CHAPTER 6

Accounting for Revenue and

Other Receipts
Section 44 of Book VI of the 1987 Administrative Code provides for the accrual of revenue collected by the
National Government to the unappropriated surplus of the general fund such that “unless otherwise
specifically provided by law, all income accruing to the departments, offices and agencies, by virtue of the
provisions of existing laws, orders and regulations shall be deposited in the National Treasury or in the duly
authorized depository bank of the government.”

Accounting standards, policies, guidelines and procedures for revenue and other receipts are in accordance
with IPSAS 9, Revenue from Exchange Transactions, and IPSAS 23, Revenue from Non-exchange
transactions.
 FUNDAMENTAL PRINCIPLES OF REVENUE
Revenue is the gross inflow of economic benefits or service potential during the reporting period
when those inflows result in an increase in net assets/equity, other than increases relating to
contributions from owners. Revenue funds on the other hand comprise all funds derived from
the income of any agency of the government and available for appropriation or expenditure in
accordance with law.

All revenues accruing to the National Government Agencies (NGAS) shall be governed by the
following fundamental principles:

a.) Unless otherwise specifically provided by law, all revenues accruing to an entity by virtue of
the provisions of existing law, orders and regulations shall be deposited/remitted in the
National Treasury (NT) or in any duly authorized government depository and shall accrue to
the General Fund (GF) of the National Government (NG).
b.) Except as may otherwise be specifically provided by law or competent authority, all
moneys and property officially received by a public officer in any capacity or upon occasion
must be accounted for as government funds and government property.

c.) Amounts received in trust and from business-type activities of government may be
separately recorded and disbursed in accordance with such rules and regulations as may be
determined by a Permanent Committee composed of the Secretary of Finance as Chairman,
and the Secretary of Budget and Management and the Chairman, COA, as members.

d.) Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds or Funds other
than the GF, only when authorized by law as implemented by rules and regulations issued by
the Permanent Committee.
e. No payment of any nature shall be received by a Collecting Officer without immediately issuing an official receipt
in acknowledgement thereof. The receipt may be in the form of postage, internal revenue or documentary stamps
and the like, officially numbered receipts, subject to proper custody, accountanbility, and audit.

f. Where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash receipts, the COA may
approve, upon request, exemption from the use of accountable forms.

g. At no instance shall temporary receipts be issued to acknowledge the receipt of public funds.

h. Pre-numbered ORs shall be issued in strict numerical sequence. All copies of each receipt shall be exact copies or
carbon reproduction in all respects of the original.

i. An officer charged with the collection of revenue or the receiving moneys payable to the government shall accept
payment for taxes, dues or other indebtedness to the government in the form of checks issued in payment of
government obligations, upon proper endorsement and identificationof the payee or endorsee. Checks drawn in
favor of the government in payment of any instance should money in the hands of the CO be utilized for the purpose
of cashing private checks.

j. Under such rules and regulations as COA and the Department of Finance may prescribe, the Treasurer of the
Philippines and all AGDB shall acknowledge receipt of all funds received by them, the acknowledgement bearing the
date of actual remittance or deposit and indicating from whom and on what account it was received.
ACCOUNTING STANDARDS FOR REVENUE
According to IPSAS 9, Revenue from Exchange Transactions; and IPSAS 23, Revenue from Non-exchange
Transactions, the following accounting standards shall apply for revenue and receipts of government entities:
a.) Revenue includes only the gross inflows of econmic benefits or service potential received and receivable by the
entity in its own account.
b.) Receipts/Collections shall refer to all cash actually received from all sources during a given accounting period.
c.) Fines shall include economic benefits or service potential received or receivable by a public sector agency, as
determined by a court or other law enforcement body, as consequence of the breach of laws or regulations. Fines
and penalties, either on tax revenue or other specific income account, shall be recognized as income of the year these
were collected.
d.) Gifts and donations shall consist of voluntary transfers of assets including cash or other monetary assets, goods
in-kind and services in-kind that one agency makes to another, normally free from stipulations.
e.) Goods in-kind are tangible assets transferred to an agency ina non-exchange transaction, without charge, but
may be subject to stipulations. External assistance provided by multilateral or bilateral development organizations
often includes a component of goods in-kind.
f.) Taxes are economic benefits or service potentials compulsory paid or payable to public sector agencies, in
accordance with laws and or regulations, established to provide revenue to the government. Taxes do not include
fines or other penalties imposed for breaches of the law.
g.) Transfers are inflows of future economic benefits or service potential from non-exchange transactions, other
than taxes.
ACCRUAL OF REVENUE TO THR GENERAL FUND
Unless otherwise specifically provided by law, all revenue(income) accruing to the departments, offices and
agencies by virtue of the provisions of existing laws, orders and regulations shall be deposited in the National
Treasury or in the duly authorized depository of the Government and shall accrueto the General Fund of the
Government: Provided, that amounts received in trust and from business-type activities of government may be
separately recorded and disbursed in accordance with such rules and regulations as may be determined by the
Permanent Committee consisting of the Secretary of Finance as Chairman, and the Secretary of the Budget and
the Chairman, COA, as members.

SPECIAL, FIDUCIARY AND TRUST FUNDS

Receipts shall be recorded as revenue of Special, Fiduciary, or Trust Funds or Funds other than the General
Fund, only when authorized by law and following such rules and regulations as may be issued by the
Permanent Committee. The same Committee shall likewise monitor and evaluate the activities and balances
of all Funds of the National Government other than the General Fund and may recommend for the
cosideration and approval of the President, the revesrsion to the General Fund of such amounts as are:(1)
no longer necessary for the attainment of the purposes for which said Funds were established, (2) needed by
the GF in times of emergency, or (3) violative of the rules and regulations adopted by the Committee:
provided, that the conditions originally agreed upon at the time the funds were received shall be observed in
case of gifts or donations or other payments made by private parties for specific purposes.
SOURCES OF REVENUE AND OTHER RECEIPTS
IPSAS 9 provides that revenues received by NGAa may arise from: 1.) Exchange Transactions:
and 2.) Non-exchange Transactions.
Revenue and other receipts are monitored through the Registry of Revenue and Other Receipts
per fund cluster.

EXCHANGE TRANSACTIONS
Exchange transactions are transactions in which one entity receives assets or services, or has
liabilities extinguished, and directly gives approximately equal value (primarily in the form of
cash, goods, services, or use of assets) to another entity in exchange.

*RECOGNITION AND MEASUREMENT OF REVENUE

IPSAS 23, par, 10, provides that in a transaction where the entity may provide some considerations
directly in return for the resources received, but that consideration does not approximate the fair value
of the resources received, the entity determines whether there is a combination of exchange and non-
exchange transactions. Each component of which is recognized separately.
However, there are transactions where it is not immediately clear whether they are an exchange or a non-
exchange transaction. In these cases, an examination of the substance of the transaction will determine if they
are on exchange or non-exchange transactions. For example, the sale of goods is normally classified as an
exchange transaction. If, however, the transaction is conducted at a subsidized price, that is, a price that is not
approximately equal to the fair value of the goods sold, that transaction falls within the definition of a non-
exchange transaction.

Recognition of Revenue- Exchange Transaction

Generally, revenue shall be recognized when it is probable that future economic benefits or service potential will
flow to the entity and these benefits can be measured reliably.
[Link] of Goods
Revenue from the sale of goods shall be recognized when all following conditions have been satisfied:
The entity has transferred to the purchaser the significant risks and rewards of ownership of the goods;
The entity retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
The amount of revenue can be measured reliably;
It is probable that the economic benefits or service potential associated with the transaction will flow to the
entity; and
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
 [Link] of Services
Revenue from the supply of services shall be recognized on a straight-line basis over the specified period of the
services uless an alternative method better represents the stage of completion of the transaction. The
recognition of revenue by reference to the stage of completion of a transaction is often referred to as the
Percentage of Completion method. Under this method, revenue is recognized in the reporting periods in which
the services are rendered.
When the outcome of a transaction involving the rendering of services can be estimated reliably., revenue
associated with the transaction shall be recognized by reference to the stage of completion of the transaction at
the reporting date. The outcome of a transaction can be estimated reliably when all following conditions are
satisfied:
The amount of revenue can be measured reliably;
It is probable that the economic benefits or service potential associated with the transaction will flow to the
entity;
The stage of completion of the transaction at the reporting date can be measured reliably; and
The costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
Whe the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue should be
recognized ONLY to the extent of the expenses recognized that are recoverable. During the early stages of a transaction, it is
often that the outcome of the transaction cannot be estimated reliably, although it may be probable that the entity will
recover the costs incurred. Thus, revenue is recognized only to the extent of costs incurred that are expected to be
recoverable. As the outcome of the transaction cannot be estimated reliably, no surplus(profit) is recognized.
 [Link] by Others of Entity Assets

Revenue arising from the use by others of entity assets yielding interest, royalties and dividends or similar
distributions shall be recognized when it is probable that the economic benefits or service potential associated with
the transaction will flow to the entity; and the amount of the revenue can be measured reliably.
Interest
It shall be recognized on a time proportion basis that takes into account the effective yield on the asset. IPSAS 9, par. 35 states that
the effective yield on an asset is the rate of interest required to discount the stream of future cash receipts expected over the life of
the asset to equate to the initial carrying amount of the asset. Interest revenue includes the amount of amortization of any discount
, premium or other difference between the initial carrying amount of a debt security and its amount at maturity. Any accrued
interest before the acquisition of an interest bearing investment, the subsequent receipt of interest is allocated between pre-
acquisition and post-acquisition periods where only the post-acquistion portion is recognized as revenue.
Royalties
It shall be recognized as they are earned in accordance with the substance of the relevant agreement. Accrued royalties, such as
petroleum royalties, are recognized in accordance with the terms of the relevant agreement, unless, having regard to the substance of
the agreement, it is more appropriate to recognize revenue on some other systematic and rational basis.
Dividends or similar distributions
It shall be recognized when the shareholder’s or the entity’s right to receive payment is established. When dividends on equity
securities are declared from pre-acquisition net surplus, those dividends are deducted from the cost of the securities. If it is difficult
to make such an allocation except on an arbitrary ratio, dividends are recognized as revenue unless they clearly represent a recovery
of part of the cost of the equity securities.
Specifically, the following revenue(Service Income and Business Income) may be recognized at a certain point
as shown below:
Service Income
Revenue Revenue Recognition Point

Permit Fees, Registration Plates, Tags and When services are rendered or, if not practicable, when fees
Stickers Fee, Clearance and Certification are collected upon issuance of the respective permits,
Fees, Franchising Fees and Licensing Fees. certificates of registration, plates, stickers, clearance,
certification, franchises and licences.
Supervision and Regulation Enforcement When services are rendered or when tickets or relevant
Fees document representing violation are issued or, if not
practicable, when fees are collected.

Spectrum Usage Fees When bills are rendered for the use, allocation and
assignment of radio frequency wave lengths or, if not
practicable, when fees are collected.
Inspection Fees
When bills are rendered for the conduct of inspection by
authorized government official or, if not practicable, when
fees are collected.
Specifically, the following revenue(Service Income and Business Income) may be recognized at a certain
point as shown below:
Service Income
Revenue Revenue Recognition Point

Legal Fees, Verification and Authentication When filing fees are billed or, if not practicable, when fees
Fees are collected.
When fees are billed upon issuance of the passport and the
Passport and Visa Fees
visa or, if not practicable, when fees are collected.
Processing Fees When fees are billed or collected for the processing of
documents for securing permits/application.

Other Service Income When fees are billed or, if not practicable, when fees are
collected.
Specifically, the following revenue(Service Income and Business Income) may be recognized at a certain
point as shown below:
Business Income
Revenue Revenue Recognition Point

School Fees, Affiliation Fees, Examination When filing fees are billed or, if not practicable, when fees
Fees, Seminar/Training Fees are collected.

Rent/Lease Income, Communication When fees are billed for earned revenue from use of
Network Fees, Transportation System Fees, government property/facilities or, if not practicable, when
Road Network Fees, Waterworks System fees are collected.
Fees, Power Supply System Fees, Seaport
System Fees, Landing and Parking Fees,
Income from Hostels/Dormitories and
other like facilities, Slaughterhouse, and
Other Service Income
When significant risks and rewards of ownership have
Sales Revenue
been transferred to the buyer as indicated in the sales
invoice.
Specifically, the following revenue(Service Income and Business Income) may be recognized at a certain
point as shown below:
Business Income
Revenue Revenue Recognition Point

Hospital Fees When fees are billed for hospital and related services
rendered or, if not practicable, when fees are collected.
Share in the Profit of Joint Venture When share in the profit is earned

Other Business Income When earned or, if not practicable, when fees are collected.
Measurement Of Revenue- Exchange Transactions
Exchange of Goods or Services for Similar/Dissimilar Good or Service
When goods or services are exchanged or swapped for goods or services which are of a similar nature and value,
the exchange is not regarded as a transaction which generates revenue. However, when goods are sold or services
are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which
generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the
amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot
be measured reliably, the revenue is measured at the fair value of the goods given up, adjusted by the amount of
any cash or cash equivalents transferred. (Par. 17, IPSAS 9).

Impairment Losses and Allowance for Impairment Losses

When an uncertainty arises about the collectability of an amount already included in revenue, the uncollectible
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. Entities shall
evaluate the collectability of accounts receivable on an ongoing basis based on historical bad debts,
customer/recipient credit-worthiness, current economic trends and changes in payment activity. An allowance is
provided for known and estimated bad debts
Disclosure

An entity shall disclose:

a. The accounting policies adopted for the recognition of revenue, including the methods adopted to determine
the stage of completion of transactions involving the rendering of services;

b. The amount of each significant category of revenue recognized during the period, including revenue arising
from:
Rendering of services;
Sale of goods;
Interest;
Royalties;
Dividends or similar distributions; and
Amount of revenue arising from exchanges of goods or services included in each significant category of revenue.
NON-EXCHANGE TRANSACTIONS
Non-exchange transactions are transactions in which an entity either receives value from another entity without
directly giving approximately equal value in exchange, or gives value to another entity without directly receiving
approximately equal value in exchange.

Recognition and Measurement of Revenue from Non-Exchange Transactions

In some transactions, it is clear that there is an exchange of approximately equal value and these are addressed in
other IPSASs. According to IPSAS 23, Revenue of the NGAs from non-exchange transactions are derived mostly
from taxes, gifts and donations, goods in kind and fines and penalties.

Gifts, Donations and Goods In-kind

These are voluntary transfers of assets, including cash or other monetary assets, goods in-kind and services in-kind
that one entity makes to another, normally free from stipulations.. The transferor may be an entity or an individual.
For gifts and donations of cash or other monetary assets and goods in-kind, the past event giving rise to the control
of resources embodying future economic benefits or service potential is normally the receipt of the gift or donation.
(Par. 93)
 Services in-kind
These are services provided by individuals to public sector agencies in a non- exchange transaction.

Fines These are economic benefits or service potential received or receivable by NGAs, from an individual or
other entity, as determined by a court or other law enforcement body, as a consequence of the individual or other
entity breaching the requirements of laws or regulations. (Par. 88)

Most NGAs derive revenues from transactions where they receive resources and provide no or nominal consideration
directly in return. These are as follows:
a. Tax Revenue
1. Tax Revenue-Individual and Corporation
2. Tax Revenue-Property
3. Tax Revenue-Goods and Services
4. Tax Revenue-Others
b. Fines and Penalties
1. Tax Revenue
2. Service Income
3. Business Income
c. Shares, Grants and Donations
1. Share from National Wealth
2. Share from Philippine Amusement and Gaming Corporation (PAGCOR)/ Philippine Charity Sweepstakes
Office (PCSO)
3. Share from Earnings of GOCCS
4. Income from Grants and Donations in Cash
5. Income from Grants and Donations in Kind

d. Revenue from non-exchange transactions may also arise when, in respect of an inflow of resources from a non-
exchange transaction, the entity satisfies a present obligation recognized as a liability which may be as follows:
1. Trust Liabilities Customers' Deposits Payable and Guaranty/Security Deposits Payable
2. Deferred Credits Credits Deferred Finance Lease Revenue and Other Deferred
3. Unearned Revenue - Investment Property and Other Unearned Revenue
Recognition of Revenue from Non-Exchange Transactions

The cash basis of accounting shall be applied by all government agencies in the recognition of revenue from non-
exchange transaction until a reliable model of measurement of this revenue is developed. Therefore, asset and the
corresponding revenue or liability that arises from non-exchange transaction shall be recognized when collected or
when these are measurable and legally collectible.

a. Taxation revenue shall be determined at a gross amount. It shall not be reduced for expenses paid through the tax
system.
b. Gifts and donations, other than services in kind shall be recognized as assets and revenue when it is probable that
the future economic benefits or service potential will flow to the entity and shall be measured at fair value.
c. Goods in-kind received without conditions shall be recognized as revenue immediately.
d. Donation in cash or in kind shall be recognized as revenue.

Measurement of Revenue from Non-Exchange Transactions

An entity will recognize an asset arising from a non-exchange transaction when it gains The inflow of resources from non-
exchange transactions should be carefully analyze to determine which elements of general purpose financial statements will
be recognized as a result of the transactions. The timing of revenue recognition is determined by the nature of the conditions
and their settlement.
 According to IPSAS 23, par. 48-49, revenue from non-exchange transactions shall be measured at the amount of
the increase in net assets recognized by the entity, unless it is also required to recognize a liability. Where a
liability is recognized and subsequently reduced, because the taxable event occurs, or a condition is satisfied, the
amount of the reduction in the liability will be recognized as revenue

Measurement of Assets and Liability on Initial Recognition

Consistent with IPSAS 12, Inventories, IPSAS 16, Investment Property, IPSAS 17, Property, Plant and Equipment, asset
acquired through a non-exchange transaction shall initially be measured at its fair value as at the date of acquisition.

As to liability, the amount of which on initial recognition shall be the best estimate of the amount required to settle the
present obligation at the reporting date. The estimate considers the risks and uncertainties that surround the event
causing the liability to be recognized. Where the time value of money is material, the liability will be measured at the
present value of the amount expected to be required to settle the obligation.

Tax Revenue
Taxes are economic benefits or service potential compulsory paid or payable to public sector agencies, in accordance
with laws and or regulations, established to provide revenue to the government. Taxes do not include fues or other
penalties imposed for breaches of the law.. Unless otherwise specified in laws and regulations, the taxable event for
a. Income tax is the earning of assessable income during the taxation period by the taxpayer;

b. Value added tax is the undertaking of taxable activity during the taxation period by the taxpayer;

c. Goods and services tax is the purchase or sale of taxable goods and services during the taxation period;

d. Customs duty is the movement of dutiable goods or services across the customs boundary;

e. Death duty is the death of a person owning taxable property; and

f. Property tax is the passing of the date on which the tax is levied, or the period for which the tax is levied, if the tax
is levied on a periodic basis.

Transfer of Internal Revenue Allotment

Where an NG imposes a tax, the entire proceeds of which is collected by NGAs and transferred to LGUs through an
appropriation, the NGAs recognize assets and revenue for the tax, and a decrease in assets and an expense for the
transfer to LGUs. The LGUs will recognize the assets and revenue for the transfer.
 The following is the accounting entry at the books of accounts of the DBM:

Account Title Account Code Debit Credit

Financial Assistance to LGUs 50214030 xxx

Cash-Modified Disbursement
10104040 xxx
System (MDS), Regular

Transfer of IRA to LGUs.

Expenses Paid Through the Tax System and Tax Expenditures

IPSAS 23, par. 71 states that taxation revenue shall be determined at gross amount. It shall not be reduced for
expenses paid through the tax system. Expenses of the government paid through the tax system or as reduction from
tax revenue received should not be offset or deducted from that tax revenue. Therefore, taxation revenue shall be
recognized at the gross amount and the expenses deducted shall be paid through the tax system are those expenses
which should be paid irrespective of recognized and shall forn part of the statement of financial performance.
Expenses whether the taxpayer pay taxes, or use a particular mechanism to pay taxes.
For example, the government may pay part of residents' health insurance premiums to encourage the update of such
insurance, either by reducing the individual's tax liability, making a payment by check or by paying an amount directly
to the insurance company. In these cases, the amount is payable irrespective of whether the individual pays taxes.
Consequently, this amount is an expense of the government and should be recognized separately in the Statement of
Financial Performance. Tax revenue should be increased for the amount of any of these expenses paid through the tax
system.

Taxation Revenue Shall Not Be Grossed Up for the Amount of Tax Expenditures
IPSAS 23. par. 73-74 states that tax expenditures are preferential provisions of the tax law that provide certain
taxpayers with concessions that are not available to others, Tax expenditures are foregone revenue, not expenses, and
do not give rise to inflows or outflows of resources that is, they do not give rise to assets, liabilities, revenue, or
expenses of the government.

Examples are the tax expenditure fund, which is a subsidy released by the DBM to government-owned or controlled
corporations and government financial institutions to settle customs duties and other taxes arising from the
importation of goods, and benefits granted to taxpayers like the tax credits.
Note that the key distinction between expenses paid through the tax system and tax expenditures is that for expenses
paid through tax system, the amount is available to recipients irrespective of whether they pay taxes. IPSAS 1.
Presentation of Financial Statements, prohibits the offsetting of items of revenue and expense unless permited by
another standard. The offsetting of tax revenue and expense paid through the tax system is not permitted.

Recognition of Asset through Transfers

As discussed in the preceding sections, an entity shall recognize an asset in respect of transfers when the transferred
resources meet the definition of an asset and satisfy the criteria for recognition as an asset.

Transfers include grants, debt forgiveness, fines, bequests, gifts, donations and goods and services in-kind Transfer
satisfy the definition of "non-exchange transactions" because the transferor provides resources to the recipient entity
without approximate equal value in exchange and are not taxes but some are with conditions. However, if an
agreement stipulates that the recipient entity is to provide approximately equal value in exchange, the agreement is not
a transfer agreement, but a contract for an exchange transaction that should be accounted for under IPSAS 9,
Revenue from Exchange Transactions. Therefore, it is important to note that an entity should analyze all stipulations
contained in transfer agreements to determine if it incurs a liability when it accepts transferred resources.
Recognition and Measurement - Debt Forgiveness and Assumption of Liabilities
In some circumstances, lenders will sometimes waive their right to collect a debt owed by a public sector entity,
effectively cancelling the debt. For example, an NGA may cancel a loan owed by an LGU. In such circumstance, the
LGU concerned recognizes an increase in net assets because a liability it previously recognized is extinguished.

Entities recognize revenue in respect of debt forgiveness when the former debt no longer meets the definition of a
liability or satisfies the criteria for recognition as a liability, provided that the debt forgiveness does not satisfy the
definition of a contribution from owners. Where a controlling entity forgives debt owed by a wholly owned controlled
entity, or assumes its liabilities, the transaction may be a contribution from owners. According to IPSAS 23, par. 87,
revenue arising from debt forgiveness is measured at the carrying amount of the debt forgiven.

Recognition and Measurement of Fines

Fines are economic benefits or services potential received or receivable by a public sector entity, from an individual or
other entity, as determined by a court or other law enforcement body, as a consequence of the individual or other
entity breaching the requirements of laws or regulations. Fines normally require an entity to transfer a fixed amount
of cash to the government and do not impose on the government any obligations which be recognized as a liability.
IPSAS 23, par, 89 provides that fines are recognized as revenue when the receivable meets the definition of an asset
and satisfies the criteria for recognition as an asset. Where an entity collects fines in the capacity of an agent, the fine
will not be recognized as revenue of the collecting entity. Assets arising from fines are measured at the best estimate of
the inflow of resources to the entity.

Recognition and Measurement of Bequests

A bequest is a transfer made according to the provisions of a deceased person's will. The past event giving rise to the
control of resources embodying future economic benefits or service potential for a bequest occurs when the entity has
an enforceable claim, for example on the death of the testator, or the granting of probate, depending on the laws of
the jurisdiction.

According to IPSAS 23, bequests which satisfy the definition of an asset are recognized as assets and revenue when it
is probable that the future economic benefits or service potential will flow to the entity and the fair value of the assets
can be measured reliably. Determining the probability of an inflow of future economic benefits or service potential
may be problematic if a period of time elapses between the death of the testator and the entity receiving any asset.
The entity will need to determine if the deceased person's estate is sufficient to meet all claims on it, and satisfy all
bequests. If the will is disputed, this will also affect the probability of assets flowing to the entity.
IPSAS 23 further provides that the fair value of bequeathed assets is determined in the same manner as for gifts and
donations. Where deceased estates are subject to taxation, the tax authority may already have determined the fair
value of the asset bequeathed to the entity, and this amount may be available to the entity. Bequests are measured at
the fair value of the resources received or receivable.

Recognition and Measurement of Gifts, Donations and Goods In-kind

According to IPSAS 23, gifts and donations are voluntary transfers of assets including cash or other monetary assets,
good in-kind and services in-kind that one entity makes to another, normally free from stipulations. The transferor
may be an entity or an individual. For gifts and donations of cash or other monetary assets and goods in-kind, the
receipt of the gift or donation normally gives rise to the control of resources embodying future economic benefits or
service potential.

Gifts and donations (other than services in-kind) are recognized as assets and revenue when it is probable that the
future economic benefits or service potential will flow to the entity and the fair value of the assets can be measured
reliably. With gifts and donations, the making of the gift or donation and the transfer of legal title are often
simultaneous, in such circumstances, there is no doubt as to the future economic benefits flowing to the entity.
Goods in-kind are tangible assets transferred to an entity in a non-exchange transaction, without charge, but may be
subject to stipulations. External assistance provided by multilateral or bilateral development organizations often
includes a component of goods in-kind. Goods in-kind are recognized as assets when the goods are received, or there
is a binding arrangement to receive the goods. If goods in-kind are received without conditions attached, revenue is
recognized immediately. If conditions are attached, a liability is recognized, which is reduced and revenue recognized
as the conditions are satisfied.

On initial recognition, gifts and donations including goods in-kind are measured at their fair value as at the date of
acquisition, which may be ascertained by reference to an active market, or by appraisal. An appraisal of the value of
an asset is normally undertaken by a member of the valuation profession who holds a recognized and relevant
professional qualification. For many assets, the fair value will be readily ascertainable by reference to quoted prices in
an active and liquid market. For example, current market prices can usually be obtained for land, non-specialized
buildings, motor vehicles and many types of plant and equipment.

Recognition and Measurement of Services In Kind

Services in-kind are services provided by individual to public sector entities in a non-exchange transaction. These
services meet the definition of an asset because the entity controls a resource from which future economic benefits or
service potential is expected to flow to the entity.
These assets are, however, immediately consumed and a transaction of equal value is also recognized to reflect the
consumption of these services in-kind. Some services in-kind do not meet the definition of an asset because the entity
has insufficient control over the services provided. In other circumstances, the entity may have control over the
services in-kind but may not be able to measure them reliably. be able to measure the fair value of certain services in-
kind. Such as professional or thus, they fail to satisfy the criteria for recognition as an asset. Entities may, howevet,
other services in-kind which are otherwise readily available in the national or international market.

Public sector entities may be recipients of services in-kind under voluntary of involuntary schemes operated in the
public interest. For example:
1. Technical assistance from other governments or international organizations
2. Persons convicted of offenses may be required to perform community service for public sector entity;
3. Public hospitals may receive the services of volunteers, and
4. Public schools may receive voluntary services from parents as teachers' aides or as board members.

IPSAS 23, par. 102 provides that due to the many uncertainties surrounding services in-kind, including the ability to
exercise control over the services, and measuring the fair value of the services, the entity is not required to recognize
services in-kind as revenue and as an asset but is encouraged to disclose the nature and type of services in-kind
received during the reporting period. Disclosures relating to services in-kind are only made if they are material.
For some public sector entities, the services provided by volunteers are not material in amount, but may be material in
nature.

Recognition and Disclosure of Pledges

Pledges are unenforceable undertakings to transfer assets to the recipient entity Pledges do not meet the definition of
an asset because the recipient entity is unable to control the access of the transferor to the future economic benefits or
service potential embodied in the item pledged. Agencies do not recognize pledged items as assets or revenue. If the
pledged item is subsequently transferred to the recipient entity, it is recognized as a gift or donation. Pledges may
warrant disclosure as contingent assets.

Advance Receipts of Revenue

IPSAS 23, par 105 provides that when an entity receives resources before a transfer arrangement becomes binding, the
resources are recognized as an asset when they meet the definition and satisfy the criteria for recognition as an asset
and recognized as a liability until the event that makes the transfer arrangement binding occurs, and all other
conditions under the agreement are fulfilled. When that event occurs and all other conditions under the agreement are
fulfilled, the liability is discharged and revenue is recognized.
Recognition and Measurement of Concessionary Loans
Concessionary loans are loans received by an entity at below nmarket terms. See 31 of the Government Accounting
Manual states that the portion of the loan that is repayable, along with any interest payments, is an exchange
transaction and is accounted for in accordance with IPSAS 29, Financial Instruments. According to IPSAS 23, par
105, an entity considers whether any difference between the transaction price (loan proceeds) and the fair value of the
loan on initial recognition is non-exchange transaction. When an entity determines that the difference between the
transaction price (loan proceeds) and the fair value of the loan on initial recognition is non-exchange revenue, an
entity recognizes the difference as revenue, except if a present obligation exists, e.g., where specific conditions imposed
on the transferred assets by the recipient result in a present obligation. Where a present obligation exists, it is
recognized as a liability. As the entity satisfies the present obligation, the liability is reduced and an equal amount of
revenue is recognized.

Grant with Conditions

If conditions are attached to a grant, a liability is recognized, which is reduced and revenue recognized as the
conditions are satisfied. If the government is required to recognize a liability in respect of any conditions relating to
assets recognized as a consequence of specific purposes, it does not recognize revenue until the condition is satisfied
and the liability is reduced. As an entity satisfies a present obligation recognized as a liability in respect of an inflow
of resources from a non-exchange transaction recognized as an asset, it shall reduce the carrying amount of the
liability recognized and recognize an amount of revenue equal to that reduction.

ILLUSTRATION:

The NG received a foreign grant amounting to P5 million for the construction of a railroad system. Under the
terms of the grant, the construction project shall be completed within a period of two years from the receipt
of the grant, otherwise, the money shall be returned to the grantor. The money can only be used as stipulated
and the NG is required to include a note in the financial statement detailing how the moncy was spent. The
Department of Public Works and Highways (DPWH) will be the implementing entity. The transactions shall
be recognized as follows:
Receipt of the Grant

Books of the NG-BTr

Account Title Account Code Debit Credit

Cash in Bank-Local Currency, Bangko Sentral nG Pilipinas 10102010 5,000,000

Other Deferred Credits 20501990 5,000,000

Receipt of grant directly credited to the account of the National Government Agency (NGA)
maintained by the Bangko Sentral ng Pilipinas.
Books of the Implementing NGA-DPWH

Account Title Account Code Debit Credit

Cash-MDS, Special Account 10104050 5,000,000

Subsidy from NG 40301010 5,000,000

Receipt of the NCA for the construction of the railroad system.

Purchasing of construction materials and payment for labor for the construction of a railroad system amounting
to 5,000,000.

Books of the Implementing NGA-DPWH

Account Title Account Code Debit Credit

Construction in Progress-Infrastructure 106990220 5,000,000

Cash-MDS, Special Account 10104050 5,000,000

Payment for the materials and labor for the construction of a railroad system.
Books of the NG-BTr

Account Title Account Code Debit Credit

Subsidy from the National Government 40301010 5,000,000

Cash-MDS, Special Account 10102010 5,000,000

Replenishment of MDS checks issued for payment of the materials and labor for the construction
of a railroad system.
Receipt of report from DPWH for the completion of the constuction of a railroad system amounting to 5,000,000.

Books of the NG-BTr

Account Title Account Code Debit Credit

Other Deferred Credits 20501990 5,000,000

Income from Grants and Donations in Cash 40402010 5,000,000

Income from grants and donations representing payment for expenses in connection with the grant
agreement.
Turnover and acceptance of completed Infrastructure Asset

Books of the Implementing NGA- DPWH

Account Title Account Code Debit Credit

Railway System 10633100 5,000,000

Construction in Progress- Infrastructure

10699020 5,000,000
Assets

Turnover and acceptance of completed railway system.

Dishonored Checks
RA 2031, Negotiable Instruments provides that a check is dishonored either by non-payment or non-acceptance.
Dishonor by non-payment occurs when (a) the check is duly presented for payment and payment is refused or cannot
be obtained; or (b) presentment is excused and the check is overdue and unpaid. Dishonor by non-acceptance
happens when (a) the check is duly presented for acceptance, and such an acceptance as is prescribed by law is refused
or cannot be obtained; or (b) presentment for acceptance is excused and the check is not accepted. A dishonored
check may also be defined as a check paid to the agency that was dishonored by the AGDB due to "Drawn Against
Insufficient Fund (DAIF)" or "Drawn Against Uncleared Deposits (DAUD)."

When a check drawn in favor of the government is not accepted by the drawee for any reason, the drawer shall
continue to be liable for the sum due and all penalties resulting from delayed payments. Where the reason for non-
acceptance by the drawee bank is insufficiency of funds, the drawer shall be criminally liable therefor.

A dishonored check shall be settled by tendering payment in cash or by certified check to the Collecting Officer
concerned. No other mode of payment shall be accepted. Upon settlement of the dishonored check in the manner
herein prescribed, the Collecting Officer shall not return the check to the payor concerned unless the latter first
surrenders the previous OR therefor. If the previous receipt is no longer available, sworn statement to the effect that it
has been lost or misplaced should be submitted by the payor. .
Dishonored checks shall remain in the custody of the "Collecting Officer, pending their redemption, unless the agency
head or the court shall direct otherwise, in which case appropriate receipts should be secured from the officer
authorized to take custody of the checks. The Collecting Officer shall immediately advise the transfer of custody of
the check.

Illustration:
At a seminar conducted by Agency A, several participants issued personal checks representing registration fees. When
deposited in the bank, one of the checks in the amount of P3,000 was dishonored. Accordingly, the official receipt
was cancelled After several days, the dishonored check was replaced and remitted to Bureau of Treasury.

The following journal entries shall be prepared for the above transactions:
Cancellation of OR due to Dishonored Checks

Account Title Account Code Debit Credit

Other Receivables 10305990 5,000,000

 Cash-Treasury/Agency Deposit, Regular 10104010 3,000

Cancellation of current year’s deposited collections due to dishonored checks.

Note: If the dishonored check pertains to prior year’s deposited collection, the journal entry would be:

Other Receivables 10305990 3,000

Accum, Surplus/(Deficit) 30101010 3,000

Cancellation of prior year’s deposited collections due to dishonored checks

 Redemption of Dishonored Checks

Account Title Account Code Debit Credit

Cash-Collecting Officers 101010 3,000

Other Receivables 10305990 3,000

Replacement of dishonored check

Cash-Treasury/Agency Deposit, Regular 10104010 3,000

Cash-Collecting Officers 10101010 3,000

Remittance of the replacement of dishonored check

Accounting for Cash Overage/Shortage of Collecting Officer/Disbursing Officer
Cash overage discovered by the Auditor that cannot be satisfactorily explained by the Collecting Officer/Disbursing
Officer shall be forfeited in favor of the government and an official receipt shall be issued by the Collecting
Officer/Cashier. The cash overage shall be taken up as Miscellaneous Income.

Cash shortage which is not restituted by the Collecting Officer/Disbursing Officer despite demand in writing by the
Auditor shall be taken up as receivable from the Collecting Officer/Disbursing Officer.

ILLUSTRATION - 1:

During cash examination by the resident auditor, cash overage in the amount of P500 was discovered in the
possession of the Collecting Officer. Said amount was forfeited and deposited in Bureau of Treasury.

The following journal entries shall be prepared to record the above transactions:
 Cash Overage

Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 500

Miscellaneous Income 40609990 5000

Forfeiture of cash overage of the collecting officer.

Cash-Treasury/Agency Deposit, Regular 10104010 500

Cash-Collecting Officers 10101010 500

Remittance of the forfeited cash overage to the BTr.

 ILLUSTRATION - 2:
The resident auditor of Agency AB discovered cash shortages of the following officers:

Collecting Officer 7,000

Disbursing Officer 3,000
Total 10,000

The accounting division was furnished with the auditor's memorandum pertaining to cash shortages. Eventually, the
accountable officers settled their shortages and the same were remitted to Bureau of Treasury.

The following journal entries shall be prepared to record the above transactions.
Cash Shortage

Account Title Account Code Debit Credit

Due from Officers and Employees 10305020 10,000

 Cash - Collecting Officers 10101010 7,000

Advances for payroll 19901020 3,000

Cash shortage of Collecting Officer/Disbursing Officer.

Note from the above journal entry, Advances for Operating Expenses or Advances for Payroll, whichever is appropriate,
was credited for the cash shortage of Disbursing Officer. This is because cash advances were granted to Disbursing
Officers.

Cash - Collecting Officers 10101010 10,000

Due from Officers and Employees 19901020 10,000

Restitution of cash shortage.

 Cash -Treasury/Agency Deposit, Regular 10104010 10,000

Cash- Collecting Officers 10101010 10,000

Remittance of restituted cash shortage to the BTr.

Other Receipts
Other receipts of NGAs shall be composed of, but not limited to, the following:

Refund of excess cash advances granted to officers and employees.

Cash advances may be classified into:

1. Advances to Officers and Employees - for official travels,

2. Advances for Operating Expenses - granted to regular disbursing officer for operating expenses of operating/field
units and foreign post not maintaining complete set of books;

3. Advances for Payroll - for payment of salaries, wages and other personnel benefits, and

4. Advances to Special Disbursing Officer (SDO) - for special purpose/time-bound undertakings to be liquidated
within specific period. It includes labor payroll for projects undertaken by administration. The same is credited upon
liquidation.
 ILLUSTRATION
The following excess cash advances granted to officers and employees of
Bureau ABC were made available:
Excess
Advances granted to employees for official travel. 20 000

Advances granted to disbursing officer for operating expenses. 30 000

Advances granted to disbursing officer for payroll. 10 000

The entire excess cash advances were collected by collecting officer and
remitted to Bureau of Treasury.

To reflect the above transactions, the following journal entries shall be prepared:
(For the related topic, Grant of Cash Advances, refer to the related transactions
illustrated in Chapter 5- Accounting for Disbursements and Related
Transactions.)
 Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 60,000

Advances for Officers and Employees 19901040 20,000

Advances for Operating Expenses 19901010 30,000

Advances for Payroll 19901020 10,000

Collection of refund of excess cash advances.

Cash -Treasury/Agency Deposit, Regular 10104010 60,000

Cash- Collecting Officers 10101010 60,000

Remittance of restituted cash shortage to the BTr.

 MISCELLANEOUS TRANSACTIONS
1. Responsibility over Government Funds and Property

It is the declared policy of the State that all resources of the govertiment sluill be managed,
expended or utilized in accordance with laws and regulations, and safeguarded against loss or
wastage through illegal or improper disposition, with a view to ensuring efficiency, economy
and effectiveness in the operations of government. The responsibility to take care that such
policy is faithfully adheral to rests directly with the chief or head of the government agency
concerned.

Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority
over the financial affairs, transactions, and operations of the governm agency.

The head of any agency of the government is immediately and primarily responsible for all
government funds and property pertaining to his agency. Persons entrusted with the
possession or custody of the funds or property under the agency head shall be immediately
responsible to him, without prejudice to the liability of either party to the government.
2. Accountability over Government Funds and Property

Every officer of any government agency whose duties permit or require the possession or
custody of government funds or property shall be accountable therefore and for the
safekeeping thereof in conformity with law. Every Accountable Officer (AO) shall be properly
bonded in accordance with law.

Transfer of government funds from one officer to another shall, escept as allowed by law or
regulation, be made only upon prior direction or authorization of the Commission or its
representative.

When government funds or property are transferred from one AO to another, or from an
outgoing officer to his successor, it shall be done upon properly itemized invoice and receipt
which shall invariably support the clearance to be issued to the relieved or outgoing officer,
subject to regulations of the Commission.
3. Liability over Government Funds and Property
Expenditures of government funds or uses of government property in violation of law or regulations
shall be a personal liability of the official or employee found to be directly responsible therefore.

Every officer accountable for government funds shall be liable for all losses resulting from the
unlawful deposit, use, or application thereof and for all losses attributable to negligence in the
keeping of the funds.

No AO shall be relieved from liability by reason of his having acted under the direction of a superior
officer in paying out, applying, or disposing of the funds or property with which he is chargeable,
unless prior to that act, he notified the superior officer in writing of the illegality of the payment,
application, or disposition. The officer directing any illegal payment or disposition of the funds or
property shall be primarily liable for the loss, while the AO who fails to serve the required notice shall
be secondarily liable.

When a loss of government funds or property occurs while they are in transit or the loss is caused by
fire, theft, or other casualty or force majeure, the officer accountable therefore or having custody
thereof shall immediately notify the Commission or the auditor concerned and, within 30 days or such
longer period as the Commission or auditor may in the particular case allow, shall present his
application for relief, with the available supporting evidence. Whenever warranted by the evidence,
credit for the loss shall be allowed. An officer who fails to comply with this requirement shall not be
relieved of liability or allowed credit for any loss in the settlement of his accounts.
Receipt of Subsidy/Assistance from other NGAS, LGUs, GOCCs
and Other Funds

ILLUSTRATION:

The Collecting Officer of Agency ABC received the following cash

subsidy/assistance and issued official receipts:

Subsidy from Bureau XYZ. P200 000

Assistance from local government of Bataan 100 000
Assistance from GSIS. 100 000

Accordingly, these collections were remitted to Bureau of Treasury

 Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 400,000

Subsidy from Other NGAs 40301020 200,000

Assistance from LGUs 40301030 100,000

Assistance from GOCCs 40301040 100,000

Receipt of Subsidy/ Assistance from other government agencies.

Cash -Treasury/Agency Deposit, Trust 10104030 400,000

Cash- Collecting Officers 10101010 600,000

Remittance of restituted cash shortage to the BTr.

PERFORMANCE BOND/SECURITY DEPOSITS
Receipts of performance bond posted by contractor/supplier to guaranty full and faithful performance of
their contract may be in the form of cash or certified checks

ILLUSTRATION
The Collecting Officer of Agency DEF received P20,000 cash for the performance bond from Contractor
X to guaranty full performance of their contract. Said amount was remitted to Bureau of Treasury.

The following journal entries shall be prepared to record the above transactions:

Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 20,000

Subsidy from Other NGAs 19901010 20,000

Receipt of Subsidy/ Assistance from other government agencies.

Cash -Treasury/Agency Deposit, Trust 10104010 20,000

Cash- Collecting Officers 10101010 20,000

Remittance of restituted cash shortage to the BTr.

Refund of overpayment of expenses
Receipts of refunds from officers, employees and suppliers/creditors resulting from overpayment of expenses.

ILLUSTRATION
Bureau A inadvertently overpaid its supplier by P5,000 for the office supplies it purchased. Accordingly, full
refund was received by Bureau A and remitted the same to Bureau of Treasury.
The following journal entries shall be prepared to record the above transactions:

Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 5,000

Office Supplies Expenses 50203010 5,000

Collection of refund of overpayment of expenses.

Cash -Treasury/Agency Deposit, Regular 10104010 5,000

Cash- Collecting Officers 10101010 5,000

Remittance of collections of refund or overpayment of expenses to BTr.

Collections made on behalf of another entity or non-government/private
organizations.
These are receipts of income, receivables or trust funds for the accoum of other NGAS, LGUS, GOCCs or
non-government/private organizations. These collections are later remitted to the government agencies or
non-government/private organizations concerned.

ILLUSTRATION
Agency X collected fees accruing to the University of the Philippines Legal Research Fund (UP-LRF) in the
amount of P3,000 and remitted the same to Bureau of Treasury. The UP legal research fund and Bureau of
Treasury appropriately recognized this in their respective books.
The following journal entries shall be prepared to record the above transactions:
Books of Agency

Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 3,000

Due to NGAs 50202050 3,000

Collection of fees accruing to the UP-LRF.

 Account Title Account Code Debit Credit

Due to NGAs 20201050 3,000

Cash collection Officers 10101010 3,000

Remmitance of collection to BTr for the account of UP-LRF.

Books of BTr

Account Title Account Code Debit Credit

Cash in Bank Local Currency, Saving Account 10101010 3,000

Cash-Treasury/ Agency Deposit, Trust 50202050 3,000

Receipt of remitted collections for UP-LRF.

Books of BTr

Account Title Account Code Debit Credit

Cash-Treasury/Agency Deposit, Trust 10104030 3,000

Trust Liabilities 20401010 3,000

Remitted collections for UP-LRF by other NGAs.

INTRA-AGENCY AND INTER-AGENCY FUND TRANSFER
Intra-agency Fund Transfer
These are cash received from central office/regional office/operating units of an entity for the
purpose of implementing specific projects.

ILLUSTRATION
In an intra-agency transaction, the Central Office (CO) of DOH made fund transfer to its Regional Office (RO) in
the amount of P500,000 for the implementation of its campaign against dengue in Zone A of Region X. Said
amount was accordingly remitted to Bureau of Treasury by the RO.
The following journal entries shall be prepared to record the above transactions:
Intra- entity Fund Transfer
Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 500,000

Due to Regional Offices 20301030 500,000

Receipt of Intra- entity Fund transfer.

Cash-Treasury/Agency Deposi,Trust 10104030 500,000

Cash-Collection Officers 10101010 500,000

Remittance of collection to BTr.

INTRA-AGENCY FUND TRANSFER
These are cash received from another entity for the purpose of implementing specific
projects. Under this fund transfer, the following accounting policies shall be observed:

1. A Memorandum of Agreement (MOA) shall be entered into by the Source Agency (SA) and
the Implementing Agency (IA) for the undertaking by the latter of the project of the former.
The Memorandum of Agreement (MOA) shall provide for the requirements for project
implementation and reporting

2. The fund to be transferred or sub-allotted to the IA shall be a) in an amount sufficient for

three months operation subject to replenishment upon submission of the reports of
disbursements by the IA, or by the total project cost, as may be determined by the Heads
of the two agencies in either case

3. The check shall be issued in the name of the LA for deposit to its trust account in its
authorized government depository bank. The IA shall issue its official receipt in
acknowledgment.
4. Depending on the MOA, the fund transfers may be treated as a) If the MOA provides a
condition that the fund shall be spent as specified and any excess shall be returned to the
SA, the IA shall recognize the receipt of the fond as asset at its fair value with a
corresponding liability, while the SA shall recognize a receivable corresponding to the fund
transfer, or b) If the MOA provides stipulations or no condition, the IA shall recognize the
receipt of the fund as asset at its fair value with a corresponding revenue, while the SA shall
recognize an expense corresponding to the fund transfer.

5. A separate subsidiary record for each account shall be maintained by the IA whether or
not a separate bank account is opened.

6. Within ten (10) days after the end of each month/end of the agreed period for the
Project, the IA shall submit the Report of Checks Issued (RCI) and the RCDiab to report the
utilization of the funds. Only actual project expenses shall be reported. The reports shall be
approved by the Head of the IA

7. The IA shall return to the SA any unused balance upon completion of the project, if
stipulated in the MOA.
8. The SA shall draw a JEV to take up the reports. The amount to take up the liquidation in
the RCI shall be net of the cash advances granted by the IA to its accountable officers.

9. The IA Auditor shall audit the disbursements out of the trust accounts in accordance
with existing COA Regulations

10. The Chief Accountant/Head of the Accounting Division/Unit of the IA shall, on the basis
of the Notice of Finality of Decision (NFD), record in the books of accounts any audit
disallowance as receivable.

11. When the IA is a Bureau/Regional Office of the SA, the procedures for centrally managed
projects shall be followed in accordance with entries herein provided.
ILLUSTRATION
Based on the Memorandum of Agreement for a land beautification project, Agency-"Source" of a national
government made an inter-agency transfer of fund to Agency "Implement" by issuing check in the amount
of P700,000, which was already obligated by Agency "Source" for that purpose. Upon receipt of the check,
Agency -"Implement" remitted this to Bureau of Treasury.

The following journal entries shall be prepared to record the above transactions:
Intra- entity Fund Transfer

Account Title Account Code Debit Credit

Cash-Collecting Officers 10101010 700,000

Due to NGAs 20201050 700,000

Receipt of inter-entity fund transfer.

Cash-Treasury/Agency Deposit,Trust 10104030 70,000

Cash-Collection Officers 10101010 70,000

Remittance of collection to BTr.

ACCOUNTING FOR CANCELLED CHECKS
Checks may be cancelled when they become stale, voided or spoiled. Note that pursuant
to Treasury Circular No. 03-2017, dated October 20, 2017, the validity of MDS checks has
been shortened from six months to three months from the date of issue. In other word, a
check is considered stale if it has been outstanding for ever three months

Stale, voided, or spoiled check shall be marked cancelled on its face and reported as
follows:

a. Voided, spoiled or unclaimed stale checks with the Cashier shall be reported as
cancelled in the List of Unreleased Checks that will be attached to the Registry of Checks
Issued (RCI).

b. New checks may be issued for the replacement of stale/spoiled checks in the hands of
the payees or holders in due course, upon submission of the stale'spoiled checks to the
Accounting Division/Unit. A certified copy of the previously paid DVs shall be attached to
the request for replacement. A JEV shall be prepared to take up the cancellation. The
replacement check shall be reported in the RCI
ILLUSTRATION
An MDS check issued by Agency Z of the national government in the amount of P20,000, for payment of a
professional services, becomes stale. Accordingly, the stale check, which is still, in the possession of the
payce, was cancelled and a new check is issued for replacement.

The following journal entries shall be prepared to record the above transactions:
Cancellation and Replacement of Stale/Voided/Spoiled MDS check issued in the current year

Account Title Account Code Debit Credit

Cash-Modified Disbursement
System (MDS), Regular
10104040 20,000

Accounts Payable 20101010 20,000

Cancellation of stale/voided/spoiled MDS checks.

Accounts Payable 20101010 70,000

Cash-Modified Disbursement
10104040 70,000
System (MDS), Regular

Replacement of stale/voided/spoiled MDS checks.

 Account Title Account Code Debit Credit

Cash-Modified Disbursement
10104040 20,000
System (MDS), Regular

Other Professional Services 50211990 20,000

Cancellation of stale/voided/spoiled MDS checks without replacement..

Note: If the MDS check was issued in prior year, the journal entry would be:

Cancellation and Replacement of Stale/Voided/Spoiled MDS check issued in the prior year

Account Title Account Code Debit Credit

Accumulated Surplus (Deficit) 30101010 20,000

Accounts Payable 20101010 20,000

Cancellation of stale/voided/spoiled MDS checks.

Accounts Payable 20101010 20,000

Cash-Modified Disbursement
10104040 20,000
System (MDS), Regular

Replacement of stale/voided/spoiled MDS checks.

Accumulated Surplus (Deficit) 30101010 20,000

Accounts Payable 50211990 20,000

Cancellation of stale/voided/spoiled MDS checks without replacement.

NOTE: If a commercial check was issued instead of MDS check, the journal entry would be
Cancellation and Replacement of Stale/Voided/Spoiled commercial check issued in the
current and prior year

Account Title Account Code Debit Credit

Cash in Bank-Local Currency, Current

10102020 20,000
Account

Accounts Payable 20101010 20,000

Cancellation of stale/voided/spoiled commercial checks.

Accounts Payable 20101010 20,000

Cash in Bank-Local Currency,

10102020 20,000
Current Account

Replacement of stale/voided/spoiled commercial checks.

 Accumulated Surplus (Deficit) 30101010 20,000

Other Professional Services 50211990 20,000

Cancellation of stale/voided/spoiled commercial checks without replacement.

ACCOUNTING FOR CANCELLED CHECKS

In view of the lifting of pre-audit, there are payments made by Disbursing Officers by cash or checks,
which at post audit are suspended/disallowed by the resident auditor. Disallowances shall be taken
up in the books of accounts only when they become final and executory. The Accountant shall
prepare the JEV to take up the Receivable-Disallowances/Charges and credit the appropriate
account for the current year of Accumulated Surplus/(Deficit) account if pertaining to expenses of
previous years

Cash settlement of disallowances shall be acknowledged through the issue of an official receipt and
reported by the Cashier in the Report of Collections and Deposit (RCD).
ILLUSTRATION
Assume that the ontity incurred overpayment of office supplies:
Amount paid P 100,000
Should be P 90,000
Overpayment P 10,000

The following journal entries shall be prepared to record the above transactions:

Recording of disallowances for current Year`s transaction

Account Title Account Code Debit Credit

Receivables - Disallowances/charges 10305010 10,000

Office Supplies Expense 50203010 10,000

Overpayment of purchased office supplies directly issued to end-user.

Cash - Collecting Officers 10101010 10,000

Receivables - Disallowances/charges 10305010 10,000

Settlement of disallowance.

Cash- Treasury/Agency Deposit, Regular 10104010 10,000

Cash - Collecting Officers 10101010 10,000

Deposit of collection.
 Recording of disallowances for prior year`s transaction

Account Title Account Code Debit Credit

Receivables - Disallowances/charges 10305010 10,000

Office Supplies Expense 30101010 10,000

Overpayment of purchased office supplies purchased during the prior year.

Cash - Collecting Officers 10101010 10,000

Receivables - Disallowances/charges 10305010 10,000

Settlement of disallowance.

Cash- Treasury/Agency Deposit, Regular 10104010 10,000

Cash - Collecting Officers 10101010 10,000

Deposit of collection.
REPORTING OF COLLECTIONS AND DEPOSITS
Receipts and deposits shall be reported as follows:

At the close of the business day, the Collecting Officers shall prepare the Report of Collections
and Deposits (RCD) for submission to Accounting Office/Unit. The report lists all the ORs
issued in numerical sequence including cancelled ones.

The RCD shall be supported by documentary evidence such as duplicate copies of ORs and
validated deposit slips.

The Collecting government entity issuing electronic Official Receipt (OR) should generate and
submit daily to the Auditor a copy of the RCD. In case the collection system is not integrated
with the accounting system, the Accounting Division/Unit shall recognize the collections and
deposits based on the generated reports duly certified by the Collecting
Officer/Cashier/Head of Cash/Treasury Unit.

Field Offices (FOs)/Operating Units (OUs) without complete set of books shall record their
collections of income chronologically in the Cash Receipts Register (CRReg). The certified
copy of the CRReg together with the required supporting documents, duplicate copies of ORs
and Deposit Slip (DSs) shall be submitted within five (5) days after the end of each month to
the concemed mother unit (central/regional/division office) by the FOs (a unit under the
central/regional/division office) for review and recording of the transactions in the CRJ by the
Chief Accountant.
THANK YOU