Local Government Unit Accounting PDF

Lectures Notes 9-A **LOCAL GOVERNMENT UNIT** **BOOK I\ GENERAL PROVISIONS** **TITLE I\ BASIC PRINCIPLES** **CHAPTER I\ The Code: Policy and Application** **Republic Act No. 7160 dated October 10, 1991** **Section 1.** *Title.* - This Act shall be known and cited as the *\"Local Government Code...

Lectures Notes 9-A **LOCAL GOVERNMENT UNIT** **BOOK I\ GENERAL PROVISIONS** **TITLE I\ BASIC PRINCIPLES** **CHAPTER I\ The Code: Policy and Application** **Republic Act No. 7160 dated October 10, 1991** **Section 1.** *Title.* - This Act shall be known and cited as the *\"Local Government Code of 1991\".* **Section 2.** *Declaration of Policy.* - **Accounting for Local Government Units** Learning Objectives: 1. 2. **THE NEW GOVERNMENT ACCOUNTING SYSTEM MANUAL** **For Local Government Units** **Chapter 1. INTRODUCTION** **Sec. 01. Objectives of the Manual. --** The New Government Accounting System Manual presents the basic policies and procedures; the new coding system and chart of accounts; the accounting books, reports/forms and financial statements, and illustrative accounting entries to be adopted by all local government units effective January 1, 2002. The objectives of the Manual are to prescribe the following: a. b. c. **Sec. 02. Coverage. --** This Manual shall be used by all local government units (LGUs). **Sec. 03.** **Legal Basis. --** This Manual is prescribed by the Commission on Audit pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines which provides that*:* **Chapter 2. BASIC FEATURES AND POLICIES** **Sec. 04. Basic Features and Policies. --** The new government accounting system has the following basic features and policies, to wit: a. **Accrual Accounting.** A modified accrual basis of accounting is used. Under this method, all expenses shall be recognized when incurred. Income shall be on accrual basis (e.g. Share from Internal Revenue Collections) except for transactions where accrual basis is impractical (e.g. Market Fees) or when other methods may be required by law. b. **One Fund Concept.** This system adopts the one fund concept. Separate fund accounting shall be done only when specifically required by law or by a donor agency or when otherwise necessitated by circumstances subject to prior approval of the Commission. As required under Sections 308, 309 and 310 of the Local Government Code, separate books shall be maintained for the General Fund, Special Education Fund and Trust Fund. c. **Special Accounts in the General Fund.** Special accounts in the General Fund complete with subsidiary ledgers, shall be maintained for the following: 1. 2. 3. 4. d. **Chart of Accounts and Account Codes**. A new coding structure and a new chart of accounts with a three-digit account numbering system shall be adopted. e. **Books of Accounts.** The Books of Accounts are as follows: - - - - - - - - - - - - - - +-----------------------------------------------------------------------+ | - Cashbook -- Cash in Treasury | +-----------------------------------------------------------------------+ | - Cashbook -- Cash in Bank | +-----------------------------------------------------------------------+ | - Cashbook -- Cash Advances | +-----------------------------------------------------------------------+ f. **Financial Statements.** The following statements shall be prepared: - - - g. **Trial Balance.** The two money-column trial balance shall be used. h. **Appropriations, Allotments and Obligations.** Journal entry shall no longer be prepared to record the appropriations, receipt of allotments and incurrence of obligations. In lieu of this, separate registries shall be maintained by the Accounting Unit to control the appropriations, allotments and obligations for each of the four classes of expenditures, namely: 1. 2. 3. 4. i. **Financial Expenses.** Financial expenses such as bank charges, interest expenses, commitment fees and other related expenses shall be separately classified from Maintenance and Other Operating Expenses (MOOE). j. **Perpetual Inventory of Supplies and Materials.** Supplies and materials purchased for inventory purpose shall be recorded using the perpetual inventory system. Regular purchases shall be coursed thru the inventory account and issuances thereof shall be recorded as they take place except those purchased out of petty cash fund which shall be for immediate use and not for stock. Such case shall be charged immediately to the appropriate expense accounts. k. **Valuation of Inventory.** Cost of ending inventory of supplies and materials shall be computed using the moving average method. l. **Maintenance of Supplies and Property, Plant and Equipment Ledger Cards.** The Accounting Unit shall maintain Supplies Ledger Cards by stock number and Property, Plant and Equipment Ledger Cards by category of assets. m. **Construction of Assets.** For assets under construction, the Construction Period Theory shall be applied for costing purposes. Bonus paid to the contractor for completing the work ahead of time shall be added to the total cost of the project. Liquidated damages charged and paid for by the contractor shall be deducted from the total cost of the asset. Any related expenses incurred during the construction of the project, such as, license fees, permit fees, clearance fees, etc. shall be capitalized. n. **Public Infrastructures.** Public infrastructures are assets for use of the general public, such as roads, bridges, waterways, railways, plazas, monuments, etc. A Registry of Public Infrastructures (RPI) shall be maintained according to classification to record all infrastructures for use of the general public. The following are the Registries to be maintained, classified by category of property, plant and equipment: 1. 2. 3. o. **Depreciation.** The straight-line method of depreciation shall be used. A residual value equivalent to ten percent (10%) of the cost shall be set-up and depreciation shall start on the second month after purchase/completion of the property, plant and equipment. Public infrastructures shall not be charged any depreciation. p. **Reclassification of Obsolete and Unserviceable Assets, as well as Assets No Longer Used by the Agency to "Other Assets" Account.** Assets declared by proper authorities as obsolete and unserviceable, including assets of the agency no longer used, shall be reclassified to "Other Assets" account from the corresponding inventory and property, plant and equipment accounts. q. **Allowance for Doubtful Accounts.** An Allowance for Doubtful Accounts shall be set up for estimated uncollectible receivables. This will allow for a fair valuation of receivables. Allowance for Doubtful Accounts shall be provided only for trade receivables. r. **Elimination of Contingent Accounts.** Contingent accounts shall no longer be used. All financial transactions shall be recorded using the appropriate accounts. Cash shortages and disallowed payments shall be recorded under receivable accounts "Due From Officers and Employees" and "Receivables-- Disallowances/Charges", as the case may be. s. **Recognition of Liability.** Liability shall be recognized at the time goods and services are accepted or rendered and supplier/creditor bills are received. t. **Interest Accrual.** Whenever applicable and appropriate, interest income and/or expense shall be accrued and recognized in the books of accounts. u. **Accounting for Borrowings and Loans.** All borrowings and loans incurred shall be recorded direct to the appropriate liability accounts. v. **Elimination of corollary and negative entries.** The use of corollary and negative entries shall be stopped. Acquisition/Disposition of assets shall be debited/credited direct to the appropriate asset accounts. If an error is committed, a correcting entry shall be prepared to adjust the original entry. **A. [GENERAL ACCOUNTING PLAN]** **Sec. 05. General Accounting Plan. --** The General Accounting Plan shows the overall accounting cycle in the Local Government Unit. Transactions shall emanate from the different offices/departments of the local government units (LGUs). These offices/departments will provide/produce the source documents and other accounting forms leading to the perfection of the transaction, whether it be budgetary, collections or disbursements. The source documents and accounting forms shall be the basis for the preparation of reports by the Office of the Treasurer. The Office of the Accountant shall record the transactions to the registries or to the corresponding books of original entry. Posting to the books of final entry and preparation of the financial reports shall also be undertaken by the Office of the Accountant. The General Accounting Plan *(Table 1)* is presented as to the following type of transactions: a. Appropriations, Allotments and Obligations b. Collections and Deposits c. Disbursements -- - - d. Miscellaneous and Other transactions [ ] B. **[BUDGETARY ACCOUNTS]** **Sec. 06. Budgetary Accounts. --** Budgetary accounts are composed of appropriations, allotments and obligations. **Sec. 07. Accounting for Appropriations.** -- Appropriation refers to an authorization made by ordinance, directing the payment of goods and services from local government funds under specified conditions or for specific purposes. The local sanggunian approves the annual budget thru the issuance of appropriation ordinance. On the first business day of the fiscal year, the entire annual budget of the local government unit shall be recorded in the Registry of Appropriations, Allotments and Obligations (RAAO). The appropriations, in the amounts approved by the legislative body and confirmed by the reviewing authorities, are recorded in the registries maintained by the accountant where they may be compared with the actual developments of the period. Budgetary reserves which are stand by appropriations ready for release in case of calamities, as well as supplemental budget are similarly recorded in the RAAO. In case the LGU is operating on a re-enacted budget, said re-enacted budget shall likewise be recorded in the registry. Once current budget is approved, the necessary adjustments shall be made in the registry. Separate registries shall be maintained for the four classes of expenditures per responsibility center, to wit: **Sec. 08. Accounting for Allotments.** -- Allotment is the authorization issued by the Local Chief Executive (LCE) to a department/office of the LGU, which allows it to incur obligations, for specified amounts, within the appropriation ordinance. Allotments are released quarterly based on the Work and Financial Plan and Request for Release of Allotment. The Accountant, upon receipt of the Advice of Allotment, shall enter the allotment in the RAAOs. **Sec. 09. Accounting for Obligations.** -- Obligations refer to the amounts committed to be paid by the LGU for any lawful act made by an accountable officer for and in behalf of the local government unit concerned. Obligations shall be taken up in the registries as they are incurred. For each obligation, the requesting department/office shall prepare the Allotment and Obligation Slip (ALOBS) signed by the department or office head as requesting official and forward this, together with the supporting documents, to the Budget Officer. The Budget Officer shall certify to the existence of appropriation that has been legally made for the purpose by signing the appropriate box in the ALOBS and assign the ALOBS number thereto. The Accountant shall review the ALOBS and certify as to obligation of the allotment by signing the appropriate box in the ALOBS. He shall also fill up the Status of Obligation. The Accountant shall record the amount of obligation in the RAAOs. **Sec. 10. Adjustment of Obligations. --** The Chief Accountant shall record paid disbursement vouchers in the Status of Obligation portion (Payments) of the ALOBS. Any balance appearing in the ALOBS after full payment of obligations shall form part of unobligated allotment. The Chief Accountant shall adjust accordingly the amount of recorded obligations in the RAAO using the same ALOBS number as reference. At the end of each month, the Chief Accountant and the Budget Officer shall reconcile their records on allotments available for obligation. **Sec. 11. Accounting Procedures for Budgetary Accounts. --** Summarized hereunder is the process in accounting for budgetary accounts: +-----------------------+-----------------------+-----------------------+ | *P R O C E S S* | | *PERSON / UNIT | | | | RESPONSIBLE* | +-----------------------+-----------------------+-----------------------+ | | | | +-----------------------+-----------------------+-----------------------+ | a. | | Office of the | | | | Accountant | +-----------------------+-----------------------+-----------------------+ | b. | | Office of the Budget | | | | Officer | +-----------------------+-----------------------+-----------------------+ | c. | | Office of the | | | | Accountant | +-----------------------+-----------------------+-----------------------+ | d. | | Heads of | | | | departments/offices | +-----------------------+-----------------------+-----------------------+ | e. | | Budget Officer | +-----------------------+-----------------------+-----------------------+ | f. | | Chief Accountant | +-----------------------+-----------------------+-----------------------+ | g. | | Office of the | | | | Accountant | +-----------------------+-----------------------+-----------------------+ | h. | | Budget Officer and | | | | | | | | Chief Accountant | +-----------------------+-----------------------+-----------------------+ **Sec. 12. Terminology and Classification.** -- A common terminology and classification shall be used consistently throughout the budget, the accounts and the financial reports. For this purpose, the following specific expenditures shall be recorded in the appropriate RAAOs: - - - - - - - - - - - - - - - - b\. RAAOPS -- - - - - c\. RAAOMO -- - - - - - - - - - - - - - - d\. RAAOFE -- - - - - - **C. [INCOME/COLLECTIONS AND DEPOSITS]** **Sec. 13. Separation of Books and Depository Accounts. --** Local accountants and treasurers shall maintain separate books and depository accounts, respectively, for each fund in their custody or administration. **Sec. 14. Depository Accounts. --** Local treasurer shall maintain depository accounts in the name of their respective local government units with banks, preferably government-owned, located in or nearest to their respective areas of jurisdiction. Earnings of its depository accounts shall accrue exclusively thereto. **Sec. 15. Remittance of Government Monies to the Local Treasury. --** Officers of the local government authorized to receive and collect monies arising from taxes, revenue, or receipts of any kind shall remit the full amount received and collected to the treasury of such local government unit which shall be credited to the particular account or accounts to which the monies in question properly belong. **Sec. 16. Sources of Income of LGUs. --** The main sources of income of LGUs are as follows: a. Tax revenues, fees and charges b. Share from Internal Revenue Collections c. Share from National Wealth The sources of income are further classified into general income accounts and specific income accounts. **Sec. 17. General Income Accounts.** -- The following shall comprise the General Income Accounts applicable to LGUs: a. Subsidy from Other LGUs b. Subsidy from Other Funds c. Subsidy from Special Accounts d. Sales Revenue e. Dividend Income f. Interest Income g. Gain on Sale of Securities h. Gain on Sale of Assets i. Sale of Confiscated Goods and Properties j. Foreign Exchange (FOREX) Gains k. Miscellaneous Operating and Service Income l. Fines and Penalties -- Government Services and Business Operations **Sec. 18. Specific Income Accounts. --** The following major classification comprise the specific income accounts for LGUs: 1. 2. 3. 4. **Sec. 19. Methods of Accounting for Income.** -- The following accounting methods shall be adopted in recording income: a. b. c. **Sec. 20.** **Basis of Recording Real Property Tax/Special Education Tax.** -- Real Property Tax Receivables/Special Education Tax Receivables shall be established at the beginning of the year based on Real Property Tax Account Register/Taxpayer's index card. At the beginning of the year, the Treasurer shall furnish the Chief Accountant of a duly certified list showing the name of taxpayers and the amount due and collectible for the year. Based on the list, the Chief Accountant shall draw a Journal Entry Voucher (JEV) to record the debit to Real Property Tax Receivable/Special Education Tax Receivable and crediting to Deferred Real Property Tax Income/Deferred Special Education Tax Income. Upon collection of Real Property Taxes from taxpayers, the account Deferred Real Property Tax Income/Deferred Special Education Tax Income shall be debited while the Real Property Tax Income due to the municipality is recognized/credited. The share of the Province and Barangay shall also be credited to Due to LGUs. Every end of the week, thereafter the Municipal Accountant shall furnish the Provincial Accountant with a summary of the JEVs showing the breakdown of the amounts Due to LGUs. The summary, which shall be supported with copies of the JEVs, shall be the basis of the Provincial Accountant to draw the JEV taking up the RPT Income. The account Due from LGU shall be debited and Real Property Tax Income credited. At the end of the month, the Municipal Accountant shall likewise prepare the Abstract of Real Property Tax to facilitate the distribution of real property tax collection. A copy of the abstract shall be furnished the Provincial Accountant, for purposes of reconciliation with the weekly summary of JEVs. **Sec. 21. Delinquencies for Real Property Tax/Special Education Tax Prior to CY 2002.** -- Payment of delinquencies for real property taxes/special education taxes prior to CY 2002 shall be recognized as a direct credit to Real Property Tax Income/Special Education Tax Income account. **Sec. 22. Discount on Real Property Tax/Special Education Tax. --** Discounts for advance and prompt payment of Real Property Tax and the additional one percent (1%) tax accruing to the Special Education Fun shall be recognized in the year the taxes are due. Said discounts shall be apportioned to the concerned LGUs in accordance with the sharing prescribed for real property tax and additional one percent (1%) tax under the Local Government Code. **Sec. 23. Fines and Penalties. --** Fines and Penalties, either from tax revenue or other specific income, shall be recognized as income of the year it was collected. Fines and Penalties arising from real property taxes shall be distributed to concerned LGUs in accordance with the sharing prescribed under the Local Government Code for Real Property Tax and the additional one percent (1%) tax for the Special Education Fund. **Sec. 24. Other Receipts. --** Other receipts of the local government units shall be comprised of, but not limited to, the following: a. Borrowings b. Sale of Property, Plant and Equipment c. Refund of Cash Advances d. Receipt of Performance/Bidders' Bonds **Sec. 25. Borrowings.** -- Borrowings are proceeds of repayable obligations, generally with interest from the bank, national agency, another local government unit, and private sector. All borrowings incurred shall be recorded direct to the appropriate liability accounts. Upon receipt of the advice from the bank or lending agency informing the release of the proceeds, the Accountant shall draw a Journal of Entry Voucher taking up the transaction. **Sec. 26. Sale of Property, Plant and Equipment. --** Sale of property, plant and equipment refers to the proceeds from the sale of land, buildings, equipment, furniture and other similar property which are recorded in the books as Property, Plant and Equipment. The appropriate Property, Plant and Equipment account shall be credited upon transfer of ownership. **Sec. 27. Refund of Cash Advances.** -- Cash advances for official travel shall be taken up as a receivable from the concerned official or employee. Refunds made shall be credited to the receivable account previously set up. Cash advances for salaries and wages shall be recorded as debits to the account Cash -- Disbursing Officer. Any refund made shall be credited to this account. **Sec. 28. Receipt of Performance Bonds.** -- Performance bond posted by contractor or supplier to guaranty full and faithful performance of the their work may be in the form of cash, certified check or surety. Performance bond in cash or certified check shall be acknowledged by the issuance of official receipt and recorded in the books by the Accountant drawing a JEV for the purpose. In case of surety bond, an acknowledgment receipt shall be issued by the authorized official. **Sec. 29. Reporting for Collections and Deposits.** -- Collectors/tellers shall issue a receipt to acknowledge collections made. The receipt maybe in the form of pre-numbered Official Receipts, or cash tickets and the like. At the close of each business day, these collectors/tellers shall accomplish the Report of Collections and Deposits (RCD) in four copies. The original and two copies, together with the duplicates of the official receipts issued, shall be submitted to the treasurer/cashier to whom the cash collected shall be turned over. The fourth copy of the RCD shall be retained by the collector/teller concerned. Barangay Treasurers deputized to collect taxes imposed by provinces, cities and municipalities shall follow the same procedures in turning over their collections to the treasurer/cashier concerned. In the case of collectors assigned to the field, where travel time from their places of assignment to the Treasurer's Office is more than one day, turnover of collections shall be made at least once a week or as soon as the collections reach P5,000.00. **Sec. 30. Verification of Collections and Accountable Forms. --** The Treasurer/Cashier shall verify the Report of Collections and Deposits; check the statement of accountable forms as to initial balances on hand, receipts, issues and the ending balances on hand; make a physical count of the accountable forms remaining in the custody of the collector/teller and check the same against the new balances on hand column. He shall indicate his verification by affixing his signature at the back of the triplicate copy of the last official receipt issued. He shall count the money turned over to him and sign the certification and receipt portion of all copies of RCD. **Sec. 31. Designation of Liquidating Officers. --** The Treasurer may designate liquidating officers from among the collectors/tellers whenever necessary. a. b. c. **Sec. 32. Deposit of Collections. --** The Treasurer/Cashier shall deposit intact all his collections as well as all collections turned over to him by the collectors/tellers with the authorized depository bank daily or not later than the next banking day. He shall record all deposits made in the cashbook and prepare the RCD. The barangay treasurer shall deposit all collections intact with the city/municipal treasurer, or in a depository bank account maintained in the name of the barangay, within five (5) days from receipt thereof. **Sec. 33. Deposit of Field Collections. --** Collections by field collectors shall be remitted to the Cashier or designated liquidating officer of the field office of the LGU. When travel distance of the field office to the local treasury may expose government funds to the risk of loss while in transit, the Cashier or designated liquidating officer, upon authorization by the Treasurer, may deposit the collections in the authorized depository bank near the field office of the LGU. The procedures in reporting collections and deposits prescribed in this Chapter shall be observed. **Sec. 34. Accounting for Collections and Deposits. --** The Accountant shall determine the account classification of the collections covered by the RCD and the supporting papers submitted by the Treasurer/Cashier and shall accomplish the Journal Entry Voucher. The accountant shall also maintain the Abstract of Real Property Tax Collections to facilitate the distribution and remittance of the shares of the different government units concerned in the real property tax collections. **Sec. 35. Receipts and Collection Process. --** The following is a summary of the receipt and collection process in the LGU: +-----------------------+-----------------------+-----------------------+ | *P R O C E S S* | | *PERSON / UNIT | | | | RESPONSIBLE* | +-----------------------+-----------------------+-----------------------+ | | | | +-----------------------+-----------------------+-----------------------+ | a. | | Collector/Teller | +-----------------------+-----------------------+-----------------------+ | b. | | | +-----------------------+-----------------------+-----------------------+ | c. | | | +-----------------------+-----------------------+-----------------------+ | d. | | | +-----------------------+-----------------------+-----------------------+ | e. | | | +-----------------------+-----------------------+-----------------------+ | f. | | | +-----------------------+-----------------------+-----------------------+