Government Accounting Summary

GOVERNMENT ACCOUNTING SUMMARY Advance Accounting 2 New Government Accounting System

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Prof. Tina Llorca February 7, 2015

Summary of Critical Points 1. Budgetary accounts of appropriations and allotments are entered in the registry maintained by DBM. Allotments and obligations are also entered in appropriate registries maintained by the agency. Under NGAS budgetary accounts are no longer journalized. 2. The notice of cash allocation (NCA) received by the agency from DBM is journalized in the regular agency books. (The other set of books of an agency is the National Government books (NG). 3. The obligations incurred by the agency are not journalized, but posted to the appropriate registry, as follows: For capital outlay - RAOCO Personal Services - RAOPS Maintenance & Others - RAOMO Financial expenses - RAOFE 4. Generally, withheld taxes by the agency are no longer remitted to BIR, but retained and credited to Subsidy Income from NG under the Tax Remittance Advice (TRA) System. The NCA released to the agency is reduced by the amount of estimated withholding taxes pertinent to the allotment covered by the cash allocation. 5. Asset/perpetual inventory method will be followed in the recording of expenditures if it applies to more than one period or when payment is for materials for stock. The expense is taken up when the items are consumed. 6. Cost of ending inventory of supplies and materials shall be computed using the Moving Average method. 7. Costs of assets being constructed are debited to construction in progress account (using construction period theory). This CIP account is closed to the appropriate asset account upon completion. 8. Constructed Public Infrastructures are not shown among the fixed assets on the balance sheet, rather they are deducted from government equity (as part of closing entries) and transferred out to an appropriate registry. They are not subject to depreciation charges. 9. Depreciation on fixed assets are taken up on the month following the month of purchase or completion of construction. A 10% scrap value on the asset is always assumed and the estimated life is prescribed by COA. 10. Income for which the agency is authorized to use for its operation is recorded in the regular agency books. If the authority is with limitations, such as any excess is to be remitted to the National Treasury the collections shall first be recorded in the regular agency books, the expenses journalized, and the excess is to be remitted to the National Treasury and recorded in the agency’s NG books. 11. Two trial balance are prepared: a) Pre-closing TB – which is also the adjusted TB. From this is prepared the statement of income and expense. b) Post-closing TB – from this is prepared the balance sheet. 12. Adjusting entries at end of period are the same as those recorded in commercial accounting. 13. 1.

2.

Subsidy Income from National Government Income & Expense Summary

3.

4.

X

X

X

X X

Accounts Codes 100 – 299 300 – 399 400 – 499 500 – 599 600 – 799

600 – 699 700 – 799 801 – 850 801 – 850

800 – 899

951 – 960

RECORDS OF DBM 1. Registry of Appropriations and Allotments (RAPAL); DEPARTMENT OF BUDGET & MANAGEMENT REGISTRY OF APPROPRIATIONS AND ALLOTMENTS (RAPAL) OF (Name of Agency)

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X

Close Public Infrastructures or Reforestation Projects accounts to Government Equity account and transfer the corresponding amounts to the respective registries.

Summary of Coding structures

Ref

X

Close the balance of the Retained Operating Surplus to Government Equity account.

General Acct. Specific Acct. Expenses Personal services Maintenance & other Ap. exp. Financial expense

X

X

Close the balance of the Prior Year’s Adjustments account to Retained Operating Surplus account.

Account Assets Contra assets Liabilities Equity Revenue / Income

Date

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X

X

Government Equity Public Infrastructures Reforestation Projects

14.

X

Close the balance of the Income & Expense Summary account to the Retained Operating Surplus account.

Retained Operating Surplus Government Equity

8.

X

X

Prior Year’s Adjustments Retained Operating Surplus

7.

X

X

Income & Expense Summary Retained Operating Surplus

6.

X

Close the balance of all expense accounts to Income & Expense Summary account. Income & Expense Summary Salaries & Wages-Regular Pay

5.

X

Close the balance of all revenue accounts to Income & Expense Summary Account. Income from Government Services Operations Income from Government Business Operations Income & Expense Summary

Closing entries are as follows: Reversion of the unused or unutilized Subsidy Income from National Government at the end of the year. Subsidy Income from National Government Cash-National Treasury, MDS

Close the balance of the Subsidy Income from National Government to Income & Expense Summary Account.

Capital Outlay

Maintenance & Other

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(1)

(2)

(3) Allotment

Appropriatio n Balance

Financial Expense (5) allotmen Appropriat t e balance



Operating expenses (4) Allotment Appropriation Balance



Registry of Allotment and Obligations – Personal Services (RAOPS) Registry of Allotment and Obligations – Financial Expenses (RAOFE)

Note that there is an a new expense classification, the financial expenses. They are categorized separately from the MOOE since they are not operating expenses.

Personal Services (6) allotment Appropriate balance

The following is a printout of one of the allotment classes. REGISTRY OF ALLOTMENT AND OBLIGATIONS

2.

DEPARTMENT OF BUDGET AND MANAGEMENT REGISTRY OF ALLOTMENTS AND NCA (RANCA) OF (Name of Agency)

CO

______________________________________ Agency Name

Registry of Allotment and Notice of Cash Allocation

MOOE

Allotments (3) PS

EE

Sheet No. _____________ Dat NCA e

BUREAU OF THE TREASURY REGISTRY OF NCA REPLEMISHMENTS (RENREP) Ref (2)

P.P.A

Accoun t Code

Allotmen t Received

Obligatio n incurred

Balanc e

Total

RECORDS OF THE BTR Upon receipt of the copy of the NCA from the DBM, the BTR shall enter it in the registry of NCA and Replenishment (RENREP). It shall also enter in the RENREP the transfer of cash from its bank account(s) to the appropriate MDS account. The following is the printout of the suggested format of the RENREP.

Date (1)

Ref.

NCA (3)

The formats presented here are only suggested ones. The DBM and the BTr may formulate their own formats., which they deem will serve their purposes better. RECORDS OF THE AGENCY Although the Agency will not journalize its appropriation and allotment it shall maintain four registries for the allotments it receives and for the obligations it incurs. These are:  Registry of Allotment and Obligations – capital Outlay (RAOCO)  Registry of Allotment and Obligations – Maintenance and other operating Expenses (RAOMO)

Upon receipt of the NCA, the Accountant shall journalize it as “Cash in the Treasury for Modified Disbursement System (MDS)” and Subsidy Income from National Government” which in effect identifies the share, of the Agency in the income of the National Government. The entry will be as follows: Cash, National Treasury – MDS Subsidy, Income from NG

100 100

The obligation is recognized and will be entered in the appropriate RAO when obligation is incurred as evidenced by the approved Allotment and Obligation Slips (ALOBS). The Accountant shall credit “Cash, National Treasury – MDS” each time a payment is made charged against the NCA and debit the specific account being paid for, either asset or expense account. The following are two examples: Example 1: Step 1. Memo entry in RAOCO 2. Journal Entry Office equipment 100 Cash – National Treasury - MDS 88 Withholding Taxes payable 12 Eaxmple 2: Step 1. Memo entry in RAOMO 2. Journal Entry Travel expenses Cash – National Treasury - MDS

10

10

          

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

STRAIGHT PROBLEMS



 Problem 1 Agency XX is a national government agency unit. Selected transactions completed during the agency’s 2011 operations follow: 1.

2.

Approval of the annual budget of the agency for 2011 by DBM (thru a legislative enactment by Congress), as follows: Personal services (PS) P2,000,000 Maintenance and other operating expenses (MO) 1,500,000 Capital outlay (CO) 1,200,000 Financial expenses (FE) 40,000 Approval of Agency’s budget matrix by DBM and related ALLOTMENT received out of the above APPROPRIATIONS: Personal services P 1,800,000 Maintenance and other operating expenses 1,350,000 Capital Outlay 1,100,000 Financial expenses 35,000

3.

Receipt of NOTICE of CASH ALLOCATION for the above-mentioned ALLOTMENT for a total of P4,100,000

4.

Incurred OBLIGATION and paid maintenance and operating expenses a. Various operating expenses b. Prepaid rent c. Travelling and other expenses of the Treasurer, Pol Buba, for a scheduled seminar in Kutawi.  Refund of excess cash advance for travelling expenses by Pol B  Liquidation of the actual travel and related expenses by Pol B.  Deposit of collection for excess cash advance to Bureau of Treasury

the

following

P 1,100,000 P 120,000 P

40,000 3,000

37,000

3,000

5.

Incurred OBLIGATION for the acquisition of office equipment P 800,000  Receipt of office equipment per invoice and delivery receipt 800,000  Payment of office equipment, less 12% withholding tax 704,000  Issuance of TRA for the withholding tax 96,000

6.

Collection of other income which the Agency is authorized to use in their operations:  Other service income P 15,000  Sales revenue 35,000  Deposited the above collections in the bank P 50,000

7.

Incurred an OBLIGATION for personal services P 1,775,000  The disbursing officer is granted a cash advance of 1,420,000  Salaries and other allowances are paid by the disbursing officer, as follows: Salaries P1,562,000

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PERA 213,000 P 1,775,000 Less salary deductions (see schedule) 355,000# Net amount paid (disbursing officer’s cash advance) P 1,420,000 # Withheld taxes P131,350 GSIS premiums 188,150 Pag-ibig premiums 14,200 Phil Health premiums 21,300 P 355,000 Remitted withholding taxes to the BIR P 131,350 Remitted other salary deductions to pertinent payees 223,650 8.

Incurred an OBLIGATION for the Agency’s share on the following mandated contributions: Life and Retirement P266,250 Pag-ibig 14,200 Philhealth 21,300 P 301,750

9.

Incurred an OBLIGATION and paid bank service charges of P 33,500

Required: (1) Account for the above-mentioned information I n the books of the Agency. (2) Prepare adjusting entries at year-end for the following information a. Three-fourths of the prepaid rent must be expensed. b. Various operating expenses are accrued at yearend, P35,000 c. Fifteen percent (15%) of the recorded various operating expenses are prepayments d. The office equipment will be depreciated over an estimated life of 10 years, Depreciation expense for 8 months will be charged during the current year. (3) Prepare a pre-closing trial balance for 2011. Problem 2. The following is the pre-closing trial balance of XYZ, a national government agency for the fiscal year ended, June 30, 2011. Debit Credit Cash-NT-MDS P 25,750 Cash in Bank – LCCA 50,000 Prepaid rent 30,000 Prepaid expenses 165,000 PI Municipal park 376,000 Office equipment 400,000 Accumulated depreciation P 24,000 Accrued Expenses 35,000 Subsidy Income from NG 4,193,000 Other service income 15,000 Sales revenue 35,000 Traveling 37,000 Salaries 1,562,000 PERA 213,000 Life and retirement 266,250 Pag-ibig 14,200 Philhealth 21,300 Depreciation 48,000 Rent 90,000 Various operating expenses 970,000 Bank service charges 33,500 Totals P4,302,000 P4,302,000

P2.513

Required: 1. Prepare closing entries at year-end. 2. Prepare a post-closing trial balance for year ended 2011. 3. Prepare a Statement of Revenues and Expenses and a Statement of Financial Position for 2011. Problem 3 Department ABC is a national government agency. It derives income only from appropriations out of the national budget. Some transactions for the agency during the current fiscal year follows: 1. Obligation for construction of a building upon signing of the contract, P2,000. 2. Payment of 15% of the contract amount as advances to the contractor, P300. 3. Receipt of progress billings for construction work as follows: 50% of P2,000 P1,000 Less recoupment of cash advance 150 Net amount billed P 850 4. Payment of bill for construction of building, as follows Accounts payable, as above P 850 Less: withholding tax at 10% of gross 100 Net amount paid P 750 5. Remittance of withholding tax to the BIR, P100. 6. Presentation of final billing for construction of buildings: 50% of P2,000 P1,000 Less recoupment of cash advance P 150 Net amount billed 850 7. Payment of bill for construction of building, as follows: Accounts payable, as above P850 Less withholding tax at 10% of gross 100 Net amount paid P750 8. 9.

Remittance of withholding taxes to BIR, P100. Turnover and acceptance of the building, P2,000.

Required: 1. Prepare journal entries for the above information. 2. Discuss relevant accounting consequences if the construction were for a road or for a monument, instead.

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SUGGESTED SOLUTIONS TO STRAIGHT PROBLEMS Problem 1. 1. APPROVAL OF ANNUAL BUDGET (APPROPRIATION)



*DBM enters in appropriate columns of RAPAL *COA prepares spreadsheets on appropriations. 2.

a. b. c. d. 3.

Due to BIR Subsidy Income from the NG

APPROVAL OF AGENCY’S BUDGET MATRIX (ALLOTMENT) *DBM enters in RAPAL and in RANCA *Agency enters in RALOBS, as follows

6.

RAOCO for capital – outlay-type of expenditures RAOMO for maintenance and other operating expenses RAOPS for expenses classified as personal services; and RAOFE for financial expenses.

DBM enters in RANCA BTR enters in RENREP Agency prepares a journal entry: Cash – National Treasury – Modified Disbursement System P4,100,000 Subsidy Income from the National Government



7.

50,000

Agency enters in RAOPS Journal entry for the cash advance

Cash – Disbursing Officer

1,420,00 0

1,420,00 0

INCURRED OBLIGATION FOR VARIOUS MOOEs

  



Due from Officers and employees * Liquidation of cash advance  Agency prepares a journal entry Traveling expenses 37,000 Due from Officers and employees  Deposit of collection  Agency prepares a journal entry Subsidy income from NG 3,000 Cash –Collecting Officer INCURRED EQUIPMENT 

OBLIGATION

FOR



3,000 8. OF

 Journal entry for payment Accounts payable Cash – NT –MDS Due to BIR

704,000 96,000

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800,000

21,300 1,420,000

INCURRED OBLIGATION CONTRIBUTIONS

188,150 14,200 21,300 223,650 FOR

SHARE

 Agency enters in RAOPS  Journal entry for the payments Life & Retirement 266,250 contributions Pag-ibig contributions 14,200 Phil-health contributions 21,300 Cash – NT – MDS

Agency enters in RAOCO

800,000

131,350 188,150 14,200

Journal entry for remittance to various payees

GSIS premiums payable Pag-ibig premiums payable Phil-health premiums payable Cash – NT – MDS

37,000

 Journal entry for receipt of eqpt Office Equipment 800,000 Accounts payable

1,562,000 213,000

 Journal entry for remittance to BIR of WT Due to BIR 131,350 Cash – NT- MDS 131,350

3,000

ACQUISITION

Journal entry for the payment

Salaries & wages PERA Due to BIR GSIS premiums payable Pag-ibig premiums payable Philhealth premiums payable Cash – disbursting officer

Refund of excess cash advance Agency enters in RAOMO (negative entry) Agency prepares a journal entry: Cash – Collecting 3,000 officer

50,000

INCURRED OBLIGATION FOR PERSONAL SERVICES  

4,100,000

15,000 35,000

Journal entry for the deposit

Cash in Bank – LCCA Cash – Collecting officer

 Agency enters in RAOMO *Agency prepares the following compound entry: Prepaid rent 120,000 Due from officers and 40,000 employees Various other Operating Expenses 1,100,000 Cash – NT – MDS 1,260,000

5.

96,000

COLLECTION OF OTHER INCOME WHICH THE AGENCY IS AUTHORIZED TO USE

Cash – NT – MDS 4.

96,000

 Journal entry for the collection Cash – Collecting Officer 50,000 Other service income Sales revenue

RECEIPT OF NOTICE OF CASH ALLOCATION (NCA)   

Journal entry for issuance of TRA

9.

IN

301,750

INCURRED OBLIGATION FOR BANK SERVICE CHARGES

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P2.814

 

Agency enters in RAOFE Journal entry for payment

3.

Bank service charges Cash – NT – MDS

33,500 33,500

REQUIREMENT 2 – ADJUSTING ENTRIES a. Rent expense Prepaid rent b. Various operating expenses Accrued expenses c. Prepaid expense Other operating supplies d. Depreciation expenses Accumulated depreciation

90,000 35,000

165,000 48,000

165,000 48,000 4.

PROBLEM 2 1. Closing entries at year-end SI from NG Cash-NT-MDS

25,750 25,750

SI from NG Income & Expense

4,167,250

Service income Sales revenue Income & Expense

15,000 35,000

Income & Expense 3,255,250 Travelling Salaries PERA Life & retirement Pag-ibig Philhealth Depreciation Rent Various operating Expenses Bank service charges

Income & expense Retained operating surplus Retained operating surplus Government Equity Government Equity PI-municipal park 2.

4,167,250

50,000 37,000 1,562,000 213,000 266,250 14,200 21,300 48,000 90,000 970,000 33,500

962,000

P33,500 37,000 90,000 48,000 266,250 14,200 21,300 1,562,000 213,000 970,000

Accrued expense Government equity Total Problem 3. 1. Agency enters in RAOCO 2. Agency prepares a journal entry Advances to contractor Cash – NT – MDS 3.

4.

5. 6.

962,000

4,167,250 15,000 35,000 P4,217,250

STATEMENT OF FINANCIAL POSITION Cash-in-bank – LCCA Prepaid rent Prepaid expense Office equipment P400,000 Less accumulated depreciation 24,000 Total

962,000

962,000

Agency prepares a journal entry CIP – Building Accounts payable Advances to contractors Agency prepares a journal entry Accounts payable Due to BIR Cash – NT – MDS Agency prepares a journal entry Due to BIR Cash – NT – MDS Agency prepares a journal entry CIP – Building Accounts payable Advances to contractor

3,255,250 P 962,000 P50,000 30,000 165,000 376,000 P621,000 P35,000 586,000 P621,000

P 300

P 300

1,000 850 150

850 120 730

120 120 1,000

850 150

376,000 376,000

POST-CLOSING TRIAL BALANCE AT FISCAL-YEAR-END Debits Credits Cash-in-Bank – LCCA P 50,000 Prepaid expenses 165,000 Prepaid rent 30,000 Office equipment 400,000 Accumulated depreciation – P 24,000 OE Accrued expense 35,000 Government equity ________ 586,000 Totals P645,000 P645,000

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Less Expenses: Bank service charges Traveling Rent Depreciation Life & Retirement contributions Pag-ibig contributions Phil-health contributions Salaries PERA Other operating Net Savings

90,000 35,000

STATEMENT OF REVENUES AND EXPENSES Revenues: Subsidy income from the National Govt. Other service income Sales revenues Total

7.

8.

9.

Agency prepares a journal entry Accounts payable Due to BIR Cash – NT – MDS Agency prepares a journal entry Due to BIR Cash – NT – MDS

850

120

120 730

120

Agency prepares a journal entry

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Buildings CIP – Building

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2,000

2,000

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