THE NEW GOVERNMENT ACCOUNTING SYSTEM MANUAL

For Local Government Units Chapter 1. INTRODUCTION Sec. 01. Objectives of the Manual. The New Government Accounting System Manual presents the basic policies and procedures; the new coding system and chart of accounts; the accounting books, reports/forms and financial statements, and illustrative accounting entries to be adopted by all local government units effective January 1, 2002. The objectives of the Manual are to prescribe the following: a. Uniform guidelines and procedures in accounting for government funds and property; b. New coding structure and new chart of accounts; and c. New accounting books, reports/forms, financial statements and accounting entries. Sec. 02. Coverage. This Manual shall be used by all local government units (LGUs). Sec. 03. Legal Basis. This Manual is prescribed by the Commission on Audit pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines which provides that: "The Commission on Audit shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties". (underscoring supplied)

Chapter 2. BASIC FEATURES AND POLICIES Sec. 04. Basic Features and Policies. The new government accounting system has the following basic features and policies, to wit: a. Accrual Accounting. A modified accrual basis of accounting is used. Under this method, all expenses shall be recognized when incurred. Income shall be on accrual basis (e.g. Share from Internal Revenue Collections) except for transactions where accrual basis is impractical (e.g. Market Fees) or when other methods may be required by law. b. One Fund Concept. This system adopts the one fund concept. Separate fund accounting shall be done only when specifically required by law or by a donor agency or when otherwise necessitated by circumstances subject to prior approval of the Commission. As required under Sections 308, 309 and 310 of the Local Government Code, separate books shall be maintained for the General Fund, Special Education Fund and Trust Fund. c. Special Accounts in the General Fund. Special accounts in the General Fund complete with subsidiary ledgers, shall be maintained for the following: 1. Public utilities and other economic enterprises; 2. Loans, interests, bonds issued, and other contributions for specific purposes; 3. Development projects funded from the Share in the Internal Revenue Collections; and 4. Such other special accounts which may be created by law or ordinance. d. Chart of Accounts and Account Codes. A new coding structure and a new chart of accounts with a three-digit account numbering system shall be adopted.

e. Books of Accounts. follows:

The Books of Accounts are as

Journals Cash Receipts Journal (CRJ) Cash Disbursements Journal (CDJ) Check Disbursements Journal (CKDJ) General Journal (GJ) Ledgers General Ledger (GL) Subsidiary Ledgers, where applicable for: Cash Receivables Inventories Investments Property, Plant and Equipment Liabilities Income Expenses

All the above records shall be maintained by the accounting unit of the LGUs. However, treasurers and disbursing officers shall also maintain their respective cash records such as: Cashbook Cash in Treasury Cashbook Cash in Bank Cashbook Cash Advances

The Treasurers/Collectors shall prepare the Report of Collections and Deposits (RCD) daily and the Report of Accountability for Accountable Forms (RAAF) monthly. f. Financial Statements. be prepared: The following statements shall

Balance Sheet Statement of Income and Expenses Statement of Cash Flows

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Notes to Financial Statements shall accompany the above statements. g. Trial Balance. shall be used. The two money-column trial balance

h. Appropriations, Allotments and Obligations. Journal entry shall no longer be prepared to record the appropriations, receipt of allotments and incurrence of obligations. In lieu of this, separate registries shall be maintained by the Accounting Unit to control the appropriations, allotments and obligations for each of the four classes of expenditures, namely: 1. Registry of Appropriations, Allotments and Obligations Capital Outlay (RAAOCO) 2. Registry of Appropriations, Allotments and Obligations Maintenance and Other Operating Expenses (RAAOMO) 3. Registry of Appropriations, Allotments and Obligations Personal Services (RAAOPS) 4. Registry of Appropriations, Allotments and Obligations Financial Expenses (RAAOFE). i. Financial Expenses. Financial expenses such as bank charges, interest expenses, commitment fees and other related expenses shall be separately classified from Maintenance and Other Operating Expenses (MOOE). Perpetual Inventory of Supplies and Materials. Supplies and materials purchased for inventory purpose shall be recorded using the perpetual inventory system. Regular purchases shall be coursed thru the inventory account and issuances thereof shall be recorded as they take place except those purchased out of petty cash fund which shall be for immediate use and not for stock. Such case shall be charged immediately to the appropriate expense accounts.

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k. Valuation of Inventory. Cost of ending inventory of supplies and materials shall be computed using the moving average method.

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Maintenance of Supplies and Property, Plant and Equipment Ledger Cards. The Accounting Unit shall maintain Supplies Ledger Cards by stock number and Property, Plant and Equipment Ledger Cards by category of assets.

m. Construction of Assets. For assets under construction, the Construction Period Theory shall be applied for costing purposes. Bonus paid to the contractor for completing the work ahead of time shall be added to the total cost of the project. Liquidated damages charged and paid for by the contractor shall be deducted from the total cost of the asset. Any related expenses incurred during the construction of the project, such as, license fees, permit fees, clearance fees, etc. shall be capitalized. n. Public Infrastructures. Public infrastructures are assets for use of the general public, such as roads, bridges, waterways, railways, plazas, monuments, etc. A Registry of Public Infrastructures (RPI) shall be maintained according to classification to record all infrastructures for use of the general public. The following are the Registries to be maintained, classified by category of property, plant and equipment: 1. Registry of Public Infrastructure Bridges (RPIB) 2. Registry of Public Infrastructure Roads (RPIR) 3. Registry of Public Infrastructure Plazas, Monuments, etc. (RPIP) During construction these infrastructures shall be recorded in the books under the account Construction in Progress. Upon completion, the completed asset shall be transferred to the account Public Infrastructure . At the end of the year, completed assets under Public Infrastructure shall be transferred to the respective registry. Completed public infrastructures funded out of a loan shall, however, be retained in the books of accounts until the loan is fully paid.

A Summary of all Public Infrastructures (based on the different registries) shall be prepared annually and included in the Notes to Financial Statements. o. Depreciation. The straight-line method of depreciation shall be used. A residual value equivalent to ten percent (10%) of the cost shall be set-up and depreciation shall start on the second month after purchase/completion of the property, plant and equipment. Public infrastructures shall not be charged any depreciation. p. Reclassification of Obsolete and Unserviceable Assets, as well as Assets No Longer Used by the Agency to Other Assets Account. Assets declared by proper authorities as obsolete and unserviceable, including assets of the agency no longer used, shall be reclassified to Other Assets account from the corresponding inventory and property, plant and equipment accounts. q. Allowance for Doubtful Accounts. An Allowance for Doubtful Accounts shall be set up for estimated uncollectible receivables. This will allow for a fair valuation of receivables. Allowance for Doubtful Accounts shall be provided only for trade receivables. r. Elimination of Contingent Accounts. Contingent accounts shall no longer be used. All financial transactions shall be recorded using the appropriate accounts. Cash shortages and disallowed payments shall be recorded under receivable accounts Due From Officers and Employees and Receivables Disallowances/Charges, as the case may be. s. Recognition of Liability. Liability shall be recognized at the time goods and services are accepted or rendered and supplier/creditor bills are received. t. Interest Accrual. Whenever applicable and appropriate, interest income and/or expense shall be accrued and recognized in the books of accounts.

u. Accounting for Borrowings and Loans. All borrowings and loans incurred shall be recorded direct to the appropriate liability accounts. v. Elimination of corollary and negative entries. The use of corollary and negative entries shall be stopped. Acquisition/Disposition of assets shall be debited/credited direct to the appropriate asset accounts. If an error is committed, a correcting entry shall be prepared to adjust the original entry.