GOV-ACC-M4S1 - Government Accounting by Punzalan summary notes PDF

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TRIAL BALANCE, FINANCIAL REPORTS AND STATEMENTS(GOVERNMENT ACCOUNTING, M4S1)Provision of Financial Statements and the applicable Philippine Application Guidance (PAG) shall be applied in the presentation and preparation of General Purpose Financial Statement (GPFS). The application of the following ...

Description

TRIAL BALANCE, FINANCIAL REPORTS AND STATEMENTS (GOVERNMENT ACCOUNTING, M4S1) Provision of Financial Statements and the applicable Philippine Application Guidance (PAG) shall be applied in the presentation and preparation of General Purpose Financial Statement (GPFS). The application of the following Philippine Public Sector Accounting Standards (PPSAS) shall be discussed: 1. Presentation of Financial Statement 2. Statement of Cash Flows 3. Events after the Reporting Date 4. Related Party Disclosure 5. Accounting policies, Changes in accounting estimates and errors 6. Accounting policies OBJECTIVE OF GENERAL PURPOSE OF FINANCIAL STATEMENT The Objective of General Purpose of Financial Statement are to provide information about the financial position , financial performance, cash flows of an entity that is useful to a wide range of users in making and evaluating decisions about allocation of resources . Specifically, the objective of General Purpose of Financial Statement in a public sector are to provide information useful for decision-making and to demonstrate the accountability of the entity for the resource entrusted to it. Financial reporting includes the preparation and submission of Trial Balances, financial statement and other reports need by fiscal and regulatory agencies. The sub-system are as follows 1. Preparation and submission of trial balance and other reports 2. Preparation and submission of financial statements TRIAL BALANCE Trial balance is a listing of general ledger accounts with their corresponding debit and credit balance. The accounts are listed in the order in which they appear in the Revised Chart of Accounts, with the debit balances in the left column and the credit balances in the right column. The trial balance shows the equality of debit and credit balances of all General ledger accounts as at a given period. It is prepared and submitted monthly, quarterly and annually. At the end of the fiscal year, the pre closing and post-closing trial balances shall be prepared. ADJUSTING JOURNAL ENTRIES Adjusting Journal entries are made at the end of the accounting period to allocate revenues and expenses to period in which they actually incurred. Adjustments are of two main types a) Accrued items

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b) Deferred items ACCRUED ITEMS These are adjusting entries for economic activities already undertaken but not yet recorded as assets and revenue accounts or a liability and expense accounts. These require two types of adjusting entries, such as a) Assets/ Revenues adjustments- these involves asset and income which exist at the end of accounting period but are not yet recorded. Example: The interest receivable account of Agency C for the interest already earned but not yet collected nor billed as of the end of the year amounted to P 2,000. The journal entry will be as follows Account Title

Account Code

Debit

Interest Receivable

10301050

2,000

Interest Income

40202210

Credit

2,000

b) Liability/ Expense adjustment- these involve liabilities and expenses, which already exist at the end of the accounting period but are not yet recorded. Example: As of year-end, Agency ABC has not yet paid the salaries and wages of covers the period of December 16-31 of the current year Account Title

Account Code

Debit

Salaries and wages-regular

50101010

25,000

Due to officers and employees

20101020

P 25,000, which Credit

25,000

DEFERRED ITEMS These are adjusting entries transferring data previously recorded in asset account to expense account or data previously recorded in the liability account to revenue account. These also required two types of adjustments: a) Asset/Expense Adjustment- these involves prepaid expenses portion of which shall be recorded as expense of the agency at the end of reporting period. these also involves bad debts and depreciation Example: Agency ABC has prepaid expense in the amount of P 20,000, portion of which were utilized or consumed in the amount of P 5,000. Since the original entry was debited to prepaid account. The adjusting entry would be

Account Title Rent/lease Expense Prepaid Rent

Account Code

Debit

50299050

5,000

19902020

Credit

5,000 Page 2 of 10

b) Liability/revenue adjustments- these involve unearned revenue where agency receives the asset, usually cash, even before income is actually earned. Example The agency collected an amount of P 15,000 for the rent of its facilities and originally recorded it as deferred credit to income. At the end of the fiscal year, only P 3,000 was earned. The sjudting journal entry to recognized the earned portion would be Account Title Other Deferred Credits Rent/lease Expense

Account Code

Debit

20501990

3,000

Credit

40202050

3,000

OTHER ADJUSTMENTS A. Unused Notice of Cash Allocation B. Petty cash fund C. Unreleased Commercial Checks D. Allowance of impairment losses of assets account E. Other adjustments REVISION OF UNUSED NOTICE OF CASH ALLOCATION For NGAs receiving subsidies from national government in the form of NCA, adjusting journal entry shall be made for the revision of the unused or unutilized NCA at the end of the accounting period. The entry for the lapsed regular NCA and those issued for the payment of accounts payable/retirement gratuity/terminal leave shall be Account Title

Account Code

Subsidy from National Government 40301010 Cash-MDS regular

Debit

Credit

xxx

10104040

xxx

For unused NCA issued for the release of performance/bidders/bail bonds, which were deposited with the National Treasury, a JEV shall be drawn for the following journal entry Account Title

Account Code

Debit

Cash- Treasury/Agency/Deposit, Trust

10104030

xxx

Cash-MDS trust

10104060

Credit

xxx

PETTY CASH FUND ADJUSTMENT Petty cash fund are small amount of cash in a fund to pay minor expenses Two methods in handling the petty cash fund, namely: a) Imprest System b) Fluctuating Fund System Page 3 of 10

Pertinent Accounting procedures are: A check drawn to establish the fund Payment of expenses out of petty cash fund Replenishment of fund

Under the Imprest System

Petty Cash Fund Cash in Bank No entry

Under the Fluctuating Fund System

xx

Expenses Cash in Bank Unreplenished Expenses expense at the end of Petty Cash Fund the accounting period

Petty Cash Fund xx Cash in Bank Expenses Petty Cash Fund Petty Cash Fund xx Cash in Bank No entry

xx

xx xx xx xx

ADJUSTMENT FOR UNRELEASED COMMERCIAL CHECKS A schedule of Unreleased commercial checks shall be prepared by the Cashier for submission to the accounting division/unit. All unreleased check at the end of the year shall be reverted back to cash account. The accounting entry for the restoration of the unreleased check to the cash account shall be Account Title

Account Code

Cash in bank, local currency, current 10102020 Accounts Payable

Debit

Credit

xxx

20101010

xxx

Note: there is no physical cancellation of the checks ALLOWANCE FOR IMPAIRMENT LOSSES OF ASSET ACCOUNTS According to Government Accounting Manual( GAM), Section 9, Impairment Losses and Allowance for Impairment Losses , when an uncertainty arises about the collectability of an account already included in revenue, uncollected amount or the amount in respect of which recovery has ceased to be probable is recognized as an expense( impairment losses), rather than as an adjustment of the amount of revenue originally recognized. In other words, when accounts receivable are considered as uncollectible, they are deemed impaired. Example Per aging Of the accounts, the required allowance is P 20,000, while the beginning balance of the allowance for impairment loss is P 15,000. No other transactions transpired. The adjusting entries to take up bad debts expense is as follows

Account Title

Account Code

Debit

Impairment Losses-Loans& Recble

50503020

5,000

Allowance for Impairment-AR

10301011

Credit

5,000

PRE CLOSING TRIAL BALANCE The pre closing trial balance shall be prepared after posting the adjusting entries in the general ledger and the same to the GL. It shows the adjusted balance of all accounts as at a given period. This is also described as the Adjusted Trial Balance. The trial balance shall be supported with the schedule of Subsidiary Ledger balances of the controlling accounts Page 4 of 10

xx xx xx xx

CLOSING JOURNAL ENTRIES Closing Journal entries are entries which close out the balances of all nominal/ temporary account at the end of the year. The closure will reduce the balance of those accounts to zero. The nominal accounts that shall be closed at the end of the year are as follows: a) Balance of all revenue accounts to the “Revenue and Expense Summary” account b) Balance of all expenses accounts to the “ Revenue and Expense Summary” account c) Balance of the “Revenue and Expense Summary” to the Accumulated Surplus/Deficit account d) Balance of all “ Cash-Treasury/Agency Deposit, Regular” to the Accumulated Surplus/Deficit account e) Other closing entries POST CLOSING TRIAL BALANCE The post-closing trial balance shall be prepared at the end of the year after preparing and posting the closing journal entries in the General Journal and posting to the General Ledger. Since revenue and expense accounts have been closed out, the only accounts with balances are balance sheet or real accounts. PURPOSE OF FINANCIAL STATEMENT a) Providing information about the sources, allocation and uses of financial resources b) Providing information about how the entity financed its activities and met its cash requirements c) Providing information that is useful in evaluating the entity’s ability to finance its activities and to meet its liabilities and commitments d) Providing information about the financial condition of the entity and changes in it e) Providing aggregate information useful in evaluating entity’s performance in terms of service cost, and accomplishments General purpose financial statement can also provide predictive or prospective role, providing information useful in predicting the level of resources required for continued operations, the resources that may be generated by continued operations and the associated risks and uncertainties. Financial reporting may also provide users with information a. Indicating whether resources were obtained and used in accordance with the legally adopted budget b. Indicating whether the resources were obtained and used in accordance with legal and contractual requirement including financial limit established by appropriate legislative authorities(par. 15-16 PPSAS 1) c. Financial statement provide information about entity’s 1) Assets 2) Liabilities 3) Net Assets/equity

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4) Revenues 5) Expenses 6) Other changes in net assets/equity 7) Cash flows 8) Comparison of budget and actual amounts (par. 17, PPSAS 1) RESPONSIBILITY OF FINANCIAL STATEMENT The responsibility for the preparation of financial statements rest with the following a) For individual entity/department FS’s- the ehad of the entity/department central office(COf) or regional office (RO) or operating unit(OU) or his/her authorized representative jointly with the head of the finance/accounting division/unit b) For department/entity FS’s as a single entity- the head of the entity/department COf jointly with the head of the finance unit. STATEMENT STATEMENT

OF

MANAGEMENT

RESPONSIBILITY

FOR

FINANCIAL

The statement of management responsibility for financial statement shall serve as the covering letter in transmitting the agency’s financial statement to the Commission on Audit, Department of Budget and Management, other oversight agencies and other parties. It acknowledges the agency’s responsibility for the preparation and presentation of financial statements. This statement shall be signed by the Director of Finance and Management Office or Comptrollership Office, of the Chief Office, who has direct supervision and control over the agency’s accounting and financial transactions and the Head of Agency or his or her authorized representative. COMPONENT OF GENERAL PURPOSE FINANCIAL STATEMENT a. The name of the reporting entity or other means of identification, and any change in that information from the preceding reporting date b. Whether the financial statement cover the individual entity or a group of entity c. The reporting date or the period covered by he financial statement, whichever is appropriate to the component of the financial statement d. Name of the fund cluster e. The reporting currency f.

The level of rounding used in presenting amount in the financial statements

THE COMPLETE SET OF FINANCIAL STATEMENT TO BE SUBMITTED BY AN ENTITY a. Statement of Financial Position b. Statement of Financial performance c. Statement of changes in Net Assets d. Statement of Cash flows e. Statement of Comparison of budget and actual amounts Page 6 of 10

f.

Notes to financial statements

QUALITATIVE CHARACTERISTIC OF FINANCIAL REPORTING (PPSAS 1) a. Understandability- Information is understandable when user might reasonably be expected to comprehend its meaning. For this purpose, users assumed to have a reasonable knowledge of the entity’s activities and the environment in which it operates and willing to study the information. b. Relevance- information is relevant to users if it can be used to assist in evaluating past, present or future events or in confirming or correcting, past evaluation. c. Materiality- the relevance of information is affected by its nature and materiality. Information is material if its omission or misstatement could influence the decision of the users or assessment made on the basis of the financial statement. d. Timeliness- the usefulness of financial statement is impaired if they are not made available to users within a reasonable period after the reporting date. e. Reliability- Information is reliability if is free from material error and bias and can be depended on by users to represent faithfully that which it purport to represent or could reasonably be expected to represent. f.

Faithful representation- if information us to present transaction and other events faithfully, it should be presented in accordance with the substance of the transaction and other events and not merely their legal form.

g. Substance over form- if information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they be accounted for and presented accordance with their substance and economic reality and not merely their legal form. h. Neutrality- information is neutral if it is free from bias i.

Prudence- is is inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or revenue are not overstated and liabilities or expenses are not understated.

j.

Completeness- the information in financial statement should be complete within the bounds of materiality and cost

k. Comparability- the information in the financial statement is comparable when users are able to identify similarities and difference between that information and information in other reports. Comparability applies to the comparison if the financial statement of different entities and comparison of the financial statements of the same entity over the period of time. DEPARTURE FROM PPSAS In the event that management strongly believes that the compliance witn the requirement of PPSAS would result in misleading presentation that it would be contradict the obkective of the FS’s set forth in PPSAS, the entity may depart from the requirement if the relevant regulatory framework allows or otherwise does not prohibit such a departure. GOING CONCERN When preparing the financial statement an assessment of an entity’s ability to continue as going concern shall be made. This assessment shall be made by those responsible for the Page 7 of 10

preparation of financial statements. Financial statement shall be prepared on a going concern basis there is an intention to liquidate the entity or to cease operating, or if there is no realistic alternative but to do so. REPORTING PERIOD Financial statement shall be presented at least annually. If presented fot a period longer or shorter than one year, an entity shall disclose in addition to the period covered by the financial statement a. The reason for using a longer ot shorter period b. The fact that comparative amount for certain statements such as the statement of financial performance, statement of changes in net assets/equity, cash flow statement and related note are noy entirely comparable. STATEMENT OF FINANCIAL POSITION PRESENTATION An entity shall present current and non-current assets, and current and non-current liabilities, except when the presentation based on liquidity provides more reliable and relevant information. When this exception applies all assets and liabilities shall be presented broadly in order of liquidity. CURRENT VERSUS NON-CURRENT ASSETS An entity shall classify an asset as current when a. The asset is a cash or cash equivalent(unless restricted for at least 12 months after BS date) b. It holds the assets primarily for the purpose of trading c. It expects to realize the asset within twelve months after the reporting period d. It expect or intends to realize or consume it within the entity’s normal operating cycle An entity shall classify all other assets as non-current. CURRENT VS NON CURRENT LIABILITIES An entity shall classify liability as current when a. The liability is due to be settled within 12 months after the reporting period b. It holds the liability primarily for the purpose of trading c. It expect to settle the liability within the entitys’ normal operating cycle d. The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period Statement of Financial Statement shall be presented in comparative detailed and condensed format. a. Condensed Statement of Financial Position It present only the major sub-clariffication of Statement of Financial Position accounts in the Revised Chart of Accounts. Condensed Statement of Financial Position shall be sub,itted at yearend to the concerned Auditor. b. Detailed Statement of Financial Position Page 8 of 10

It present all Statement of Financial Position accounts in the Revised Chart of Accounts as a line item in the financial report. Detailed Statement of Financial Position shall be submitted at yearend to the Government Accountancy Sector, COA as part of the yearend financial statements. STATEMENT OF CHANGES IN NET ASSETS/EQUITY The statement of Changes in Net Asset/Equity shows the changes in equity between tow accounting periods reflecting the increase or decrease in the entity’s net assets during the year. STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNT Since the financial statement and budget of NGA’s are not on the same accounting basis, PPSAS 1, requires a comparison of budget amounts and actual amount arising from the execution of the budget to be included in the financial statement of entities that are required to, or elect to, make public...