Chapter 11
Government Accounting
Government accounting problems appear in nearly every CPA examination. Except in rare cases, they are relatively easier than the other accounting problems. This is due, perhaps, in recognition by those preparing the CPA examination that most candidates tend to avoid the government accounting problems. At any rate, a candidate can earn more points by solving government accounting problems using his general knowledge of accounting. Thus, to be proficient in government accounting, candidates should have a fair knowledge of the following aspects of government accounting:1. Budgetary procedures.
2. General accounting procedures – General Fund (Agency Books) a. Journal entries.
b. Preparation of trial balance. c. Adjusting and closing entries. d. Preparation of financial statements. BUDGETARY PROCEDURES
An agency of the government is given authority to expend funds through the use of a control device called budget. A budget is a legal authorization for expenditure based on a plan which has been received and approved by Congress through an Appropriation Law.
The budgetary procedures are divided into four phases, as follows:
1. Preparation and Presentation. This phase covers the estimation, determination and translation of government revenues, priorities and activities. Under this phase, government agencies prepare their budgets to be submitted to the Department of Budget and Management (DBM) for review. The DBM then consolidates all budgets to form a government-wine budget estimate. This shall be submitted to the President for final approval.
2. Budget Authorization. This phase involves the submission of the national government budget to the Congress for review, and the formulation of an Appropriation Bill to be forwarded to the President for approval.
3. Budget Execution and Operation. This phase covers the implementation of the various operational aspects of the budget, such as the release of allotment to the various agencies, the continuing review of government fiscal position, and other related activities.
4. Budget Accountability. This phase involves the evaluation of expenditures and performance against the predetermined budget. Obligations incurred, personnel use and work accomplished are compared with the plans and goals of various agencies submitted at the time their respective budget was prepared. This is accomplished by the
heads of the various agencies who review the performance of their respective agency and the Commission on Audit (COA) who examine accounts and operations of agencies.
GENERAL ACCOUNTING PROCEDURES – GENERAL FUND (Agency Books)
In government accounting the principal accounting unit is referred to as a fund. A fund is a sum of money or other resources set aside for the purpose of carrying out specific activities in accordance with special regulations, restrictions, or limitations. The government has various types of fund. For CPA examination, the general fund which is available for general purposes.
JOURNAL ENTRIES
Presented below are the typical transactions and the related journal entries in the books of government agencies under the New Government Accounting System (NGAS). Take note that the NGAS adopts commercial accounting and double-entry bookkeeping.
1. Appropriations, Allotments and Notice of Cash Allocation (NCA).
An Appropriation is a formal authorization under the law or legislative act for an agency to pay goods and services out of government funds under specified conditions or for special purposes.
Allotment, on the other hand is the authorization issued by the DBM to the agency,
which allows it to incur obligations, for specified amounts, within the legislative appropriations.
The agency does not journalize the appropriations and allotments. The agency records the allotment receives in the Registry of Allotments and Obligations classified into four classes of expenditures as follows:
1. Registry of Allotments and Obligations – Capital Outlay (RAOCO)
2. Registry of Allotments and Obligations – Maintenance and Other Operating Expenses (RAOMO)
3. Registry of Allotments and Obligations – Personal Services (RAOPS) 4. Registry of Allotments and Obligations – Financial Expenses (RAOFE)
Notice of Cash Allocation (NCA) is an authorization granted to an agency to disburse by
checks an amount within a specified period. This is a control device designed to ensure that all withdrawals are within the cash allocation. Upon receipt of the NCA, the accountant of the agency shall journalize it by the following entry:
Cash-National Treasury – Modified Disbursement System (MDS) xx Subsidiary Income from National Government (SING) xx
2. Obligations
These are amounts to be paid by a government agency arising from act of a duly authorized administrative officer binding the government to the immediate or eventual payment of a sum of money. The incurrence of obligations is not journalize by the agency, instead the agency record the obligations incurred in the Registry of Allotments and Obligations classified according to the type of obligation.
3. Disbursements
These are payments of obligations incurred by the agency. The NCA is used for the payment of the following types of obligations:
a. Personal services
b. Maintenance and other operating expense c. Financial expense
d. Purchase and/or construction of fixed assets
e. Miscellaneous transactions, such as cash transfer to another agency to implement a project of the agency.
The agency records the disbursement by debiting the asset, liability or expense account and crediting “Cash – National Treasury - MDS” account.
To illustrate the recording of the different types of disbursements, consider the following:
a. Salaries, wages and other remuneration of personnel of the agency.
Assume the following payroll fund is established:
Salaries and wages P500
Less: Withholding tax P40
GSIS contribution 30
PAG-IBIG contribution 20
PHILHEALTH contribution 10 100
Net payroll P400
The agency enters the obligation for the gross payroll of P500 in the RAOPS. The net payroll is advance to a Disbursing Officer and is recorded by the following entry:
Cash- Disbursing Officer 400
Cash-National Treasury – MDS 400
Salaries and wages – Regular pay 500
Due to BIR 40
Due to GSIS 30
Due to PAG-IBIG 20
Due to PHILHEALTH 10
Cash – Disbursing Officer 400
b. Supplies and Materials. Assume the following transactions:
1. Issued purchase order (PO) for office supplies, P50. 2. Paid the PO less withholding tax of P5
3. Remittance of withholding tax thru Tax Remittance Advice (TRA). The above transactions are recorded by the agency as follows:
1. The agency enters the obligation for office supplies in the RAOMO, P50. 2. The entry to record the payment of the PO is:
Office supplies inventory 50
Due to BIR 5
Cash – National Treasury – MDS 45
3. The entry to record the remittance of withholding tax is:
Due to BIR 5
Subsidy Income from National Government 5
c. Purchase of Office Equipment. Assume the following transactions:
1. Issued purchase order (PO) for the office equipment, P800. 2. Received the office equipment with the charge invoice. 3. Paid the office equipment less withholding tax of P80. The above transactions are recorded as follows:
1. The obligation for the office equipment is entered in RAOCO, P800. 2. The agency records the receipt of office equipment as follows:
Office equipment 800
Accounts payable 800
3. The entry to record the payment is:
Accounts payable 800
Cash – National Treasury – MDS 720
d. Construction of Building by Contract. Assume the following transactions:
1. Signed the construction contract for the construction of the building, P2,000. 2. Paid 30% of the contract price, P600.
3. Received the first building, 50% of the contract price, P1,000. 4. Paid the first billing, less withholding tax of P40.
5. Received the final billing for the balance of the contract price, 100% completed. 6. Paid the final billing, less withholding tax of P100.
7. Recognize the Building account and close the Construction in Progress account. 8. Remitted the withholding tax to BIR per TRA.
The above transactions are recorded by the agency as follows:
1. The obligation for the contract price is entered in the RAOCO, P2,000. 2. Advances to Contractor 600
Cash – National Treasury – MDS 600
3. Construction in Progress – Agency Assets 1,000
Advances to Contractor 600
Accounts payable 400
4. Accounts payable 400
Due to BIR 40
Cash – National Treasury – MDS 360
5. Construction in Progress – Agency Assets 1,000
Accounts payable 1,000 6. Accounts payable 1,000 Due to BIR 100 7. Building 2,000 Construction in Progress 2,000 8. Due to BIR 140
Subsidy income from National Government 140
4. Income, Collections and Related Transactions. The sources of income and collections
made by the agency are: a. Taxes
b. Operating and service income c. Grants and donations
d. Borrowings
e. Miscellaneous receipts and collections.
The accounting procedures to record the collection of income will depend on the agency’s authority to use the income collected.
Without authority to use
All revenues collected by the agency, regardless of the amount are to be deposited to the National Treasury. Such collections shall be recorded by the collecting agency in a separate book it shall maintain, the National Government Books. The collection shall be credited to the Income account which shall be debited upon remittance to the National Treasury. To illustrate assume the following:
Income Taxes:
1. Collection of income taxes by the Bureau of Internal Revenue (BIR), P1,000. 2. Remits the above collection to Bureau of Treasury (BTR).
The following are the journal entries to record the above transactions: 1. Cash – Collecting officer 1,000
Income taxes – Individuals 1,000
2. Income taxes – Individuals 1,000
Cash – Collecting officer 1,000
With authority to use
Incomes collected by the agency in which they are authorized to use in their operations are usually deposited in a government depository bank. The collections are recorded in the Regular Agency Books. To illustrate assume the following collection:
Rent:
1. Collection of rent income, P50
2. Deposit of collection to a government depository bank. 3. Use of the collection for the repair of the office space. The above transactions are recorded by the agency as follows: 1. Cash – Collecting officer 50
Rent income 50
2. Cash in bank – Local Currency – Current Account (LCCA) 50
Cash – Collecting officer 50
3. Repairs and maintenance – Office Building 50
Cash in bank – LCCA 50
Note: the accounts used in the above illustrations are taken from the government Chart of
Accounts.
TRIAL BALANCE
A trial balance is a list of ledger accounts and their debit and credit balances. It is usually prepared before adjusting and closing entries are prepared. The column headings of the trial balance are:
Account Title Account Code Debit Credit ADJUSTING ENTRIES
Before the preparation of financial statements, adjusting entries are prepared. As in commercial accounting, there are basic two types of adjustments; accrued items and deferred items. Depreciation of fixed assets is computed and adjusted using the straight line method.
CLOSING ENTRIES
The following shall be closed at the end of the year: 1. Unused Notice of Cash Allocation. 2. Nominal or temporary accounts.
Unused NCA
This is computed by deducting from the total NCA received during the year the total MDS checks issued by the agency. At the end of the year the unused NCA is to be reverted to Bureau if Treasury, because of the policy of the DBM that the NCA will only be used for the year it was issued. The closing entry to close the unused NCA is:
Subsidy Income from National Government xx
Cash – National Treasury – MDS xx
Nominal or Temporary Accounts
As in commercial accounting, all income and expense accounts are closed to Income and
Expense Summary account.
Income and Expense Summary account is then closed to Retained Operating Surplus account. Finally the balance of the Retained Operating Surplus account is closed to Government Equity account.
FINANCIAL STATEMENTS
After the preparation of the trial balance, adjusting and closing entries, financial statements can now be prepared as follows:
1. Statement of Income and Expenses. This statement shows the changes in the agency’s equity resulting from operations during the period.
2. Balance Sheet. This statement provides information on the agency’s resources, its obligations, and the government equity in the agency.
3. Cash flow Statement. The statement provides relevant information about the agency’s inflows and outflows of cash during the year. It shows the changes in cash and cash equivalents for the year.
The format of the above statements follows that of the commercial accounting.
PROBLEMS
Use the following data in answering numbers 1 and 2
Out of its total appropriation for 2013, Department EE received its allotments broken down as follows:
Capital Outlay (CO) P20,000,000 Maintenance and Other Operating Expenses
(MOOE) 10,000,000
Personal Services (PS) 5,000,000 Financial Expenses 1,000,000
Total P3 6 000 000
Department of Budget and Management (DBM) issued Notice of Cash Allocation to Department EE in the amount of P20,000,000.
1. Department EE records the allotment by a:
a. Memo entry in the Registry of Allotments and Obligations. b. Memo entry in the general journal.
c. Memo entry in the Registry of Appropriations and Allotment. d. National Clearing Account 36,000,000
Appropriation allotted 36,000,000
2. What is the journal entry of Department EE to record the receipt of Notice of Cash
Allocation?
a. Cash National Treasury MDS 20,000,000
Subsidy Income from National Government 20,000,000 b. Subsidy Income from National Government 20,000,000
Cash National Treasury - MDS 20,000,000 c. Notice of Cash Allocation 20,000,000
Subsidy Income from National Government 20,000,000 d. Cash – National Clearing Account 20,000,000
Subsidy Income from National Government 20,000,000 Numbers 3 to 5 are based on the following data:
Agency SS issued a purchase order for the purchase of office equipment costing P50,000. The equipment was received with the charge invoice and was paid by check after withholding tax of 10%. Agency SS remitted the tax withheld to BlR thru a government depository bank.
3. Agency SS records the obligation to purchase the office equipment in:
a.RAOCO b.RAOMO C. RAOPS d. RAOFE
4. What is the entry of Agency SS to record the payment?
a. Office equipment 50,000
Cash National Treasury MDS 50,000 b. Accounts payable 50,000
Due to BIR 50,000 Cash National Treasury — MDS 50,000 c. Office equipment 50,000
Due to BIR 50,000 Cash National Treasury — MDS 50,000 d. Accounts payable 45,000
Cash National Treasury – MDS 45,000
5. What is the entry to record the remittance of the tax withheld to BIR?
a. Due to BIR 5,000
Subsidy Income from National Government 5,000 b. Accounts payable 5,000
Cash National Treasury — MDS 5,000 C. Due to BIR 5,000
d. Due to BIR 5,000
Cash -- Check Disbursements MDS 5,000 Use the following data in answering numbers 6 and 7
Cash advances were released to the disbursing officer for petty cash fund (PCF) for miscellaneous expenses of P10,000.
The petty cash fund was replenished for total expenses of P7,000. At year end expenses liquidated are office supplies expense, P5 000 and traveling expenses,P3,000.
The unused petty cash fund was returned.
6. What is the entry to record the release of cash advance?
a, Cash disbursing officer 10,000
Cash National Treasury — MDS 10,000 b. Petty cash fund 10,000
Cash National Treasury MDS 10,000 c. Cash disbursing officer 10,000
Cash - Local Currency Local bank 10,000 d. Petty cash fund 10,000
Cash Local Currency Local Bank 10,000
7. What is the entry to record the return of the unused PCF?
a. Cash --National Treasury MDS 2,000
Petty cash fund 2,000 b. Cash- Collecting Officer 2,000
Petty cash fund 2,000 c. Cash Collecting Officer 3,000
Petty cash fund 3,000 d. Cash - National treasury-MDS 3,000
Petty cash fund 3,000 Numbers 8 to 10 are based on the following data:
Salaries and wages P100,000 Additional compensation (ADCOM) 30,000 Personnel economic relief allowances
(PERA) 20,000
Gross payroll P150,000
Less' 'Withholding tax P4,000 GSIS contribution 3.000 Pagibig contribution 2,000
Philhealth contribution 1,000 10,000
Net payroll P140,000
The net payroll is advanced to a Disbursing Officer.
8. The agency enters the obligation for the payroll in:
a. RAOCO, P150,000 b. RAOMO, P140,000 c. RAOPS, P150,000 d. RAOPE, P150,000
9. what is the entry record the advances to the disbursing officer?
a. Cash – Disbursing Officer 140,000
Cash – Check disbursement 140,000 b. Cash – Disbursing Officer 140,000
Cash – National Treasury – MDS 140,000 c. Cash – Disbursing Officer 140,000
Cash – Local Currency – Local Bank 140,000 d. Cash – Disbursing Officer 140,000
Cash – Collecting officer 140,000
10. What is the entry to record the payment of salaries and wages and other allowances?
a. Salaries and wages 100,000 ADCOM 30,000 PERA 20,000 Due to BIR 4,000 Due to GSIS 3,000 Due to Pag-ibig 2,000 Due to Philhealth 1,000
Cash ---- Disbursing Officer 140,000 b. Salaries and wages 100,000
ADCOM 30,000
PERA 20,000
Cash Disbursing Officer 150,000 C. Salaries and wages 100,000
Due to BIR 4,000 Due to GSIS 3,000 Due to Pag-ibig 2,000 Due to Philhealth 1,000 Cash Disbursing Officer 90,000 d. Salaries and wages 100,000
Cash National Treasury – MDS 100,000
11. On February 1, 2011 Agency Go signed a contract for the construction of a building. The
contract price is P50,000,000. The agency made a down-payment of 30% of the contract price. On May 1 2011, Agency GG received the first billing of 50% of the contract price. The agency paid the first billing less PI00,000 withholding tax.
No. 11 - continued
What is the entry to record the receipt of the first billing?
a. Construction in Progress Agency assets 25,000,000
Advances to contractor 15,000,000 Accounts payable 10,000,000 b. Contract Billings 25,000,000
Accounts payable 25,000,000 c. Construction in Progress Agency assets 25,000,000
Accounts payable 25,000,000 d. Contract Billings 25,000,000
Construction in Progress 25,000,000
12. Using the data in Number 11, what is the entry to record to payment of the first billing?
a. Accounts payable 25,000,000 Due to BIR 100,000
b. Accounts payable 10,000,000
Cash-- National Treasury --- MDS 10,000,000 c. Accounts payable 10,000,000
Due to BIR 100,000
Cash National Treasury MDS 9,900,000 d. Accounts payable 100,000
Due to BIR 100,000 Cash -- Disbursing Officer 9,900,000
13. Using the data in Number II. assume that on September 1, 2008, the final billing was
received for the balance of the contract price, .100% completed. The same was paid after withholding the required tax. What is the entry to recognize the Building account?
a. Building 50,000,000
Cash National Treasury – MDS 50,000,000 b. Building 25,000,000
Construction in Progress Agency assets 25,000,000 c. Building 50,000,000
Contract Billings 50,000,000 d. Building 50,000,000
Contract Billings 25,000,000
Construction in Progress - Agency assets 25,000,000
14. On May 5, 2013 Agency XX transfers cash of P200,000 to Agency MM for a land beautification project. The project was completed by Agency MM on August 16, 2013.
What is the entry of Agency XX to record the completion of the beautification project? 200,000
200,000 200,000 200,000
a. Land Development 200,000
b, Land Development 200,000
Due from National Government Agency MM 200,000 c. Land Development 200,000
Cash - Check Disbursements — MDS 200,000 d. No entry
Use the following information in answering numbers 15 and 16
On April 15, 2013 Bureau of Internal Revenue (BIR) collected taxes from individual taxpayers ine the amount of P10,000,000. The BIR has no authority to use these collections in their operation and therefore deposited it to the Bureau of Treasury.
15. What is the journal entry to record the collections in the National Government Books?
a. Cash - Collecting Officer 10,000,000
Income taxes- individuals 10,000,000 b. Cash - Collecting Officer 10,000,000
income 10,000,000 c. Cash - National Treasury – MDS 10,000,000
Subsidy Income from NG 10,000,000 d. No entry.
16. What is the entry to record the remittance of the collections to BTR thru a government depository bank?
a. Cash – Deposits 10,000,000
Cash - Collecting Officer 10,000,000 b. Cash – Deposits 10,000,000
Cash -Local Currency Local Bank 10,000,000 c. Income Taxes – Individuals 10,000,000
Cash -Collecting Officer 10,000,000 d. No entry.
On June 301 2013, Agency KK collected P50,000 from tenants for the rent of office space in its building and deposited the collections to Philippine National Bank
On July 5, the agency uses P20,000 of this collection for the repair of the office space.
17. What is the entry to record the deposit?
a. Cash – Deposits 50,000
Cash - National Treasury – MDS 50,000 b. Cash in Banks Local Currency
--Current Account (LCCA) 50,000
Cash Collecting Officer 50,000 C. Cash - Deposits 50,000
Cash Collecting Officer 50,000 d. No entry.
18. What is the entry to record the payment of the repair of the office space?
a. Repairs and Maintenance --- Office Building 20,000
Cash - Collecting Officer 20,000 b. Repairs and Maintenance — Office Building 20,000
Cash in Bank –LCCA 20,000 c. Building 20,000
Cash in Bank- LCCA 20,000 d. Building 20,000
Cash - Collecting Officer 20,000
19. During the year, 2013 Department ZZ received Notice of Cash Allocation of P I 0,000,000 out
of its total allotments of P15,000,000. Check disbursements during the year amounted to P9,000,000.
What adjustment is made for the unused NCA as of the end of the year?
a. Appropriation allotted 1,000,000
National Clearing Account 1,000,000
b. Subsidy Income from National Government 1,000,000
c. Cash National Treasury –MDS 1,000,000
Subsidy Income front NG 1,000,000
d. Subsidy Income from National Government 6,000,000
Cash -- National Treasury – MDS 6,000,000
20. The approved appropriation of Department SS for 2011 was P50,000,000. Ninety
percent (90%) of this appropriation was allotted by the DRIM accompanied with Notice of Cash Allocation of eighty percent (80%) of the allotment.
During the year, the amount of obligation incurred was equal to ninety percent (90%) of the NCA. Seventy five percent (75%) of these obligations was paid.
What is the adjusting entry at the end of the year to adjust the unused NCA? a. Subsidy Income from National Government 11,700,000
Cash - National Treasury - MDS 11,700,000 b. National Clearing Account 3,600,000
Appropriation allotted 3,600,000 c. Subsidy Income from National Government 3,600,000
Cash-- National Treasury- MDS 3,600,000 d. Cash National Treasury – MDS (3,600,000)
Subsidy Income from NG (3,600,000)
21.
December 31, 2013, the pre-closing trial balance of Agency FF shows the following (In Thousands):
Subsidy Income from National Government 26,000 Salaries and Wages Regular Pay 5,500 Life and retirement Insurance Contribution 400 Pagibig Contribution 200 Philhealth Contribution 100 Traveling ex ease Local 950
Electricity 550
Telephone/Internet 400
Rent expense 350
Office supplies expense 600 Depreciation- Office Equipment 100
What is the closing entry to close the net income over expenses ( in Thousands)?
a. Income and expense summary 16,850 Retained Operating Surplus 1,850 b. Retained Operating Surplus 16,850
income and Expense Summary 16,850 c. Income and Expense Summary 26,000
Subsidy Income from NG 26,000 d. Retained Operating Surplus 26,000
Subsidy Income from NG 26,000
22. The following data were taken for the accounting records of Agency RR on December 31,
2013 (In Million):
Notice of Cash Allocation received P150
Unused NCA 30
Refund of excess cash advance 5 Salaries and wages Regular Pay 55
ADCOM 2
PERA 10
Traveling expense -- Local 1
Electricity 20
Rent expense 8
Office supplies expense 4
What is the net income over expense on December 31, 2013?
a. P15,000,000 b. P50,000,000 c. P45,000,000 d. P20,000,000
23. On December 31, 2013, the pre-closing trial balance of Agency YY shows the following totals
(In Millions):
Current Assets P270
Fixed Assets 780
Current Liabilities 205 Subsidy Income from NG 50
What is the Government Equity on December 31, 2013?
a. P845,000,000 b. P835,000,000 c. P855,000,000 d. P895,000,000
24. The following data were taken from the Statement of Income and Expenses and
Comparative Balance Sheet of Department DD for the year ended December 31, 2012 and 2013 (In Millions):
Net income over expenses P500 Depreciation Office equipment 5 Increase in accounts payable 30 Increase in Withholding tax payable 6 Increase in Due from NGA 58 Increase in Supplies inventory 23
What is the Net Cash Provided by Operating Activities on December 31, 2013?
a. P460,000,000 b. P480,000,000 c. P490,000,000 d. P4615,000,000
25. Collection of P505,000 representing motor vehicles registration fees was recorded by Land
Transportation Office (LTO) as P550,000.
What is the correcting entry under the New Government Accounting System (NGAS?
a. Cash - Collecting Officer (45,000)
Registration Fees (45,000) b. Registration Fees 45,000
Cash -Collecting Officer 45,000 c. cash -- Collecting Officer 45,000
Registration Fees 45,000 d. Cash - National Treasury –MDS 45,000
Cash- Collecting Officer 45,000
P600,000 for 400,00. The proceeds shall be deemed automatically appropriated for the purchase of replacement higher capacity equipment worth P1,000,000, net of applicable tax. The agency subsequently received a Note of Cash Allocation for P 1,000,000 for the purchase of the said equipment. What is the entry to record the receipt from the disposal of the motor vehicle?
a.cash Collecting Officer 400,000
Accumulated Depreciation Office Equipment 300,000
Office Equipment 400,000 Gain on Sale of Disposed Assets 100,000 b. Cash Collecting Officer 400,000
Gain on Sale of Disposed Assets 400,000 c. Cash Collecting officer 400,000
Accumulated Office Depreciation 300,000
Office equipment 600,000 Due to BTR 100,000 d. Cash Collecting officer 400,000
Due to BTR 400,000
27. Agency X have an obligation for equipment per purchase order amounting to P800,000.
Subsequently, agency liquidates the equipment acquired in full. The entry to record this transaction would be (ignore tax implication).
a. Memorandum entry in RAOCO b. Accounts Payable 800,000
Cash National Treasury, MDS 800,000 c. Subsidy Income from National Government 800,000
Cash National Treasury, MDS 800,000 d. Obligation Liquidated 800,000
Cash -- National Treasury, MDS 800,000
28. Assuming cash advances for salaries and wages that were granted in 2013 resulted to a
refund of P60,000, what would be the journal entry to be recorded in the books of the agency to record remittance to the Bureau of Treasury in 2014?
a. Subsidy Income from National Government 60,000
b. Subsidy Income from National Government 60,000 Cash Disbursing Officer 60,000 c. Prior Year's Adjustment 60,000
Cash Collecting Officer 60,000 d. Prior Year's Adjustment 60,000
Cash Disbursing Officer 60,000
29. Which of the following would be included in an entry to record the remittance of income
taxes to the Bureau of Treasury (BTR) collected by the Bureau of Internal Revenue (BiR)? The BIR has no authority to use the collections.
a. Debit to Cash --- Collecting officer b. Debit to Cash — NT MDS
C, Credit to Cash Collecting officer d. Credit to Cash NT — MDS
30. During 2013, Agency W transferred cash of P1,000 to Agency X for a land beautification
project. Subsequently, Agency W received a report from Agency X about the project. Which of the following is incorrect?
a. The obligation of P1,000 is entered in the RAOCO
b. Source Agency debits Due from NGA upon transfer of cash c. Receiving Agency credits Cash – NT – MDS upon receipt of cash d. Source Agency credits Cash – NT – MDS upon transfer of cash
ANSWERS
1. A 6. A 11. A 16. C 21 A 26. A 2. A 7. B 12. C 17. B 22. A 27. B 3. A 8. C 13. C 18. B 23. A 28. C 4. B 9. B 14. B 19. B 24. A 29. C 5. BC 10. A 15. A 20. A 25. B 30. CSOLUTIONS AND EXPLANATIONS
1. Under the new government accounting system the agency does not journalize the receipt of
the allotment. It is recorded in the Registry of Allotments and Obligations by means of a memo entry.
2. Upon receipt of the NCA, the accountant of the agency shall journalize it by a debit to “Cash
– National Treasury – MDS” and a credit to “Subsidy Income from National Government” which in effect identifies the share of the Agency in the income of the National Government.
3. The agency does not journalize the incurrence of obligation. The agency enters the obligation
to purchase the office equipment in the Registry of Allotments and Obligations – Capital Outlay (RAOCO).
4. The accountant of the agency 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, liability or expense account. In this problem a liability account debited “Accounts
Payable”. The withholding tax of P5,000 is credited to “Due to BIR” account.
5. Since no Tax Remittance Advice (TRA) was issued by the agency. The remaining of the tax
withheld to the BIR is credited to “Cash-National Treasury-MDS” account. The corresponding debit is “Due to BIR” account.
In case TRA is issued by the agency the credit is to “Subsidy income from National Government” account.
6. Petty cash fund is released to a Disbursing officer who is in charge of the payment of petty
expenses. This is recorded by a debit to “cash – disbursing Officer” account. The corresponding credit account is “Cash –National Treasury- MDS”.
7. any unused PCF, P2,000 is to be returned. This is computed by deducting the total liquidated
expenses, P8,000 (5,000+3,000) from the total PCF of P10,000. The return is recorded by debiting “Cash – collecting officer” account and crediting “Petty Cash fund” account.
8. the gross payroll, P150,000 is entered in the Registry of allotments and obligations – personal
services (RAOPS).
9. The net payroll 140,000 is advanced to the Disbursing Officer. Payments are made by the DO
in cash to the employees. See No. 6 for the explanation of the entry.
10. the payment of employee’s salaries and other allowances is made by the Disbursing officer
from the payroll fund. This is recorded by debiting salaries and wages and other allowances and rediting all the deductions. The net payroll is credited to “Cash-Disbursing officer” account.
11. under the construction period theory, all costs and expenses for the construction shall be
debited to “construction in progress” account (P50,000,000 x 50%). The corresponding credit are to “advances to contractor” account to close this account and “Accpunts Payable” account.
12. see explanation number 4
13. when the project is completed, the “construction in progress” account is closed from the
14. This transaction is Inter-agency transfer of funds to implement an Agency Project.when cash
is transferred to an implementing agency (IA), the source agency (SA) debits “Due from NGA” account and credit “Cash-National Treasury –MDS”. As soon as the project is completed by the IA, the “Due from NGA” account is closed, and the asset account “Land and Development” is debited.
15. Since the BIR has no authority to use the income collected. Such income shall be recorded
by the BIRD in separate books of accounts, the National Government (NG) books. The collection shall be credited to the income account, Income Taxes-Individual. This entry is reverse upon remittance to the National Treasury.
16. Refer to explanation No. 15 above.
17. For agencies which are authorized to use income collected for their operations, the
collections shall be recorded as income in the Regular Books (RA) books. The deposit is recorded by a debit to “Cash in Bank- Local Currency-Current account (LCCA)” account and a credit to “Cash – collecting officer” account.
18. the payment of repairs should be debited to an expense account “repairs and maintenance
– office building”. The corresponding credit is to a “Cash in Bank-LCCA” account.
19. The unused NCA as of the end of the year should be reverted to the Bureau of Treasury
because of the policy of the DBM that the NC will be good for the year it was issued. The computation is:
Total NCA received for the year P10,000,000 Total MDS checks issued 9,000,000
Unused NCA P1,000,000
20. the computation is:
NCA received [(50,000,000 x 90%)x80%] P36,000,000 Payment of obligation [(36,000,000 x 90%)x75%] 24,300,000
Unused NCA P11,700,000
21. the net income over expenses to be closed to Retained Operating Surplus is computed as
follows: (in thousands)
Subsidy income from National Gov’t P26,600 Less: Salaries and wages – regular pay P5,500
Life and retirement insurance
contribution 400
Pag-ibig contribution 200 Philhealth contribution 100 Traveling expenses – local 950
Telephone/internet 400
Rent expenses 350
Office supplies expense 600
Depreciation – office equipment 100 9,150 Net income over expenses P16,850
22. to compute the net income over expenses, a Statement of Income and Expenses is to be
prepared as follows (In millions):
Subsidy income from NG P150
Less: Reversion of Unused Subsidy P30
Refund of excess cash advance 5 35 Net subsidy income from NG 115 Less: expenses
Salaries & wages –regular pay P55
ADCOM 2
PERA 10
Traveling expenses – local 1
Electricity 20
Rent expense 8
Office supplies expense 4 100
Net income over expenses 15
23. Government Equity is the excess of the total assets over the total liabilities. The
computation therefore is (in millions) Current assets P270 Fixed assets 780 Total assets P1,050 Less: Current Liabilities 205 Government equity P845
24. the net cash provided by Operating Activities is computed as follows (in millions):
Net income over expenses P500 Add:
Depreciation P5 Increase in AP 30
Increase in withholding tax payable 6 41 Total
Deduct:
Increase in Due from NGA 58
Increase in supplies inventory 23 81
25. Under the New Government Accounting System, corrections of erroneous journal entries
shall not be effected by negative entries ( amounts in parenthesis) but by making the necessary reversing or other adjusting entries, all in positive amounts. Therefore, entry (B) is correct.
26. selling price (Dr. Cash P400,000 Less: Book value 600,000
Cost (Cr. –off equi 300,000 300,000
Gain on sale (CR) P100,000
27. b 28. c
29. the entry to recess the remittance of income tax collected to the BTR is:
Income taxes –individual Cash – collecting officer Therefore choice is correct.
