Bulacan State University City of Malolos, Bulacan Graduate School

GOVERNMENT ACCOUNTING IN THE PHILIPPINES: Concepts, Theories and Practices

Part 2 of 2

A report submitted to:

Dr. Luis M. Lansang Professor

In partial fulfilment of the requirements for the course Fiscal Management in Education

Submitted by: Hazel S. Jumaquio Master of Arts in Education

August 2012 Date Submitted

1st Trimester, SY 2012-2013

Table of Contents Page Introduction 1

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II.
III. IV. V.

Government Accounting
The Accounting Theory.... Accounting Practices.. Recommendation..

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2-3 3 4

VI.

The Accounting Process

I.

Introduction

It is said that accounting is the language of business. It is a means of reporting the financial facts of a business life, whether in government or in the private sector. It is for this reason that the users of the information must understand the financial reports, which the accounting system produces. Government accounting is important because it involves recording, analysing, classifying, and communicating of all government transactions involving government funds and properties. Having a report thereof, the people can have a clearer view on how the government have been spending the funds from the taxes that weve been paying. In this report, the discussant will tackle about the Government accounting system, its theories and practices

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II. GOVERNMENT ACCOUNTING Government accounting encompasses the processes of analysing, recording, classifying, summarizing and communicating all transactions involving the receipt and disposition of government funds and property, and interpreting the results thereof. The New Government Accounting System (NGAS) The objectives of the NGAS are: (1) simplify government accounting; (2) conform to international accounting standards; and (3) generate periodic and relevant financial reports for better monitoring of performance. CONTENT OF THE NGAS MANUAL Volume I- The Accounting Policies It shows the basic features and policies of the NGAS, the government accounting plan, discussions on the financial reports and statements and other related records required and the illustrative journal entries. Volume II- The Accounting Books, Records, Forms, and Reports It contains the various formats of the book of accounts, registries, records, forms, and reports including instructions on their use. Volume III- The Chart Accounts It includes the chart of accounts and the defenitions/descriptions of each account: cash, receivables, marketable securities, inventories, expenses, assets, investments, property, plant and equipment, liabilities, equity, revenue, taxes. GOVERNMENT ACCOUNTING SYSTEMS There are three systems of state accounting: 1. National Government Accounting that which is used by the different departments, bureaus, offices, and the field offices and operating units of these agencies. 2. Local Government Accounting- used by provinces, cities and municipalities. 3. Commercial Accounting- used by the private sector but applied by government owned and/or controlled corporations with propriety functions.

III. Accounting Theories Accounting theory is the broad conceptual framework of specific accounting rules and practices. The term could apply to all forms of accounting, although most often it is used with reference to financial accounting -- financial by corporate entities to owners of equity and other investors.

Accounting theory chiefly revolves around two documents: the balance sheet and the income statement.
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The balance sheet measures the state of an entity at a particular moment in time. Balance sheets are designed to embody the equation Assets = Liabilities + Equity. An asset is anything that the corporation owns. This includes cash, office furniture, accounts receivable and so forth. It also includes intangible property such as patents and goodwill.If an entity has $1,000 of assets at a given moment, those assets, minus the claims that creditors may make upon them, equal the value remaining to the owners. Assets Future economic benefits controlled by the entity as a result of past transactions or other past events. Future economic benefits (capable to render services) expected to flow to the entity. Control by reporting entity where the capacity of the entity to benefit from the asset. Must be owned by the entity. Have agreement to use the asset and the item is separable from the entity. Recognition criteria Reliance on the law- legal right to the future benefit. Control is used to determine the existence of assets. Determination of economic substance of the transaction or event- if the event is economically significant, it is important enough to record and report. Use of the conservatism principle: anticipate losses, but not gains- report on asset when we are certain. Ability to measure the value of the asset- if cant measure reliably, the asset is not recorded.

Liabilities A present obligation of the entity arising from past events, the settlement of which is expected to results in an outflow from the entity of resources embodying economic benefits. Has future economic sacrifice and how it arise might due to some other events. Obligation must be the result of a past event ensures that only present liabilities are recorded and not the future ones. Recognition criteria- if it is probable that economic benefits will be sacrificed in the future and the liability is measurable. SAME AS ASSET. Owners equity Residual interest in the assets of the entity after deducting all its liabilities. It is a residual claim. Difference with creditors Rights of the parties- creditors have rights to settlement by a given date and rank priority over owners in the settlement of the events of liquidation. Owners have rights to participate in profits and use the asset of the entity. Economic substance of the arrangement- right of owners to use the assets, interest and profits. The income statement, also sometimes called the "profit and loss" statement, abbreviated as the P&L, is a document designed to show the change in the company's condition through a given period -- month, quarter, or year. Revenue accounts may include sales, interest, rental income and service fees. Expense accounts may include cost of goods sold, salaries/wages, rent paid, utilities and office administration expenses.

II. Accounting Practices Double- Entry System. State accounting uses double-entry bookkeeping. Under this system, three basic elements define the financial position of an agency, namely: a) Resourcesof agency b) Claims of creditor c) Government equity is assets less liabilities Negative Entries. State accounting uses negative entries. when errors are commited, erroneous entries are recorded again but in the negative so that when totals are derived, the amounts erroneously entered are automatically removed. Recording Procedures. Transactions are usually recorded in the books of original entry or journals. For transactions which are very common and routine, special journals are used to facilitate and simplify recording. The special journals used in each system in each system of state accounting are as follows: a. National Government (1) Journal and Analysis of Obligation (2) Journal of Disbursement (3) Journal of Checks Issued (4) Journal of Bills Rendered (5) Journal of Collections and Deposits b. Local Government (1) Journal and Analysis and Obligations (2) Journal of Collections and Deposits (3) Journal of Disbursements by Treasurers/ Disbursing officers (4) Journals of Checks Issued (5) Journals of Bills Rendered c. Government Corporations (1)Sales Register (2) Cash Receipts Book/ Register (3) Cash Disbursement Book/ Register (4) Check Register Documentation. State accounting rules and regulations require that all transactions are to be supported by sufficient, formal written documents, with complete and accurate description of the transactions, its peso amount authorization and other substantiating information. Use of Standard Chart of accounts. The three systems of State accounting use a common Standard Government Chart of Accounts (SGCA) to effect uniformity in accounting and reporting, facility in consolidation of financial reports, and adaptability to computerization. The Accounting Process These are the series of operations that are carries out systematically in each accounting period. These operations are as follows: a. Selection of Events. Only financial transactions of the business entity are being analyzed. b. Analysis of Business Transactions. Each transaction is being analysed to determine its effects on assets, liabilities, owners equity, revenues and expenses. c. Measuring the Effects. The effect of transactions on the financial position of the enterprise are measured and represented by money amounts. d. Classifying the Measured Effects. The effects are classified according to the individual assets, liabilities, owners equity items, revenues, or expenses affected.

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Journalizing. This refers to the systematic and chronological recording of the effects of financial transactions on the elements of financial statements in the general and special journals. Posting. After the transactions have been recorded in the journals, entries are posted or entered in the general ledgers.

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g. Taking an Unadjusted Trial Balance. After posting on the general ledgers, balances of debits and credits are determined by adding all debits and the credits of every account. h. Preparation of Worksheet. To facilitate the preparation of adjusting journal entries and financial statements, a worksheet is prepared with columns for unadjusted trial balance, adjustments, adjusted trial balance, income statement, and balance sheet, all with debit and credit columns. i. Preparing Financial Statements. After the worksheet is accomplished, income statement and balance sheet are now ready for preparation. j. Journalizing and Posting Adjusting Journal Entries. At this point, adjusting journal entries can be recorded in the general journal and posted in the general ledgers

k. . Journalizing and Posting Closing Journal Entries. To reflect changes brought about by transactions affecting the operations, in the capital account, all revenue and expense accounts are closed to capital account. l. Taking a Post-Closing Trial Balance. After posting all the closing entries, preparation of post-closing trial balance is next. The trial balance shows only the real accounts. m. Communicating the Processed Information. The information is relayed to users in the form of financial statements. n. Journalizing and Posting Reversing Entries. These entries are made to reverse some of the adjusting journal entries.

Recommendation: Government accounting is a key in preventing corruption in our government, if and only if the officials will report with complete honesty the funds that theyve been spending for the development of our country. Funds are given to implement projects and programs that will aim to improve the state of our country and to solve problems in our society but unfortunately some officials were implementing programs and projects just to get more funds that they will be using for their personal interests. To avoid such things there must be transparency in the report of the government officials and agencies on the way budgets were used. Agencies assigned to evaluate the government expenditures must perform their task honestly and avoiding conspiracy between them. References: Leonor Briones, Philippine Public Fiscal Administration, (Mandaluyong: FAFI, Inc, 1196)
http://www.scribd.com/doc/19010247/Accounting-theories-and-practices : Date of Retrieval July 29, 2012 http://www.ehow.com/info_7749226_principles-accounting-theory.html#ixzz22Flw42VZ : Date of Retrieval- July 29, 2012