfied.
f. Faithful representation - For information to represent faithfully transactions and other events, it
should be presented in accordance with the substance of the transactions and othe events, and
not merely their legal form.
h. Substance over form - The substance of transactions or other events is not always consistent
with their legal form. If information is to represent faithfully the transactions and other events that
it purports to represent, it is necessary that they be accounted for and presented in accordance
with their substance and economic reality, and not merely their legal form.
h. Neutrality Information is neutral if it is free from bias. Information shall not be selected or
presented in a manner that is designed to influence the user's decision in order to achieve a
predetermined outcome.
i. Prudence - is the exercise of a degree of caution when making estimates under conditions of
uncertainty, such that assets or revenue are not overstated and liabilities or expenses are not
understated. However, prudence does not allow the creation of hidden reserves or excessive
provisions, the deliberate understatement of assets or revenue, or the deliberate overstatement
of liabilities or expenses, because the financial statements would not be neutral and, therefore,
not reliable.
j. Completeness - Information should be complete within the bounds of materiality and cost.
k. Comparability - Information is comparable when users are able to identify similarities and
differences between that information and information in other reports. Comparability applies to
the comparison of financial statements of different entities and comparison of the financial
statements of the same entity over different periods. Comparability requires that users must be
informed of the entity's policies, changes to those policies, and the effects of those changes and
that financial statements show corresponding information for preceding periods. (PPSAS 1/GAM
for NGAs, Chapter 19, Sec. 6)
Components of General Purpose Financial Financial Statements
General Purpose Financial Statements are those intended to meet the needs of users who are not
in a position to demand reports tailored to meet their particular information needs. (PPSAS 1.3)
The complete set of general purpose financial statements consists of:

a. Statement of Financial Position
b. Statement of Financial Performance
c. Statement of Changes in Net Assets/Equity
d. Statement of Cash Flows
e. Statement of Comparison of Budget and Actual Amounts
f. Notes to the Financial Statements, comprising a summary of significant accounting policies
and other explanatory notes
Objective of Government Accounting Manual
The New Government Accounting System (NGAS) Manual presents the basic policies and
procedures; the new coding system; the accounting systems, books, registries, records, forms,
reports, and financial statements; and illustrative accounting entries to be adopted by all national
government agencies effective January 1, 2002. The objectives of the Manual are to prescribe the
following:
1. Standards, policies, guidelines and procedures in accounting for government funds and
property;
2. Coding structure and accounts; and
3. Accounting books, registries, records, forms, reports and financial statements.
The NGAS presents the basic accounting policies and principles in accordance with the Philippine
Public Sector Accounting Standards (PPSAS) adopted thru COA Resolution No. 2014- 003 dated
January 24, 2014 and other pertinent laws, rules and regulations.
It shall be used by all National Government Agencies (NGAs) in the:

· preparation of the general purpose financial statements in accordance with the PPSAS and
other financial reports as may be required by laws, rules and regulations; and
· reporting of budget, revenue and expenditure in accordance with laws, rules and regulations.
Definition of Terms. For the purpose of this Manual, the terms used as stated below shall be
construed to mean as follows:
General Provisions, Basic Standards and Policies

1. Accrual basis - means a basis of accounting under which transactions and other events are
recognized when they occur (and not only when cash or its equivalent is received or paid).
2. Assets are resources controlled by an entity as a result of past events, and from which future
economic benefits or service potential are expected to flow to the entity.
3. Contributions from owners means future economic benefits or service potential that have been
contributed to the entity by parties extemal to the entity, other than those that result in liabilities
of the entity, that establish a financial interest in the net assets/equity of the entity, whích:
· conveys entitlement both to (i) distributions of future economic benefits or service potential
by the entity during its life, such distributions being at the discretion of the owners or their
representatives; and to (ii) distributions of any excess of assets over liabilities in the event of
the entity being wound up: and/or
· can be sold, exchanged, transferred, or redeemed.
4. Distributions to owners - means future economic benefits or service potential distributed by the
entity to all or some of its owners, either as a return on investment or as a return of investment.
5. Entity refers to a government agency, department or operating/field unit. It may be referred to in

this GAM as an agency.
6. Expenses - are decreases in economic benefits or service potential during the reporting 6 period
in the form of outflows or consumption of assets or incurrence of liabilities that result in decreases in
net assets/equity, other than those relating to distributions to owners.
7. Government Budget - is the financial plan of a government for a given period, usually for a fiscal
year. The budget is the government's key instrument for promoting its socio-economic objectives.
The government budget also refers to the income, expenditures and sources of borrowings of the
Natib budget also rent (NG) that are used to achieve national objectives, strategies and programs.
8. Liabilities - are firm obligations of the enmity arising from past events, the settlement of
which is expected to result in the entity arising frementity of resources embodying economic
benefits or service potential.
9. Net assets/equity - is the residual interest in the assets of the entity after deducting all its
liabilities.
10. Revenue - is the gross inflow of economic benefits or service potential during the reporting
period when those inflows result in an increase in net assets/equity, other than increases relating to
contributions from owners.
11. Revenue funds - comprise all funds derived from the income of any agency of the government
and available for appropriation or expenditure in accordance with law.
Budget Execution, Monitoring and Reporting
12. Allotment - is an authorization issued by the DBM to NGAs to incur obligations for specified
amounts contained in a legislative appropriation in the form of budget release documents. It is also
referred to as Obligational Authority.
13. Appropriation is the authorization made by a legislative body to allocate funds for purposes
specified by the legislative or similar authority.
14. Approved Budget is the expenditure authority derived from appropriation laws, government
ordinances, and other decisions related to the anticipated revenue or receipts for the budgetary
period. The approved budget consists of the following:
UACS Code
New General Appropriations 01

Continuing Appropriations 02
Supplemental Appropriations 03
Automatic Appropriations 04
Unprogrammed Funds 05
Retained Income/Funds 06
Revolving Funds 07
Trust Receipts
15. Automatic Appropriations - are the authorizations programmed annually or for some other period
prescribed by law, by virtue of outstanding legislation which does not require periodic action by
Congress.
16. Budget Information - the budgetary information consists of, among others, data on
appropriations or the approved budget, allotments, obligations, revenues and other receipts, and
disbursements.
17. Continuing Appropriations - are the authorizations to support obligations for a specific purpose
or project, such as multi-year construction projects which require the incurrence
of obligations even beyond the budget year.
18. Disbursements - are the actual amounts spent or paid out of the budgeted amounts.
19. Final Budget - is the original budget adjusted for all reserves, carry-over amounts, transfers,
allocations and other authorized legislative or similar authority changes applicable to the budget
period,
20. New General Appropriations - are annual authorizations for incurring obligations during a
specified budget year, as listed in the GAA.
21. Obligation - is an act of a duly authorized official which binds the government to the iliediate or
eventual payment of a sum of money. Obligation maybe referred to as he commitment that
encompasses possible future liabilities based on current contractual agreement
22. Original Budget - is the initial approved budget for the budget period usually the Original
Appropriations Act (GAA). The original budget may include residual appropriated amounts
automatically carried over from prior years by law such as prior year commitments or possible future
liabilities based on a current contractual agreement.
23. Revenues are increases in economic benefits or service potential during the accounting period
in the form of inflows or increases of assets or decreases of liabilities that result in increases in net
assets/equity, other than those relating to contributions from owners.
24. Supplemental Appropriations are additional appropriations authorized by law to augment the
original appropriations which proved to be insufficient for their intended purpose due to economic,
political or social conditions supported by a Certification of Availability of Funds (CAF) from the BTr.
Revenue and Other Receipts
25. Bequest - is a transfer made according to the provisions of a deceased person's will. The past
event giving rise to the control of resources embodying future economic benefits or service potential
for a bequest occurs when the entity has an enforceable claim, for example on the death of the
testator, or the granting of probate, depending on the laws of the jurisdiction.
26. Concessionary loans - are loans received by an entity at below market terms.
27. Exchange transactions - are transactions in which one entity receives assets or services, or has
liabilities extinguished, and directly gives approximately equal value (primarily in the form of cash,
goods, services, or use of assets) to another entity in exchange.
28. Fair value - is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction
29. Fines - are economic benefits or service potential received or receivable by NGAs, from an
individual or other entity, as determined by a court or other law enforcement body. as a
consequence of the individual or other entity breaching the requirements of laws or regulations.
30. Gifts, Donations and Goods In-kind - are voluntary transfers of assets, including cash or other
monetary assets, goods in-kind and services in-kind that one entity makes to another, normally free
from stipulations. The transferor may be an entity or an individual. For gifts and donations of cash or
other monetary assets and goods in-kind, the past event giving rise to the control of resources
embodying future economic benefits or service potential is normally the receipt of the gift or
donation.
31. Non-exchange transactions are a transaction in which an entity either receives value from
another entity without directly giving approximately equal value in exchange, or gives value to
another entity without directly receiving approximately equal value in exchange. (Par. 11, PPSAS 9)
32. Pledges are unenforceable undertakings to transfer assets to the recipient entity.
33. Revenue - same in No. 10.
34. Services in-kind are services provided by individuals to public sector agencies in a non-
exchange transaction.
Disbursements
35. Accounts Payable refers to valid and legal obligations of NGAs, for which,
goods/services/projects have been delivered/rendered/completed and accepted. regardless of the
year when these obligations were incurred.
36. Advice to Debit Account (ADA) - refers to an authorization issued by the NGA 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 Disbursement
Payment Scheme (ExMDPS).
37. 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.
38. Disbursements - constitute all cash paid out during a given period in currency (cash) or by
check.
39. Implementing Agency - refers to the agency to which the funds are transferred for the
purpose of prosecuting/implementing the project.
40. Modified Disbursement System (MDS) Check - refers to a check issued by government
agencies chargeable against the account of the Treasurer of the Philippines
41. 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.
42. 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.
Responsibility Accounting
1. Responsibility Accounting - provides access to cost and revenue, information under the
supervision of a manager having a direct responsibility for its performance. It is a system that
measures the plans (by budgets) and actions (by actual results) of each responsibility center.
2. Responsibility Center is a part, segment, unit or function of a government agency. headed by a
manager, who is accountable for a specified set of activities. Except for some, which derive most of
their income from collection of taxes and fees, NGAs are basically cost centers which primary
purpose is to render service to the public at the lowest possible cost. Cost centers are established
to provide each government agency's accessibility to cost information and to facilitate cost
monitoring at any given period.
References
Millan, Z.V. (2018).Government Accounting & Accounting for Non-Profit Organizations.Bandolin

Enterprise
Dayag, A.J. (2022).Advanced Financial Accounting and Reporting (Theories & Problems).GIC
Enterprises & Co.,Inc

Lesson 1 Overview of Government Accounting

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Government Accounting armarcojoscpa

Lesson 1 Overview of Government Accounting

Sec 110. PD 1445. Following objectives of government accounting:

1. To produce information concerning past operations and present conditions;

· Their objective is to provide goods and services to various recipients or to develop or

Subjects of Government Accounting

1. National Government - consisting of departments, bureaus, commissions, boards, state

a. Sources and utilization of government funds; and

Sources: – Receipts from taxes and other fees

Responsibility over Government Funds and Property

Accountability over Government Funds and Property

1. A government officer entrusted with the possession of government resources is responsible

Liability over Government Funds and Property

The Unsung Heroes

Government Accounting Responsiblity

a. Commission on Audit (COA)

Commission on Audit (COA)

Department of Budget and Management (DBM)

Bureau of Treasury (BTr)

Ø Entity refers to a government agency, department or operating/field unit.

The GAM for NGAs

Relevant provision of law:

Basic Accounting and Budget reporting Principles

Code Fund Clusters

Qualitative Characteristics of Financial Reporting

a. Understandability – information is understandble when users can reasonably be expected to

Trade-offs between Relevance and Reliability

Components of General Purpose Financial Financial Statements

The complete set of general purpose financial statements consists of:

Objective of Government Accounting Manual

It shall be used by all National Government Agencies (NGAs) in the:

General Provisions, Basic Standards and Policies

5. Entity refers to a government agency, department or operating/field unit. It may be referred to in

Budget Execution, Monitoring and Reporting

New General Appropriations 01

Revenue and Other Receipts

33. Revenue - same in No. 10.

Millan, Z.V. (2018).Government Accounting & Accounting for Non-Profit Organizations.Bandolin

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