CHAPTER 4: REVENUES AND OTHER RECEIPTS
Learning Objective
1. State the sources of revenue of a government entity
2. State the recognition and measurement of revenue
Revenue
• gross inflow of economic benefits (income) or
service potential during the reporting period when
those inflows result in an increase in equity, other
than increases relating to contributions from owners
• Those that are received or receivable by the entity in
its own account.
Receipts refer to actual cash collection from all sources
during a period.
Fundamental Principles for Revenue
a. All revenues shall be remitted to the National
Treasury and included in the Gen. Fund of the
Government unless another law allows otherwise.
b. All money and property received by a public officer,
acting in any capacity or upon any occasion, shall be
accounted for as government funds and property,
unless another law specifically states otherwise.
c. Amounts received in trust and from business type
activities of the government may be separately
recorded and disbursed in accordance with relevant
rules.
d. Receipts shall be recorded as revenue of Special,
Fiduciary or Trust Funds, or Funds other than the
General Fund only when authorized by law.
e. A collecting officer shall immediately issue an official
receipts (OR) upon collecting a payment of any
nature.
f. Where mechanical devices (e.g., electronic official
receipt) are used to acknowledge cash receipts, the
COA may approve, upon request, the exemption
from the use of accountable forms.
g. Temporary receipts shall never be used to
acknowledge the receipt of public funds
h. Pre-numbered official receipts (ORs) shall be issued
in strict numerical sequence. Duplicate copies shall
be the exact copies of the original.
i. A collecting officer shall accept payments to the
government in the form checks, upon proper
endorsement and identification of the payee or
endorsee. The collecting officer shall not use
government funds to encash private checks.
j. Receipts of government funds shall be
acknowledged in accordance with the law –
indicating the date of receipt, from whom and on
what account the fund was received.
Types of funds
• General fund – a fund which is available for any
purpose other than those which other funds have
been designated to
• Special fund – a fund designated for special
purposes
• Trust fund (Fiduciary fund) – fund held by a
government agency or public officer acting as
trustee, agent, or administrator for the fulfillment of
a condition.
• Revenue fund – comprises all funds derived from
the income of any government agency and available
for appropriation or expenditure in accordance with
the law.
• Depository fund – fund held in an authorized
depository bank over which the recipient agency
retains control for the lawful purposes for which the
fund was received.
• Special Account in the General Fund (SAGF) –
established to facilitate the funding of priority
activities of the government. The SAGF is sourced
form specific fees, grants and donations, and other
sources identified under the law. The following are
relevant legal provisions regarding the SAGF.
a. All income and collections for Special and
Fiduciary Funds, shall be remitted to the
Treasury and treated as SAGF.
b. The SAGF shall be considered as being
automatically appropriated for purposes
authorized by law, except when the General
Appropriations Act (GAA) provides
otherwise.
c. SAGF shall be released to government
agencies subject to the approval of the
President.
• Special Purpose Funds (SPFs) – are “funds that the
President allocates for special programs and
projects. Unlike for other funds, SPFs are not under
the accountability of any particular government
agency/office or unit.
Sources of funds
a. Exchange transactions (Reciprocal transfer) – are
transactions in which one entity receives assets or
services, or has liabilities extinguished, and directly
gives approximately equal value to another entity in
exchange. Examples: sales of goods and rendering of
services
b. Non-exchange transactions (Non-reciprocal
transfer) - are transactions 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.
Examples: tax revenue, fines and penalties and
donations.
Exchange Transactions
Revenues from exchange transactions arise from the
following:
1. Sales of Goods or Provisions of Services to third
parties or other government entities.
Examples:
a. Service Income – Permit fees, Registration fees,
Franchising fees, Licensing fees, Legal fees, Passport
and Visa fees, Processing Fees and the liked.
b. Business Income – School fees, Examination fees,
Rent/Lease Income, Communication Network fees,
Income from Hotels/Dormitories, Sales Revenues,
Hospital fees, Share in the Profit of Joint Venture and
the like
2. Use by other entity of assets yielding interest,
royalties and dividends or similar transactions.
Examples:
a. Interest income – charges for the use of cash or cash
equivalents or amounts due to the entity
b. Royalties – fees paid for the use of the entity’s assets
such as trademarks, patents, software, and
copyrights
c. Dividends – share of the National Government from
the earnings of its capital/equity investments in
Government Owned or Controlled Corporations
(GOCC) and other entities.
Recognition of Revenue from exchange transactions
Sale of Goods
Revenue from the sale of goods shall be recognized when all
of the following conditions are satisfied:
1. Significant risks and rewards of ownership of the
goods are transferred to the buyer;
2. The entity does not retain continuing managerial
involvement or effective control over the goods sold
 3. It is probable that economic benefits will flow to the
entity
4. Revenue can be measured reliably
5. Costs relating to the transaction can be measured
reliably
Rendering of Services
Revenue from the supply of services is recognized on a
straight line basis over the period the services are rendered.
Revenue is recognized by reference to the stage of
completion (e.g., percentage of completing method) if the
outcome of the transaction can be estimated reliably, such as
when all of the following conditions are satisfied:
1. The stage of completion of the transaction at the
reporting date can be measured reliably
2. It is probable that economic benefits will flow to the
entity
3. Revenue can be measured reliably
4. Cost relating to the transaction can be measured
reliably
Interest, Royalties and Dividends
1. Interest is recognized on a time proportion basis that
takes into account the effective yield on the asset
2. Royalties are recognized as they are earned in
accordance with the substance of the relevant
agreement
3. Dividends are recognized when the entity’s right to
receive payment is established.
Measurement of Revenue from Exchange Transactions
Revenue from exchange transactions are measured at the fair
value of the consideration received or receivable. Any trade
discounts and volume rebates shall be taken into account.
- Fair value – is the amount for which an asset could
be exchange, or a liability settled, between
knowledgeable, willing parties in an arm’s length
transaction.
- Example: Entity A sells goods with a list price of
P10,000, on account with the following credit term
10%, 10% and 5%. Revenue is recognized as follows:
Accounts receivable
7,695
Sales revenue (10,000x90%x90%x95%)
7,695
• When cash flows are deferred, the fair value of the
consideration may be less than its nominal amount.
In this case, the fair value of the consideration
receivable is determined by discounting all future
cash flows using an imputed rate of interest. The
difference between the fair value and the nominal
amount or the consideration is recognized as
interest revenue
• When the consideration is received in advance, it is
initially recognized as a liability and subsequently
recognized as revenue only when the revenue
recognition criteria are met.
Exchange of Goods or Services
Exchange of goods or services with:
a. Similar nature and value do not give rise to revenue
b. Dissimilar nature and value give rise to revenue
measured using the following order of priority:
a. Fair value of the goods or services received,
adjusted by the amount of any cash
transferred.
b. Fair value of the goods or services given up,
adjusted by the amount of any cash
transferred.
Non-exchange Transactions
Revenue from non-exchange transactions are derived mostly
from taxes, fines and penalties, gifts, donations and goods in-
kind.
There are received without directly providing something of
equal value in return.
- Taxes – are compulsory payments intended to
provide revenue to the government. Taxes do not
include fines and penalties.
- Fine and penalties – are monetary sanctions
received as a consequence of breach of laws.
- Gifts, Donations and Goods/Services In-kind – are
voluntary transfer of assets and services that one
entity makes to another, normally free from
stipulations.
Recognition measurement from non-exchange transactions
• Revenue from non-exchange transactions are
recognized on a cash basis until a reliable
measurement model is developed.
• Assets and revenue or liability arising form a non-
exchange transaction are recognized when collected
or when these are measurable and legally collectible
Tax Revenue
- Tax revenue is recognized at a gross amount and not
reduced for expenses paid through the tax system
- Expenses paid through the tax system are
those expenses which should be paid
irrespective of whether the taxpayer pays
taxes, or uses a particular mechanism to
pay taxes
- Tax revenue shall not be grossed up for the amount
of tax expenditures
- Tax expenditures are preferential provisions
of the tax law that provide certain
taxpayers with concessions that are not
available to others. Tax expenditures are
foregone revenue, not expenses
Transfers
- Transfers are inflows of future economic benefits or
services potential from non-exchange transactions,
other than taxes
- Transfers include fines, gifts, donations and goods
and services in-kind, debt forgiveness, bequests, and
grants. All of the transactions transfer resources
without approximate equal value in exchange and
are not taxes but some are with conditions.
Fines and penalties
- Fines and penalties are recognized as income in the
year they are collected.
- Fines are recognized as revenue when the
receivable meets the recognition criteria for
asset and are measured at the best
estimate of inflow of resources to the entity
Gifts, Donations and Goods In-kind
- Gifts, donations and goods in-kind are recognized as
revenue when it is probable that future economic
benefits or service potential will flow to the entity.
Services In-kind
- Services in-kind are not recognized as revenue due
to the uncertainties affecting the entity’s ability to
control those services and measure them at fair
value.
 - Examples of services in-kind include technical
assistance from foreign bodies, community services
rendered by persons convicted of offenses,
volunteer services, and the like.
- Service in-kind received may be disclosed in the
notes
Measurement
- Assets, liabilities and revenue arising from a non-
exchange transaction are measured as follows:
- Assets – at the acquisition –date fair value
- Liabilities – at present value, when the effect of time
value of money is material
- Revenue – at the amount of increase in net assets. If
the non-exchange transaction is initially recognized
as a liability, the subsequent reduction in that
liability
Debt Forgiveness
- When a lender cancels the debt of a government
entity, the debtor recognizes revenue equal to the
carrying amount of the debts forgiven.
- When a controlling entity cancels the debt is treated
as contribution from owners and not revenue
b. Tax Remittance Advice
c. Non-Cash Availment Authority
d. Cash Disbursement Ceiling
b. Receipt of subsidy or assistance from other
government agencies including LGUs and GOCCs.
The Collecting Officer shall issue an official receipt
(OR) upon receipt of any of these
subsidies/assistance.
c. Receipt of excess cash advance granted to officers
d. Receipt of refund of overpayment of expenses
e. Receipt of performance bond or security deposit.
f. Collection made on behalf of another entity
• the collecting entity records the collection as a credit
to the “Due to NGAs” account. Upon receipt of
remittance, the recipient entity records the
collection as a credit to the “Trust Liabilities”
account
g. Intra-agency Fund Transfer
• intra-agency fund transfer (transfer within same
agency)
• inter-agency fund transfer (transfer between
different agencies)

Bequests
- Bequests are transfers made according to the
provisions of a deceased person’s will.
- A bequest that satisfies the recognition value of the
resources received or receivable
Grant with Condition
- As asset received under a grant with condition is
initially recognized as liability and recognized as
revenue only when condition is satisfied.

Pledges
- Pledges are unenforceable undertakings to transfer
assets to the recipient entity.
- Pledges are not recognized as revenue because they
do not meet the recognition criteria for assets.
- If the pledge item is subsequently transferred to the
recipient entity, it is recognized as a gift or
donation.
- Pledges may warrant disclosure as contingent assets

Concessionary loans
- Concessionary loans – are loans received by an
entity at below market terms
- Considers whether the difference between the
transaction price and the fair value of the loan on
initial recognition is a non-exchange transaction.
- If non-exchange, the difference is recognized as
revenue, except if a present obligation exists, in
which case the difference is recognized as a liability
and recognized as revenue only when the obligation
is satisfied.

Impairment Losses and Allowance for Impairment Losses

- When an amount already recognized as revenue
become uncollectible, it is recognized as expense
rather than as an adjustment to the revenue
originally recognized.
- Entities shall evaluate the collectability of accounts
receivable on an ongoing basis based on historical
bad debts and changes in payment activity.
- An allowance is provided for known and estimated
bad debts.

Other Receipts
Other receipts include, but not limited to, the following:
a. Receipt of subsidy from the National Government
such as receipt of:
a. Notice of Cash Allowance (NCA)