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Accounting for Local Government Units

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Basic Features and Policy1. Accrual Accounting2. One Fund Concept3. Special Accounts in the General Fund4. Chart of Accounts and Accounts Code5. Books of Accounts• Journals

1. Cash Receipt Journal2. Cash Disbursement Journal3. Check Disbursement Journal4. General Journal

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Ledgers1. General Ledgers2. Subsidiary ledgers• Cash• Receivables• Inventories• Investment• Property plant and equipment• Liabilities• Income• Expenses

Additional Book1. Cash Book – Cash in Treasury2. Cash Book- Cash in Bank3. Cash Book – Cash Advances

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6. Financial Statements7. Appropriations, Allotments and Obligations8. Financial Expenses9. Perpetual Inventory and Supplies 10. Valuation of Inventory 11. Maintenance of Supplies and Property Plant and Equipment Ledger Cards12. Construction of Assets13. Public Infrastructures

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14. Depreciation15. Reclassification of Assets16. Allowance for Impairment – Accounts Receivable17. Elimination of Contingent Asset18. Recognition of Liability 19. Interest Accrual20. Accounting for Borrowings and loans21. Elimination of Corollary and Negative Entries

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FORMS AND CONTENT OF BUDGETThe local government budget primarily consist of two parts namely:

1. The estimates of Income certified collectible by the treasurer; and

2. The total appropriation covering the current operating expenditures and capital outlays.

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THE BUDGET PROCESS

1.Preparation

2.Legislative authorization

3.Execution and Accountability

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Changes in Annual Budget-may be made within the fiscal year by way

of supplemental budget

Failure to Enact an Annual Budget-whenever the local legislative fails to pass an

annual budget or when an enacted budget is declared unenforceable, the annual appropriations are deemed re –enacted.

Budgetary Accounting-similar to the national government, the

budgetary accounting of the local government units are composed of the following:

- Appropriations- Allotments- Obligations

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SOURCES OF INCOME- the main sources of income of local government units are

as follows:• Tax Revenues, fees and charges• Share from Internal Revenue Collection• Share from National Wealth

GENERAL INCOME ACCOUNTS1. Subsidy from other local government units2. Subsidy from other funds 3. Subsidy from special account4. Sales revenue5. Dividend revenue6. Interest income7. Gain on sale on securities8. Gain on sale on assets9. Sale of confiscated goods and properties

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10. Foreign Exchange Gains11. Miscellaneous operating and service income12. Fines and penalties-

government service and business operations

13. Income from grants and donationsSPECIAL INCOME ACCOUNTS

1. Property taxes2. Taxes on goods and services3. Other taxes4. Other specific income

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METHODS OF ACCOUNTING FOR INCOME

1. Accrual method Illustration 1

- Received notice of Funding check issued from the Department of Budget and Management, together with credit memo from the bank for the share from internal revenue collections in amount of P100,000

Cash in Bank 100000 Internal Revenue Allotment

100000

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Illustration 2- Received notice of funding issued from the

Department of Budget and Management for share from internal revenue collection in amount of P100000

Due from National Govt. Agency 100000 Internal Revenue Allotment100000

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2. Modified Accrual Method -shall be established at the beginning

of the year- shall be used for real property taxes

3. Cash Basis- shall be used for all other taxes, fees, charges, and other revenues.

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OTHER RECEIPTS1. Borrowings

- are proceeds of repayable obligations generally with interest from the bank, national agency, another local govt. unit and private sector.

Illustration 1Municipality X borrowed funds from a bank:

Principal – 500000; Bank Charges- 5000; Interest – 6000

Cash in Bank Local Currency 489000Bank Charges 5000Interest expense 6000

Loan Payable Domestic 500000

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2. Sale of Property, Plant and Equipment- refer to the proceeds from the sale of fixed

assets, such as land, building, equipment, furniture and fixtures, etc.

3. Refund of Cash Advances-cash advances for official travel shall be recorded

as receivable from the concerned official of employee as “Advances to Officers and Employees”. Refunds made shall be credited to the receivable account previously recorded.

4. Receipt of Performance/Bidders Bonds- performance bond in cash or certified check shall

be acknowledge through the issuance of official receipt and recorded in the books by the accountant using a Journal Entry Voucher.

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Accounting for Collections and Deposit

Disbursements • Personnel services• Maintenance and Other Operating Expense• Capital Outlay• Financial Expense

Payments by CheckPayments by CashPayments out of Petty Cash FundPurchase or Construction of Property, Plant and EquipmentPurchase of Supplies

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Miscellaneous Transactions1. Loss of Cash and Property AccountabilityIllustration 1

- The auditor of Municipality X discovered a loss of fund by its disbursing officer in the amount of P5000. the disbursing officer alleged that said amount was lost due to theft and filed a request for relief from the accountability. When the innocence of the accountable officer was proven, the request for relief from accountability was granted.

To record the loss:Due from Officers and Employees 5000

Cash – Disbursing Officer 5000

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To record relief for accountability:Loss of assets 5000

Due from Officers and Employees 5000

In case of denial of request for relief from accountability, cash settlement is required;

Cash in Vault 5000Due from Officers and Employees 5000

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2. Cash Overage- the cash overage shall be recorded as a credit to

Other Specific Income of LGU and debited to Cash in Treasury.

3. Dishonored ChecksIllustration 1

A check issued by a taxpayer for real property tax in current year in the amount of P10000 was dishonored by a bank upon presentation for payment. Accordingly, the official receipt was cancelled. Upon notifications of the cancellation, the taxpayer settled the obligation.

To record the receipt of advice of dishonored checkReal Property Tax Receivable 10000

Deferred Real Property Tax Income10000

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To record cancellation of official receipt

Due to LGU – Real Property Tax Income 6000Real Property Tax Income 4000

Cash in Bank Local Currency10000

To record settlement

Cash in Vault 10000Real Property Tax Receivable10000

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4. Cancellation of Lost Check Issued

- A check is considered lost when it is misplaced, waylaid or left behind inadvertently/ negligently by the payee or holder I due course or when it is lost due to fortuitous event, theft or robbery.

To record the cancellation of check:

Cash in Bank – Local Currency Acct. 50000Accounts Payable 50000

To record the repalcement

Accounts Payable 50000Cash in Bank – Local Currency Acct. 50000

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5. Spoiled and Stale Checks - A check is considered spoil when it is torn,

mutilated, defaced or with erasures or errors affecting the genuineness of any material information contained therein.

- It is a stale, if it has been outstanding for over six month from the date of issue or as prescribed by the depository bank.

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6. Suspensions, Disallowances and ChargesIllustration:

During the examination conducted by the resident auditor of the municipality of AB, it was discovered that payment for office supplies delivered by a supplier was overpaid by P10000. Accordingly, the auditor disallowed the overpayment and required accountable officer to settle the overpaid amount.

To record the disallowance:Receivables – Disallowance charges 10000

Office Supplies Expense 10000

To record the settlement:Cash in Vault 10000

Receivables – Disallowance charges 10000

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TRIAL BALANCE AND FINANCIAL STATEMENTS- trial balance is a list of all the general ledger accounts

and their balances at a given time. The accounts are listed in the order in which they appear in the ledger, with the debit balances in the left column and credit balance in the right column.ADJUSTING JOURNAL ENTRIES

- are accounting journal entries made in order to ensure that revenues and expense are recorded in the period when earned or incurred following the revenue recognition and matching principle.

There are two types of adjusting journal entries, namely:1. Prepayments2. Accruals

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Pre – Closing Trial Balance- is the one prepared from the general ledger accounts

after the adjusting entries have been journalized and posted. This is also called adjusted trial balance.

Closing Journal Entries- are the accounting entries prepared to reduce all the

balances of the nominal accounts to zero at the end of the accounting period in order to prepare the accounts for the next accounting period.

Post – Closing Trial Balance- is the trial balance prepared at the end of the year after

the closing entries are journalized and posted in the general ledgers

- it shall be submitted not later than the fourteenth day of February after the end of the calendar year with the following schedules:

1. Status of Appropriations, Allotments and Obligations2. Subsidiary Schedule of General Ledger account balances3. Summary of Public Infrastructures

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INTERIM REPORTS- are financial statement required to be prepared at any

given period or at a financial reporting period shorter than a full financial year, without closing the book of accounts.The following interim financial statements and the Notes to Financial Statements shall be prepared and submitted on quarterly basis;

1. Balance Sheet2. Statement of Income and Expenses3. Statement of Cash Flows

STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

- shows the local govt. agencies responsibility for the preparation and presentation of its financial statements. It shall be signed by the Chief Accountant and the Head of the Agency or his authorized representative.

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YEAR END FINANCIAL STATEMENTS

1. Balance Sheet2. Statement of Income and Expenses3. Statement of Cash Flows4. Notes to Financial Statements

GENERAL FUND- consists of monies and resources not accruing

to any other fund and shall be available for payment of expenditures, obligations or purposes not specifically declared by law.

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SPECIAL EDUCATION FUND - consists of the respective shares of provinces, cities

and municipalities in the proceeds of the additional one percent tax on the assessed value of real property for education purposes under the Real Property Tax Code.

Proceeds for special education Fund shall be divided between provincial and municipal school boards for the following purposes:

1. Operation and maintenance in the public schools2. Construction and repair of school buildings, facilities and

equipment3. Education research4. Purchase of book and periodicals5. Sports development

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BASIS OF RECORDING SPECIAL EDUCATION FUND-based on Real Property Tax Account Register/Taxpayers

Index Card, the Special Education Tax Receivables shall be established at the beginning of the year

- the Chief Accountant shall record the Special Education Tax Receivables using the Journal Entry Voucher.

ACCOUNTING FOR SPECIAL EDUCATION FUND

- the treasurer or accountable officers shall maintain separate cashbook for the special education fund

- the chief accountant shall maintain separate registries for appropriation, allotment and obligations and books of accounts.

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TRUST FUND - Consists of private and public monies received, by local

government official as trustee, agent or administrator, as guaranty for the fulfillment of some obligations.

- A trust fund shall only be used for the specific purpose for which it was intended.

ACCOUNTING FOR TRUST FUND- Cash collections for the trust fund shall be

acknowledged by issuance of official receipt.- The treasurer or concerned accountable officer shall

maintain separate cashbooks for the trust fund. The accountant on the other hand, shall maintain separate books of accounts for trust fund, prepare separate financial reports such as trial balance, balance sheet, statement of cash flow and supporting schedules, to be submitted on time.

- Disbursements from trust fund shall be in accordance with the specific purpose stated in the trust agreement/approved budget between the trustor and the trustee (LGU) as certified by the chief accountant as to existence of funds held in trust

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THE NEW CODING STRUCTURE

- one of the key elements of the Unified Account Code Structure under Joint Circular No. 2013-1 dated August 6,2013, is the Location Code, which is a nine digit code to reflect the Region/Province/Municipality/Barangay following the Philippine Standard Geographic Code prescribed by the National Statistical Coordination Board.

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REGION

- it is a sub national administrative unit composed of several provinces having more or less homogenous characteristics such as ethnic region of inhabitants, dialect spoken, agricultural produce etc.

- it is a two digit code that identifies a specific region

PROVINCE

- it is a political corporate unit of government which consists of a cluster of municipalities and component cities.

- the province code is a two digit code that identifies the province.

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CITY/MUNICIPALITY

- is a political corporate unit of government which consists of a more urbanized and developed groups of barangays.

- the municipality code is a two digit code that generally defines the relative alphabetical BARANGAY

- it is the basic political unit of the government, it serves as a primary planning and implementing unit of government policies, plans, programs, projects and activities.

- it is a three digit code which generally defines the relative alphabetical sequence of barangays within the municipalities.

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SPECIAL ACCOUNTS IN THE GENERAL FUND- local government units shall maintain special accounts,

through the use of complete subsidiary ledgers for each number of the same economic enterprise, if any, in the General Fund for the following:

1. Public utilities and other economic enterprise2. Loans, interest, bind issues and other contributions for

specific purposes3. Development projects funded from the share of the local

government concerned from the Internal Revenue Collections

4. Other special accounts which may be created by law or ordinance

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ACCOUNTING FOR SPECIAL ACCOUNTS

- accounting procedures for the operations of the special accounts are adopted for the following purposes:

1. To determine whether the income generated by the public utilities or economic enterprises are sufficient to meet their respective operating costs.

2. To provide adequate information as to the assets, liabilities, and equity of each special account.

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ACCOUNTING FOR PROFIT FROM OPERATIONS- profits or income derived from the operation of public

utilities and other economic enterprises shall be first be applied for the return of the advances or loans made therefor . Any excess shall be from part of the general fund of the local government unit concerned.ACCOUNTING FOR SUPPLIES OR PROPERTY

- purchase of supplies and materials for stock, regardless of whether or not they are consumed within the accounting period, shall be recorded as inventory following the perpetual inventory method.

- the moving average method shall be used for costing inventories

- items with serviceable life of more than one year but small enough to be considered as property, plant and equipment shall be recorded as inventories upon the acquisition and expense upon issuance.

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CLASSIFICATION OF SUPPLIES OR PROPERTY

a. Expendable Supplies or Propertyb. Non Expendable Supplies or Propertyc. Non Personal Services

PROCEDURES FOR REQUISITION, DELIVERIES, AND ISSUANCES OF SUPPLIES OR PROPERTY

Requisition shall be accomplished using the following forms:1. Requisition Issue Slip (RIS) – for supplies carried in

stock2. Purchase Request (PR) – for supplies not carried in

stock

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REVISED RATES OF REPRESENTATION AND TRANSPORTATION ALLOWANCE

- Local Budget Circular No. 2009-91 dated March 27, 2009 is issued to implement the revised RATA rates authorized under Section 44, General Provisions of R.A. No. 9524, the General Appropriation Act, for local government officials and employees and to prescribe the funding source thereof. The grant of RATA at the revised rates is subject to the 45%/55% limit on personnel service expenditures mandated under Section 325(a) R.A. No. 7160, Local Government Code of 1991.

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The following officials and employees of provincial, city and municipal governments are equated to national government officials and employees entitled to RATA under the General Appropriations Act:

1. Local Chief Executives (provincial governors, city mayors and municipal mayors

2. Local Vice Chief Executives (Provincial Vice Governor, City Vice Mayors and Municipal Vice Mayors

3. Sanggunian Members ( Sangguniang Panglalawigan Members, Sanggunian Panglungsod Members, Sanggunian Bayan Members

4. Department Heads ( Provincial Government Department Heads, City Government Department Heads, and Municipal Government Department Heads

5. Assistant Department Heads ( Provincial Government Assistant Department Heads, City Government Assistant Department Heads, and Municipal Government Assistant Department Heads

6. Chief of Hospitals 7. Division Chiefs in Special Cities