FIN3394 PUBLIC SECTOR

ACCOUNTING

TOPIC 5: THE PRACTICE OF

PUBLIC SECTOR
ACCOUNTING

1
 Learning Objectives
► Accounting objectives
► Basic concepts in public sector accounting
- consolidated fund
- cash basis, accrual basis, modified cash basis
and commitment
► Features of Public Sector Accounting
- budgeting accounting
- accounting for vote
- recognition of incomes and expenditures
- recognition of assets
- chart of accounts

2
 Cont..
► Accounting treatments and journal
- recording of incomes, expenditures and
adjustments
- recording of assets
- transfer of fund/allocation
► Accounting practices in various government
entities
- Federal Government
- State Government
- Local Government
- Statutory Bodies
3
 Introduction
► Definition of Accounting
 AICPA – “ Art in recording, classifying and
summarizing financial events and transactions
and translate that information…”
► Accounting as Service Activity
 Provide a quantitative financial information that
relates with economy of an entity, which intent
to make a usefulness decision as a choice for an
action
4
 Legality and Standards
LAWS
LAWS

►
► Constitutions (Federal
Constitutions (Federal and
and State)
State)
►
► Acts
Acts
►
► Regulations
Regulations
►
► Standards (Accounting
Standards (Accounting and
and Auditing)
Auditing)

5
 Federal Consolidated Fund
In compliance with the Financial Procedure
Act, 1957, three separate accounts are
maintained in respect of the Consolidated
Fund, namely:
1. Consolidated Revenue Account
2. Consolidated Trust Account
3. Consolidated Loan Account

6
 Consolidated Revenue Account

► The Consolidated Revenue Account

into which the revenues of the
Government
is paid and from which the operating
expenditure is met.

7
 Consolidated Trust Account

► TheConsolidated Trust Account

under which all receipts and payments
of both Government trust funds and
monies received by the Government for
specific purposes are accounted for.

8
 Consolidated Loan Account
► TheConsolidated Loan Account
in which all loan receipts,
disbursements there from for the
purpose of repayment of outstanding
loans and transfers to other fund is
accounted for.

9
 Basic Concepts Of Accounting
Policies
The accounting policies of Government are based on
two concepts embodied in the Federal Constitution,
namely:

a) The concept of Consolidated Fund which

emanates from the requirement that all revenues and
monies raised or received, except zakat, fitrah,
baitulmal and similar Islamic religious revenue, be
paid into and form one fund to be known as the
Consolidated Fund (Article 97); and

10
b) The concept that no monies, except
specific charged expenditures, shall be
withdrawn from the Consolidated Fund
unless they are appropriated or otherwise
authorized by Parliament (Article 104).

Parliament provide authority to make

payments out of the Consolidated Fund in
annual and supplementary Supply Acts and
other statues.

11
Spending authority granted in Supply Acts is
► For stated purposes and maximum
amounts,
► Unutilized spending authority lapses at the
end of the year for which it is granted.

12
 Financial Year

The financial year is defined by the

Financial Procedure Act as a period of
twelve months ending on the 31st
December in any year.

13
 Basis of Accounting

All transaction of the Government are

accounted for on a cash basis, i.e. on a
receipt and payment basis, appropriately
“modified” to provide for payments to be
made in January in respect of supplies
received and services rendered up to 31
December of the preceding year but
chargeable to the accounts of that year.
14
 Basis Of Accounting in Public
Sector
► Cash Basis/Modified Cash Basis
► Accrual Basis

15
 Modified Cash Basis
► Take into account all information on
transactions and economic events which
cause receipt and payment of cash in
future (short term) i.e. as soon as current
financial period end and current
information of cash flow.
► Financial year – 13 months (1/1/2006-
31/1/2007)
16
 Modified Cash Basis
► For expenses being made but not in time to
do payment in 12 months – settled within 1
month of the following year. (January 2007)

► Allexpenditure are chargeable to the

account of that year (2006), subject to:

17
 Modified Cash Basis

 Service rendered and supplies received

up to 31 December 2006
 No payment up to 31 December 2006
 Payment could be done between
1/1/2007 – 31/1/2007

18
 Basis and Types of Government
Agencies
► Modified Cash Basis
 Used for Federal and State Government
Accounting

►Accrual Basis
 Used in accounting for Statutory Bodies,
Local Authority and Government-owned
companies
19
 Allocation Control From Approved Budget
Through VOT Book
What is VOT Book
 Main Financial Record Book – AP 95
 Record – Expenses, Commitment and Allocation
Amendments
Why ?
To fit the purpose of;
a. Control the allocation
b. Source of information to provide financial report
c. Standardize the control between warrant holders and
Accountant General’s Record
d. Ensure that financial reports provide by Accountant
General Similar to VOT book
20
The book consists of 3 section;
Section I - record the information on VOT and Allocation as
estimation
Section II - records the information on approved allocation to
be expensed
Section III – record the details information on recorded
transactions

Allocation Distribution by Expense Object

Vote B = Supplies Expenditure

Vote T = Charged Expenditure
Vote P = Development Expenditure

21
 Important Steps in Federal Accounting Cycle (By
Accountant General)
Illustration case;
Budget 2005, under the economic downturn, Federal
government anticipate the revenue collection of RM
100,000,000, expenditure of RM 98,000,000 and Saving RM
2,000,000 in the reserve (fund balance). The Government
expect the revenue collection from Taxation RM 75,000,000
and RM 25,000,000 from other sources
Steps;
Journal Record
Dr Revenue-Budgeted RM 100,000,000
Cr Expenditure-Budgeted RM 98,000,000
Cr Fund Balance RM 2,000,000
(To record the approved budget – Budgeted revenue Dr likes asset because it
is resource to government, Budgeted Expenditure Cr likes liability
because it is allocation to be spent) 22
Details Allocations
The details for approved budget (Revenue & Expenditure) based on Account Code
TC 8, 1986:

Account Item Debit Credit

Code
60000 Budgeted - Tax Revenue 75,000,000
70000 Budgeted - Others Revenue 25,000,000
10000 Allocation – Emolument 88,000,000
20000 Allocation – Supplies 10,000,000
90000 Fund Balance 2,000,000

Recording the Transaction and Event through Journal:

Dr Tax Receivable RM 75,000,000
Cr Tax Revenue RM 75,000,000
(To record accrued revenue ( tax receivable) according to budget before making
collection – government confidence to collect tax as planned)

Dr Cash RM 50,000,000
Cr Tax Receivable RM 50,000,000
(To record tax revenue collected in cash RM50M instead of RM75M) 23
Dr Emolument RM 50,000,000
Cr Cash RM 50,000,000
(Paid emolument in cash but another RM38M not yet paid)

Dr Cash RM 25,000,000
Cr Other Revenue RM 25,000,000
(To record other revenue collected in cash- other revenue is not accrued
likes tax revenue because government is not sure about the collection)

Dr Cash RM25,000,000
Cr Tax Receivable RM25,000,000
(To record another RM25M tax revenue collected in cash)

24
Dr Supplies Allocation RM 10,000,000
Cr Commitment of Supplies RM 10,000,000
(To record commitment temporarily of supplies according to budget- to avoid
overspending and control through vote book )

Dr Commitment of Supplies RM 10,000,000

Cr Supplies Allocation RM 10,000,000
(To close commitment account on supplies when the expense occurred-so
commitment account becomes vero balance)

Dr Supplies RM 10,000,000
Cr Voucher Payable RM 10,000,000
(To record supplies expense when the supplies received from supplier but not yet
paid)

Dr Voucher Payable RM 10,000,000

Cr Cash RM 10,000,000
(To record payment to supplier)

*the above journal entries shows how government accounting comply with budget
25
 Assume that accounting period ended 31 December 2005 and accrued
emolument is RM 38,000,000 but payment date is on 1 January 2006 due to
long holiday. Under modified cash basis, although the amount of 38,000,000 is
not yet paid, it has to be recognize. So it needs to be adjusted, otherwise the
fund will show the extra of 38,000,000.

Dr Emolument RM 38,000,000
Cr Emolument Payable RM 38,000,000
(To record accrued emolument on 31/12/2005)

Dr Emolument Payable RM 38,000,000

Cr Cash RM 38,000,000
(To record the payment of emolument on 01/01/2006)

26
Posting Record
To transfer the record for every transactions, it has to be summarized to specified
or relevant accounts. I. E. Every Journal records that consist of cash element will
be post to cash account, then will be update with cash balance at the end of
accounting period.

Cash Account As At 31 December 2005

Tax Revenue 50,000,000 Emolument 50,000,000

Receivable Voucher Payable 10,000,000
Other Revenue 25,000,000 Balance b/d 40,000,000
Tax Revenue 25,000,000
Receivable

100,000,000 100,000,000

Balance b/f 40,000,000

27
 Name of Government
Trial Balance
at 31 December 2005
Item Dr Cr
1 Cash 40,000,000
2 Tax Receivable 0
3 Supply 0
4 Voucher Payable 0
5 Emolument Payable 38,000,000
6 Supplies Allocation 0
7 Commitment of Supplies 0
8 Fund Balance (Budgeted) 2,000,000
9 Tax Revenue (Budgeted) 75,000,000
10 Other Revenue (Budgeted) 25,000,000
11 Tax Revenue (Actual) 75,000,000
12 Other Revenue (Actual) 25,000,000
13 Allocation – Emolument (Budgeted) 88,000,000
14 Allocation – Supplies (Budgeted) 10,000,000
15 Emolument Expense (Actual) 88,000,000
16 Supplies Expense (Actual) 10,000,000
Total 238,000,000 238,000,000 28
 Name of Government
Revenue and Expenditure Statement
For the Period Ending 31 Dec 2005

Revenue
Tax Revenue 75,000,000
Others Revenue 25,000,000
Total Revenue 100,000,000
Expenses
Emolument 88,000,000
Supplies 10,000,000
Total Expenses 98,000,000
Increase/(Decrease) 2,000,000
Beginning Balance 0
Ending Balance 2,000,000

29
 Balance Sheet
Name of Government
Balance Sheet
As at 31 Dec 2005
Assets
A. Cash 40,000,000
B. Investment -
Total Cash and Investment 40,000,000
C. Consolidated Revenue Account 2,000,000
D. Consolidated Trust Accounts
D1. Group Fund for Development -
D2. Group Fund for Water Supply -
D3. Group Fund for Housing Loan -
D4. Voucher Payable 38,000,000

E. Consolidated Loan Account -

40,000,000
30
 Closing Entries
Budgeted Accounts
Dr Allocation – Emolument RM 88,000,000
Dr Allocation – Supply RM 10,000,000
Dr Budgeted Fund Balance RM 2,000,000
Cr Budgeted Tax Revenue RM 75,000,000
Cr Budgeted Other Revenue RM 25,000,000

Non-Budgeted Accounts (Actual)

Dr Tax Revenue RM 75,000,000
Dr Other Revenue RM 25,000,000
Cr Fund Balance RM 2,000,000
Cr Emolument RM 88,000,000
Cr Supplies RM 10,000,000
(Fund balance actual is balancing figure and will become beginning
balance of revenue and expenditure statement/consolidated revenue
account for next year)
31