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Chapter 1
Chapter 1
ETHIOPIAN GOVERNMENT
MANAGEMENT
FGE-Accounting 1
Course Contents
i. Introduction
ii. General and subsidiary ledgers
iii. Recording common transactions of
FGE
iv. Monthly reports
v.Financial reports and financial
statements
vi. FGE Financial Management
FGE-Accounting 2
Course objectives and Competencies
to be acquired
After successfully completing this course, the
students should be able to:
Identify the objectives of FGE accounting sym,
Explains why and how the FGE accounting sym uses modified
cash basis of accounting,
Record various transactions in government budgetary
institutions,
Prepare monthly financial reports for a reporting entity,
Identify budget control mechanisms
Identify types of ledgers maintained in FGE-system of
accounting
Define the basic concepts and terminology in government
budgeting FGE-Accounting 3
Chapter 1- Introduction
FGE-Accounting 4
1.1. Historical overview of Ethiopian
Government Accounting System
FGE-Accounting 5
…Cont’d
Simplicity
Less expensive
FGE-Accounting 6
…Cont’d
The most significant problems associated with a single
entry system include:
Data may not be available to management for effectively planning
and controlling the business,
inefficient administration and reduced control over the affairs of
the business
Assets are not tracked, so it is easier for them to be lost or stolen.
It is impossible to obtain an audit opinion on the financial results
of a business using a single entry system,
It is much easier to make clerical errors in a single entry system,
as opposed to the double entry system, where separate entries to
different accounts must match.
Liabilities are not tracked, so you need a separate system for
determining when they are due for payment, and in what amounts.
There is much less information available upon which to construct
the financial position of a business, so management may not be fully
FGE-Accounting 7
aware of the performance of the business.
Objective of the Reform
FGE-Accounting 8
…Cont’d
• Improve cash and financial management practices
• by rationalizing the number of bank accounts
• minimizing the amount of idle funds.
• Improve budget control
• by introducing procedures to record and
• monitor commitments against the available budget prior to the approving
expenditure.
• Produce accurate, timely and complete information
• by creating a platform that allows for better decision making based on
timely, accurate and comprehensive information.
• Enhance transparency
• by implementing a system that is understandable to key stakeholders and
meets international standards in terms of the accounting principles and
policies employed and the automation of the accounting system.
FGE-Accounting 9
? Double Entry Accounting System
Introduction of T account
T account is an individual accounting record
that shows information about increases and
decreases in one balance sheet or income
statement account.
T account is so called because it has the
form of letter T.
FGE-Accounting 11
…Cont’d
Double-entry recording
system provides for the equality of total
debits and total credits.
It involve two accounts for a single
transaction
Important rules in DEAS
Assets = Claims (Liabilities and
Owner's Equity)
Total Debits = Total Credits
FGE-Accounting 12
Benefits of applying the new
accounting system
FGE-Accounting 13
Basic Concepts and Financial
Administration in FGE Accounting System
FGE-Accounting 17
Objectives of FGE Accounting System
FGE-Accounting 20
1.2. Chart of Accounts
It is a system of coding used by a financial
management system to identify and classify
financial transactions and events.
• The chart of accounts used is exactly the same at
the federal and regional levels to record
1. revenues,
2. expenditures,
3. transfers,
4. assets,
5. liabilities and net assets/equity.
FGE-Accounting 21
Chart of Accounts of FGE Accounting
Systems
FGE-Accounting 23
…Cont’d
FGE-Accounting 24
Chart of Permanent Accounts
(Ledgers)
FGE-Accounting 25
Assets:
FGE-Accounting 26
Categories of assets in the
accounting system
1. Cash and cash equivalents:
• Cash is cash on hand and at bank.
FGE-Accounting 27
…Cont’d
2. 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.
4. Stocks: Stocks are goods that are consumed in less than one year.
5. 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.
FGE-Accounting 30
…Cont’d
3. Letters of Credit:
FGE-Accounting 32
Net assets/equity:
FGE-Accounting 33
1.3. FGE Budget Process
What is Budget?
• It is the systematic Classification of the
scarce resources to unlimited wants of
the general public
FGE-Accounting 34
Definition
FGE-Accounting 36
BUDGET CLASSIFICATION
FGE-Accounting 38
1. Functional Classification
FGE-Accounting 40
1.4. Fundamentals of FGE Program
Budget
• Programs exist within a public body (or
Bureau).
• The naming and coding of programs is
discretionary.
• However, the programs identified should
reflect important medium term objectives
of the government and the public body
• Each public body can have many
programs.
FGE-Accounting 41
…Cont’d
Purpose
• 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.
• Commitments.
FGE-Accounting 46
• Balance in the revised budget that is not committed.
…Cont’d
FGE-Accounting 47
1.6 Basis of Accounting in Government
Operation
FGE-Accounting 48
Cash Basis
FGE-Accounting 49
Modified Cash Basis
• The modified cash basis of accounting recognizes
transactions and events which have occurred by the
year end and are normally expected to result in cash
disbursement within the specific legal grace period
stipulated by a country’s financial regulations after year
end.
FGE-Accounting 50
….Cont’d
• 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.
• Interest on salary advances is recognized as revenue when
the salary advance is made.
• 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.
FGE-Accounting 51
….Cont’d
• 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.
• Amounts due on treasury bills and direct
advances to Government from the National Bank
of Ethiopia are recognized as current liabilities
FGE-Accounting 52
…Cont’d
FGE-Accounting 53
…Cont’d
FGE-Accounting 54
Modified Accrual Basis
• Assets that will provide services in the future are expensed in the
period acquired.
FGE-Accounting 55
…Cont’d
• Therefore, under the modified accrual basis of accounting assets
and stocks are considered consumed and expensed off as soon
as they are acquired.
FGE-Accounting 57
Accrual Basis
FGE-Accounting 59
Bookkeeping Method
FGE-Accounting 60
End of Chapter one
FGE-Accounting 61