Unit one

Introduction to

1. Introduction
Accounting is mainly governed by conventional concepts and principles. These conceptual
backgrounds are very important to study the structure and operations in accounting system.
As information processing system of an organization accounting is affected by various
factors such as its environment and characteristics. This is what is to be explained in the
first unit of this course.

Accounting provides critical information for good financial administration system of

organizations. Government money is a public resource which the government has to spend
as per clear directives and procedures. The accounting system has to control this resource
through a budget control. Thus, this course also deals with financial administration in FGE
accounting system in the assumed administrative structure and the roles and
responsibilities of different units of the government. The course also describes procedures
in accounting for transaction and budget control in FGE accounting system. It focuses on
accounting for daily economic activities and budget control that is the broad goal of the
FGE accounting system and hence employs mechanisms for budget control.

The overall objective of this course is therefore to capacitate students on understanding

basic concepts and principles of FGE accounting and reporting system, budget preparation
financial reporting and control mechanisms. In general, you are expected to apply
appropriate accounting and financial treatments capture government activities with
financial effect as occurred, prepare financial reports and ensuring control and
transparency in using public financial resources, under the statutory framework and
applicable accounting principles.

1.1. Historical overview of Federal 1Government Accounting System

The federal government of Ethiopia has been undertaking various reforms in the
management of government affairs service delivery, under the broad umbrella of
"The Public Sector Capacity Building Program (PSCAP), [which] is a large
national program planned to be implemented by different government offices in
different government structures. The MoFED will be responsible for the
disbursement of program fund to the different beneficiaries and for the eventual
gathering of financial reports, consolidating them and preparation of financial
reports to the government, donors and other stakeholders.'(PSCAP –Financial
Management Guidelines, p.1)
The MoFED at federal level and BoFED at regional level leaded the reform undertakings
in the government accounting and financial management.

The Accounting and financial management system reforms under this package resulted a
change on the FGE accounting system that had been in service for more than half a

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century. The reform improved of accounting and reporting, and financial management
process at federal, regional and local government bodies.
The FGE accounting system, as explained in the budget manual which is prepared by
ministry of Finance and Economic Development and in the financial law of Ethiopia, is
applicable in all Public bodies (PB). Public Bodies are those government institutions
which have got legal responsibilities (mandates), receive their partial or full budget from
the government to discharge their responsibilities. These Public Bodies are also required to
submit their reports to ministry of Finance and Economic Development and respective
Finance or Planning both at Federal and Regional states.
1.1. Changes in the FGE accounting system

 The Federal government of Ethiopia (FGE) accounting system used in 1994 EC has
been in service for more than half a century. The old system had been using a cash
base accounting system. The system has been revised at various times and the
revisions through time house brought major changes in recording, summarizing
and reporting of the government financial information by inculcating a modified
cash base double entry accounting system.
 The federal government decided that there was a need to revise the current
accounting process as an integral part of the civil service Reform. The civil service
Task force, formed in the prime minister’s office, began the revision process.
Further study and implementation responsibilities were given to the accounts
Reform Team established by the ministry of finance and Economic Development
(MOFED)
 The overall strategy of the civil service Reform for accounts is to move from
strictly cash controls to on emphasis on management and accountability.

Similarities and Differences of FGE accounting system with business organizations

There are many similarities between the accounting for business and not-for-profit
government organizations. A double entry system of accounting is recommended for both.
The general mechanics for record keeping are the same: documents from the basic record,
books of original entry (journals) are kept and posted to general ledgers and subsidiary
ledgers, trial balances are drawn to prove the equality of debits and credits, a chart of
accounts properly classified and properly fitted to the organization’s structure is essential
to good accounting, and of course, uniform terminology is highly desirable in both fields.
Both prepare financial statements, closing entries, etc.

In most of the operations, government budgetary institutions are not concerned with profit
measurement, but only to assure continuity and/or improvement of services to the public,
and the need to ensure compliance with extensive legal requirements often results in
government organizations having more stringent operational and administrative controls
than in commercial organizations. But the market in which they operate regulates
commercial businesses. If the management is not responsive to the market demand and
fails to provide the quality of services demanded by the market, the commercial
organization will ultimately be forced out of business.

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1.2. Goals achieved by FGE Accounting System

As stated in the first volume of FGE Accounting system, Manual 3, The FGE accounting
system achieves three goals: budget control, cash control, and accountability.

Budget control
 The ability of the accounting system to report expenditure consistent with
budgetary principled and
 Including accounting for commitments in the system. A commitment is an amount
of budgeted funds that is reserved for a specific future expenditure. Any
committed budgeted funds are no longer available for future commitments.
Commitments are made against the budget when a purchase order is approved.
Cash control
 Maintaining the balance of cash at bank and cash in safe in a general budget.
 Clarifying the responsibilities and duties of the cashier and the accountant for cash
at bank and cash in safe. The cashier handles cash in safe, while the accountant is
assigned overall responsibility for cash in safe and specific responsibility for the
checkbook and cash at bank.
 Using on impress system to control cash in safe. In an imprest system, the can safe
is from the safe is documented. The cash in safe is periodically reimbursed, based
on vouchers, for the exact amount necessary to restore the original cash balance
deposited in the bank intact.
 Applying double entry bookkeeping techniques in the accounting system. Double
entry bookkeeping creates a set of self balancing account ledgers (general ledger),
Because the account ledgers are self balancing accounting records in a general
ledger, So cash also in controlled by double entry bookkeeping. Therefore a
running cash balance in the register ledger reflects the actual cash available.
 Employing a modified cash basis of accounting when accounting for transactions,
the modified cash basis of accounting allows the accounting system to recognize
revenue and expenditure consistent with the budgetary process and financial low.
Accountability
 Imploring a general ledger system. Each accounting unit maintains a general
ledger for each source of funding, so each unit maintains a balanced and
continuous record of its responsibilities and performance. A set of financial reports
can be produced from any single general ledger or from any combination of
general ledgers.
 Creating the ability to record and report on any assets and liabilities using a cost
method of valuation. The FGE accounting system included a simplified process
for recording any assets and liabilities in a set of registers and in a general ledger
that is independent of accounting for transactions using a modified cash basis of
accounting.
 Establishing a system of financial reporting that produces two reports for use by
government and a statement of changes in cash position for use by interested
p[arties outside of Budget and Actual for revenue and expenditure and a statement
of Net assets.

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  Every attempt is made to design a system that is consistent and clear. To permit
jurisdictions some ability to adapt the system to their capacity, the design allows
implementation of the system initially for recording other assets and liabilities
using the cost method can be deferred for later implementation.
1.3. Chart of Accounts of FGE Accounting Systems
A chart of accounts is a system of coding used to identify and classify financial entities
and events. The current chart of accounts, described in the Budget Reform Manual
incorporates detailed codes for items of domestic revenue, external assistance, external
loans, and items of expenditure. This sub section completes the FGE chart of accounts by
adding detailed codes for transfers, assets, liabilities, letters of credit and net assets/equity.
The classification of the chart of accounts is structured in a systematic manner and facilitates the
recording of transactions and the reporting of information in accordance with the budget.

The chart of accounts treats all detailed account codes as temporary accounts and
permanent accounts. Temporary accounts are accounts that begin each year with a zero
balance. Permanent accounts are detailed account codes whose balance at the end of a
year becomes the balance in the account at the beginning of the next year.

Chart of Temporary Accounts

Revenue, expenditure and cash transfers are temporary account code categories. Account
codes in these categories:

 are always treated as temporary accounts, and

 begin each year with a zero balance.

The Budget Reform Team under the Expenditure Management and Control Sub-Program of
the Civil Service Reform designed codes in the chart of accounts for detailed coding of:
 Items of domestic revenue, external assistance and external loans using code numbers
1000 through 3,999, and
 Transfers using code numbers 4000 through 4099.
 Items of expenditure using code numbers 6,000 through 6,999.

The Budget Manual created account codes for the FGE chart of accounts as follows:
 Items of domestic revenue using account codes 1000-1799,
 External assistance using account codes 2000-2999,
 External loans using account codes 3000-3999,
 Transfers using code numbers 4000 through 4099, and
 Items of expenditure using account code 6000-6999.

Chart of Permanent Accounts

Assets, liabilities and net asset/equity are permanent account code categories. Account
codes in these categories:

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  are always treated as permanent accounts, and
 begin each year with the account balance as long as they had at the end of the
previous year. In other words, these accounts are not closed.

The Accounts Reform Team under the Expenditure Management and control Sub-Program of the
Civil Service Reform designed codes for detailed coding of:
 Assets using code numbers 4100 through 4999.
 Liabilities using code numbers 5000 through 5499.
 Letters of Credit using code numbers 5500 through 5599.
 Net Assets/Equity using code numbers 5600 through 5699.
Assets: 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. The
categories of assets in the FGE accounting system are: cash and cash equivalents,
receivables, goods in transit, stocks, fixed assets, loans receivable, investments, liabilities,
letters of credit, and net assets/equity.

Cash and cash equivalents: Cash is cash on hand and cash at bank. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known amount of cash
and which are subject to an insignificant risk of change in value.

Receivables: receivables are amounts owed to (given to) a government unit by another
government unit, a person, or a non-government entity except public enterprises. Salary
advances to employees and advances to suppliers are two examples of receivables
commonly occurring in FGE transactions.

Goods in transit: Goods in transit are goods that are owned by the FGE but not yet in the
FGE's possession. Typically, these are goods that are purchased overseas using a letter of
credit.

Stocks: Stocks are goods that are consumed in less than one year.

Fixed assets: Fixed assets are physical items that are expected to have a useful life of
longer than one year and have a certain minimum value.

Loans receivable: Loans receivable are amounts due from public enterprises over a period
of time exceeding one year.

Investments: Investments are FGE investments in public enterprises and private

organizations that are held for more than one year.

Liabilities: Liabilities are formally defined by the Institute of Public Sector Accounting
standards as "present obligations of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying economic
benefits or service potential." Liabilities are better defined by example. The categories of
liabilities in the improved and expanded accounting system are:

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  Payables. Payables are obligations to pay that are due in less than one year.
Examples of FGE payables are deposits, grace period payables, treasury bills,
and retention on contracts.
 Long-term debt. Long-term debt is an obligation to pay that is due in more
than one year.
Letters of Credit: A letter of credit represents a guarantee to pay suppliers with cash set
aside in bank account restricted for that purpose.

Net assets/equity: Net assets/equity is formally defined by the Institute of public sector
accounting standards as "the residual interest in the assets of the entity after deducting all
its liabilities." Net assets/equity is the balance remaining after liabilities are deducted from
assets. This balance represents the equity interest of Regional and Federal Governments

1.4 Basis of Accounting

The basis of accounting is the basic set of principles and rules employed by the accounting
system to determine when and how to record transactions. The cash basis of accounting is
a basis of accounting that recognizes transactions and other events when cash is received
or paid.

Although organization’s earnings and related operating activities are continuous, they are
reported at specific intervals (i.e. an accounting period or budget year) in order to provide
useful information for decision-making on a timely basis. Some activities may begin and
end during the accounting period, while others may require two or more accounting
periods for completion. Budget year for FGE is from Hamle1 to Sene 30.
In summary, accrual accounting is based on cash flows but reports transactions and other
events with cash consequences at the time the transactions occur rather than at the time
cash is received or paid. Accrual accounting is also superior to cash-basis accounting from
the standpoint of measuring financial statement elements.
The FGE accounting system employs a modified cash basis of accounting. Modified cash
basis of accounting is a compromising basis of accounting between the two extreme bases
of accounting. It adopts features from both bases of accounting. Most transactions are
recorded using cash basis of accounting and some transactions are recorded using accrual
basis of accounting.

The modified cash basis of accounting in FGE means that cash basis applies except for
recognition of the following transactions:

 Revenue and expenditure are recognized when aid in kind is received.

 Expenditure is recognized:
 When payroll is processed.
 At the end of the year when a grace period payable is recognized.
 When goods are received or services are rendered if payment for the
goods or services was rendered in advance.

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  When cash moves from an unrestricted to a restricted bank account to
meet the requirements of a letter of credit. When cash moves out of the
restricted account, no expenditure is recognized.
 Intergovernmental transfers are recognized in the absence of actual cash
movement.
 Transactions resulting from salary withholdings are recognized in the absence
of actual cash movement.
The modified cash basis of accounting is consistent with the budgeting process and
produces information useful for comparing budgeted and actual revenue and expenditure.
The modified cash basis accounting system requires the same temporary accounts as the
cash basis of accounting plus the following permanent accounts: cash and cash
equivalents, receivables and payables.

The FGE accounting system employs a combination of temporary and permanent

accounts. All account balances at the end of the year may not have a zero balance. So, a
process is necessary that distinguishes temporary accounts and sets them to zero. The
process of setting the balance in temporary accounts to zero is called closing the accounts,
and the process is performed by a closing entry. The closing entry is an accounting activity
that takes place at the end of each budget year. This process requires a net assets/equity
account.

All assets and liabilities are not recognized in the modified cash basis accounting system.
Only those receivables and payables included in the chart of accounts are included in the
system. The modified cash basis accounting system produces financial information that is
reported in a Statement of Changes in Cash Position and a Statement of Budgeted versus
Actual Expenditure.

Asset and liability accounts other than cash, receivables, payables, and letters of credit are
included in the chart of accounts to allow institutions that have the capacity to maintain
accounting records of all assets and liabilities. These other assets and liabilities are
recorded using the cost method. The cost method values assets at their original cost and
liabilities at the amount still due.

Book keeping methods

Every transaction that is recorded by accounting has two aspects: effort and reward, source
and use, cash inflow and expenditure. The purpose can be, for example, expenditure,
revenue deposit, or transfer.

The FGE accounting system uses double-entry bookkeeping. Double-entry bookkeeping

means that both aspects of each transaction are recorded in the accounting records with at
least one debit and one credit so that the total amount of debits and the total amount of
credits are equal to each other.

The advantages of double-entry bookkeeping are numerous, including:

 All aspects of the transaction are properly recorded in accounts.

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  The accounts are self-controlling because the total of all debits must equal the
total of all credits; therefore, many errors are easily detected and corrected.
 Modified cash basis of accounting can be introduced.
Double-entry bookkeeping requires an understanding of some additional basic accounting
concepts and terms. The most basic are the terms debit and credit. Debit literally means
left and credit literally means right. By convention, the rule for increases for Letter of
Credit and Net Asset /Equity is Credit which is used in modified cash basis of accounting.

Transfer Accounts:

 If cash is sent by transfer, Transfer account is debited.

 If cash is received by Transfer, Transfer account is credited
In a double-entry system, each debit to cash is matched by a credit to another account of
an equal amount, and each credit to cash is matched by a debit to another account of an
equal amount.

Because each transaction is entered in the accounting records as debits and credits of equal
amounts, the total debits in all account balances always equals the total credits in all
account balances. For FGE modified cash basis of accounting, the basic accounting
equation always applies.

FGE Basic Accounting Equation is as follows:

Asset = Liabilities + Net Assets/Equity

Cash & Cash Equivalents + Receivables = payables + Letters of Credit + Net Assets/Equity

In a double-entry bookkeeping system, the book of original entry is the register. A register
is a chronological listing of transactions and serves as the book of original entry into the
accounting system. Information regarding transactions is taken from various documents
(invoices, receiving reports, etc.) and recorded in the accounting system for the first time
on the register. The transactions in the register are in chronological order.

Each transaction entered on the register in the double-entry system affects at least two
accounts. One is a debit and the other is a credit, but both accounts are affected by the
same amount. Therefore, for each transaction that is recorded in the double-entry register,
the amount recorded as a debit equals the amount recorded as a credit. The total of debits
recorded in the register will always equal the total of all credit in the register.

In the double-entry system, a ledger card is created and kept for all accounts. All
transactions entered in the register must be transferred to ledger cards. The process of
transferring transactions information from the register to the ledger cards is called posting.

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In the double-entry system, a ledger card is created and maintained for each account.
Because each transaction is entered on the register as a debit to one account and a credit to
another account, each transaction is posted to at least two ledger cards.

The set of all ledger cards is called a general ledger. Two postings are made for each
transaction in the general ledger of equal amounts in different accounts, but one is entered
as a debit and one as a credit. Therefore, the total debit amount on all ledger cards must
equal the total credit amount on all ledger cards.

The general ledger contains a ledger card for each account. The ledger card contains the
running balance in that account. If postings to the ledger cards from the register are up-to-
date, monthly reports are easily prepared by taking the balance from each account's ledger
card. Mistakes are easily identified if the total debt balances on all ledger cards do not
equal the total credit balance on all ledger cards.

If a general ledger is kept, a set of self-balancing accounts (total debits equals total credits)
is maintained and a report of financial information is available. Financial reports can be
prepared from general ledgers.

Some accounts in a general ledger do not provide sufficient detailed information for
control purposes. The account "Advances to Employees" is an example. The account in the
general ledger maintains the total balance in the account, but identifying each individual
and the amount each owes is important.

A control account is an account in a general ledger that maintains the total balance of all
related accounts in a subsidiary ledger. For each control account, a subsidiary ledger is
kept. A subsidiary ledger is a ledger separate from the general ledger that contains a group
of related accounts. The control account is part of a general ledger. The subsidiary ledger
accounts provide details about the balance in the control account.

Any account in the general ledger that requires more detail than simply the amount in the
account becomes a control account with a subsidiary ledger. An example of a subsidiary
ledger is presented here. Suppose advances are provided to three employees. The account
code in the general ledger for Advances to staff is 4203. A subsidiary ledger for account
code 4203 is created where each advance is assigned an account code as follows:

No Employee Subsidiary
Account code

1 Abebe 4203-01

2 Kidane 4203-02

3 Hassen 4203-03

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The specific advance provided, for example, to Kidane for example, is maintained in
account code 4203-02 in the subsidiary ledger. The total of all advances is the total of all
account balances in the subsidiary ledger and is the balance recorded in control account
code 4203 in the general ledger.

1.5 Overview of Financial Administration in FGE Accounting System

The purpose of this unit is to present Financial Administration of Public Bodies without
Branch Accounts. It provides the financial administration issues and a general description
of the roles and responsibilities of each unit within the assumed administrative structure
for Public Bodies without Branch.
To describe the FGE accounting system, its operations, and roles and duties within the
system, the structure of financial administration and authority in the federal and regional
governments must be understood to the extent that it impacts the accounting system.
Although the structure of financial administration is not standard across all units in the
Regional and Federal governments, a general pattern exists. Throughout this unit the
structure of financial administration under MOFED is assumed, because the structures
differ at Regions due to decentralization. Furthermore, this unit will also present an issue
of Public Bodies with Branch Bank Accounts.
1.5.1 Financial Administration
The financial administration in FGE mainly involves Ministry of Finance and Economic
Development (MOFED) and Regional Finance and planning offices and a Public Body.
The specific Federal and Regional government administrative authorities and the required
organizational structure in public bodies are illustrated in the following Figure 2.1 and
Figure 2.2 below

Figure 2.1
Structure of Financial Administration in the Budget Process

Ministry of Finance and Economic Development

Public Body

Budgetary Institution:

Budgetary Institution:

Sub-Project or Sub-Sub-Agency

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Figure2.2: Structure of financial administration within public Body

Head of public Body

Head of Administration and Finance

Head of Budget and Accounts

General Services
& Administration

Budget Section
Accounts section

Accountant 48 Cashier
The following are responsibilities of MOFED, Budgetary Institutions, Accounting unit,
Reporting Entity, Cashier and Accountant in the financial administration in the Budget
process and within the Public Body

Ministry of Finance and Economic Development (MOFED)

MOFED administers the financial system for the federal government and has the highest
level of administrative authority. MOFED consists of a:

 Budget Department that prepares and distributes notification of approved

federal budgets and administers the budget.
 Central Accounts Department that receives monthly reports and compiles
financial statements for the federal government.
 Central Treasury Department that receives and distributes cash from central
treasury.
 Credit and Investment Department that manages the federal government's
investments and debt.
This is not a complete description of MOFED or its departments. This is description of
their roles and responsibilities within the accounting system.

Budgetary Institution (BI)

Budgetary Institutions are defined as those institutions that are fully or partially financed
by Government. The budget process assumes the appropriation of budgets. The
appropriated budget is the budget approved by the Council of people's Representatives
(CPR). The appropriated budget is broken down by:

 Recurrent and capital expenditure for the federal government, and

 Subsidy for each regional government
The federal government's portion of the appropriated budget is assigned to projects and
sub-agencies within PBs and broken down by sources of funding (domestic, assistance and
loan). This is called the approved budget. The approved and appropriated budget is
published in the Negarit Gazeta.

A PB's entire approved budget is assigned to projects and sub-agencies under its
immediate administrative control. The budget of a PB is the total budget of its projects
and sub-agencies.

A project or sub-agency may allocate any portion of its approved budget to sub-projects or
sub-sub-agencies. The budget of a sub-project or sub-sub-agency is called an allocated

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budget. A sub-project or sub-sub-agency for which a budget is allocated is always at a
different location from the project or sub-agency. A notification of any allocation is sent
to MOFED.

Projects, sub-agencies, sub-projects, and sub-sub-agencies are defined and coded in the
chart of accounts. Any entity that receives an approved or allocated budget from a PB's
approved budget is called a Budgetary Institution (BI). Generally:

 PBs are ministries, authorities, and commissions.

 BIs are projects, sub-agencies, sub-projects, and sub-sub-agencies.
 BIs are administered by PBs.
 The entire approved budget of a PB is assigned to BIs.
Figure 2.1 shows the structure of financial administration in the budget process. There are
exceptions to these generalities, but the majority of government is organized in this
manner. The focus of budgetary control is on the BI. PB's budgetary compliance can be
computed by consolidating reports from all BIs included in its approved budget.

Accounting Unit

For cash management, another entity is created: the Bank Account (BA). The BA is not
coded in the chart of accounts and does not receive a budget. However, it is important for
cash Management and control. The FGE accounting system includes the BA in the
accounting system.

A PB may administer many BIs and many BAs, or a PB may have only one BI and one
BA. Each BA:

 Is managed by an accountant.
 May:
 Have its own cashier,
 Share a cashier with other BAs, or
 Have no cashier associated with it (like foreign currency bank accounts)
 Handles cash flows:
 For one or more than one BI, and
 From one source of financing (domestic, assistance or loan).
 For more than one type of budget (capital/recurrent).
An accounting unit is the unit that initially captures and records transactions into the
accounting system. If a BA handles cash for only one BI(BI/BA), the accounting unit:

 Processes transactions for the BI/BA,

 Maintains registers for the BI/BA,

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  Maintains a general ledger for the BI/BA.
 Maintains subsidiary ledgers for:
 Asset accounts.
 Liability accounts.
 Letters of credit.
 Prepares a monthly report for the BI/BA.
A complete set of accounts and general ledger is maintained for each BI by bank accounts,
because each source of funding is budgeted distinctly, and the cash from each source is
physically separated in distinct bank accounts.

Each month, a monthly report is prepared from the general ledger for the Bank Account
(BA). Cash ledger cards in the general ledger control the cash balances in the bank and in
the safe. If more than one BI shares a single BA, the accounting unit:

 Processes transactions for all BIs.

 Maintains a register for the BA.
 Maintains a general ledger for the BA.
 Maintains subsidiary ledgers for:
 Items of expenditures by BI and by type of budget.
 Asset accounts.
 Liability accounts.
 Prepares a monthly expenditure report for each BI.
 Prepares a consolidated monthly Trial Balance for the BA.
One general ledger is maintained for the BA. The only records maintained for each BI are
accounts in subsidiary ledgers for items of expenditure. Monthly, the subsidiary ledger
information is used to prepare an expenditure report for each BI. These reports are
consolidated with information from the general ledger into a monthly report for the BA.

The balances of cash in safe and cash in bank are maintained in ledger cards of general
ledger for the BA.

Reporting Entity

A reporting entity is the entity that sends monthly reports to MOFED. Although the
accounting unit prepares monthly reports, every accounting unit may not send monthly
reports directly to MOFED. The reporting entity may be the accounting unit or a higher
level of authority (perhaps a PB).

Each of the following may apply to a reporting entity:

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  A reporting entity may be an accounting unit, and an accounting unit may
consist of only one BI. Therefore, a single BI may be a reporting entity.
 A reporting entity may be a PB that receives the monthly reports from several
accounting units.
Whoever sends the reports to MOFED is the reporting entity. Therefore, the reporting
entity is not, necessarily, an accounting unit.

Cashier and Accountant

In the FGE accounting system of cash control, the cashier's function and the accountant's
function are distinct. Cash consists of currency and checks. The cashier's function is to
maintain and control cash in the safe. The accountant's function is to maintain and control
cash at the bank.

Only the cashier can receive currency and checks and make disbursements in currency.
Daily, the cashier should count cash on hand and reconcile ending cash on hand to the cash
book.

The cash in safe is controlled by an impress system. When cash is received as per the
budget or other sources, the cashier will:

 Issue a cash receipt,

 Segregate the cash received from cash available to disburse,
 Deposit the cash received intact in the bank as soon as practical, usually daily,
and
 Surrender copies of all cash receipts and a copy of the bank deposit slip to the
accountant.
In the imprest system, a balance is established for cash in safe. The accountant issues this
amount of cash to the cashier using a check. When cash is disbursed to establish the
Imprest Fund, the cashier will issue a receipt voucher. If the amount of cash in safe is to
be replenished, the cashier will surrender all payment vouchers to the accountant. The
accountant will replenish the cash in safe by issuing a check to the cashier for the total
amount of the payment vouchers that are surrendered. The replenishment should return
the balance of cash in safe to the established level.

The accountant's responsibility for cash is to maintain a record of the total cash position of
the entity, including cash at the bank and cash in the safe. The accountant records cash
movements that flow through the cashier and cash movements that flow directly through
the bank. Direct cash movements through the bank normally include bank transfers and
charges, checks written, and any other transactions that do not require cash handling by the
cashier.

When a PB has more than one cashier, one cashier is designated as the main cashier. The
other cashiers are designated as assistant cashiers. Each PB is responsible for organizing
assistant and main cashiers. However, some general principles apply.

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Assistant cashiers are responsible for:

 Collection of Cash
 Issuing deposit and/or receipt vouchers
 Making deposits at Bank
The main cashier is responsible for:

 Reconciling cash and vouchers for each assistant cashier

 Depositing cash in the bank
 Disbursing cash for the proper functioning of the PB
 Managing the petty cash

1.5. FGE budget process

Definition and importance of budget

The word budget was originally derived from French word “bougette” which means “small
bag” or the public purse which serves as a container for revenues and expenditures of the
state. Budget is the most important tool for the government to manage the public resources
of the nation economy. It serves as an instrument to allocate the scarce resources among
the different computing unlimited needs of the society. It is a document Containing
planned program which planned ahead to reach objectives and targets. A budget may be
stated in terms of quantity, money or both and is prepared for definite time period. A
budget is a time bounded financial program systematically worked out and ready for
execution in the ensuing fiscal year. It is comprehensive plan of action, which brings
together in one consolidated statement of all financial requirements of the government.
The budget goes into operation only after it is approved by the parliament. Thus budget is
an annual statement of receipts and payments of a government.

Classifications of budget

The structure of government budget constitutes the formats in which the budget data are
organized and classified for different purposes. The government budget in Ethiopia is
classified into: - 1.revenue budget 2. Expenditure budget

1. Revenue budget:- is usually structured into three major sources:

a. Ordinary revenue b. external assistance and c. capital revenue
A. Ordinary revenue- consists of both tax and non-tax revenues. The tax revenues
includes:

53
 1. The direct tax of ordinary revenue consists of:
 Personal income tax
 Rental income tax
 Business income tax
 Tax on dividend and chance winning
 Land use fee and lease
2. The indirect tax consists of:
 Excise and sales tax on locally manufactured goods, services sale tax,
stamps and duty.
 Tax on foreign trade includes customs duty on imported goods and
export tax on coffee.
3. Non tax revenues includes:
Charges and fees, investment revenue, miscellaneous revenue and so on.
B. External assistance – include cash grants from multilateral and bilateral donors
for different structural adjust programs; and technical assistance in cash and
material form.
C. Capital revenue: - these could be from domestic (sales of movable properties
and collection of loans), external loan from multilateral and bilateral creditor
mostly for capital projects.
2. Expenditure budget
Government expenditures for administration and developmental activities are
handled through the expenditure budget. These expenditures are categorized into:
A. Recurrent expenditure:- is structured by implementing agencies(public bodies)
under four functional categories.
i. Administrative and general services includes such activities as:
 Council of representatives and ministers, ministers, defense and
so on.
ii. The economic services includes:
 Agricultural, industrial and service sector activities
iii. The social service includes such activities:-Health, education and
culture
iv. Other expenditures includes: - pension payments, repayment of public
debts etc.
B. Capital budget expenditure: - is usually made on acquisition and improvement
in to fixed asset and consultant services. It is grouped under three headings;
1. Economic development
2. Social development and
3. General development
1. Economic development includes: - production activities in the agricultural and
industrial sector, economic infrastructure in mining, commerce and
communication.
2. Social development includes: - education, health, urban development and welfare
etc.
3. General development includes:-general governmental activities.

54
 The budget process in Ethiopia

Budgeting from the initial stage of forecasting the annual revenues and expenditures, to the
final stages of approval of the annual budget by the council of people representatives,
passes through a sequential and an interactive process. The budgetary process of FGE
involves the following steps:

1. Preparation of macro-economic and fiscal frame work

 The frame work is composed of macro-economic forecast and
fiscal forecast. The macro-economic forecast gives the forecast
of gross domestic product based on past experience and
estimates for future years. Fiscal forecast establishes the level of
total resources available for expenditure, it provides a more
detailed forecast of revenue (both federal and regional), and
projection of expenditure. Once prepared by the concerned
coordinating ministry, i.e MoFED.It will be reviewed and
approved by the prime minister’s office (pmo).
2. Determination of federal government expenditure and subsidy to regional
government.
 The shares of federal government expenditures and subsidies for
regional governments will first prepare by MOFED, then
reviewed by the PMO and finally approved by the federation
council.
3. Allocation of federal government expenditures between recurrent and capital
budget.
 First the amount of budget necessary to cover recurrent
expenditures the balance will then be allotted to capital
expenditures. This will be performed by the PMO in
consultation with MOFED.
4. Budget call and ceiling notification
 Mofed issues detailed budget preparation guidelines to spending
public bodies along with the ceilings provided to each line
institution. Mofed will send the ceilings for each sector.
5. Budget request – is prepared by public bodies by depending on the budget ceiling
to fit budget request to mofed.
6. Budget review by MOFED:
 Prior to a formal budget hearing, spending public bodies will
submit their budget proposals to the MOFED-budget
department. The sector department of the mofed reviews the
budget requests from different public bodies.
7. Budget hearing and defense:- spending public bodies defend their budget
submission in a formal hearing with the mofed. The hearing focuses on policies,
programs and cost issues, when necessary it might involve discussion down to line
of items. Presenting the hearing will be ministers and/or vice ministers, head of
public bodies and the mofed.
8. Review and recommendation

55
  Each sector of MOFED review the budget that requested by
public bodies and after review of the requested budget MOFED
send the consolidated and submit to prime minister’s office then
submitted to council of ministers. The budget committee of the
MOFED will review the discussion and make recommendation.
If there is an increase (over ceiling) this will go to PMO for
approval.
9. Submission to the council of ministers:-
At this stage the two budgets (recurrent and capital) will be consolidated and
MOFED will prepare a brief analysis of the total budget. First reviewed by
ministers and vice ministers in an economic affairs and then presented to the prime
minister along with brief. The prime minister may or may not make amendments
and then will be sent to the council of ministers for discussion. MOFED defend the
budget in the council, the council of ministers may make some adjustments.
10. Submission of budget to house of people representatives:-
Once approved by the council of ministers, the prime minister will present both
budget to HPR.the budget then will be debated based on recommended of the
budget of the committee and approved.
11. Notification and publication
The approved budget will then get the legal status through the publication in the”
Negarit gazeta’. Spending public bodies will then formally be notified of their
approved budget by line of items from MOFED for recurrent and capital budgets,
respectively. MOFED will notify spending public bodies.
12. Supplementary budget: - in the course of budget year, supplementary (additional)
budget will be proclaimed when necessary. Following almost same process as the
initial budget preparation. Likewise budget reallocation will be made mainly based
on performance.

Budgetary process of regional level

It is quite difficult to present the budget process at the regional level in the way in the
discussed for federal budget. At present the budget process followed by regional is not
uniform. The process is more or less a mirror image of the federal budget process. In place
of MOFED, the regional finance bureau (RFB) is responsible for the preparation of the
recurrent budget. While the regional planning and economic development bureau
(RPEDB) is responsible for the capital budget. At the higher level the regional councils,
the one responsible for the appropriation of the region’s budget. One significant deviation
is the regional budget process starts at the woreda level and goes up to zone and regional
level

1.6. Budget Control in FGE Accounting System

Approved Budget

At a national level, Council of People's Representatives approve budget and the total
budget is published in Negarit Gazet both for capital and recurrent budgets.

56
The approved budget is the detailed breakdown of the appropriated budget by:

 Sub-Agency or project, and

 Source of finance.
The budgetary institution is notified of its approved budget on Me/Be/Ma 4 Recurrent
Budget Notification for Sub-Agency and Ka/Be/Ma 4 Capital Budget Notification for
project at the beginning of a fiscal year.

Additions/Reductions to Approved Budget

During the year, the approved budget may be revised in two ways:

Budget supplement: A budget supplement is an additional appropriated budget. The

supplementary amount increases the approved budget. Notification of budget
supplement is made on Me/Be/Ma 6 for recurrent budget and Ka/Be/Ma 6 for capital
budget.

An addition to one budget item and a corresponding reduction to the budget of

another item of expenditure: There are two processes for accomplishing this transfer:
budget transfers and vehement changes

 Budget transfers, is Transfer of expenditure Budget from one Public Body

to another. The transfer can be made from recurrent Budget of a Public
body to recurrent Budget of another Public Body and from recurrent
budget of one Public Body to capital budget of another Public body. But
Transfer from Capital Budget to recurrent budget is impossible.
 Virement changes, when transfers of budgeted expenditure are made
from one item of expenditure to another within the same BI.
Once the approved budget is adjusted for additions and / deductions, it is considered as
revised Budget. The revised budget is the benchmark for budget control, as an item of
expenditure must not exceed its revised budget.

Payments Received for Budgeted Expenditure

Treasury funds are the primary source of domestic expenditures for most BIs. MoFED
transfers amounts to Public bodies monthly based on requests made by the PBs at federal
level.

In addition, MOFED may make payments on behalf of a BI. When this happens, a non-
cash transfer is recorded and considered as a payment received by the BI to meet budgeted
expenditure.

As indicated in Manual 3 Volume I accounting for modified cash basis transactions which
is prepared by MOFED and DSA Project manual, January, 2002, a Public Body also
receives cash for budgeted expenditure in a variety of other ways depending on the source
as follows:

57
Retained revenue: Retained revenue is revenue earned and collected directly by the BI
that it is allowed to keep and expend for its own purposes.

Assistance: various donors using one of three channels provide Assistance.

Channel 1: Some donors provide assistance through MOFED. These funds are
requested and distributed from MOFED to the BI like treasury funds. The
processes for requesting donor funds from MOFED differ.

Channel 2: Some donors provide assistance directly to the BI. These funds are
requested and distributed from the donor to the BI in a manner prescribed by the
donor.

Channel 3: Some donors provide assistance without cash movement. The donor
maintains control over these funds. When a budgeted expenditure is incurred, the
donor pays the invoice directly to the provider on behalf of the BI. Channel 3 funds
are not requested or received.

Loan: Donors provide loan funds using Channel 1 or 2 as described for assistance.

Aid in kind: Any goods received by a PB as assistance or loans are also considered as
payments received by a BI to meet budgeted expenditure.

Procedures to achieve budget control

Budget control is achieved through a combination of commitment accounting and
expenditure approvals at the Budget Section. Each of these processes is described below.

Commitment Accounting
A commitment is a way of marking part of the budget that has not yet been spent but that
is obligated for a specified expenditure. After the budget has been approved, the BI may
enter into contracts or issue purchase orders. These obligations to spend money are treated
as commitments; that is, before the good or service is ordered and before the payment is
actually made, the amount of the purchase order is subtracted from the BI's approved
budget. A commitment is a tool that prevents overspending by identifying amounts
committed to pay for items that have been requested but not yet ordered and to determine
the budget that is available (uncommitted) for expenditure (MOFED and DSA Project
manual, January, 2002).

If the uncommitted balance is reduced to zero or if the budget is not available to meet
planned expenditure, no further spending will be approved. Commitments are a budgetary
control device. Because the Budget Section must approve spending requests, they also
serve as a budgetary control measure (MOFED and DSA Project manual, January, 2002).

Example:
A BI has an approved budget for Birr 300,000 for stationery. The Procurement Section
approves a purchase order for Birr 200,000 for purchase of stationery. The purchase order
of Birr 200,000 represents a commitment although it has not been paid. The remaining

58
budget available for expenditure after incorporating the commitment on stationery is Birr
200,000.

Further, assume that the procurement section approves another purchase order for Birr
200,000 for purchase of stationery from another supplier on the same day. The purchase
order of Birr 200,000 represents another commitment. However, as the remaining budget
available for expenditure on stationery is only Birr 100,000, the Budget section will not
approve the expenditure as the Budget section has already recorded a commitment for Birr
200,000 from the previous purchase order.

Recording Commitment
Each time expenditure is to be incurred as evidenced by any one of the source documents
mentioned below, it is taken to the Budget section to ensure that the commitment is
recorded in the budget ledger card and to obtain confirmation from the Budget section that
there is an available budget to meet the expenditure (MOFED&DSA Project, January,
2002).

The Budget section records the commitment and signs the source document as evidence of
recording the commitment in the budget ledger card and confirming that budget is
available for spending .In the same manual, it is indicated that the evidence of a
commitment is either one or combination of the following forms:

 Pro forma invoice

 Purchase order
 A contract
 A letter or minutes of a meeting
 Journal Voucher
 Payment Voucher
Occasionally, a commitment may be cancelled or revised. In such cases, the Accounts
Section must inform the Budget section of the changed to ensure that the budget ledger
card is updated to amend the commitment and the uncommitted balance. If the Budget
section is not informed about a cancelled or revised commitment, the balance available in
the budget will not get updated. Consequently the budget section will disapprove a valid
purchase order for want of an available budget (MOFED&DSA Project manual, January,
2002).

Example:
Assume the preceding example, and Procurement Section cancelled the purchase order for
Birr 200,000 for purchase of stationery a week later. The purchase order will be marked
"void" to indicate that it is cancelled.

The cancelled purchase order is returned to the Budget Section to ensure that the
commitment is cancelled in the budget ledger card and the remaining budget available for
expenditure (uncommitted balance) is updated to Birr 300,000 in the budget ledger card.

59
If the cancelled purchase order is not taken to the Budget Section through an oversight, the
commitment would not get cancelled and the remaining budget available for expenditure
(uncommitted balance) would incorrectly remain as Birr 100,000 instead of Birr 300,000.

The Expenditure Approval Process

As an additional control measure, when expenditures are to be incurred by a BI, all
payment vouchers are verified by the Budget Section prior to approval for payment by the
Accounts Section. The Budget Section approves all expenditures to verify that
expenditure remains within the budget.

Prior to signing the payment voucher, the Budget Section verifies that:

 the amount of the purchase order for the expenditure has been committed in the
same amount as the actual expenditure,
 if the amount of the expenditure has not been committed,
 the available (uncommitted) budget is sufficient to cover the expenditure,
 the commitment is recorded, and
 the uncommitted balance is updated.
If the commitment is already recorded, the Budget Section verifies the recording of the
commitment and signs the payment voucher. If the commitment is not already recorded,
the Budget Section records the commitment and signs the payment voucher. The signature
on the commitment line of payment voucher by the Budget Section indicates that the
budget for the item of expenditure has been recorded as a commitment and that there is an
available budget to meet the expenditure (MOFED and DSA Project manual, January,
2002).

Budget Ledger Card

The purpose of the budget ledger card is to maintain a continuous and updated record for
each budgeted item of expenditure by BI and source of finance with respect to:

 Approved budget
 Revised budget
 Payments received for budgeted expenditure.
 Amount remaining to be requested.
 Commitments
 Balance in the revised budget that is not committed.
The budget ledger card is divided into two parts:

A. The top of the card contains information to identify the

 BI,

60
  Type of budget, and
 Item of expenditure.
 The table on the card contains detailed information about each budget
transaction.
B. The Budget Section maintains a budget ledger card for each individual item of
budgeted expenditure by BI and source of finance. The appropriate budget ledger
card is updated each time a transaction occurs. Figure 3.1 shows the Budget Ledger
Card

61
 Figure 4.1: Budget Ledger Card

Me/He 16 Page
No:_____

Name of Public Body: ___________________________ Code: ________

Name of Program: ______________________________ Code: ________

Name of sub Agency: ____________________________ Code: ________

Name of Sub Program ___________________________ Code: ________

Type of Budget: ________ Code: _____

Name of Project ________________________________ Code: ________

Source of Finance _______________________________ Code: ________

(Donor/Lender______ Item of Expenditure: _____

Code: ____

N Additi Balance
O on to Not
Refe Appro Budge Reducti Revise Paym Un Committe
renc ved t on to d ent pai d
Date Descri e Budge Budget Budge Recei d Com
ption No. t t ved Bal mitm
anc ent
e

(Source: MOFED&DSA Project manual, December 2002)

Purpose of Each Field in the Budget Card

62
Upper part of the Budget Ledger Card
 Name of Public body and Public Body code: the field is to identify the PB to which
the budgeted expenditure is related.
 Name of Program and program Code: the field is to identify the Program to which
the budgeted expenditure is related.
 Name of sub agency & Sub Agency Code: the field is to identify the BI to which
the budgeted expenditure is related.
 Name of Sub Program and Sub Program Code: the field is to identify the Sub
Program to which the budgeted expenditure is related.
 Name of Project & Project code: the field is to identify the BI to which the
budgeted expenditure is related.
 Source of Finance & code: the field is to identify the source of funding that is
recorded on the ledger card.
 Page Number: the field identifies the page number of the budget ledger card.
 Type of Budget and Code: the field is to identify whether the item of expenditure is
a part of the recurrent or capital expenditure budget.
 Item of Expenditure & Code: the field is to identify and describe the item of
expenditure by its budget code.

Lower Part of the Budget Ledger Card

 Number, Date, Description & Reference Number: the purpose of these fields is to
respectively identify:

 The sequential number of the transaction.

 The date of the transaction.
 A brief narrative of the description of the transaction.
 The reference number of the source document to the transaction.
 Approved Budget: the field identifies the amount of the original approved budget
for the item of expenditure.
 Additions/Reductions to approved Budget: the fields are used to track changes to
the approved budget and provide information to compute the revised budget.
 Revised Budget: the field contains the approved budget adjusted for any additions
or reductions. The revised budget is key for budget control. An item of
expenditure must not exceed its revised budget.
 Payment Received for Budgeted Expenditure: the field is used to record payments
received (Whether as cash or non-cash from the appropriate source of funding and
assists in keeping track of the amounts of money received for the item of
expenditure.
 Unpaid Balance: the field is the difference between the revised budget and the
amount of funds received (whether as cash or non-cash) to meet the budgeted
expenditure and assists in keeping track of the remaining amounts of money that
may be requested for an item of expenditure.

63
  Commitment: the field is used to record current commitments and assists in
identifying the balance available in the budget for expenditure.
 Balance not committed: the field contains the difference between the revised
budget and the commitments. The balance not committed is the available budget
for future spending. Once the uncommitted balance is reduced to zero, the Budget
Section will approve no further spending.

Unit Two
General and Subsidiary Ledgers
Introduction

This unit is made up of three main sections. In the first part a complete description of
ledgers is presented. How the ledgers are structured and organized as general and
subsidiary ledgers are also discussed.

64
The unit mainly describes the purpose and format of each ledger and the process
of recording entries in ledgers. The processes used in posting to the general
ledger and in the subsidiary ledgers from all FGE Registers are the same
regardless of whether the transactions involve domestic or foreign currency. For
simplicity, in this unit, the term Register means local currency transaction register
and foreign currency transaction register.

After you complete this unit, you will be able to:

 Analyze the relationship that exists between controlling and subsidiary ledger
 Explain how ledgers in FGE accounting system are structured into general and
subsidiary ledger
 Identify the ledgers in FGE accounting system easily based on its organization
 List the activities in finance section at the end of the month and the budget year.

Description of Ledgers
A ledger is the entire group of accounts maintained by an accounting unit. The
ledger summarizes transactions by accounts. The ledgers summarize the
transaction information from registers in the form of accounts that facilitate
reporting of financial results. Transactions are recorded in the register, but reports
are produced from the ledgers. Two types of ledgers are maintained in the FGE
accounting system: General Ledgers and Subsidiary Ledger (MOFED and DSAS
Project manual, December, 2002).

General Ledger
A ledger card is maintained for every account code recorded in the register. Every
amount that is entered as either a debit or credit on the Register is also entered to
the corresponding debit or credit column of the appropriate ledger card. The
aggregate of all such ledger cards is the general ledger. The general ledger is a
set of self-balancing ledger cards because at all times the total debits and the total
credits recorded in the general ledger are equal. The general ledger is maintained
to classify information reported in the Register by respective account codes. All
transaction amounts recorded in the Register are entered on ledger cards in the
general ledger. The balances for all individual accounts are maintained in the
general ledger. Because the general ledger serves as a basis to prove that the net
cumulative debit and credit balances of all accounts are equal, the general ledger
simplifies and improves the report generation process (MOFED and DSA Project
manual, December, 2002).

Subsidiary Ledger
The accountant maintains a general ledger for each register. Where more than
one BI shares the same bank account, the accounting unit maintains one Register
and one general ledger for the bank account. A system of control accounts in the
general ledger and supporting subsidiary ledgers is used to maintain sufficient
account balance detailed to facilitate management reporting requirements. A
control account is an account in the general ledger that maintains the total balance
of all related accounts in a subsidiary ledger. A subsidiary ledger is a ledger that is
separate from the general ledger and contains transaction details of each control
account in the general ledger. Any account in the general ledger that requires

65
more detail than simply the total account balance becomes a control account with
a Subsidiary Ledger (MOFED and DSA Project manual, December, 2002).

A ledger card is maintained for every control account code recorded in the general
ledger. Either every amount that is entered as a debit or credit on a control
account's ledger card in the general ledger is also entered to the corresponding
debit or, credit column in the subsidiary ledger card. The aggregate of all
subsidiary ledger cards for a single control account is the subsidiary ledger. For
example, expenditure account code 6111 salary expense has a ledger card in the
general ledger that contains all salary expenses recorded in the transaction
register .A set of subsidiary cards, one for each BI, also is maintained for
expenditure account code 6111.At all times, the net cumulative balance of debits
and credits recorded in the subsidiary ledger is equal to the respective net
cumulative balance of debits and credits of the corresponding control account in
the general ledger (MOFFED and DSA Project manual, December,2002).

A subsidiary ledger is not a set of self-balancing accounts. Not all debits in a

subsidiary ledger are equal to all credits in the subsidiary ledger. A subsidiary
ledger's total debits and credits equal the balance in the corresponding control
account in the general ledger. The purpose of control accounts and subsidiary
ledger accounts is to facilitate the report generation process, minimize the size of
the general ledger, and maintain sufficiently detailed records regarding account
balances to assist proper financial management. For example, total of advances
to staff is a control account in the general ledger, but the amount owed by each
staff member is a subsidiary ledger account in the subsidiary ledger. Total of
advances to staff is a control account in the general ledger because the reporting
requirements require only the total amount of the advances to staff (rather than
the amount owed by each staff member). In addition, it is likely that the number of
staff members who owe advances is significant, and it may be cumbersome to
maintain the amounts owed by each staff member in the general ledger.
However, the accounting unit will maintain a record of the amount owed by each
staff member in a subsidiary ledger in order to monitor repayment of the amounts
owed from each staff member. The accountant maintains a set of subsidiary
ledger cards for each control account in the general ledger. However, a subsidiary
ledger is not maintained for all accounts in the general ledger. Subsidiary ledgers
are only maintained for accounts within the general ledger that requires more
detail than simply the total account balance (MOFFED and DSA Project manual,
December, 2002).

Structures and Organization of Ledgers

This section presents the structure of ledgers, which is presented to discuss about
recurrent Expenditure, revenue, and other accounts, transfers, cash and cash
equivalents, receivables, payables, and letters of credit. In this section,
organization of ledgers in FGE accounting system will also be discussed.
Structure is about the relationship that exists between general and subsidiary
ledger and organization is about the systematic grouping in general ledger. You
will study this issue in the next presentations.

66
Structure of Ledgers

This section describes when an account in the general ledger is treated as a

control account. Two criteria define whether an account code is a control account
with a related subsidiary ledger:
 Monthly reporting requirements
 Management and control of the account balance

Recurrent and Capital Expenditure

An accounting unit is required to report recurrent and capital expenditures at the

level of each BI managed by it. Expenditure control accounts are maintained in the
general ledger for each item of expenditure and type of budget. The control
account contains information whose detail is shown in the subsidiary ledger. In
order to also track and report actual expenditure at the level of each BI managed
by the accounting unit, a subsidiary ledger is maintained for each expenditure
control account by BI. Accounts in the subsidiary ledger provide information on
total expenditures by type of budget and item of expenditure for each BI managed
by the accounting unit (MOFED and DSA Project manual, December, 2002).

Revenue

An accounting unit is required to report revenue at the level of the accounting unit
and not the level of each BI managed by it. In order to record and report actual
revenue at the level of the accounting unit, an account should be maintained in the
general ledger for each item of revenue by account code. The general ledger
provides information on total revenues by item of revenue for the accounting unit
as a whole. Since there is no reporting requirement at the level of each BI, a
subsidiary ledger is not maintained for items of revenue (MOFED and DSA Project
manual, December, 2002).

Other Accounts
Other categories of accounts maintained in the general ledger include:
 Transfers
 Cash and Cash Equivalents
 Receivables
 Payables
 Letters of Credit
 Net Assets/Equity

An accounting unit is required to report on accounts in these categories at the

level of the accounting unit only and not at the level of each BI managed by it.
However, some of these account categories contain control accounts with
Subsidiary Ledgers.

Transfers: Transfers accounts typically are not control accounts and have no
related Subsidiary Ledgers.

Cash and Cash Equivalents: Cash and Cash Equivalents accounts typically are
not control accounts and have no related Subsidiary Ledgers. If the accounting

67
 unit controls more than one safe, a Subsidiary Ledger is needed for each safe
under the general ledger control account for Cash in Safe(MOFED&DSA
Project,December,2002) .

Receivables, Payables, and Letters of Credit: Receivables, payables, and

letters of credit accounts typically are control accounts with related Subsidiary
Ledgers. Accounts in the Subsidiary Ledgers identify individual items under the
control account (MOFED and DSA Project, December, 2002).

Organization: The general ledger is organized into seven broad categories

comprising:
 Revenue, Assistance or Loan accounts in sequence of the account codes
 Expenditure accounts in sequence of the account codes
 Transfer accounts in sequence of the account codes
 Asset accounts in sequence of the account codes
 Liability accounts in sequence of the account codes
 Letters of Credit accounts in sequence of the account codes
 Net Asset/Equity account
The subsidiary ledger is organized by the related control account maintained in
the General Ledger (MOFED and DSA Project manual, December, 2002).

Recording Entries in Ledgers

In this section, you will study the formats of ledgers. The type of information that
each entry in the ledger requires from a transaction register is also the focus of
your study in the section. Try to get the ledger formats from government
institutions found in your area and ask people working in finance section to get
clear and practical experience in addition to your reading.
Recording Transactions into the Ledger Card of the General Ledger

Each transaction recorded in a register is also recorded in the related general

ledger. Each transaction is recorded in two separate ledger cards because two
accounts are affected by each transaction. Each account is recorded on its
appropriate ledger card in the general ledger immediately after it is recorded in the
register. The only source document to the general Ledger is the register.

Figure 3.1: Ledger Card

ME/HE/17 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT
LEDGER CARD
Public body ______________________ Code _______ page _______
Program _____________________Code _____
Sub Agency _______________________ Code _____ Type of Budget
_____________
Sub-program ______________________ Code _____

68
Project _____________________ Code _____ account
Code______________
Source of Finance __________________Code _____
Bank Account No.___________________ Description
______________

Reference from
Register Balance
Date Month Pag Item Date Description Debit Credit Debit Credit
e no

(Source: MOFED&DSA Project manual, December 2002)

The ledger card has two parts:

 Top of the form contains information that identifies the general ledger to
which the card belongs, and the specific account code and type of budget
recorded on the card.

 The table contains information from the transaction register for computing
the balance for the account code/type of budget.

Not all information on the left side at the top of the ledger card is needed for all
general ledger cards. The information provided on the left side must be sufficient
to uniquely identify the general ledger from all other general ledgers. The detail
of information required will vary.
The information on the right side at the top of the ledger card is required to
uniquely identify the ledger card from all general ledgers except that the space for
description is not necessary for a ledger card in the general ledger.

According to MOFED&DSA Project, the table on the ledger card in the general
ledger contains the following features:

 Date is the date that the entry is made in the ledger card, not the date of
the transaction.

 Reference from registrar contains sufficient information to uniquely identify

the Register source of the entry.

 Description is option. If additional information about the transaction is

desired, it should be written here.

 Debit and Credit contains the amount from the Register for the transaction.
Every amount that is entered as a debit (or credit) on the register is entered
in a corresponding debit (or credit) column of a ledger card in the general
ledger.

69
  Balance is the net cumulative balance of the account. After every
transaction is recorded in the debit or credit column of the ledger card in the
general ledger, the net cumulative balance of the account is derived by
appropriately adding or subtracting the amount of the current transaction
from the previous net cumulative debit or credit balance. The purpose of
the monthly net cumulative debit and credit balances is to record the net
balance in the monthly reports and Trial Balance.

Recording Transactions into the Foreign Currency Cash Account Ledger

Card
The cash account ledger card for Account Code 4102 "cash at bank in foreign
currency" requires a special format. This account code, and only this account
code, maintains a balance in Birr and in foreign currency denomination. The same
information is recorded in the foreign currency transaction Register.
The foreign currency cash account ledger card is shown in figure 3.2. The foreign
currency cash account ledger card is identical to any other ledger card, except
that the amount of each transaction recorded from the foreign currency transaction
register is recorded on the card twice: once in Birr and once in foreign currency. In
addition, the net cumulative balance of the account is kept in both currencies.

Figure 3.2: Foreign Currency Cash Account Ledger Card

ME/HE/18
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHOPIA
MINISTRY OF FINANCE & ECOMOCIS DEVELOPMENT
Foreign Currency Cash Account Ledger Card
Page ____
Public Body __________ Code_______
Bank Account No._________ Code ______ Account Code
4102
Donor/lender _____________ Code _____________

Reference from
Dat Register Cash at Bank Balance Cash at Bank Balance
e Desc (birr) ((FC)
riptio
n
mont Pag Item Dat
h e no e Debit Credi Debit Credi Debit Cre Debi Cr
t t dit t edi
t

(Source: MOFED and DSA Project manual, December 2002)

70
Recording Transactions into the Ledger Card of the Subsidiary Ledger
A ledger card in the subsidiary ledger is maintained only for control accounts in
the general ledger. Transactions are recorded on the appropriate ledger cards in
the subsidiary ledger from the register immediately after they are recorded in the
ledger cards in the general ledger. The only source document for the subsidiary
ledger is the register. The format of a ledger card in the subsidiary ledger is the
same as the format of the ledger card in the general ledger shown in figure 3.1.
Ledger cards are printed in two colors. One color of cards should be used for
general ledger account only, while the other should be used for all subsidiary
ledger accounts. Not all information on the left side at top of the ledger card is
needed for all subsidiary ledger cards. The information provided on the left side
must be sufficient to uniquely identify the related general ledger. If the subsidiary
ledger consists of budgetary institutions, sufficient information to uniquely identify
the budgetary institutions is necessary. The detail of information required will vary
(MOFED and DSA Project, December 2002).

The information on the right side at the top of the ledger card is required to
uniquely identify the control account in the general ledger, except the description.
If the subsidiary ledger consists of individual item (such as individual staff for
advances or individual letters of credit), sufficient description is necessary to
uniquely identify the individual account in the subsidiary ledger.

According to MOFED and DSA Project, the table in the subsidiary ledger contains
similar information to that of the general ledger such as date, reference,
description, debit and credit sides and balances. After every transaction is
recorded in the debit or credit column of the ledger card in the subsidiary ledger,
the net cumulative balance of the account is derived by appropriately adding or
subtracting the amount of the current transaction from the previous net cumulative
debit or credit balance

The net debit and credit cumulative balances on all ledger cards in a subsidiary
ledger should be totaled on a monthly basis and compared to the balance on the
control account's ledger card in the general ledger. The purpose is to verify the
accuracy of the total net balance in the subsidiary ledger with net balance in the
control account in the general ledger and to produce accurate monthly reports for
expenditure (MOFED and DSA Project, December 2002).

Month end activities related to General and subsidiary ledgers

The general ledger account balances must be determined at the end of each
month. The total cumulative balance of all debit and credits on all ledger cards in
the general ledger must be in balance. Where the net cumulative debits and
credits recorded on all ledger cards in the General ledger are imbalance, an error
exists. The following types of errors should be verified to balance the general
ledger (MOFED and DSA Project manual, December, 2002).
 An incorrect amount is transcribed into the Ledger Card from the
Register.
 An amount is incorrectly posted into the credit column of a ledger card in
the general ledger instead of into the debit column, and vice versa.

71
  Only one side (either debit or credit) of a transaction is posted into the
general ledger and the other portion (either debit or credit) of he
transaction is not posted into the general ledger.
 An arithmetic error has occurred in the computation of the net debit or
credit balance of a ledger card in the general ledger.
 Permanent account balances are not carried forward correctly from the
previous year.

At the end of each month, the net cumulative debit or credit balance for each
ledger card in the subsidiary ledger should be calculated. The total net cumulative
debit or credit balance for all ledger cards in the subsidiary ledger must be equal
to net cumulative debit or credit balance on the respective control account's ledger
card in the general ledger. Where total net cumulative debits or credit balance for
all ledger cards in the subsidiary ledger is not equal to the net cumulative debit or
credit balance on the respective control account's ledger card in the general
ledger, an error exists (MOFED and DSA Project, December, 2002).

The following types of errors should be verified to balance the subsidiary and
general ledgers:
 An incorrect amount is transcribed into the ledger from the register.
 An amount incorrectly posted into the credit column of a Ledger Card in the
subsidiary ledger instead of into the debit column, and vice versa.
 An arithmetical error has occurred in the computation of the net debit or
credit balance of a ledger card in the subsidiary ledger.
Permanent accounts balances are not carried forward correctly form the previous
year.

Year end activities related to General and subsidiary ledgers

In addition to the monthly routines, at the end of each year, a transfer of the debit
or credit balances to the Net Assets/Equity account is required to close
the temporary accounts in the general ledger. The temporary accounts are
accounts in the following account categories:
 Revenue, Assistance and Loan items comprising account codes 1000
to 3999.
 Expenditure items comprising account codes 6000 to 6999.
 Transfers comprising account codes 4000 to 4099
The closing entry is the last entry made at the end of the fiscal year after all other
transactions are captured. The closing entry ensures that temporary accounts
start each fiscal year with a zero balance. The general ledger begins each new
fiscal year with carry forward balances in the permanent accounts from the
previous year (MOFED and DSA Project manual, December, 2002).

At the end of each year, the temporary accounts in the general ledger are closed
to the net assets/equity account as described above. Any subsidiary ledger
corresponding to a temporary account in the general ledger also is considered
closed. A new subsidiary ledger is started each year for each temporary control
account. All accounts in the new subsidiary ledger begin the year with a zero
balance. Accounts in other account categories are permanent accounts and are
not closed each year. These permanent accounts carry their previous year's
balance forward to the next fiscal year. Any subsidiary ledgers corresponding to

72
permanent account in the general ledger also carry forward to the next year
(MOFED& and DSA Project manual, December, 2002).

Summary
Transactions are recorded in the register, but reports are produced from the
ledgers. Two types of ledgers are maintained in the FGE accounting system:
General ledgers and subsidiary ledgers. Because the general ledger serves as a
basis to prove that the net cumulative debit and credit balances of all accounts are
equal, the general ledger simplifies and improves the report generation process.
The general ledger is organized into seven broad categories comprising in FGE
accounting systems.

Any account in the general ledger that requires more detail than simply the total
account balance becomes a control account with a subsidiary ledger. The purpose
of control accounts and subsidiary ledger accounts is to facilitate the report
generation process, minimize the size of the general ledger, and maintain
sufficiently detailed records regarding account balances to assist proper financial
management.

Based on two criteria that define whether an account code is a control account
with a related subsidiary ledger, structure of ledgers in FGE accounting system is
summarized as follows:

A: Subsidiary Ledgers for Expenditure Control Accounts

Source of Funding Sub Ledger Items
Treasury Yes By BI for each item of
Expenditure/type of budget
Loans Yes By BI for each item of expenditure
Assistance Yes By BI for each item of
expenditure/type of budget

B: Subsidiary Ledgers for Revenue, Assistance and Loan Accounts

Source of Funding Sub Ledger Items
Treasury No Not applicable
Loans No Not applicable
Assistance No Not applicable

C: Subsidiary Ledgers for Other Accounts

Codes Sub Ledger Items
Cash at Bank No Not applicable
Cash in Safe Yes By safe, if accounting unit
controls more than one safe
Transfers No Not applicable
Receivables Yes By individual item
Payables Yes By individual item
Letters of Credit Yes By individual item
Net Assets/Equity No Not applicable

73
 Unit Three
Analysis of Transactions

3.1. Cash Transfers

Cash transfers are cash movements among government units. Cash transfers
may be made in the form of currency, checks or direct cash movement between
bank accounts.

Cash Transfers: Between Bank Accounts at Public Bodies and MOFED

Cash is transferred from MOFED bank accounts to bank accounts of public
Bodies, and cash is transferred from bank accounts of public Bodies to MOFED
bank accounts. These transfers are done in the form of Checks, and Direct bank
transfers evidenced by bank advices.

Cash transfers from MOFED bank accounts to bank accounts of public Bodies are
recorded:
 By MOFED, as a debit to the appropriate transfer code and a credit to
4105, and
 By the public Body, as debit cash at Bank 4103 and a credit to the
appropriate transfer code.

Example: Assume a public Body receives from MOFED a transfer of Birr 100,000
for Capital expenditure and also further assume that you are an accountant in both
the PB and MOFED

Transaction Register of MOFED:

No Description TB Accoun Others Cash at bank
t 4105
Number
Dr Cr Dr Cr
1 Cash transfer to -- 4004 100,00 100,00
PB 0 0

Transaction Register of Public Body:

74
 No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Cash transfer from - 4004 100,000 100,000
MOFED

At MOFED, although a transfer authorization to one bank account may include

funds for more than one BI, the entire transfer is one. Therefore, only one entry
should be made for the total of the transfer in the Transaction Register maintained
at MOFED. The BI code for the entry should be the BI code of the Reporting
Entity.

If the bank charges a service charge for the transfer:

 The Service charge should be recorded as a debit to account code 6256.
 Cash at bank 4103 should be debited for the amount of cash actually
received.
 The appropriate transfer account code should be credited for the gross
amount of the transfer.

Example: MOFED transfers Birr 100,000 to a public body for capital expenditure.
The bank deducts 2000 birr as a service charge; the public body receives Birr
98,000.
Transaction Register of MOFED:
No Description type of Account Others Cash at bank
budget Number 4105
Dr Cr Dr Cr
1 Cash transfer to PB 4004 100,00 100,00
0 0

Transaction Register of Public Body:

No Description type of Account Others Cash at bank
budge Number 4103
t
Dr Cr Dr Cr
1 Bank Service Charge 02 6256 2000
Cash transfer from 4004 100,000 98,000
MOFED

Cash Transfers: Between Bank Accounts at Public Bodies and MOFED:

From Public Bodies to MOFED at federal level
Cash transfers from bank accounts of public Bodies to MOFED bank accounts are
recorded:
 By MOFED, as a debit to Cash at Bank4105 and a credit to the appropriate
transfer code, and
 By the Public Body, as a debit to the appropriate transfer code and a credit
to Cash at Bank 4103.

Example: A Public Body collected revenue of Birr 60,000. The cash is transferred
to MOFED.

75
Transaction Register of MOFED
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Cash transfer from PB - 4009 60,000 60,000

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer to - 4009 60,000 60,000
MOFED

Some public Bodies deposit cash directly into a MOFED bank account when
revenue is collected. If revenue is deposited directly to a MOFED bank account,
the entry in the Transaction Register of the public Body is a debit to the
appropriate transfer account code and a credit to the appropriate revenue account
code.

Cash Transfers: Between MOFED safe and Public Bodies

According to MOFED and DSA Project manual, January 2002, the Treasury
Department at MOFED maintains a safe. Public Bodies can withdraw a maximum
of Birr 2,000 from the safe with appropriate approval. MOFED-CAD records the
Cash payment Voucher as a transfer in the Federal Transaction Register. The
public Body records the Cash payment Voucher as a transfer in its Transaction
Register.

Example: A Public Body provides Ge/Be/We 11/2 to Treasury Department for

payment of Birr 1,000 from the safe at MOFED.

Transaction Register of MOFED:

No Description TB Account Others Cash in Safe
Number 4101
Dr Cr Dr Cr
1 Cash transfer - 4002 1,000 1,000

Transaction Register of public Body:

No Description TB Account Others Cash in Safe
Number 4101
Dr Cr Dr Cr
1 Cash transfer - 4002 1,000 1,000

Cash Transfers: Between Public Bodies

Cash may be transferred from a bank account of one public body to a bank
account of another public body. These transfers are done in the form of: Checks,
and Direct bank transfers evidenced by bank advices. Cash transfers from a bank
account of one public Body to a bank account of another public Body are
recorded:
 By the public Body sending the cash, as a debit to transfer code 4008 and
a credit to cash at Bank 4103,and

76
  By the public Body receiving the cash, as a debit Cash at Bank 4103 and a
credit to transfer code 4008.

Example: Public Body #1 transfers Birr 90,000 to public Body #2.

Transaction Register of public Body #1:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer to PB #2 - 4008 90,000 90,000

Transaction Register of public Body #2:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer to PB - 4008 90,000 90,000
#1

Cash Transfers: Within Public Body

In the same Manual prepared by MOFED&DSDA Project, it is indicated that some
public Bodies maintain branch bank accounts. The public Body may transfer cash
from one bank account to another bank account of its branch. These transfers are
done in form of: Checks, and Direct bank transfers evidenced by bank advices.
Cash transfers within a public body from bank Account #1 to bank Account #2 are
recorded:
 By the accounting unit for bank Account #1, as a debit to transfer code
(transfer between financial bureau and wereda finance/ district finance/
office) 4011 and a credit to cash at Bank 4103, and
 By the accounting unit for bank account #2, as a debit cash at bank 4103
and a credit to transfer code 4011.

After both transactions are recorded in the consolidated general ledger of the
public body, the net effect of the internal transfer is zero (the balance in transfer
code 4011 is zero).

For control purposes, if the public body transfers to more than one branch bank
account, a subsidiary ledger should be maintained by the main bank account.
Each branch bank account that receives or sends a transfer using account code
4011 should have its own subsidiary ledger card under transfer code 4011. This
will aid consolidation in the general ledger of the public body and improve cash
control within the public Body.

Example: Bank Account #1 transfers Birr 80,000 to Bank Account #2

Transaction Register of Bank Account #1:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer to BA #2 - 4011 80,000 80,000

Transaction Register of Bank Account #2:

77
 No Description TB Account Other Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer BA #1 - 4011 80,000 80,000

3.2 Non - Cash Transfers

Non-Cash transfers are used to record a transfer when cash does not actually
move. The authorization for a non-cash transfer usually is a letter from MOFED.

Example: Assume Ministry of Health (MOH) requests MOFED to pay customs

duty amounting to Birr 250,000 on its behalf to the customs Authority (CA) for
motor vehicles from its capital expenditure budget and further assuming that you
are the accountant in these institutions.

Solution:
Transaction Register of MOFED:
No Description TB Accoun Others Cash at bank
t 4105
Number
Dr Cr Dr Cr
1 Transfer to MOH - - 4054 250,000
Customs duty
Transfer from CA- - 4055 250,000
Customs duty

Transaction Register of Ministry of Health:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Purchase of motor 02 6311 250,000
vehicles
Transfer from - 4054 250,000
MOFED-Customs
duty

Transaction Register of Customs Authority:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer to MOFED - 4055 250,000
Duty on Motor - 1301 250,000
vehicles

3.3. Receipt of Revenue /Assistance/ Loan

Public Bodies are authorized to collect revenue on behalf of the FGE. In addition,
Public Bodies may receive funds for assistance and loan directly from donors and

78
lenders. Receipts are collected in the form of currency, checks and direct bank
transfers. Receipts are recorded as a debit to cash at Bank 4103 and a credit to
the appropriate revenue /assistance/ loan account code.

Example:Assume you are the accountant of Ministry of foreign affairs and that
you collected birr 10,000 in fees for visas.

Transaction Register of Ministry of Foreign Affairs:

No Description TB Account Others Cash at Bank
Number 4103
Dr Cr Dr Cr
1 Revenue - 1411 10,000 10,000

Transfer of collections Directly to MOFED

In some public bodies, revenue collectors make deposits directly to a MOFED
bank account. It is important that the collector adequately identify the public body
for which the deposit is made.
 When MOFED receives the bank advice, MOFED records a debit to cash in
Bank 4105 and a credit to transfer account code 4009.
 When the public body receives the Receipt voucher from revenue
collectors, the public body records a debit to transfer account code 4009
and a credit to the appropriate revenue account code.

Example: MOFED receives a deposit from Internal Revenue for Birr 40,000. The
deposit is from the collection of agricultural income tax.

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer from IR - 4009 40,000 40,000

Transaction Register of Internal Revenue:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Agricultural Revenue 4009 40,000
Transfer 1107 40,000
3.4. Cash Expenditures

Public Bodies are authorized to make cash expenditures from funds budgeted for
that purpose. Cash expenditures are made using currency, checks and direct
bank transfers.

Cash Expenditures: Payments to Regions/Transfer Recipients by MOFED

Payments by MOFED to regions and transfer recipients (Functional classification
4000 - 4099, are budgeted expenditures of the federal government. When
MOFED makes these payments, MOFED records the expenditure in the federal
Transaction Register.

79
Example:Assume a subsidy payment of Birr 300,000 is made to a region by
MOFED where you are an accountant.

Transaction Register of MOFED

No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Region subsidy 6411 300,000 300,000

Cash Expenditures: Check Payments by Accountants

Only accountants are allowed to make payments using checks.

Example: Assume that an accountant pays by check an amount of Birr 50,000 for
office supplies.

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Office supplies paid in 6212 50,000 50,000
cash

Cash Expenditures: Cash payment By MOFED on Behalf of Public Bodies

MOFED can make cash payments on behalf of a public body. The transaction
begins with a letter from the public Body to MOFED requesting that the payment
be made on its behalf. Cash payments made by MOFED on behalf of Public
Bodies are recorded:
 By MOFED, as a debit to the appropriate transfer code and a credit to Cash
at Bank 4105, and
 By the public Body, as a debit to the appropriate expenditure code and a
credit to the appropriate transfer code.

Example: The Ministry of Health (MOH) requests MOFED to pay for a motor
vehicle on its behalf amounting to Birr 280,000 from its capital expenditure budget.

Transaction Register of MOFED:

No Description TB Accoun Others Cash at bank
t 4105
Number
Dr Cr Dr Cr
1 Transfer to MOH - 4004 280,000 280,000

Transaction Register of Ministry of Health:

No Description TB Account Others Cash at bank
Number 4103

80
 Dr Cr Dr Cr
1 Purchase of motor 02 6311 280,00
vehicles 0
Transfer from MOFED - 4004 280,000

Cash Expenditures: Letter of Credit

A Public Body may need to open a Letter of Credit as part of an international
purchase agreement. Opening a letter of credit means putting cash in a restricted
bank account dedicated to payment of the purchase price when appropriate
conditions are met. There are two processes for opening a letter of credit:
 If the letter of credit is for Birr 50,000 or less, the public body can open the
letter of credit.
 If the letter of credit is for more than Birr 50,000, the public body must
request that MOFED open the letter of credit.

Cash Expenditures: Letter of Credit: Opened by Public Body

When a public Body opens a Letter of Credit, cash is paid, using a Bank payment
Voucher, from the bank account of the public Body to a restricted bank account at
the national bank of Ethiopia. In the transaction register for the public body's bank
account, expenditure is recorded. The public body uses another transaction
register for the restricted bank account. The public body must combine the
monthly report of the restricted account with the monthly report of the regular bank
account for reporting to MOFED.

Example: The ministry of Health (MOH) establishes a restricted bank account to

open a letter of credit for the purchase of medical supplies valued at birr 30,000.

Transaction Register - Regular Bank Account of Ministry of Health:

No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Purchase of medical 02 6214 30,000 30,000
supplies

Transaction Register - Restricted Bank Account of Ministry of Health:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Letter of credit #xxxx - 5500 30,000 30,000

Cash Expenditures: Letter of Credit: Opened by MOFED on behalf of Public

Body
A Public Body requests that MOFED open a letter of credit on its behalf.

MOFED: Transfers cash to restricted bank account at national bank of Ethiopia on

behalf of the public body, Records a cash transfer to the public body, and Notifies
the public body of the transaction.

81
The Public Body: Records the cash transfer as expenditure in the transaction
Register for the public Body's bank account, and Records the Letter of Credit in
another Transaction Register for the restricted bank account.

Example: The Ministry of Health (MOH) requests MOFED to open a letter of

credit on its behalf amounting to Birr 700,000 for motor vehicles from its capital
expenditure budget.

Transaction Register:
No Description TB Account Other Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer to - 4054 700,000 700,000
MOH

Transaction Register bank account MOH:

No Description TB Accoun Other Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Purchase of Motor 02 6311 700,00 700,000
vehicle 0
2 Transfer from MOFED - 4054 700,000

Transaction Register - Restricted Bank Account of Ministry of Health:

No Description TB Accou Other Cash at bank
nt 4103
Numbe
r
Dr Cr Dr Cr
1 Letter of Credit #xxxx - 5531 700,00 700,00
0 0

Cash Expenditures: Cash Payment by Public Body to Region

Occasionally, public Bodies make cash payments to regions.Some of the funds
are intended for sector bureaus in the regions. The sector line ministry acts as a
treasury department by distributing the cash to the region sector bureaus directly.

All payments to the regions from the federal level are budgeted as part of the
region's subsidy. When a public body pays cash to regions, the payment is part of
the regions subsidy. The public body should record the payment as a subsidy
payment.

Example: The ministry of Health (MOH) sends Birr 53,000 to a region as part of a
sector development plan.

Transaction Register - Ministry of Health:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Region - 6411 53,000 53,000

82
 Subsidy

Cash Expenditures: Cash Payment Requiring Withholding of Tax

The tax authority requires that a tax must be paid on specified purchases over a
certain amount. The purchaser collects the tax as a withholding from the purchase
price. The threshold amount and the tax rate may vary each year. The tax is paid
to the appropriate authority, federal or regional government, depending on the
location of the supplier.

The supplier can reclaim the withholding tax. The tax authority creates a special
tax receipt that should be issued to the supplier when the tax is withheld. This
receipt is not an accounting document and should not be referenced in any
accounting record. If a regional tax authority has not issued a special tax receipt,
the federal special tax receipt should be used .The withholding tax does not
reduce the cost of the goods to the public body. The withholding tax is a reduction
to the payment made to the supplier. The payment is made to the appropriated
government instead. When a purchase is made that requires the withholding of
tax, a bank payment voucher is prepared that indicates, in the space provided for
accounting use only.

The expenditure account code with a debit for the full purchase price. If the tax is
federal, withholding tax revenue code 1103 or 1104 (depending of whether the
supplier is an individual or a corporation) with a credit for the amount of the tax.
The only exception is if the payment is made with retained revenue. If retained
revenue is the source of funds for the payment, payable account code 5028 is
credited for the amount of the tax.If the tax is regional, payable account code 5026
with a credit for the amount of the tax.Cash at bank 4,103 with a credit for the
actual amount paid to the supplier.

Cash Expenditures: Cash Payment Requiring Withholding of Tax: Federal

Tax
When federal tax is withheld from a purchase, the tax is recorded as revenue
immediately subsequently; an amount of cash equal to the tax is transferred to
MOFED.

Example: A public body buys office supplies from a corporation for Birr 200,000
from its recurrent expenditure budget - Birr 198,000 relates to the cost of the office
supplies and Birr 2,000 is the withholding tax.

Transaction #1: Payment effected to supplier

Transaction Register of Public Body:

No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Office supplies 01 6212 200,000
Withholding tax 1104 2,000 198,000
revenue

83
Transaction #2: Transfer to MOFED

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Transfer to MOFED 4009 2,000 2,000

Transaction Register of MOFED:

No Description TB Accoun Others Cash at bank
t 4105
Number
Dr Cr Dr Cr
1 Transfer to 4009 2,000 2,000
MOFED

Cash Expenditures: Cash Payment Requiring Withholding of Tax: Regional

Tax
When regional tax is withheld from a purchase, the tax is recorded as a payable to
the region. Subsequently, an amount of cash equal to the tax is transferred to
MOFED. MOFED pays the tax amount to the region. A subsidiary ledger should
be maintained for payable to region account code 5026 if tax is collected for more
than one region. Each region should be a separate account in the subsidiary
ledger.

Example: A public body buys office supplies for Birr 200,000 from its recurrent
expenditure budget - Birr 198,000 relates to the cost of the office supplies and Birr
2,000 is the regional withholding tax.

Transaction #1: Payment effected to supplier

Transaction Register of public Body:

No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Office Supplies 01 6212 200,000
Tax payable to 5026 2,000 198,000
Region

Transaction #2: Transfer to MOFED

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Payable to 5026 2,000 2,000
MOFED

Transaction Register of MOFED:

84
 No Description TB Accoun Others Cash at bank
t 4105
Number
Dr Cr Dr Cr
1 Tax payable to 5026 2,000 2,000
region

Transaction #3: MOFED pays tax to region

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
2 Payable to region 5026 2,000 2,000

Cash Expenditures: Construction Projects

The long-term construction projects involve complicated financial arrangements.
Several accounting entries are necessary over the life of the project. In general,
when a construction contract is signed, there are several steps in the payment
process. At each stem, an accounting entry is required. The general steps are:
 Payment of an advance: Usually the contract calls for an advance payment
to the contractor. The advance payment is proportionately deducted from
future payments to the contractor.
 Progress payments based on payment certificates: Usually the contract
calls for partial payment of the total contract price as the construction
reaches agreed-upon percentages of completion. A payment certificate is
evidence that the agreed-upon completion percentage is reached.
 Payment of the retention: Usually a percentage of the payment is retained
and not paid until final acceptance of the completed construction.

Example: Assume the following:

A contract is signed to construct a building for 2,000,000 Birr. Terms of contract
are:
Initial advance of 20% = 400,000 Birr
Advance adjusted proportionately with each payment certificate approval.
Retention of 10% withheld from each payment certificate & paid after final
approval.
Steps in payment are:
Payment of 20% advance.
Payment certificate when 40% complete.
Payment certificate when 80% complete.
Payment certificate when 100% complete.
Transaction #1: payment of 20% advance:
Accountant prepares a check for 400,000 Birr.
Accountant prepares payment Voucher for 400,000 Birr:
Debit to 4251 & Credit to 4103

Transaction Register of public Body:

85
 No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Advance to 4251 400,000 400,000
contractor

Transaction #2: payment certificate when 40% complete.

Accountant Prepares a check for 560,000 Birr as follows:
800,000 payment certificate request
160,000 adjustment to advance
80,000 retention.
Accountant prepares payment Voucher as follows:
Debit to 6323 for 800,000
Credit to 4251 for 160,000
Credit to 5061 for 80,000
Credit to 4103 for 560,000

Transaction Register of public Body:

No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
2 Construction - 02 6323 800,000
Building
Advance to 4251 160,000
contractor
Retention on 5061 80,000 560,000
contract

Transaction #3: payment certificate when 80% complete.

Accountant Preparesa check for 560,000 Birr as follows:
800,000 payment certificate request
160,000 adjustment to advance
80,000 retention
Accountant prepares payment voucher as follows:
Debit to 6323 for 800,000
Credit to 4251 for 160,000
Credit to 5061 for 80,000
Credit to 4103 for 560,000
Transaction Register of public Body:
No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
4 Construction - 02 6323 800,000
Building
Advance to 4251 160,000
contractor
Retention on 5061 80,000 560,000
Contract

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Transaction #4: payment certificate when 100% complete.
Accountant prepares check for 280,000 Birr as follows:
400,000 payment certificate request
80,000 adjustments to advance
40,000 retention
Accountant prepares payment Voucher as follows:
Debit to 6323 for 400,000
Credit to 4251 for 80,000
Credit to 5061 for 40,000
Credit to 4103 for 280,000

Transaction Register of public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
4 Construction - 02 6323 400,000
Building
Advance to 4251 80,000
contractor
Retention on 5061 40,000 280,000
Contract

Transaction #5: Payment of retention after final approval of project:

Accountant prepares a check for 200,000 Birr.
Accountant prepares payment voucher for 200,000 Birr:
Debit to 5061 & Credit to 4103

Transaction Register of public Body:

No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
5 Retention on 5061 200,000 200,000
contract

3.5. Salary

Public Bodies pay salaries to employees every month. This section describes the
accounting for:
Payment of salary
Unpaid salary
Unearned salary

Payment of Salary
The salary payment transaction is complex. The public body must record the
gross salary amount and government's portion of pension as expenditure to
maintain budget control, but only the net salary amount is transferred to, and paid
by the public body.

87
After the salary request is approved, MOFED transfers the net salary amount to
the public body and the total pension amount, employee and government
contribution, to the pension Authority. Although cash for pension is transferred
directly to the pension authority, MOFED records the cash transfer as if the cash
was transferred to the public body. At MOFED, two transfer entries to the public
body are recorded in the transaction register:
 A debit to transfer coder 4001 and a credit to cash at bank 4105 for the net
salary amount.
 A debit to transfer coder 4001 and a credit to cash at bank 4105 for the
total pension amount sent to the pension Authority.

Each transfer amount is reported to the public Body separately on Ge/Be/We 12/1
with Model 33. When the public Body receives Ge/Be/We 12/1, the public Body
prepares:
 A receipt voucher for the total amount of cash received. The entry is a debit
to cash at bank 4103, a debit to pension payable account code 5003 for the
amount of cash paid to the pension Authority and a credit to transfer code
4001.
 A journal voucher to record salary and pension expense. The entry is a
debit to salary expense code 6111 (6112 for military) for the gross salary
amount, a debit to pension expense code 6131 (6132 for military) for the
government’s portion of the pension contribution, a credit to salary payable
code 5004 for the net salary amount, a credit to pension payable code 5003
for the amount of each paid to the pension Authority, a credit to income tax
code 1101 for tax withheld from salary, and a credit to any other
withholding amounts.

Example:Assume the Ministry of Agriculture (MOA) requests salary for the month
of July 2001 with the following details and also assume that you are the
accountant in MOA and MOFED.
Gross salary 40,000
Deduction: salary advance 1,200
Pension expense - 6% 2,400
Penalty for absenteeism 500
Employee pension - 4% 1,600
Net Salary payable 32,700
Income tax 4,000

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer for 4001 32,700 32,700
MOFED
2 Transfer to PB 4001 4,000 4,000

Transaction Register of MOA:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer to PB 4001 36,700

88
 Pension payable 5003 4,000 32,700
2 Salary Expense 01 6111 40,000
Pension Expense 01 6131 2,400
Salary payable 5004 32,700
Income Tax 1101 4,000
Staff Advance 4203 1,20
0
Fines 1485 500
Pension Payable 5003 4,000

Unpaid Salary
Net salary amount is recorded as salary payable when salary expense is recorded
(see above). When salary is paid, salary payable is debited for the amount paid.
Any unpaid salary is the amount remaining in the salary payable account code
5004 after salary is paid. When unpaid salary is paid, the entry is a debit the
salary payable code 5004 and a credit to cash. After salary is paid, a subsidiary
ledger for salary payable account should be maintained. Each unpaid employee
should be an account in the subsidiary ledger.

Unearned Salary
Occasionally, salary is requested and received, but the employee is not entitled to
the entire salary amount received. For some reason, the employee quits working
for the public Body during the month. When this happens, the salary entry
explained above must be reversed for that employee, and the pension transfer
must be corrected. In addition, MOFED must be notified so that the pension
transfer and subsequent months salary can be adjusted.

Example: Suppose an employee in the Ministry of Agriculture worked only half of

July instead of the whole month. This is discovered after the salary expense entry
in the example above. The amounts of overpayment are:
Gross Salary 1000 Income tax 70
Pension expense - 6% 60 Salary Payable
890
Employee pension - 4% 40

Transaction #1: Reverse salary expense

Transaction Register of MOA:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Salary Expense 01 6111 1000
Pension 01 6131 60
Expense
Salary Payable 5004 890
Income Tax 1101 70
Pension Payable 5003 100

Transaction #2: Adjust Pension transfer

Transaction Register of MOA:

89
 No Description TB Accoun Others Cash at bank
t 4103
Number
Dr Cr Dr Cr
2 Transfer - Salary 4001 100
Pension payable 5003 100

Transaction Register of MOFED:

No Description TB Accoun Others Cash at bank
t 4105
Number
Dr Cr Dr Cr
1 Advance to 4210 100
pension
2 Transfer - Salary 4001 100

Transaction #3: Next month's salary transfer

The Ministry of Agriculture (MOA) requests salary for the month of August 2001
with the following details:
Gross salary 38,000
Income tax 3,800
Pension expense - 6% 2,280
Deduction: salary advance 1,200
Employee pension - 4% 1,520
Net Salary payable 31,480

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer to PB 4001 31,480 31,480
2 Transfer to PB 4001 3,800
Advance to 4210 100 3,700
Pension

Transaction Register of MOA:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer to PB 4001 35,280
Pension 5003 3,800 31,480
payable
2 Salary Expense 01 6111 38,000
Pension 01 6131 2280
Expense
Salary payable 5004 31,480
Income Tax 1101 3,800
Staff Advance 4203 1200
90
 Pension 5003 3,800
Payable

3.6. Receivables and Payables

A receivable is an amount owed to a public Body that does not have terms of
repayment detailed in a signed agreement. Receivables usually are created when:
 Cash is transferred but must be returned unless certain conditions are met.
 Advances are given with the understanding that the amount must be repaid
or otherwise accounted for, or goods or services must be delivered.

A payable is amount owed by a public body that is due within one year. Payables
usually are created when:
 Cash is received but must be returned unless certain conditions are met.
 Goods or services are delivered but payment is not yet made.
Receivables and Payables: With MOFED
In some situations, MOFED advances cash to public Bodies. MOFED records the
advance as a receivable, and the public Body records the advance as a payable.
Cash movements between MOFED and a public Body are recorded as a
receivable and a payable, rather than a transfer, if the funds were not requested
by Ge/Be/We 11/xx. Advances must be repaid to MOFED or otherwise accounted
for.

Example Prior to receipt of its budget notification, a public Body requests funds
in June to pay recurrent expenditures. MOFED sends Birr 7,000

Transaction Register of MOFED:

No Description TB Accoun Others Cash at
t bank 4105
Number
Dr Cr Dr Cr
1 Advance for 4206 7,000 7,000
Recurrent

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Due to 5024 7,000 7,000
MOFED

When the public Body receives its budget notification, a Ge/Be/We 11/2 is sent to
MOFED for Birr 14,000. This requests includes the 7,000 Birr received as an
advance. MOFED approves the request, reduces the cash transfer by 7,000 Birr,
and transfers Birr 7,000 in cash.

Transaction Register of MOFED:

No Description TB Accoun Others Cash at
t bank 4105
Number
Dr Cr Dr Cr

91
 1 Advance 4206 7,000
Recurrent
Transfer - 4002 14,000 7,000
Recurrent

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Due to MOFED 5024 7,000
Transfer - 4002 14,000 7,000
Recurrent

Receivables and Payables: with Employees

Three situations are described here:
 Long - term salary advances.
 Amounts due from employees as reimbursement for use of government
property.
 Handling of funds held by a public body on behalf of an employee

Receivables and payables: with Employees: Long - Term Salary Advance

An employee can receive a long-term advance on salary (longer than one month)
under appropriate conditions. When a long-term salary advance is processed,
interest is charged and withheld from the advance. The public body is responsible
for repayment of salary advances to its employees.

Example: A long -term salary advance of Birr 2,000 is requested and approved.
MOFED transfers the net amount to the public body after deducting the applicable
interest on the advance amounting to Birr 200.

Transaction #1: cash transfer from MOFED

Transaction Register of MOFED:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer 4005 1,800 1,800

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer 4005 1,800 1,800

Transaction #2: Payment of Advance

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Staff 4203 2,000
Advance
Interest 1465 200 1,800

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Receivables and Payables: With Employees: Reimbursed Payments

In certain circumstances, employees make personal use of government property.

When this occurs, the public body must charge the employee and collect payment.

Example: A Public body receives a telephone bill for Birr 300. Included in the bill
are personal telephones calls made by an employee.

Treatment #1: The Public body knows, at the time the telephone bill is paid, that
the amount of the personal telephone calls totals Birr 100.

Transaction Register of Public Body:

No Description TB Accoun Others Cash at
t bank 4103
Number
Dr Cr Dr Cr
When the telephone bill is
paid:
1 Telephone Expense 01 6258 200
Staff Advance 4203 100 300
When employee pays:
2 Staff Advance 4203 100 100

Treatment #2: The public body does not know, at the time the telephone bill is
paid, the amount of the personal telephone calls.
Transaction Register of Public Body:
No Description TB Account Others Cash at bank 4103
Number
Dr Cr Dr Cr
When the telephone bill is
paid:
1 Telephone Expense 01 6258 300 300
When employee pays:
2 Telephone Expense 01 6258 10 100
0

Receivables and Payables: With Employees: Funds Held on Employee's

Behalf
In certain circumstances, funds are received by a public body and are intended for
the use of an employee. These funds are not budgeted by the FGE. The public
body is simply a conduit used for assigning the funds from a donor to an
employee. The public body should:
 Only handle funds that are used by the employee to further the objectives
of the public body, and
 Never give the employee access to other funds held in the same bank
account (do not allow the employee access to checks).

Movements of funds held by public bodies on behalf of an employee are not

recorded as revenue or expenditure for the government. The funds are due to the
employee while in the custody of the public body.

93
Example: A donor deposits Birr 3,000 in the bank account of a public body to
support the research of an employee.

Transaction #1:Funds are deposited

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Due to staff 5021 3,000 3,000

Transaction #2: The employee receives 550 Birr from the fund
Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Due to staff 5021 550 550

Receivables and Payables: With Employees: Employee Transferred with

Salary Advance
Employees may be transferred from one public body to another; the transferred
employee may have a long-term salary advance with an outstanding balance.
The balance for the employee in the advance account must be transferred with the
employee from the accounting records of the former employer to the records of
the new employer. The document is a letter of transfer that details the balance in
the employee’s advance account. Each public body prepares a journal voucher
based on the letter.

Example: An employee is transferred from public Body #1 to public Body #2. The
employee has a long-term advance with an outstanding balance of Birr 6,000.
Transaction Register of Public Body #1:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
Net 5601 6,000
Asset/Equity
Advance to Staff 4203 6,000

Transaction Register of Public Body #2:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
Advance to Staff 4203 6000
Net 5601 6,000
Asset/Equity

Receivables and Payables: With Suppliers

In the process of procurement, the payment of cash and the receipt of goods and
services do not occur simultaneously. When there is a timing difference, a
receivable or a payable is created.

94
Receivables and Payables: With Suppliers: Receivables from Suppliers
Receivables are created when a supplier is paid for goods or services prior to their
delivery. In this case, the supplier owes to the public body: Goods and services
equal to the cash provided, or Return of the cash.

Example: A public Body pays an advance of Birr 500 to a supplier for

procurement of office supplies. The supplier delivers the office supplies after 30
days and the actual invoice amounts to Birr 2,500.

Transaction #1: payment of advance.

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Advance to - 4253 500 500
Supplier

Transaction #2: Delivery of supplies.

Transaction Register of Public Body:
No Description TB Accoun Others Cash at
t bank 4103
Number
Dr Cr Dr Cr
1 Office Supplies 01 6212 2,500
Advance to Supplier - 4253 500 2,000

Receivables and Payables: With Suppliers: Payables to suppliers

Payables are created when a supplier delivers goods or services prior to receiving
payment.
In this case, the public body owes to the supplier: Payment for the cost of the
goods and services, or Return of the goods.

Example: A public body receives office supplies amounting to Birr 2,500 on credit
from a supplier. Payment is made after 30 days.
Transaction #1: Receipt of office supplies
Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Office Supplies 01 6212 2,500
Sundry creditors 5002 2,500

Transaction #2: Payment is made.

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Sundry - 5002 2,500 2,500
Creditors

Receivables and Payables: With Suppliers: Grace Period Payables

95
The first 30 days of the fiscal year are called the grace period. The financial Law
permits public Bodies to expend funds from their prior year's recurrent and capital
budgets during the grace period for goods and services delivered before the end
of the fiscal year. Amounts due to suppliers on the last day of the fiscal year, that
are paid during the grace period from the prior year's budget, are called grace
period payables (account code 5001). Transfers of funds from MOFED to public
Bodies, that are used to pay grace period payables, are given account code 4007.

Example: In the first 30 days of the fiscal year, a public body pays Birr 12,000 for
office supplies that were recorded as grace period payables from the prior year's
capital expenditure.

Transaction #1: Provision for grace period payables last year.

Last Year's Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Office supplies 02 6212 12,000
Grace period 5001 12,000
payables

Transaction #2: Transfer of funds for grace period payables this year.
This year's Transaction Register MOFED:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer - - 4007 12,000 12,000
GPP

This year's Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer - GPP - 4007 12,000 12,000

Transaction #3: Payment of grace period payables this year.

This year's Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Grace period payables 5001 12,000 12,000

Receivables and Payables: with Regions

Occasionally, public Bodies make cash payments to regions. Payments to the
regions from the federal level are budgeted as part of the region's subsidy. The
public Body should record the payment as a subsidy payment. A rare exception
occurs when the funds are part of the approved budget for the public Body and in
this rare case, the item of expenditure is part of the approved budget for the public
body, the region is simply action as a purchasing agent for the ministry. The

96
responsibility for the budgeted expenditure cash remains with the public body,
although the expenditure is executed in the regional since a settling of the funds is
expected, the transaction is recorded as a receivable By MOE at Federal level.

Example: The Ministry of Education (MOE) sends Birr 55,000 to Amhara Regional
Education Bureau (AREB). The Amhara Regional Education Bureau returns
invoices for the book totaling Birr 47,000 and cash totaling Birr 8,000 to the
Ministry of Education.

Transaction #1: Cash is sent to AREB

Transaction Register MoE:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Advance to - 4208 55,000 55,000
region

Transaction #2: Cash and invoices are received from AREB.

Transaction Register of MOE:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Books 02 6215 47,000
Advance to 4208 55,00 8,000
region 0

Receivable and Payables: Deposits

Some public bodies collect and return deposits. Deposits are not budgeted. The
receipt and return of deposits may be documented using special forms (Models 85
and 86 or Models 185 and 186). Deposits may be kept in the safe, in the main
bank account of the public body, or in a separate bank account.

A deposit is a payable for a public body. A public body must return the deposit
upon demand of the depositor. A public body should not spend deposit funds.
When the deposit is returned, the payable is cancelled.

Receivable and Payables: Deposits: Receipt and Return of Deposit

Example: A public body collects a deposit of Birr 40,000 as bid security. The bid
is unsuccessful and the deposit is returned at a later date.

Transaction #1: Receipt of Deposit.

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Bid security Deposit - 5054 40,000 40,000

Transaction #2: Refund of Deposit.

Transaction Register of Public Body:

97
 No Description TB Accoun Other Cash at bank
t 4103
Number
Dr Cr Dr Cr
1 Bid Security - 5054 40,000 40,000
Deposit

Receivables and payables: Deposits: Deposits kept in separate Bank

Account
If a bank account is maintained for deposits only, there is no need to keep a
transaction register for the bank account. A detailed record of each deposit must
be maintained, but the form of the record can be cashbook with subsidiary records
for each deposit.

Monthly, the cash balance in the cashbook must be reconciled with the bank
account's bank statement and with the detailed subsidiary records. After
reconciliation, the corrected deposit amount must equal the cash balance in bank.
This amount should be entered in the transaction register of the public body as
follows:
 The deposit account code should be debited and cash in bank 4103
credited for the current balance in the deposit account. After this entry, the
balance in the deposit account is zero.
 Cash in bank 4103 should be debited and the deposit account code should
be credited for the corrected deposit amount at the end of the current
month.

These should be the only accounting entries in the public body's transaction
register that involves the deposit account. No subsidiary ledger is necessary; the
detailed subsidiary records for the cashbook services as the subsidiary ledger.

Example: The balance per the General Ledger in deposit account code 5051 is
Birr 400,000. The deposit bank account is reconciled to the detailed subsidiary
records and the corrected balance is Birr 600,000

Transaction #1: Set deposit account balance to zero.

Transaction Register of Customs:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Customs - 5051 400,000 400,000
Deposit

Transaction #2: Record corrected deposit.

Transaction Register of the public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Customs Deposit - 5051 600,000 600,000

3.7 Aid in Kind

98
Aid in kind is goods or services (such as technical assistance) provided to a public
body by donors. Aid in kind is received when goods are received or services are
rendered, and no payment is expected. Aid in kind represents two transactions
simultaneously: the receipt of assistance and the expenditure of assistance. Aid in
kind should be budgeted and recorded as both revenue and expenditure. The
expenditure should be recorded in the subsidiary ledger for the budgeted project,
using the 4-digit source of funding code assigned to the project.

Example: Assume aid in kind is received by a public body in which you are
working as an accountant in the form of a motor vehicle with a cost of Birr 200,000
from USAID under the capital expenditure budget for project code 2356.

Transaction Register of the public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Motor vehicles 02 6311 200,000
Assistance 2084 200,000

All aid in kind entries are recorded in local currency only.

3.8 Financial Document Transmittal Voucher: Me/He

Me/He is the document prepared as evidence for the transfer of financial

documents, such as expenditure vouchers, between responsible persons in the
accounting system.The purpose of the Financial Document Transmittal Voucher is
to record the transfer of financial documents from one responsible party to
another.

Preparation and Source Documents: Whoever is receiving financial documents

prepares the Financial Document Transmittal voucher.The format of the Financial
Document Transmittal voucher is shown in Figure 3.1

99
 Figure 3.1: Financial Document Transmittal Voucher
Model 42 Serial No.
Date
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA
MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT
FINANCIAL DOCUMENT TRANSMITTAL VOUCHER
No Date Descriptio Reference Reference Amount No. of Remar
n Type No Attachments k

Total
I have received the documents listed above from on the _____________days of the month
year and issued .

Transferred by: Name and Signature Received: Name and Signature

Original -to-Transferor, second copy to Receiver

100
3.9 Public Bodies who receive No Treasury Funds

Some public bodies receive no funds from treasury. Instead, their entire budget is
financed by revenue that they collect and retain. However, their reports may be
submitted quarterly rather than monthly.

3.10 Closing Entry

As discussed in Module two of this course, special routines are required at the end of
the fiscal year to maintain general and subsidiary ledgers. Specifically, entries must be
recorded in every general and subsidiary ledger at the end of the year after the last
monthly report is prepared and sent to MOFED. These are called closing entries which
must be recorded in every general and subsidiary ledgers at the end of the year after
the last monthly report is prepared and sent to MOFED. These are called closing
entries. Closing entries also is required in MOFED's general and subsidiary ledgers
after the annual accounts are closed.

The purpose of closing entries is to set all temporary accounts in the general ledger,
and all related subsidiary accounts, to zero. Temporary accounts are:
 Revenue /Assistance/ Loan account codes 1000 - 3999.
 Transfer account codes 4000 - 4099.
 Expenditure account codes 6000 - 6999.

The procedures for making the closing entry are:

1. To prepare the last monthly report for the fiscal year and submit the report to
MOFED. If the transfer was sent from MOFED during the fiscal year, it should
be recorded in that fiscal year and not when the cash is received.
2. After the last monthly report for the fiscal year is accepted by MOFED, to record
thefollowing entry in the transaction register of the bank account from Me/He 27
trialbalance:

A. From the line from Revenue /Assistance / Loan:

 Record a debit in the transaction register for any amount that is a credit on
this line in Me/He 27.
 Record a credit in the transaction register for any amount that is a debit on
this line in Me/He 27.
B. From the line for Recurrent Expenditure:
 Record a debit in the transaction register for any amount that is a credit on
this line in Me/He 27.
 Record a credit in the transaction register for any amount that is a debit on
this line in Me/He 27.
C. From the line for capital expenditure:
 Record a debit in the transaction register for any amount that is a credit on
this line in Me/He 27.
 Record a credit in the transaction register for any amount that is a debit on
this line in Me/He 27.

101
D. From the line for Transfers:
 Record a debit in the transaction register for any amount that is a credit on
this line in Me/He 27.
 Record a credit in the transaction register for any amount that is a debit on
this line in Me/He 27.
E. In net asset/equity account code 5601 records the appropriate amount as a debit
or a credit to make the entry balance.
 To enter the amount for net asset/equity on the net asset/equity account
code 5601 ledger card in the general ledger; this account should have no
subsidiary ledger.
3. To remove from the general ledgers all general ledger cards for account codes:
a. revenue/assistance/ loan account codes 1000 – 3999
b. transfer account codes 4000 – 6999
c. expenditure account codes 6000 - 6999
4. To remove all subsidiary ledger cards associated with account codes
a. Revenue/Assistance/ Loan account codes 1000 – 3999
b. Transfer account codes 4000 – 6999
c. Expenditure account codes 6000 – 6999
5. To store all general, subsidiary and budget ledger cards that are removed in a
file. The file should be appropriately labeled as ledger cards for the fiscal year.

A closing entry must be made in all general and subsidiary ledgers. If there is an
internal bank account that maintains general and/or subsidiary ledgers, the
closing entry is as follows:
 If the internal bank account is treated as a safe, no closing entry is
necessary.
 If the bank account holds deposits only, no closing entry is necessary.
 If the bank account is for non - budgetary funds that are not reported to
MOFED, no closing entry is necessary.
 If a transaction register is maintained for the bank account, but the
transaction register is recorded in a general ledger (with subsidiary
ledgers) that is maintained by the public Body, no closing entry is
necessary.
 If the bank account is an accounting unit with its own general and/or
subsidiary ledger, a closing entry is necessary.
 If a monthly report is prepared and sent to the public body, follow the
instructions given above.
 If a monthly report is not prepared, the amounts for the closing entry
(revenue/assistance/loan, Transfer, and expenditure) should be taken
calculated by totaling balances on the corresponding general ledger cards.
The closing entry should be the opposite of the ledger card balance (if the
ledger card balance is a debit, the closing entry should be a credit; if the
ledger card balance is a credit, the closing entry should be a debit).
Each year must begin with a zero balance in all general and subsidiary ledger
cards for account codes:

102
  Revenue/Assistance/Loan account codes 1000 - 3999.
 Transfer account codes 4000 - 4099.
 Expenditure account codes carry forward from the end of the fiscal year to
the balances in all other account codes carry forward from the end of one
fiscal year to the beginning of the next fiscal year.

Example:Assume a Public body in which you are working as an accountant prepares its
final Me/He 27, which is the trial balance for the fiscal year. The final report is accepted
by MOFED.

The next hypothetical activity will give you a hint on how the final Me/He 27 is prepared
in part.
Account Account Description Debit Credit
Code
-- Revenue/Assistance/Loan: 1,200,509
-- Expenditure:
-- Recurrent expenditure: 2,680,832
-- Capital Expenditure: 6,377,142
-- Transfers: 2,031,491, 9,703,216

Note that revenue/assistance/loan account balances typically are credits, expenditure

account balances are typically debits, but transfer account balances can be debits or
credits depending on the direction of the transfer.

Also during the period of preparation of closing entry, the following has to be done by
you.
Transaction Register of the public Body:
N Description TB Account Others Cash at
o Number bank 4103
Dr Cr Dr Cr
1 Closing Entry: --
Revenue/Assistance/Loan -- 1,200,509
Recurrent expenditure -- 2,680,832
Capital Expenditure -- 6,377,142
Transfers -- 9,703,216 2,013,491
Net Assets/Equity 5601 167,740

You have to remove all ledger cards from its general and subsidiary ledgers that have
account codes 1000 - 3999, 4000 - 4099, and 6000 - 6999. The cards are labeled and
filed in storage. You have to record a debit of 167,740 in net asset/equity ledger card
account code 5601.

3.11 Beginning of Year Procedures

103
According to MOFED and DSA Project manual, December 2002, special procedures
are required: Before accounting for a new fiscal year can begin, and immediately after
the beginning of a new fiscal year.

These special procedures are:

 Opening new ledger cards,
 Recording cash and stock, and
 Procedures at MOFED.
These beginning of year procedures are described here.
Beginning of Year Procedures: Ledger Cards

A set of budget and general ledger cards should be prepared at the beginning of each
fiscal year.

Budget Ledger Cards

Budget ledger cards are valid only for the budget year to which they relate. When
budget notification is received, budget ledger cards should be prepared for each item of
expenditure for each budgetary Institution. The prior year's budget ledger cards should
be filed

General Ledger Cards

General ledger cards for the following account codes are closed at the end of the fiscal
year:
 Revenue/Assistance/Loan account codes 1000 – 3999
 Transfer account codes 4000 – 4099
 Expenditure account codes 6000 - 6999
Closing an account means:
 Setting the account's balance to zero, and
 Filing the account's ledger card'

Balances in all other accounts carry forward to the next fiscal year. However, keeping
the same ledger card may be awkward, since the number of cards becomes bulky. The
public body should begin a new fiscal year by preparing new general ledger cards for all
accounts that have carry forward balances. The beginning balance (equal to last year's
ending balance) should be recorded on each card. Last year's general ledger cards
should be filed with the ledger cards of accounts that were closed

Example: If a public Body request Birr 100,000 from MOFED. Then the MOFED
transfers only Birr 90,000 assuming that the public Body had Birr 10,000 as opening
balance. At the same time, a recording is made as if the ending cash balance was
transferred back to MOFED as shown hereunder.

Transaction Register of MOFED:

Transaction Register of the Public Body:
No. Description TB Account Other Cash at Bank
Number 4105

104
 Dr Cr Dr
1. Cash transfer - 4002 90,00
0
Non- Cash transfer - 4052 10,00
0
Non- Cash transfer - 4055 10,000 90,000

Transaction Register of the Public Body:

No. Description TB Account Other
Number
Dr Cr Dr
1. Non-Cash transfer - 4055 10,000
Non- Cash transfer - 4052 10,000
Cash transfer - 4002 90,000 90,000
Subsidiary Ledger Cards
Subsidiary ledger cards for closed general ledger accounts should be filed with the
general ledger cards. Subsidiary ledger accounts and related general ledger accounts
also are considered closed. Balances in all other subsidiary accounts carry forward to
the next fiscal year. Unless the number of cards for a particular subsidiary account
becomes bulky, last year's cards can continue to be used in the following year. If the
public body chooses to begin a new fiscal year by preparing new subsidiary ledger
cards, the balance for each subsidiary account carries forward. The beginning balance
(equal to last year's ending balance) should be recorded on each card. Any subsidiary
ledger cards that are replaced should be filed with the ledger cards of accounts that
were closed.

Beginning of Year Procedures Opening Balances

After the last day of the fiscal year, the cash and stock balances at public Bodies are
sealed until Inspectors can verify the balances. MOFED applies the cash and stock
balances against the future requests, as indicated on Ge/Be/We 11/2 or Ge/Be/we 11/3.

Cash Opening Balances

The ending balance in cash in safe and cash in bank at a public body must be
transferred to MOFED at the end of the fiscal year. However, the public body needs
cash transferred to it for the new fiscal year. Rather than moving cash back and forth,
the transfers are handled as non-cash transfers. MOFED deducts the opening balance
of cash in safe and cash in bank from the amount of budgeted cash to be transferred to
the public body. This deduction is made on Ge/Be/We 11/2 or Ge/Be/We 11/3 and is
handled as a non-cash transfer by MOFED and by the public Body. At the same time, a
recording is made as if the ending cash balance was transferred back to MOFED.

Example: Assume a public Body requests Birr 200,000 from MOFED. MOFED transfers
Birr 190,000 because the public Body has Birr 10,000 as opening balances.

Transaction Register of MOFED:

No Description TB Accoun Others Cash at bank

105
 t 4105
Number
Dr Cr Dr Cr
1 Cash transfer - 4002 190,000
Non-cash - 4052 10,000
transfer
Non-cash - 4055 10,000 190,000
transfer

Transaction Register of the public Body:

No Description TB Accou Others Cash at bank
nt 4103
Numbe
r
Dr Cr Dr Cr
1 Non-cash - 4055 10,000
transfer
Non-cash - 4052 10,00
transfer 0
Cash transfer 4002 190,0 190,0
00 00

Stock Opening Balances

The ending balance in stock at a public body is charged as reduction to the next year's
budget. The reduction is treated as a non-cash transfer and as a reduction to the
amount of cash that can be requested and committed for a particular budgeted item.

The amount of the ending stock also should be recorded in the transaction register at
MOFED as a debit to non-cash transfer for recurrent expenditure account code 4052
and a credit to other non-cash transfers account code 4055. In its Transaction Register,
the public Body records a debit to other non-cash transfers account code 4055 and a
credit to not - cash transfer for recurrent expenditure account code 4052.

Example: Assume inspectors report Birr 145,000 in stock remaining at a Public Body at
the end of the year. A Public Body requests Birr 200,000 from MOFED. MOFED
transfers Birr 55,000 because the public Body has Birr 145,000 as opening stock
balance. And also further assume that you are an accountant of both MOFED and the
public body.

Transaction Register of MOFED

No Description TB Account Others Cash at
Number bank 4105
Dr Cr Dr Cr
1 Cash transfer - 4002 55,00
Non - cash - 4052 145,0
transfer 00

106
 Non - cash - 4055 145,0 55,000
transfer 00

Transaction Register of Public Body:

No Description TB Account Others Cash at
Number bank 4103
Dr Cr Dr Cr
1 Non - cash - 4055 145,000
transfer
Non - cash - 4052 145,00
transfer 0
Cash transfer - 4002 55,00 55,00
0

In the appropriate stock item's budget ledger card, in the "payment receive" and
"commitment" columns, Birr 145,000 is recorded.

Beginning of Year Procedures at MOFED

In here also, special Procedures are required at MOFED before the accounting for a
new fiscal year can begin. These special procedures include updating for changes to:
the budget, budget codes and account codes. In particular, MEFED must input or
update in the budget/disbursement/accounts program:
1. Budget identification codes for all public Bodies.
2. Budget identification codes for all reporting Entities.
3. The Chart of Accounts for any changes to:
Item of Expenditure
Items of Revenue
Transfers
Assets
Liabilities
4. Annual appropriated budget.

2.12 Cashier Functions

Cashier Functions: Cash Withdrawn from Bank to Safe

The accountant writes a check to the cashier to put cash in the transaction register and
the cashier records the bank payment voucher in the petty cashbook as a debit to cash.

Example: A check for Birr 3,000 is written to the cashier for petty cash.

Transaction Register of public Body:

No Description TB Accou Cash at Cash in
nt bank 4103 safe 4101
Numbe
r
Dr Cr Dr Cr

107
 1 Cash withdrawn from - - 3,000 3,000
safe

Cashier Functions: Cash deposited in to bank from the safe

The cashier transfers cash from the safe to the bank by depositing the cash in the bank.
The cashier brings the bank deposit slip to the accountant who prepares a receipt
voucher. The accountant records the receipt voucher in the transaction register and the
cashier records the receipt voucher in the receipt cashbook as a credit to cash.

Example: The Cashier deposits Birr 20,000 in the bank.

Transaction Register of Public Body:
No Description TB Accou Cash in Cash at bank
nt Safe 4101 4103
Numbe
r
Dr Cr Dr Cr
1 Cash deposited in to - - 20,000 20,000 Cashier
bank
Functions: Cash and Check Receipts by Cashier
When a cashier receives currency of checks, a receipt voucher is issued. The cashier
records the receipt voucher in the receipt cashbook as a receipt of cash. At the end of
the day, the cashier deposits the cash and checks in the bank and brings all receipt
vouchers and the bank deposit slip to the accountant. The accountant issues a receipt
voucher to the Cahier. The accountant records each receipt voucher in the transaction
register and the cashier records the receipt voucher from the accountant in the receipt
cashbook.

Example: Assume that a Cashier receives a total of Birr 2,000 on the same day. Birr
1,000 in cash is a return of an advance by a staff member, and Birr 1,000 in check is a
court deposit. The Cashier records the receipts in the Receipts Cash Book and deposits
the Birr 2,000 in the bank at the end of the day. The bank deposit slip and Receipt
Vouchers are provided to the Accountant. The Accountant issues a Receipt Voucher to
the Cashier.

Transaction Register of Public Body

No Description TB Accou Others Cash at Cash in Safe
nt bank 4103 4101
Numbe
r
Dr Cr Dr Cr Dr Cr
1 Staff Advance - 4203 1,000 1,000
2 Deposit - 5052 1,000 1,000
3 Cash deposited 2,000 2,00
in to bank 0

108
Cashier Functions: Cash Imprest Payments to Cashier by Accountant
Each public body should establish the amount of cash to hold in petty cash. The cashier
makes cash payment from the impress fund using cash payment vouchers. When the
petty cash balance is low, the cashier submits the cash payment vouchers to the
accountant. The accountant writes a check to the cashier for the payment vouchers to
the Accountant. The Accountant writes a check to the cashier for the total amount of the
cash payment voucher. The accountant records each cash document for the check is
bank payment voucher in the transaction register. The cashier records the bank
payment voucher from the accountant in the petty cash book as a debit to cash.

Example: The Accountant pays the cashier Birr 4,000 by check using a bank payment
voucher to replenish the petty cash from a cash payment voucher from the cashier for
Birr 4,000 paid to an employee for per diem. The cashier records the receipt in the petty
Cashbook. The accountant records the cash and bank payment vouchers in the
transaction register as follows:

Transaction Register of Public Body:

No Description TB Accou Others Cash at bank Cash in Safe
nt 4103 4101
Numbe
r
Dr Cr Dr Cr Dr Cr
1 Per Diem 01 6231 4,000 4,00
0
2 Cash to 4,000 4,000
Cashier

109
Unit 4

Monthly Reports
Introduction

The purpose of this unit is to describe the monthly reports submitted by a reporting
entity to ministry of finance and Economic development. The reports are highly
interrelated. The first section of this unit deals with Revenue /Assistance/ Loan report
which is prepared to provide information on the year to date revenues of an accounting
unit from each source of finance. It also helps to facilitate consolidation of the actual
revenues, assistance and loan collected by the FGE and to facilitate comparison of
budgeted revenues to actual revenues by account category. The second and third
section of this unit deals with Recurrent Expenditure Report, Capital Expenditure Report
respectively and these reports provide information on the year - to - date expenditures
of each BI managed by an accounting unit. Its function is to facilitate consolidation of
the actual expenditures made by the FGE and to facilitate comparison of budgeted
expenditure to actual expenditure.

The fourth section of this unit will describe about Transfer Report whose function is to
serve as a control tool to verify case transfers between MOFED and an accounting unit
and vice versa. The fifth section of this unit deals with Receivables Report, which
provides information on the year - to_ date receivables owed to an accounting unit. This
report helps to facilitate consolidations of the actual receivables owed to the FGE.

The sixth section of this unit will present about the Payables Report. The payables
report provides information on the year-to-date payables owed by an accounting unit.
This report facilitates consolidation of the actual payables owed by the FGE. The total of
all the revenue/Assistance/loan reports, recurrent and capital expenditure reports,
receivables and payables reports will be carried forward to the trial balance.

The seventh section of this unit is about a trial balance, which is the summary of the net
cumulative year -to - date debit, and credit balances contained in the general ledger at
the end of each month for each account code represented by a general ledger card. It
proves the arithmetical accuracy of the general ledger. The total amount of debit column
must be equal with the total amount of the credit column in the trial balance. The trial
balance serves as a basis to produce financial statements. Finally, the last section of
this unit is about submitting monthly reports to MOFED. This is about the importance of

110
submitting monthly reports on a timely basis to MOFED by a reporting entity so that
Ministry of Finance and Economic Development consolidates the reports for each
account in to a FGE financial statement. The consolidation is done by central accounts
department at MOFED.

After studying this unit, you should be able to:

Prepare Revenue /Assistance/ Loan report;

Prepare recurrent expenditure report;

Prepare capital expenditure report;

Prepare transfer report;

Prepare receivables report;

Prepare payables report; and

Organize necessary data to complete the monthly reports from documents made
available.

1.1 Revenue/Assistance/Loan Report

According to MOFED and DSA Project manual, December 2002, the only monthly
reports verified by Ministry of Finance and Economic Development are the transfer
report and the Trial Balance. The transfer Report is verified by Ministry of Finance and
Economic Development to ensure that all disbursements to an accounting Unit by
Ministry of Finance and Economic Development and all disbursements from an
Accounting Unit to Ministry of Finance and Economic Development are accounted for
within the accounting system to enhance control over cash transfers.

The Trial Balance is verified by Ministry of Finance and Economic Development to

ensure that the total debits and credits are equal and that general Ledgers are
balanced. Also, Ministry of Finance and Economic Development verify the cash
balance for the domestic source of finance from the trial Balance to enhance cash
management practices at federal level.

All other monthly reports that are submitted to Ministry of Finance and Economic
Development serve as input documents to consolidate reports and produce financial
statements at the Federal Level. The Inspection Department and the Office of The
Auditor General verify these reports. All monthly reports are prepared in two copies.
The original copy is sent to Ministry of Finance and Economic Development and the

111
second copy is retained as a permanent record at the reporting entity. The
Revenue/Assistance/Loan Report provides information on the year-to-date revenues of
an accounting unit from each source of finance. The purpose of the
revenue/Assistance/Loan Report is to facilitate consolidation of the actual revenues,
assistance and loan collected by the FGE and Regional State to facilitate comparison of
budgeted revenues to actual revenues by account category (MOFED and DSA Project
manual, January, 2002).

The Accountant prepares a revenue/Assistance/Loan report for the Accounting Unit.

The source document to prepare the revenue/Assistance/Loan report is the general
Ledger. Each item of revenue, assistance or loan is identified by account code. The
amount from the balance column in the general ledger card is transcribed into the
revenue/assistance/Loan Report. The grand totals from each revenue/Assistance/Loan
report are carried forward to the trial Balance. Balances in the
Revenue/Assistance/Loan Report are normally credits. Each accounting Unit prepares
one revenue/assistance/Loan Report as indicated in figure 1.1 below.

Figure 1.1: Revenue/Assistance/Loan report

Me/He 21

Month__________

Name of Public Body:________________________ code: _______

Name of Program:___________________________ code: _______

112
 Name of Sub Agency:________________________ code: _______

Name of Sub Program: ________________________code: _______

Name of Project: _____________________________code: _______

Bank Account Number:_______________________

Accoun YEAR-TO-DATE
t Code Revenue
Account description
Debit Credit

1101 Tax on wages and salaries

1465 Interest on loans to government employees

1485 Other miscellaneous revenue

Total (To Trial Balance)

Prepared by Name and Signature

(Source: MOFED AND DSA Project manual, December 2002)

Activity 1: preparing revenue/assistance/Loan Report

Allow about 3 minutes.

This activity is meant to enable you to prepare Revenue/Assistance/Loan Report.

You are provided with the following general ledger balances as at May 31, 2004 for
Ethiopian Civil Service College with budget category 319/01/07/00/000/1800 and bank
account 10645839.Further, assume also that you are the accountant of the college.

113
Account General Ledger
Code Debit Credit

1101 6750

1415 750

1429 1000

1485 500

4001 57550

4002 33450

4005 9600

4009 2750

114
 4055 6750

4101 22850

4103 3100

4203 9600

5004 19850

611 67500

6131 4050

6213 7000

6217 15000

6241 1950

6257 1200

6258 600

6259 600

Required: Based on the above data, you are required to prepare the monthly reports for
the month of May, 2004 except capital expenditure and transfer report part II. Begin with
the preparation of revenue/assistance/loan report for activity1.
Feedback:

115
Revenue/Assistance/Loan report

Me/He 21

Month __May ________

Name of Public Body:___ ECSC________________ code: __319_____

Name of Program:___________________________ code: ____01___

Name of Sub Agency:________________________ code: ___07____

Name of Sub Program: ________________________code: __00_____

Name of Project: _____________________________code: _000______

Bank Account Number:___10645839____________________

Accoun YEAR-TO-DATE
t Code Revenue
Account description
Debit Credit

1101 Tax on wages and salaries 6750

1415 Court fees 750

116
 1429 Other fees and charges 1000

1465 Interest on loans to government employees

1485 Other miscellaneous revenue 500

Total (To Trial Balance) 9000

Prepared by Name and Signature

1.2. Recurrent Expenditure Report

The recurrent expenditure report provides information on the year-to-date recurrent

expenditures of each budgetary Institution managed by an accounting Unit. The
purpose of the recurrent expenditure report is to facilitate consolidation of the actual
recurrent expenditures made by the FGE and regional state to facilitate comparison of
budgeted expenditure to actual expenditure. The Accountant prepares the recurrent
expenditure report for each BI. The source document to prepare the recurrent
expenditure report is the subsidiary ledger. The balance of each subsidiary ledger card
is transcribed to the appropriate account code or in the recurrent expenditure report.
Balances in the recurrent expenditure Report are normally debits. Each accounting unit
prepares a recurrent expenditure Report for each BI that it manages (MOFED and DSA
Project manual, December 2002). The format of the report is indicated below

Figure 1.2: Recurrent Expenditure Report

Me/He 22

Month___________

Name of Public Body:________________________ code: _______

117
 Name of Program:___________________________ code: _______

Name of Sub Agency:________________________ code: _______

Name of Sub Program:________________________code: _______

Name of Project:_____________________________code: _______

Source of Finance:____________________________ code: _______

Bank Account Number:___ ____________________

Account YEAR-TO-DATE
Code Expenditure
Account Description
Debit Credit

Preprinted Preprinted

Total (To Trial Balance)

Prepared by Name an Signature

(Source: MOFED and DSA Project, December 2002)

Activity 2: preparing Recurrent Expenditure Report.

Allow about 40 minutes.

118
The purpose of this activity is to give you a high light on the fields in the recurrent
expenditure report.

Based on the data given on Activity 1, prepare the Recurrent Expenditure report
Feedback:

Recurrent Expenditure Report

Me/He 22

Month___May________

Name of Public Body:____ECSC____________________ code: __319_____

Name of Program:___________________________ code: __01_____

Name of Sub Agency:________________________ code: __07_____

Name of Sub Program:________________________code: __00_____

Name of Project:_____________________________code: __000_____

Source of Finance:____________________________ code: _1800______

Bank Account Number:___10645839____________________

119
 Account YEAR-TO-DATE
Code Expenditure
Account Description
Debit Credit

6111 Salary to permanent staff 67500

6131 Gov’t contribution to perm. Staff-

4050
pension

6241 Maintenance and repair of vehicles 1950

6257 Electricity charges 1200

6213 Printing 7000

6258 Telecommunication charges 600

6259 Water and other utilities 600

6217 Fuel and lubricants 15000

Total (To Trial Balance) 9790

0

Prepared by Name an Signature

1.3 Capital Expenditure Report

In Manual 3 volume I, Accounting for modified cash basis transactions, which is

prepared by MOFED &DSA Project, in December 2002, the Capital expenditure Report,
provides information on the year-to-date capital expenditures of each BI managed by an
Accounting Unit. The purpose of the capital expenditure report is to facilitate
consolidation of the actual capital expenditures made by the FGE and state
governments and to facilitate comparison of budgeted expenditure to actual
expenditure. The Accountant prepares the capital expenditure Report for each BI. The
source document to prepare the Capital expenditure Report is the subsidiary Ledger.
The amount from the balance column in each subsidiary Ledger card is transcribed to
the appropriate account code in the recurrent expenditure Report. Balances in the
Capital Expenditure Report are normally debits, which are similar to the capital
expenditure. Each Accounting Unit prepares a capital expenditure Report for each BI
that it manages. The format of the report is indicated below.

120
Figure 1.3: Capital Expenditure Report

Me/He 23

Month___________

Name of Public Body:________________________ code: _______

Name of Program:___________________________ code: _______

Name of Sub Agency:________________________ code: _______

Name of Sub Program: ________________________code: _______

Name of Project: _____________________________code: _______

Source of Finance:____________________________ code: _______

Bank Account Number:_______________________

Account YEAR-TO-DATE
Code Expenditure
Account Description
Debit Credit

Preprinted Preprinted

Total (To Trial Balance)

Prepared by Name and Signature

(Source: MOFED and DSA Project manual, December 2002)

1.4 Transfer Report

121
Transfer report delivers information of cash flow made between the accounting unit
and MOFED/State year-to-date and during the month. The transfer report consists of
two parts:

Part 1 summarizes transfer account balances from the general Ledger.

Part 2 provides information on each monthly cash transfer between the

accounting Unit and Ministry of Finance and Economic Development.

The purpose of the transfer report is to serve as a control tool to verify cash transfers
between Ministry of Finance and Economic Development and an accounting Unit and
vice versa. The Accountant prepares a transfer Report for each accounting Unit. The
source documents to prepare the Transfer Report are the General Ledger Cards.
Balances in the Transfer Report are debits or credits depending on the nature of the
transfer account. One Transfer report is prepared for each Accounting Unit (MOFED
AND DSA Project, December, 2002)

Part 1

The amount from the Balance Column in the General Ledger Card is transcribed into
the transfer report - Part 1as indicated in figure 1.4. The grand totals from each Transfer
report - Part 1 are carried forward to the trial Balance.

Figure 1.4 Transfer Report - Part 1

Me/He 24
Month__________

Name of Public Body:________________________ code: _______

122
 Name of Program:___________________________ code: _______

Name of Sub Agency:________________________ code: _______

Name of Sub Program: ________________________code: _______

Name of Project :_____________________________code: _______

Bank Account Number:_______________________

Accoun YEAR-TO-DATE
t Code Balance
Account Description
Debit Credit

4001 Recurrent salary and allowances

4002 Recurrent operating expenditure

4003 Capital salary and allowances

4004 Capital expenditure

4005 Staff advances

4006 SSDP funds

4007 Grace period payables

4008 Between BI and/or Region

4009 Other cash transfers

4010 Within BI or MOFED

4051 Recurrent salary and allowances: non-cash

4052 Recurrent operating expenditure: non-cash

4053 Capital salary and allowances: non-cash

4054 Capital expenditure: non-cash

4055 Other non-cash transfers

Total (To Trial Balance)

123
Prepared by Name and Signature

(Source: MOFED AND DSA project, December 2002)

Activity 3: Preparing Transfer Report Part I.

Allow about 15 minutes.

The purpose of this activity is to enable you to prepare the Transfer Report Part I.

Based on the data given in Activity 1, you are required to prepare the Transfer Report
Part I.

Feedback:

Transfer Report - Part 1

Me/He 24
Month___May_______

Name of Public Body:____ECSC________________ code: _319______

Name of Program:___________________________ code: ___01____

Name of Sub Agency:________________________ code: ___07____

Name of Sub Program: ________________________code: _00______

Name of Project :_____________________________code: _000______

Bank Account Number:___10645839____________________

Accoun YEAR-TO-DATE
t Code Balance
Account Description
Debit Credit

4001 Recurrent salary and allowances 57550

124
 4002 Recurrent operating expenditure 33450

4003 Capital salary and allowances

4004 Capital expenditure

4005 Staff advances 9600

4006 SSDP funds

4007 Grace period payables

4008 Between BI and/or Region

4009 Other cash transfers 2750

4010 Within BI or MOFED

4051 Recurrent salary and allowances: non-cash

4052 Recurrent operating expenditure: non-cash

4053 Capital salary and allowances: non-cash

4054 Capital expenditure: non-cash

4055 Other non-cash transfers 6750

Total (To Trial Balance) 2750 107350

Prepared by Name and Signature

Part 2
Each cash transfer during the month between the accounting Unit and Ministry of
Finance and Economic Development is listed individually in Part 2 of the Transfer
Report. The information required for Part 2 is transcribed from the following cash
transfer account Ledger cards:
4001: recurrent salary and allowances

4002: Recurrent operating expenditure

4003: capital salary and allowances

4004: capital expenditure

4005: Staff advances

125
 4006: SSDP funds

4007: Grace period payables

Any other transfer code used during the month to transfer Funds to /from MOFED

Columns are identified by account code. The date and amount of each transaction
recorded in the account code's Ledger card during the month are transcribed in the
corresponding sub-column of the Transfer report. Each transaction is recorded in a
separate row. Transfers received from Ministry of Finance and Economic Development
are credits. Transfers of cash to Ministry of Finance and Economic Development are
debits. Debit and credit sub-columns are totaled and the total is recorded in the total row
(MOFED and DSA Project, January 2002).

The difference between the totals in the debit and credit sub-columns for each account
code is calculated. If the total of debits is greater than the total of credits, the difference
is recorded in debit sub-column of the Net activity row. If the total of credits is greater
than the total of debits, the difference is recorded in credit sub-column of the Net activity
row. The balance from the account code's Ledger Card at the beginning of the month is
recorded in the beginning of month (BOM Balance) row. The amount in the Net Activity
row is combined with the amount in the BOM Balance row and recorded in the end of
month (EOM Balance) row. The EOM Balance must equal the balance in the account
code's Ledger Card at the end of the month, which equals the balance recorded for the
account code in Part 1 of the Transfer Report (MOFED and DSA Project manual,
January 2002).
Transfer Report - Part 2 is shown in Figure 1.5

Figure 1.5: Transfer Report - Part 2

Me/He 24

4001 4002 4003 4004

D De Cre Dat De Cre Da De Cre Da De Cre

at bit dit e bit dit te bit dit te bit dit
e

126
Total

Net
activity

BOM
Balance

EOM
Balance

Figure 1.5 (Continued)

4005 4006 4007

Da De Cre Dat De Cre Da De Cre Da De Cre

te bit dit e bit dit te bit dit te bit dit

Total

127
Net
activity

BOM
Balance

EOM
Balance

(Source: MOFED AND DSA Project, January 2002)

1.5. Receivables Report

The receivables report provides information on the year-to-date receivables owed to an

accounting unit. The purpose of the receivables Report is to facilitate consolidation of
the actual receivables owed to the FGE. The accountant prepares a receivables Report
for each accounting unit. The source document to prepare the receivables report is the
general ledger. Each item of receivable is identified by account code. The amount from
the balance column in the general ledger card is transcribed into the receivables report.
The grand totals from each receivable report are carried forward to the trial balance.
Balances in the receivables report are normally debits. One receivables report is
prepared for each accounting unit (MOFED and DSA, Project manual, January 2002).

Figure 1.6 Receivables Repo

128
Figure 1.6: Receivables Report

Me/He 25

Month__________

Name of Public Body:________________________ code: _______

Name of Program:___________________________ code: _______

Name of Sub Agency:________________________ code: _______

Name of Sub Program: ________________________code: _______

Name of Project :_____________________________code: _______

Bank Account Number:_______________________

Accoun YEAR-TO-DATE
t Code Receivables
Account Description
Debit Credit

4201 Suspense

4202 Cash shortage

4203 Advance to staff

4204 Advance for SSDP

4205 Advance for staff from next year's budget

129
 4206 Advance for recurrent expenditures from next year's
budget

4207 Advance for capital expenditures from next year's

budget

4208 Advance to regions

4209 Other advances to BI

4210 Other advances within government

4251 Advance to contractors

4252 Advance to consultants

4253 Advance to suppliers

4254 Other advances outside government

4271 Peasant associations

4272 Cooperatives

4273 Individuals and private organizations

4274 Others

Total (To Trial Balance)

Prepared by Name and Signature

(Source: MOFED and DSA Project Manual, January 2002)

Activity 4: Preparing Receivable Report.

Allow about 5 minutes.

The objective of this activity is to help you to prepare receivable Report.

Based on the data provided in Activity I, you are required to prepare receivable report.

Feedback:

130
Receivables Report

Me/He 25

Month__May________

Name of Public Body: _________ECSC_____________ code: _319______

Name of Program:___________________________ code: ____01___

Name of Sub Agency:________________________ code: ___07____

Name of Sub Program: ________________________code: __00_____

Name of Project :_____________________________code: __000_____

Bank Account Number:___10645839____________________

Accoun YEAR-TO-DATE
t Code Receivables
Account Description
Debit Credit

4201 Suspense

4202 Cash shortage

4203 Advance to staff 9600

4204 Advance for SSDP

4205 Advance for staff from next year's budget

4206 Advance for recurrent expenditures from next year's

budget

4207 Advance for capital expenditures from next year's

budget

131
 4208 Advance to regions

4209 Other advances to BI

4210 Other advances within government

4251 Advance to contractors

4252 Advance to consultants

4253 Advance to suppliers

4254 Other advances outside government

4271 Peasant associations

4272 Cooperatives

4273 Individuals and private organizations

4274 Others

Total (To Trial Balance) 9600

Prepared by Name and Signature

1.6. Payables Report

The payables report provides information on the year-to-date payables owed by an
accounting unit. The purpose of the payables report is to facilitate consolidation of the
actual payables owed by the FGE or regional state. The accountant prepares a
payables report for the accounting unit. The source document to prepare the payables
report is the general ledger. Each payable item is identified by account code and the
amount from the balance column in the general ledger card is transcribed into the
payables report. The grand totals from each payables report are carried forward to the
trial balance. Balances in the payables report are normally credits. One payable report
is prepared for each accounting unit (MOFED and DSA Project manual, December
2002).

132
 Figure 1.7: Payables Report

Me/He 26
Month___________

Name of Public Body: ____________________ Code: _____

Name of Program: _______________________ Code: _____

Name of Sub Agency: ____________________ Code: _____

Name of Sub Program: ___________________ Code: _____

Name of Project: _______________________ Code: _____

Bank Account Number:___________________

YEAR-TO-
DATE
Account Account Description Payables
Code

Debit Credit

5001 Grace period payables

5002 Sundry creditors

5003 Pension contribution payable

5004 Salary payable

5021 Due to staff

5022 Due to Ministry of Finance and Economic Development for

SSDP

5023 Due to Ministry of Finance and Economic Development for

staff from next year’s budget

5024 Due to Ministry of Finance and Economic Development for

recurrent expenditures from next year’s budget

5025 Due to Ministry of Finance and Economic Development for

capital expenditures from next year’s budget

5026 Due to regions

133
5027 Other payables to Ministry of Finance and Economic
Development

5028 Other payables within government

5051 Custom deposits

5052 Court deposits

5053 Hospital deposits

5054 Other deposits

5061 Retention on contract

Total (To Trial Balance)

Prepared by Name and Signature

(Source: MOFED and DSA Project, December 2002)

Activity 5: Preparing Payables Report

Allow about 4 minutes.

The activity is prepared to help you prepare the Payables Report.

Based on the information given in Activity 1, you are required to prepare the Payables
report.
Feedback:

Payables Report

Me/He 26
Month__May_________

Name of Public Body: ______ECSC_________Code: _319____

Name of Program: _______________________ Code: __01___

Name of Sub Agency: ____________________ Code: _07____

134
 Name of Sub Program: ___________________ Code: _00____

Name of Project: _______________________ Code: _000____

Bank Account Number_____10645839_____

YEAR-TO-
DATE
Account Account Description Payables
Code

Debit Credit

5001 Grace period payables

5002 Sundry creditors

5003 Pension contribution payable

5004 Salary payable 19850

5021 Due to staff

5022 Due to Ministry of Finance and Economic Development for

SSDP

5023 Due to Ministry of Finance and Economic Development for

staff from next year’s budget

5024 Due to Ministry of Finance and Economic Development for

recurrent expenditures from next year’s budget

5025 Due to Ministry of Finance and Economic Development for

capital expenditures from next year’s budget

5026 Due to regions

5027 Other payables to Ministry of Finance and Economic

Development

5028 Other payables within government

5051 Custom deposits

5052 Court deposits

135
5053 Hospital deposits

5054 Other deposits

5061 Retention on contract

Total (To Trial Balance) 19850

Prepared by Name and Signature

1.7. Trial Balance

The trial balance is the summary of the net cumulative debit and credit balances
contained in the general ledger at the end of each month for each account code
represented by a general ledger card. The trial balance proves the arithmetical accuracy
of the general ledger. The total amount of the debit column must equal the total
amount of the credit column in the trial balance. The trial balance serves as a basis to
produce financial statements. The accountant prepares the Trial balance for each
Accounting Unit (MOFED and DSA Project, December 2002).
According to MOFED and DSA Project also, the source documents to prepare the Trial
Balance are:
Revenue/Assistance/Loan Report,

Recurrent Expenditure Report,

Capital Expenditure Report,

Transfer Report,

Receivables Report,

Payable Report, and

The General Ledger.

Please note that in profit-making organizations, trial balances are prepared directly form
the general ledger accounts and each account will be listed in the trial balance as long
as it has a balance. However, in FGE system of accounting, the trial balance is
prepared from the reports already produced for it facilitates the process and provide
pertinent figures for the period end reports. In addition to the reports mentioned above,

136
some balance amounts are directly taken from the general ledger accounts. The
account codes that are taken from the general ledger directly to the trial Balance are:

Letters of Credit - balances in each account should be credits.

Net Assets/Equity - balance should be credit.

Cash and Cash Equivalents - balances in each account should be debits.

Figure 1.8: Trail Balance

Me/He 27

Month________

Name of Public Body: ____________________ Code: ______

Name of Program: _______________________ Code: _____

Name of Sub Agency: ____________________ Code: _____

137
Name of Sub Program: ___________________ Code: _____

Name of Project: ________________________ Code: _____

Bank Account Number ___________________

Code Account Description Debit Credi

t

- Revenues/Assistance/Loan: (from
Revenue/Assistance/Loan Report)

- Expenditures:

- Recurrent expenditure (Total of Recurrent Expenditure

Reports)

- Capital expenditure (Total of Capital Expenditure

Reports)

- Transfers: (from Transfer Report)

- Receivables: (from Receivables Report)

- Payables: (from Payables Report)

Letters of Credit: (by account code-from General

Ledger)

5601 Net Assets/Equity (from General Ledger)

Cash and Cash Equivalents (by account code-from

General Ledger)

4101 Cash on hand

4102 Cash at bank in foreign currency

4103 Cash at bank

138
 TOTAL

Prepared by Name & Sig. Checked by Name & Sig.

Authorized by Name & Sig.

(Source: MOFED and DSA ProjectDecember, 2002)

Activity 6: Preparing Monthly Trial Balance.

Allow about 10 minutes.

The intent of this activity is to make you familiar with the preparation of the monthly trial
balance.

Based on the data given in activity 1, you are required to prepare the monthly trial
balance.

Feedback:
Trail Balance

Me/He 27

Month_ May_______

Name of Public Body: ____ECSC___________Code: __319____

Name of Program: _______________________ Code: ___01__

Name of Sub Agency: ____________________ Code: __07___

Name of Sub Program: ___________________ Code: ___00__

Name of Project: ________________________ Code: __000___

Bank Account Number __10645839_________________

Code Account Description Debit Credit

Revenues/Assistance/Loan: (from 9000

Revenue/Assistance/Loan report

Expenditures:

Recurrent expenditure (Total of Recurrent Expenditure 97900

139
 Reports)

Capital expenditure (Total of Capital Expenditure Reports)

Transfers: (from Transfer Report) 2750 107350

Receivables: (from Receivables Report) 9600

Payables: (from Payables Report) 19850

Letters of Credit: (by account code-from General Ledger)

5601 Net Assets/Equity (from General Ledger)

Cash and Cash Equivalents (by account code-from General

ledger

4101 Cash on hand 22850

4102 Cash at bank in foreign currency

4103 Cash at bank 3100

TOTAL 136200 136200

Prepared by Name & Sig. Checked by Name & Sig.

Authorized by Name & Sig.

1.8. Submitting Monthly Reports to the Ministry of Finance and Economic

Development
Monthly reports will be prepared and submitted to concerned body or Ministry of
Finance and Economic Development within two weeks of the last day of the month by
all Accounting Units.

All transactions that occur during a month should be recorded daily on the Transaction
Register and into the appropriate General and Subsidiary Ledgers. However, if some
transactions for the month are not entered into the Transaction Register by the end of
the month, they will not be included in the report of the specified month.

Activity 7: Importance of reporting on time.

Allow about 5 minutes.

140
This activity is to show you the importance of reporting on time.

Assume that you are a finance section head in a reporting entity. Your section has to
submit its monthly report to MOFED during the third week after the end of the month.
On one hand, your section did not finish recording transactions of Hamle to Nehassie
20. On the other hand, your organization wants to get funds from MOFED for operating
expenditures. Do you decide to delay and complete the report or submit the report on
the deadline based on what is recorded?

Feedback: The Transaction Register is closed on the last day of each month.
Transactions that occur during the month, but are not recorded in the Transaction
Register, are recorded in the next month’s Transaction Register. In other words, reports
are prepared each month based on the information recorded by the end of that month in
the Transaction Register.

Ideally, transactions are recorded in the Transaction Register in the same month in
which they occur. However, the monthly reports should not be delayed because all
transactions are not recorded in the proper month. The monthly reports should be
prepared on time. At a minimum, all transfers should be recorded in the proper month.

According to MOFED and DSA Project manual, December 2002, if there is a reporting
entity that is distinct from the accounting unit, the reports must be sent to the reporting
entity before the end of the second week of the month. The reporting entity should:

Verify the mathematical accuracy of all reports.

Verify that totals in the revenue/assistance/loan report, recurrent expenditure

report, capital expenditure report, transfer report, receivables report, and

payable report are carried forward to the trial balance.

Verify that the end of month balance in Part 2 of the transfer report is carried
forward to part 1 of the transfer report.

Visit any accounting unit that does not report within two weeks and assist in the
preparation of monthly reports.

141
The reporting entity does not consolidate reports. The reports from the accounting units
are forwarded to Ministry of Finance and Economic Development intact. The reporting
entity is required to send their monthly reports to the Ministry of Finance and Economic
Development during the third week of the month.

Central Accounts Department at Ministry of Finance and Economic Development will:

Verify the mathematical accuracy of all reports.

Verify that totals in the revenue/assistance/loan report, recurrent expenditure

report, capital expenditure report, transfer report, receivables report, and
payable report are carried forward to the trial balance.

Verify that the EOM Balance in Part 2 of the transfer report is carried forward to
part 1 of the transfer report.

Reconcile individual transfers recorded on the transfer report with its records.

Visit any reporting entity that does not report within three weeks to identify and
assist with monthly reporting.

Prepare and distribute various reports for FGE.

Consolidate balances for each account into a FGE Financial Statement.

142
 CHAPTER 5
FINANCIAL STATEMENTS

The financial statements presented are intended to meet the needs of users who are not in a
position to demand reports tailored to meet their specific requirements. These users include
stakeholders such as members of the legislature, donors, lenders, tax payers and employees.

The objective of the financial statements is to provide information about the financial position,
performance and cash flows that is useful in making and evaluating decisions about the
sources, allocation and uses of financial resources and about how the activities were financed. In
addition, the financial reporting also provides users with information about whether resources
were used in accordance with the approved budget.

Transparency in government begins with full and fair disclosure of financial information. The
FGE uses the International Public Sector Accounting Standards (IPSAS) issued by the Public
Sector Section of the International Federation of Accountants as a basis for establishing the
financial statements.

The FGE accounting system can produce the following set of financial statements:

 A set of federal-level financial statements that includes:

o Statement of Financial Position
o Statement of Financial Performance
o Statement of Changes in Net Assets/Equity
o Cash Flow Statement
o Accounting Policies and Notes to Financial Statements
o Statement of Comparison of Budget and Actual Amounts – Domestic Revenue
o Statement of Comparison of Budget and Actual Amounts – External Assistance
o Statement of Comparison of Budget and Actual Amounts – Expenditure
o Comparison of Original and Adjusted Budget and Actual Amounts
o Statement of Expenditure by Functional Classification

 A set of countrywide financial statements that includes:

o Summary Statement of Domestic and External Revenues
o Summary Statement of Expenditure
o Summary Statement of Expenditure and its Statement.

In addition to the above financial statements, the accounting system also produces detailed
revenue and expenditure schedules that provide detailed information and analysis of the
summary countrywide financial statements.

The remainder of this chapter describes the format of each financial statement.

143
144
 GOVERNMENT OF ETHIOPIA

Statement of Financial Position

As at 7 July 20X2

Ethiopian Birr '000

Notes 20X2 20X1

ASSETS (CURRENT)

Cash and cash equivalents 1 0 0

Receivables 2 0 0

Total Assets 0 0

LIABILITIES(CURRENT)

Current Liabilities - Payables 3 0 0

Total liabilities 0 0

Net Current
Assets/(Liabilities) 0 0

NET ASSETS/EQUITY

Accumulated surpluses/deficits 0 0

GOVERNMENT OF ETHIOPIA

145
 Statement of Financial Performance

For the year ended 7 July 20X2

Ethiopian Birr '000

Notes 20X2 20X1

OPERATING ACTIVITIES

Operating Revenue

Tax revenues 4 0 0

Non-tax revenues 5 0 0

Subsidies 6 0 0

Municipality revenues 7 0 0

Other revenue 8 0 0

Total operating revenue 0 0

Operating Expenses

Subsidies 0 0

Personnel services 9 0 0

Goods and services 10 0 0

Fixed assets and construction 11 0 0

Other expenses 12 0 0

Total operating expenses 0 0

Surplus/(deficit) from operating activities 0 0

NON OPERATING ACTIVITIES

146
External assistance 13 0 0

External loans 14 0 0

Capital revenue 15 0 0

Debt repayments - principal 16 (0) (0)

Finance costs 17 (0) (0)

Surplus/(deficit) from non operating activities 0 0

Surplus/(deficit) for the year 0 0

GOVERNMENT OF ETHIOPIA

Statement of Changes in Net Assets/Equity

For the year ended 7 July 20X2

Ethiopian Birr '000

Balance at 7 July 20X1 0

Changes in accounting
policy/Fundamental errors 0

Restated balance 0

Net surplus/(deficit) for the year 0

147
Balance as at 7 July 20X2 0

GOVERNMENT OF ETHIOPIA

Cash Flow Statement

For the year ended 7 July 20X2

Ethiopian Birr '000 20X2 20X1

1 CASH FLOW FROM OPERATING ACTIVITIES

Tax revenues 0 0

Non tax revenues 0 0

Other income 0 0

Miscellaneous income 0 0

Municipality revenues 0 0

Regional subsidy 0 0

Total Receipts - A 0 0

Personnel services 0 0

Goods and services 0 0

Finance charges 0 0

Subsidies 0 0

148
 Other expenses 0 0

Total Payments - B 0 0

Non Cash Movements

Increase/(Decrease) in payables 0 0

Increase/(Decrease) in receivables 0 0

Total Non Cash Movements - C 0 0

Net Cash Flow from Operating Activities 0 0

2 CASH FLOW FROM INVESTING ACTIVITIES

Sale of assets 0 0

Sale of equity 0 0

Repayment of borrowings to government 0 0

Privatization proceeds 0 0

Capital receipts from non government 0 0

Total Receipts (A) 0 0

Fixed Assets and Construction 0 0

Govt. lending or equity investments 0 0

Total Payments (B) 0 0

Net Cash Flow from Investing Activities 0 0

149
 GOVERNMENT OF ETHIOPIA

Cash Flow Statement

For the year ended 7 July 20X2

Ethiopian Birr '000

20X2 20X1

3 CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from external assistance 0 0

Proceeds from external loans 0 0

Total Receipts (A) 0 0

Debt repayments – external Total Payments (B) 0 0

Net Cash Flow from Financing Activities 0 0

4 NET INCREASE/(DECREASE) IN CASH &CASH EQUIVALENTS 0 0

5 Cash and Cash Equivalents at Beginning of Year 0 0

6 Net Increase/(Decrease) in Cash Equivalents During the Year 0 0

7 Cash and Cash Equivalents at End of Year 0 0

150
151