Chapter 3.

ACCOUNTING SYSTEM

A. GENERAL ACCOUNTING PLAN

Sec. 05. General Accounting Plan. – The General

Accounting Plan shows the overall accounting cycle in the Local
Government Unit. Transactions shall emanate from the different
offices/departments of the local government units (LGUs). These
offices/departments will provide/produce the source documents and
other accounting forms leading to the perfection of the transaction,
whether it be budgetary, collections or disbursements. The source
documents and accounting forms shall be the basis for the
preparation of reports by the Office of the Treasurer. The Office of
the Accountant shall record the transactions to the registries or to the
corresponding books of original entry. Posting to the books of final
entry and preparation of the financial reports shall also be undertaken
by the Office of the Accountant.

The General Accounting Plan (Table 1) is presented as to the

following type of transactions:

a. Appropriations, Allotments and Obligations

b. Collections and Deposits
c. Disbursements –
 By cash
 By check
d. Miscellaneous and Other transactions

B. BUDGETARY ACCOUNTS

Sec. 06. Budgetary Accounts. – Budgetary accounts are

composed of appropriations, allotments and obligations.

Sec. 07. Accounting for Appropriations. – Appropriation

refers to an authorization made by ordinance, directing the payment
of goods and services from local government funds under specified
conditions or for specific purposes.

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INSERT HERE TABLE 1

GENERAL ACCOUNTING PLAN (MS Excel file)

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 The local sanggunian approves the annual budget thru
the issuance of appropriation ordinance. On the first business
day of the fiscal year, the entire annual budget of the local
government unit shall be recorded in the Registry of
Appropriations, Allotments and Obligations (RAAO). The
appropriations, in the amounts approved by the legislative body
and confirmed by the reviewing authorities, are recorded in the
registries maintained by the accountant where they may be
compared with the actual developments of the period.

Budgetary reserves which are stand by appropriations ready

for release in case of calamities, as well as supplemental budget are
similarly recorded in the RAAO. In case the LGU is operating on a
re-enacted budget, said re-enacted budget shall likewise be recorded
in the registry. Once current budget is approved, the necessary
adjustments shall be made in the registry.

Separate registries shall be maintained for the four classes of

expenditures per responsibility center, to wit:

a. Registry of Appropriations, Allotments and

Obligations - Capital Outlays (RAAOCO)
b. Registry of Appropriations, Allotments and
Obligations - Maintenance and Other Operating
Expenses (RAAOMO)
c. Registry of Appropriations, Allotments and
Obligations - Personal Services (RAAOPS)
d. Registry of Appropriations, Allotments and
Obligations - Financial Expenses (RAAOFE)

Sec. 08. Accounting for Allotments. – Allotment is the

authorization issued by the Local Chief Executive (LCE) to a
department/office of the LGU, which allows it to incur obligations,
for specified amounts, within the appropriation ordinance.
Allotments are released quarterly based on the Work and Financial
Plan and Request for Release of Allotment. The Accountant, upon
receipt of the Advice of Allotment, shall enter the allotment in the
RAAOs.

Sec. 09. Accounting for Obligations. – Obligations refer to

the amounts committed to be paid by the LGU for any lawful act

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made by an accountable officer for and in behalf of the local
government unit concerned.

Obligations shall be taken up in the registries as they are

incurred. For each obligation, the requesting department/office shall
prepare the Allotment and Obligation Slip (ALOBS) signed by the
department or office head as requesting official and forward this,
together with the supporting documents, to the Budget Officer.

The Budget Officer shall certify to the existence of

appropriation that has been legally made for the purpose by signing
the appropriate box in the ALOBS and assign the ALOBS number
thereto. The Accountant shall review the ALOBS and certify as to
obligation of the allotment by signing the appropriate box in the
ALOBS. He shall also fill up the Status of Obligation. The
Accountant shall record the amount of obligation in the RAAOs.

Sec. 10. Adjustment of Obligations. – The Chief

Accountant shall record paid disbursement vouchers in the Status of
Obligation portion (Payments) of the ALOBS. Any balance
appearing in the ALOBS after full payment of obligations shall form
part of unobligated allotment. The Chief Accountant shall adjust
accordingly the amount of recorded obligations in the RAAO using
the same ALOBS number as reference. At the end of each month,
the Chief Accountant and the Budget Officer shall reconcile their
records on allotments available for obligation.

Sec. 11. Accounting Procedures for Budgetary Accounts.

– Summarized hereunder is the process in accounting for budgetary
accounts:

PROCESS PERSON / UNIT

RESPONSIBLE

a. Records in the Office of the

appropriate RAAOs the approved Accountant
appropriation per Appropriation
Ordinance.

b. Forwards the advice Office of the Budget

of allotments to the Office of the Officer
Accountant and returns the work plan
to the concerned departments/ offices.

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 PROCESS PERSON / UNIT
RESPONSIBLE

c. Enters the allotments Office of the

in the RAAOs. Accountant

d. Prepares ALOBS Heads of

based on disbursement departments/offices
vouchers/purchase requests and/or
supporting documents. Signs the
appropriate box for requesting office.
Forwards the same to the Office of
the Budget Officer.

e. Certifies the ALOBS Budget Officer

as to the existence of appropriations
based on the appropriation ordinance.
Assigns ALOBS number and
forwards the same to the Office of the
Accountant.

f. Certifies the ALOBS Chief Accountant

as to the obligations of allotments.
Records the obligation in the
appropriate column of the RAAOs
and in the Status of Obligation
portion (Obligation) of the ALOBS.

g. Records paid Office of the

disbursement vouchers in the Status Accountant
of Obligation portion (Payments) of
the ALOBS. Any balance appearing
in the ALOBS after full payment of
obligations shall form part of
unobligated allotment. Adjust
accordingly the amount of recorded
obligations in the RAAOs.

h. At the end of each Budget Officer and

month, reconcile records on Chief Accountant
allotments available for obligation.

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 Sec. 12. Terminology and Classification. – A common
terminology and classification shall be used consistently throughout
the budget, the accounts and the financial reports.

For this purpose, the following specific expenditures shall be

recorded in the appropriate RAAOs:

a. RAAOCO –
 Investments outlay (e.g. stocks, bonds)
 Land, Land Improvements and Leasehold
Improvements outlay
 Buildings and Other Structures outlay (e.g.
school buildings, markets and
slaughterhouses, hospital and health centers,
etc.)
 Public Infrastructures outlay (e.g. parks, plaza,
monuments, bridges etc.)
 Furniture and Fixtures outlay
 Work Animals outlay
 Breeding stocks
 Machineries and Equipment outlay (e.g. dump
trucks, construction equipment, industrial
machineries, technical and scientific
equipment, etc.)
 Aircrafts, Trains and Motor Vehicles outlay (e.g.
motorcycles, cars, vans, etc.)
 Artesian Wells, Reservoirs, Pumping Stations
and Conduits outlay
 Books outlay
 Ordnance outlay
 IT Equipment and Software outlay
 Other Property, Plant and Equipment outlay
 Reforestation Projects
 Arts, Archeological Specimen and Other
Exhibits

b. RAAOPS –
 Salaries and Wages (e.g. regular pay, part-time
pay, overtime and night pay, holiday pay, etc.)
 Allowances (e.g. PERA, hazard pay, RATA,
etc.)

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  Benefits (e.g. bonus, cash gifts, productivity,
pension, etc.)
 Government Shares on Employees’
Contributions

c. RAAOMO –
 Subsidies (e.g. Subsidy to LGUs, Subsidy to
Other Funds, etc.)
 Livestock (e.g. swine, hogs, chicken, goats, etc.)
 Crops
 Supplies (e.g. office, medical, dental and
laboratories, spare parts, gasoline and oil, etc.)
 Repairs and Maintenance
 Printing and Binding
 Travel
 Consultancy
 Light, Water and Gas
 Communication (e.g. telephone, telegraph,
internet, postage, etc.)
 Auditing Services
 Other Services (e.g. janitorial, security, hauling,
etc.)
 Extraordinary and Miscellaneous Expenses
 All other expenditures in the Chart of Accounts
for MOOE, except depreciation, obsolescence,
bad debts, loss on sale of assets, loss of assets,
discount on Real Property Tax and Special
Education Tax.

d. RAAOFE –
 Bank Charges
 Interest Expenses
 Commitment Charges
 Other Financial Charges (e.g. underwriting
fees, guarantee fees)
 Loan Amortization

C. INCOME/COLLECTIONS AND DEPOSITS

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 Sec. 13. Separation of Books and Depository Accounts. –
Local accountants and treasurers shall maintain separate books and
depository accounts, respectively, for each fund in their custody or
administration.

Sec. 14. Depository Accounts. – Local treasurer shall

maintain depository accounts in the name of their respective local
government units with banks, preferably government-owned, located
in or nearest to their respective areas of jurisdiction. Earnings of its
depository accounts shall accrue exclusively thereto.

Sec. 15. Remittance of Government Monies to the Local

Treasury. – Officers of the local government authorized to receive
and collect monies arising from taxes, revenue, or receipts of any
kind shall remit the full amount received and collected to the treasury
of such local government unit which shall be credited to the
particular account or accounts to which the monies in question
properly belong.

Sec. 16. Sources of Income of LGUs. – The main sources

of income of LGUs are as follows:

a. Tax revenues, fees and charges

b. Share from Internal Revenue Collections
c. Share from National Wealth

The sources of income are further classified into general

income accounts and specific income accounts.

Sec. 17. General Income Accounts. – The following shall

comprise the General Income Accounts applicable to LGUs:

a. Subsidy from Other LGUs

b. Subsidy from Other Funds
c. Subsidy from Special Accounts
d. Sales Revenue
e. Dividend Income
f. Interest Income
g. Gain on Sale of Securities
h. Gain on Sale of Assets
i. Sale of Confiscated Goods and Properties
j. Foreign Exchange (FOREX) Gains

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 k. Miscellaneous Operating and Service
Income
l. Fines and Penalties – Government Services
and Business Operations
m. Income from Grants and Donations

Sec. 18. Specific Income Accounts. – The following major

classification comprise the specific income accounts for LGUs:

1. Property Taxes
2. Taxes on Goods and Services
3. Other Taxes
4. Other Specific Income

Sec. 19. Methods of Accounting for Income. – The

following accounting methods shall be adopted in recording income:

a. Accrual Method –
Accrual method of accounting shall be used to record
Share from Internal Revenue Collections in the books of
accounts. Upon receipt of the Notice of Funding Check
Issued from Department of Budget and Management
(DBM), Share from Internal Revenue Collections shall
be taken up as Due from NGAs and credited to Share
from Internal Revenue Collections. However, Cash in
Bank shall be debited upon receipt of Bank Credit
Advice as to receipt of the Share from Internal Revenue
Collections regardless of whether or not the Notice of
Funding Check Issued has been received from DBM.

b. Modified Accrual –
Modified accrual method of accounting shall be used for
real property taxes. At the beginning of the year, Real
Property Tax Receivable and Special Education Tax
Receivable shall be established. This is in view of the
need to record in the books not mere income estimates
from real property taxes but actual receivables from said
taxes. However, to avoid appropriating uncollected
revenues which might result to huge cash overdraft, the
same shall be credited to Deferred Real Property Taxes
Income/Deferred Special Education Tax Income. Real
Property Tax Income/Special Education Tax Income
shall be recognized upon receipt of collection.

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 c. Cash Basis – Cash
basis of accounting shall be used for all other taxes,
fees, charges and other revenues.

Sec. 20. Basis of Recording Real Property Tax/Special

Education Tax. – Real Property Tax Receivables/Special Education
Tax Receivables shall be established at the beginning of the year
based on Real Property Tax Account Register/Taxpayer’s index card.
At the beginning of the year, the Treasurer shall furnish the Chief
Accountant of a duly certified list showing the name of taxpayers
and the amount due and collectible for the year. Based on the list,
the Chief Accountant shall draw a Journal Entry Voucher (JEV) to
record the debit to Real Property Tax Receivable/Special Education
Tax Receivable and crediting to Deferred Real Property Tax
Income/Deferred Special Education Tax Income.

Upon collection of Real Property Taxes from taxpayers, the

account Deferred Real Property Tax Income/Deferred Special
Education Tax Income shall be debited while the Real Property Tax
Income due to the municipality is recognized/credited. The share of
the Province and Barangay shall also be credited to Due to LGUs.

Every end of the week, thereafter the Municipal Accountant

shall furnish the Provincial Accountant with a summary of the JEVs
showing the breakdown of the amounts Due to LGUs. The
summary, which shall be supported with copies of the JEVs, shall be
the basis of the Provincial Accountant to draw the JEV taking up the
RPT Income. The account Due from LGU shall be debited and Real
Property Tax Income credited.

At the end of the month, the Municipal Accountant shall

likewise prepare the Abstract of Real Property Tax to facilitate the
distribution of real property tax collection. A copy of the abstract
shall be furnished the Provincial Accountant, for purposes of
reconciliation with the weekly summary of JEVs.

Sec. 21. Delinquencies for Real Property Tax/Special

Education Tax Prior to CY 2002. – Payment of delinquencies for
real property taxes/special education taxes prior to CY 2002 shall be
recognized as a direct credit to Real Property Tax Income/Special
Education Tax Income account.

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 Sec. 22. Discount on Real Property Tax/Special
Education Tax. – Discounts for advance and prompt payment of
Real Property Tax and the additional one percent (1%) tax accruing
to the Special Education Fun shall be recognized in the year the taxes
are due. Said discounts shall be apportioned to the concerned LGUs
in accordance with the sharing prescribed for real property tax and
additional one percent (1%) tax under the Local Government Code.
Sec. 23. Fines and Penalties. – Fines and Penalties, either
from tax revenue or other specific income, shall be recognized as
income of the year it was collected.

Fines and Penalties arising from real property taxes shall be

distributed to concerned LGUs in accordance with the sharing
prescribed under the Local Government Code for Real Property Tax
and the additional one percent (1%) tax for the Special Education
Fund.

Sec. 24. Other Receipts. – Other receipts of the local

government units shall be comprised of, but not limited to, the
following:

a. Borrowings
b. Sale of Property, Plant and Equipment
c. Refund of Cash Advances
d. Receipt of Performance/Bidders’ Bonds

Sec. 25. Borrowings. – Borrowings are proceeds of

repayable obligations, generally with interest from the bank, national
agency, another local government unit, and private sector. All
borrowings incurred shall be recorded direct to the appropriate
liability accounts. Upon receipt of the advice from the bank or
lending agency informing the release of the proceeds, the Accountant
shall draw a Journal of Entry Voucher taking up the transaction.

Sec. 26. Sale of Property, Plant and Equipment. – Sale

of property, plant and equipment refers to the proceeds from the sale
of land, buildings, equipment, furniture and other similar property
which are recorded in the books as Property, Plant and Equipment.
The appropriate Property, Plant and Equipment account shall be
credited upon transfer of ownership.

Sec. 27. Refund of Cash Advances. – Cash advances for

official travel shall be taken up as a receivable from the concerned

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official or employee. Refunds made shall be credited to the
receivable account previously set up. Cash advances for salaries and
wages shall be recorded as debits to the account Cash – Disbursing
Officer. Any refund made shall be credited to this account.

Sec. 28. Receipt of Performance Bonds. – Performance

bond posted by contractor or supplier to guaranty full and faithful
performance of the their work may be in the form of cash, certified
check or surety. Performance bond in cash or certified check shall be
acknowledged by the issuance of official receipt and recorded in the
books by the Accountant drawing a JEV for the purpose. In case of
surety bond, an acknowledgment receipt shall be issued by the
authorized official.

Sec. 29. Reporting for Collections and Deposits. –

Collectors/tellers shall issue a receipt to acknowledge collections
made. The receipt maybe in the form of pre-numbered Official
Receipts, or cash tickets and the like. At the close of each business
day, these collectors/tellers shall accomplish the Report of
Collections and Deposits (RCD) in four copies. The original and
two copies, together with the duplicates of the official receipts
issued, shall be submitted to the treasurer/cashier to whom the cash
collected shall be turned over. The fourth copy of the RCD shall be
retained by the collector/teller concerned. Barangay Treasurers
deputized to collect taxes imposed by provinces, cities and
municipalities shall follow the same procedures in turning over their
collections to the treasurer/cashier concerned.

In the case of collectors assigned to the field, where travel

time from their places of assignment to the Treasurer’s Office is
more than one day, turnover of collections shall be made at least
once a week or as soon as the collections reach P5,000.00.

Sec. 30. Verification of Collections and Accountable

Forms. – The Treasurer/Cashier shall verify the Report of
Collections and Deposits; check the statement of accountable forms
as to initial balances on hand, receipts, issues and the ending
balances on hand; make a physical count of the accountable forms
remaining in the custody of the collector/teller and check the same
against the new balances on hand column. He shall indicate his
verification by affixing his signature at the back of the triplicate copy
of the last official receipt issued. He shall count the money turned

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over to him and sign the certification and receipt portion of all copies
of RCD.

Sec. 31. Designation of Liquidating Officers. – The

Treasurer may designate liquidating officers from among the
collectors/tellers whenever necessary.

a.
Collectors/tellers shall turn over their collections to their
designated liquidating officer. The RCD shall however
be prepared in five copies, four copies to be submitted to
the liquidating officer, the fifth copy to be retained by
the collector/teller.

b.
The liquidating officer shall perform the procedures for the
receipt and verification of collections turned over to him.
He shall also accomplish the RCD in four copies to
summarize the collections turned over to him by the
collectors/tellers as well as his own collections.

c.
The liquidating officer shall turn over intact the cash
collections to the Treasurer/Cashier together with the
originals and two copies of the RCDs of
collectors/tellers and the duplicates of the official
receipts issued. The Treasurer/Cashier shall
acknowledge receipt of the cash and all accompanying
documents by signing all copies of the RCD of
liquidating officer on the certification and receipt portion
of the form. The fourth copy of the RCD of the
liquidating officer and RCDs of collectors/tellers shall
be retained by the liquidating officer.

Sec. 32. Deposit of Collections. – The Treasurer/Cashier

shall deposit intact all his collections as well as all collections turned
over to him by the collectors/tellers with the authorized depository
bank daily or not later than the next banking day. He shall record all
deposits made in the cashbook and prepare the RCD.

The barangay treasurer shall deposit all collections intact

with the city/municipal treasurer, or in a depository bank account

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maintained in the name of the barangay, within five (5) days from
receipt thereof.

Sec. 33. Deposit of Field Collections. – Collections by

field collectors shall be remitted to the Cashier or designated
liquidating officer of the field office of the LGU. When travel
distance of the field office to the local treasury may expose
government funds to the risk of loss while in transit, the Cashier or
designated liquidating officer, upon authorization by the Treasurer,
may deposit the collections in the authorized depository bank near
the field office of the LGU. The procedures in reporting collections
and deposits prescribed in this Chapter shall be observed.

Sec. 34. Accounting for Collections and Deposits. – The

Accountant shall determine the account classification of the
collections covered by the RCD and the supporting papers submitted
by the Treasurer/Cashier and shall accomplish the Journal Entry
Voucher. The accountant shall also maintain the Abstract of Real
Property Tax Collections to facilitate the distribution and remittance
of the shares of the different government units concerned in the real
property tax collections.

Sec. 35. Receipts and Collection Process. – The following

is a summary of the receipt and collection process in the LGU:

PROCESS PERSON / UNIT

RESPONSIBLE

a. Receive payment Collector/Teller

from taxpayers/ creditors and issue
Official Receipt (OR). Prepare
Report of Collections and Deposits.
Remit to the Liquidating Officer (if
one is designated) or Treasurer.

b. Check remittances Liquidating

and verifies accountable forms of Officer
collectors/tellers. Consolidates
collections and remits to the
Treasurer/Cashier. Prepares RCD.

c. Receive remitted Treasurer

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 PROCESS PERSON / UNIT
RESPONSIBLE
collections, consolidates the same
and prepares RCD. Records in the
Cashbook – Cash in Treasury.

d. Deposit collections Treasurer

in the appropriate bank account per
authorized depository bank. Records
deposit in the Cashbook – Cash in
Bank.

e. Forward RCD to Treasurer

Accounting Unit with copies of ORs
and validated deposit slips.

f. Prepare Journal of Accountant

Entry Voucher and record in the Cash
Receipt Journal.

Sec. 36. Pro–forma Accounting Entries. – The following

are pro-forma accounting entries for income, collection and deposit:

Acct.
Particulars Account Title Code Debit Credit

INCOME

1. Real Property Tax – Basic

A. Books of the
Municipality

a. Setting-up of RPT Real Property Tax

Receivable Receivable 124 1,000
RPT = P1,000 Deferred Real
RPT Sharing: Property Tax Income 448 1,000
Municipal - 40%
Province - 35%
Barangay - 25%

b. Receipt of Cash in Treasury 101 100

Payment Real Property Tax
Receivable 124 100

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 Acct.
Particulars Account Title Code Debit Credit
c. Distribution of Deferred Real Property
Collection Tax Income 448 100
RPT Sharing: Real Property Tax 711 40
Municipal - 40% Due to LGUs 431 60
Province - 35%
Barangay - 25%

d. Deposit of Collections Cash in Bank – LCCA 110 100

Cash in Treasury 101 100

e. Remittance of Share Due to LGUs 431 35

(Province) Cash in Bank – LCCA 110 35

f. Remittance of Share Due to LGUs 431 25

(Barangay) Cash in Bank – LCCA 110 25

B. Books of the
Province

a. Upon receipt of the Due from LGUs 131 35

Summary of the JEV Real Property Tax 711 35
from the Municipal
Accountant

b. Upon receipt of share Cash in Bank – LCCA 110 35

Due from LGUs 131 35

2. Operating and Service Income

a. Receipt of Income Cash in Treasury 101 100

Receipts from Markets 783 90
Garbage Fees 772 10

b. Deposit of Collections Cash in Bank – LCCA 110 100

Cash in Treasury 101 100

3. Share from Internal Revenue Collections

a. Receipt of Notice of Cash in Bank –LCCA 110 1,000

Funding Check Issued Share from Internal
from the DBM and Revenue Collections 746 1,000
credit memo from
the bank for Share
from Internal Revenue
Collections

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 Acct.
Particulars Account Title Code Debit Credit
b. Receipt of Notice of Due from NGAs 130 1,000
Funding Check Issued Share from Internal
from the DBM for Revenue Collections 746 1,000
Share from Internal
Revenue Collections

4. Grants and Donations

a. Receipt of grants and Cash in Treasury 101 100

donations in cash Income from Grants
(Donations in kind and Donations 651 100
shall be booked-up
using the appropriate
asset account)

b. Receipt of grants and Motor Vehicles 218 800

donations in kind - Invested Equity 537 800
Motor Vehicle:
Original Cost P1,000 (At the end of Year)
Less: Acc. Depn. 200 Invested Equity 537 800
Book Value P 800 Government Equity 501 800

5. BORROWINGS

a. Receipt of borrowed Cash in Bank –LCCA 110 1,000

funds from bank - Loans Payable –
Principal - P1,000 Current, Domestic 403 1,000
Bank Charges - 10 Bank Charges 951 10
Interest Expense- 12 Interest Expenses 952 12
Cash in Bank –LCCA 110 22

b. Receipt of borrowed Cash in Treasury 101 1,000

funds from other Loans Payable –
agency - Current, domestic 403 1,000
Principal - P1,000 Interest Expenses 952 6
Interest Expense - 6 Cash in Bank – LCCA 110 6

c. Payment of loan Loans Payable –

amortization Current, Domestic 403 200
Cash in Bank - LCCA 110 200

6. SUBSIDIES

a. Subsidy from Other Funds (General Fund to Special Education Fund)

GENERAL FUND BOOKS

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 Acct.
Particulars Account Title Code Debit Credit
Transfer of subsidy Subsidy to Other Funds 897 500
to Special Education Cash in Bank – LCCA 110 500
Fund (Aid to SEF to
finance its projects)

SPECIAL EDUCATION FUND BOOKS

Receipt of subsidy funds Cash in Treasury 101 500

from Other funds Subsidy from Other
Funds 605 500

b. Special Accounts (subsidy from General Fund proper to Operation of Public

Market)

BOOKS OF GENERAL FUND PROPER

Transfer of subsidy to Subsidy to Special

Special Account Accounts 898 500
Cash in Bank – LCCA 110 500

BOOKS OF SPECIAL ACCOUNT (OPERATION OF PUBLIC MARKET)

Receipt of subsidy from Cash in Bank – LCCA 110 500

General Fund Proper Subsidy from Special
Accounts 606 500

7. REFUND OF CASH ADVANCES

a. Cash Advance by an Officer for Local Travel

a. To take up the cash Due from Officers &

advance Employees 128 10
Cash in Bank – LCCA 110 10

b. To take up refund of Cash in Treasury 101 10

cash advance Due from Officers &
Employees 128 10

b. Cash Advance by a Disbursing Officer for Salaries and Wages

a. To take up the cash Cash – Disbursing

advance Officers 107 10

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 Acct.
Particulars Account Title Code Debit Credit
Cash in Bank – LCCA 110 10

b. To take up refund of Cash in Treasury 101 10

cash advance Cash – Disbursing
Officers 107 10

8. RECEIPT OF CASH BONDS

a. To take up receipt of Cash in Treasury 101 50

performance bond in Performance/ Bidders/
cash Bail Bonds Payable 414 50

b. To take up deposit of Cash in Bank – LCCA 110 50

performance bond Cash in Treasury 101 50

c. To take up refund of Performance/ Bidders/

performance bond Bail Bonds Payable 414 50
Cash in Bank – LCCA 110 50

D. DISBURSEMENTS

Sec. 37. Disbursements. – Disbursements refer to the

settlement of government payables/obligations by cash or by check.

Typical transactions for which disbursements are made are

as follows:

1. Personal Services
2. Maintenance and Other Operating Expenses
3. Capital Outlay
4. Financial Expenses

Disbursements shall be covered by Disbursement Vouchers

(DV) or payrolls and paid either by check or in cash. The Allotment
and Obligation Slip (ALOBS) shall be an integral part of the DV.

Sec. 38. Certification on Disbursements. – Disbursements

from the general fund shall require the following certifications on the
DV:

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 1. Certification and approval of vouchers and payrolls as to
validity, propriety and legality of the claim (Box A of
DV) by the head of the department or office who has
administrative control of the fund concerned. In case of
temporary absence or incapacity of the department head
or chief of office, the officer next-in-rank shall
automatically perform his function and shall be fully
responsible therefor.

2. Necessary documents supporting the disbursement

vouchers and payrolls as certified to and reviewed by the
Accountant. (Box B of DV)

3. Certification that funds are available for the purpose by

the Local Treasurer. (Box C of DV)

Sec. 39. Approval of Disbursements. – Approval of

disbursements by the Local Chief Executive (LCE) himself shall be
required whenever local funds are disbursed, except for regularly
recurring administrative expenses such as: payrolls for regular or
permanent employees, expenses for light, water, telephone and
telegraph services, remittances to government creditor agencies such
as GSIS, BIR, PHILHEALTH, LBP, DBP, NPO, PS of the DBM and
others, where the authority to approve may be delegated.
Disbursement vouchers for expenditures appropriated for the
operation of the Sanggunian shall be approved by the provincial Vice
Governor, the city Vice Mayor or the municipal Vice Mayor, as the
case may be.

Sec. 40. Payments by Check. – Checks shall be drawn only

on duly approved disbursement vouchers. It shall be drawn by the
local Treasurer and countersigned by the local Administrator. In case
of temporary absence or incapacity of the aforesaid officials, these
duties shall devolve upon their immediate assistants. In the case of
municipalities where no Administrator has been appointed, checks
shall be countersigned by the municipal Mayor. In case, however, of
expenditures appropriated for the operation of the Sanggunian,
checks drawn shall be countersigned by the provincial Vice
Governor, the city Vice Mayor, or the municipal Vice Mayor, as the
case may be.

27
 Sec. 41. Recording Check Disbursements in the
Cashbooks. – All checks issued including cancelled checks shall be
recorded chronologically in the Cashbook – Cash in Bank.

Sec. 42. Release of Checks. – The Treasurer shall release

the check only to the payee or his duly authorized representative.
For purposes of releasing checks, the Treasurer shall maintain a
Check Register where all checks issued shall be recorded
chronologically and where the claimants shall be required to
acknowledge receipt thereof.

Sec. 43. Reporting of Checks Issued. – The checks

released to claimants shall be reported in the Report of Checks
Issued (RCI) which shall be prepared daily by the Treasurer for each
fund. It shall be submitted to the Accountant for preparation of
Journal of Entry Voucher based on individual checks issued and
recording in the Check Disbursements Journal.

Sec. 44. Check Disbursement Process. – The steps in

disbursements through issuance of check is shown below:

PROCESS PERSON / UNIT

RESPONSIBLE

a. Gather supporting Concerned Office

documents, and approved ALOBS,
prepare DV and forward to Head of
Department.

b. Sign Box A of DV Supervisor/Head

and submit to the Accounting Unit. of Department

c. Check Accounting Unit

completeness of documents, assign
number to DV, sign Box B and
forward to Treasurer.

d. Verify claim, Treasurer

certify cash availability (Box C) and
forward to approving officer.

Note: If funds are not available, return

to Accountant for recording in the

28
 PROCESS PERSON / UNIT
RESPONSIBLE
books as Accounts Payable (AP). For
AP, JEV shall be prepared by
Accounting Unit and JEV number
reflected in the DV. JEV for AP is
recorded in General Journal.
Accountant retains copy of DV and
forwards to Treasurer.

e. Approve Local Chief

transaction (Box D) and forward Executive or
DV to Cashier. authorized
approving officer

f. Prepare, sign check Treasurer

and forward check with DV to
countersigning officer.

g. Countersign check Administrator/

and forward to Accountant for Vice-Mayor
preparation of the Accountant’s for the Local
Advice of Local Check Sanggunian
Disbursements. Disbursements

h. Prepare Accountant
Accountant’s Advice of Local
Check Disbursements and submit to
bank. Return DV, check and
supporting documents to
Cashier/Treasurer.

i. Record check in the Treasurer

Check Register and release check to
claimant. Record disbursement in
Cashbook – Cash in Bank. Prepare
Report of Checks Issued. Forward
RCI with DV and supporting
documents to Accounting Unit.

j. Prepare the JEV Accounting Unit

based on individual checks/voucher;
sign “Prepared By” portion

29
 PROCESS PERSON / UNIT
RESPONSIBLE
(approved by Chief Accountant),
and record JEV in the Check
Disbursements Journal. Post
monthly to the General
Ledger/Subsidiary Ledgers.

k. Forward RCI, DV, Accountant

supporting documents and JEV to
the Office of the Auditor.

Sec. 45. Payments in Cash. – Disbursements by cash shall

be made from a cash advance drawn and maintained in accordance
with COA rules and regulations. Cash payments shall be made only
on duly approved payrolls/disbursement vouchers. Cash advances,
by regular and special disbursing officers shall be recorded through a
debit to Cash – Disbursing Officers and a credit to Cash in Bank –
Local Currency, Current Account (LCCA).

Sec. 46. Reporting of Cash Disbursements. – To account

for cash disbursements, from regular and special cash advances, the
Accountable/Disbursing Officer shall prepare the Report of
Disbursements and submit the original and duplicate copy with
vouchers/payrolls/petty cash vouchers to the Accountant. He shall
ensure that receipt of the report and supporting documents, are
properly acknowledged by the Accountant. The Accountant shall
verify the report including the completeness of the supporting
documents, prepare the Journal of Entry Voucher (JEV) and record
the transaction in the Cash Disbursements Journal.

Sec. 47. Cash Advances for Travel. – Cash advances for

travel shall be recorded as debit to the account Due from Officers
and Employees and a credit to Cash in Bank – Local Currency,
Current Account.

For liquidation of travel where the amount of cash advance

is equal to or more than the travel expenses incurred, the Liquidation
Report form shall be prepared by the officers/employees concerned
and submitted to the accounting unit as basis for preparation of the
JEV to record liquidation. In case the amount of cash advance is
less than the travel expenses incurred, a Disbursement Voucher shall

30
be prepared to liquidate the previous cash advance and serve as a
claim for reimbursement of the deficiency in amount.

Sec. 48. Payments out of the Petty Cash Fund. – Petty

cash fund shall be maintained under the imprest system. The fund
shall be sufficient for the non-recurring, emergency and petty
expenses of the LGU for one month. Disbursements from the fund
shall be through the Petty Cash Voucher (PCV) which shall be signed
by the payee to acknowledge the amount received. The official
receipt shall be attached to the PCV.

Petty cash fund shall be set up at the beginning of the year.

An ALOBS shall be prepared for the fund, recorded in the RAAO
and obligated as Other Expenses.

Payments out of the fund shall be made through the use of

PCVs duly supported by official receipts and other required
documents. Each PCV shall not exceed Php1,000.00.

A Disbursement Voucher shall be prepared for

replenishments of the petty cash fund during the year duly supported
by a list/summary of PCVs, the PCVs and its supporting documents.
ALOBS shall be prepared for each replenishment and recorded in the
RAAO based on actual expenses incurred.

At the end of the year, the petty cash fund shall be fully
liquidated by preparing a Report of Disbursement supported by the
list/summary of PCVs, the PCVs and its supporting documents. The
ALOBS setting up the fund at the beginning of the year shall be
cancelled. Another ALOBS shall be prepared taking up the
liquidation and recorded in the RAAO based on the actual expenses
incurred. Unused cash shall be returned to the Treasurer who shall
issue an Official Receipt to acknowledge the amount returned. A new
Cash Advance for Petty Cash Fund shall be set up in the ensuing
year.

Sec. 49. Cash Disbursement Process. – Disbursement

process for payment of salaries and wages out of cash advances is
as follows:

PROCESS PERSON / UNIT

RESPONSIBLE

31
 PROCESS PERSON / UNIT
RESPONSIBLE
a. Processing of Payrolls to be paid by Concerned
cash is the same as that of steps (a) offices
to (e) for check disbursements.

b. Gather duly certified and approved Office of the

payrolls to be paid out of cash Treasurer
advance. Prepare DV for cash
advance corresponding to the net
amount of payroll/s. Sign Box A of
DV and submit to the Accounting
Unit.

c. Check completeness of documents/ Accounting Unit

previous cash advance liquidated,
assign number to DV, sign Box B
and forward to Approving Officer.

d. Approves DV and forward to Local Chief

Treasurer for preparation of checks. Executive

e. Prepare and sign check, and Treasurer

forward check with DV to
countersigning officer.

f. Countersign check and forward to Administrator

Accountant for preparation of
Advice.

g. Prepare Accountant’s Advice of Accountant

Local Check Disbursements and
return DV, check and supporting
documents to Cashier/Treasurer.

h. Encash check and pay claimants. Treasurer/

Record disbursement in Cashbook – Disbursing
Cash Advances. Officer

i. Return unused cash to the Disbursing

Treasurer/ Cashier. An official Officer

32
 PROCESS PERSON / UNIT
RESPONSIBLE
receipt (OR) shall be issued by the
Treasurer/Cashier to acknowledge
the return of unused cash and
indicate check no. of cash advance
granted on the face of OR. Record
the refund as credit to cash advance
and attach OR to the Cashbook –
Cash Advances.

j. Prepare Report of Disbursement, Disbursing

attach paid payrolls/ supporting Officer
documents and copy of OR for
unused cash advance returned to
Treasurer/Cashier. Sign "Certified
Correct” portion of Report of
Disbursement and submit to
Accounting Unit.

k. Prepare JEV to record the Accountant

liquidation of cash advance.
Record JEV in the Cash
Disbursements Journal (CDJ). Post
monthly to the General Ledger/
Subsidiary Ledger.

l. Forward Report of Disbursement Accountant

and supporting documents
including JEV to the Office of the
Auditor.

Sec. 50. Purchase or Construction of Property, Plant and

Equipment. – Property, plant and equipment include land and land
improvements, buildings, equipment, motor vehicles, books,
machineries, ordnance, etc. and public infrastructure. These are
charged against appropriations/allotments for capital outlay when
obligated.

Property, plant and equipment acquired through purchase

shall include all costs incurred to bring it to the location necessary
for its intended use, like transportation, freight, installation costs, etc.

33
In the books of accounts, the purchase is immediately recorded as
asset.

Property, plant and equipment to be constructed may be

classified as agency assets and public infrastructures. Agency assets
are those to be used by the LGU concerned, like buildings, while
public infrastructures are those to be used by the general public. The
construction period theory shall be used in recording both types of
assets. This means that expenses such as license fees and bonus paid
to contractor for completing the work ahead of schedule, etc. during
the construction period shall be added to the total cost of the project.
However, liquidated damages charged to the contractor for delayed
completion should be deducted from the total cost.

During the construction period, agency assets and public

infrastructures shall be taken up in the books as "Construction in
Progress” with the appropriate asset classification. As soon as the
project is completed, the Construction in Progress for agency asset is
closed to the appropriate asset account.

For public infrastructures funded out of regular income, the

Construction in Progress account is transferred to the Public
Infrastructures account upon completion. At the end of the year, the
latter account is closed to the Government Equity and the asset is
recorded in the Registry of Public Infrastructures (RPI). However,
completed public infrastructures funded out of a loan shall be closed
to the Government Equity account only upon full payment of the
loan. A disclosure of public infrastructures completed funded from
loans shall be made in the Notes to Financial Statements.

Sec. 51. Purchase of Supplies. – Purchase of supplies and

materials for stock regardless of whether or not they are consumed
within the accounting period shall be recorded as assets using the
Inventory account following the Perpetual Inventory Method (refer
to Chapter 7 – Supplies or Property). However, supplies and
materials purchased out of the Petty Cash Fund for immediate use or
for emergency shall be taken up as expenses.

Sec. 52. Pro-forma Accounting Entries. – Pro-forma

accounting entries for disbursement transactions are shown below:

34
 Acct.
Particulars Account Title Code Debit Credit

1. Payment through Cash Advances

a. Cash advance for personal services

Enter obligation in RAAOPS for P18,000 Salaries and Wages, P5,000

Additional Compensation, and P3,000 Personnel Economic Relief
Allowance (PERA).

1. Grant of cash advance Cash – Disbursing

for payroll Officers 107 21,000
Cash in Bank – LCCA 110 21,000

2. Liquidation of cash Salaries and Wages –

advance for payroll Regular Pay 801 18,000
PERA 804 3,000
Additional
Compensation 805 5,000
Withholding Taxes
Payable 410 2,000
GSIS Payable 411 1,500
PAG-IBIG Payable 412 1,500
Cash – Disbursing
Officers 107 21,000

Enter obligation in RAAOPS for P1,500 Life and Retirement Insurance

Contributions and P1,500 PAG-IBIG Contributions.

3. Government share for Life and Retirement

life and retirement Insurance
insurance and PAG- Contributions 817 1,500
IBIG Contributions PAG-IBIG
Contributions 818 1,500
GSIS Payable 411 1,500
PAG-IBIG Payable 412 1,500

b. Petty Cash Fund

For establishment of fund, Enter obligation in RAAOMO as Other Expenses for

P6,000

1. Release of cash Petty Cash Fund 105 6,000

advance for petty Cash in Bank – LCCA 110 6,000
cash fund
miscellaneous
expenses

35
 Acct.
Particulars Account Title Code Debit Credit

Enter obligation in RAAOMO for Office Supplies P2,500, Travelling

Expenses P500, Office Equipment Maintenance P1,000 and Other
Expenses of P800.

2. Replenishment of Traveling Expenses –

petty cash fund Local 831 500
during the year Office Supplies
Expenses 849 2,500
Office Equipment
Maintenance 882 1,000
Other Expenses 950 800
Cash in Bank – LCCA 110 4,800

Enter obligation in RAAOMO for Office Supplies P4,000 and Traveling

Expenses of P1,000.

3. Liquidation at year Traveling Expenses –

end Local 831 1,000
Office Supplies
Expenses 849 4,000
Petty Cash Fund 105 5,000

Cancel RAAOMO for setting up of petty cash fund at the start of the year
and refund for a total of P6,000.

4. Return of unused Cash in Treasury 101 1,000

Petty Cash Fund. Petty Cash Fund 105 1,000

c. Cash advance for travel

Enter obligation in RAAOMO for Travel of P1,000

1. Grant of cash advance Due from Officers and

Employees 128 1,000
Cash in Bank – LCCA 110 1,000

2. Liquidation of cash Traveling Expenses –

advance during the Local 831 900
current year Due from Officers and
(assuming only P900 Employees 128 900
was utilized and P100
was refunded)

Adjust RAAOMO for refund of cash advance of P100

36
 Acct.
Particulars Account Title Code Debit Credit

3. For amount refunded Cash in Bank – LCCA 110 100

where official receipt Due from Officers and
was issued Employees 128 100

2. Payment by Check

a. Maintenance and Other Operating Expenses

Enter obligation in RAAOMO for rent P3,000

1. Payment of rent Rent Expense 841 3,000

Cash in Bank – LCCA 110 3,000

Enter obligation in RAAOMO for electricity of P1,500 and

telephone/internet of P2,000

2. Payment of utilities Electricity 835 1,500

(MERALCO and Telephone/Telegraph
PLDT) and Internet 837 2,000
Cash in Bank – LCCA 110 3,500

Enter obligation in RAAOMO for training and seminar expenses of P1,000

3. Payment of seminar Training and Seminar

fee Expenses 833 1,000
Cash in Bank – LCCA 110 1,000

b. Financial Expenses

Enter obligation in RAAOFE for bank charges of P300

1. Bank charges upon Bank Charges 951 300

receipt of bank Cash in Bank – LCCA 110 300
statement

Enter obligation in RAAOFE for interest expense of P400

2. Interest Expense Interest Expenses 952 400

Cash in Bank – LCCA 110 400

c. Office Equipment – Enter obligation in RAAOCO for P6,000 for purchase of

equipment

37
 Acct.
Particulars Account Title Code Debit Credit

1. Issuance of PO to No entry
dealer

2. Receipt of office Office Equipment 222 6,000

equipment Cash in Bank – LCCA 110 6,000

d. Construction of Roads by Contract – Enter obligation in RAAOCO for P800,000

for construction of road.
1. Payment of first Construction in
billing for 50% Progress – Roads,
accomplishment Highways and
Bridges 232 400,000
Withholding Taxes
Payable 410 40,000
Cash in Bank – LCCA 110 360,000

2. Payment of second Construction in

billing 100% Progress – Roads,
accomplishment Highways and
Bridges 232 400,000
Withholding Taxes
Payable 410 40,000
Cash in Bank – LCCA 110 360,000

3. Remittance of taxes Withholding Taxes

withheld Payable 410 80,000
Cash in Bank – LCCA 110 80,000

If funded from regular agency income –

4. To take up roads Public Infrastructure 243 800,000

completed Construction in
Progress – Roads,
Highways and
Bridges 232 800,000

5. To transfer completed Government Equity 501 800,000

roads to Registry of Public Infrastructures 243 800,000
Public Infra- structures
at the end of the year

Note: Using the JEV for the above transactions, the public infrastructures shall
be recorded in the Registry of Public Infrastructures.

38
 Acct.
Particulars Account Title Code Debit Credit
If funded from a loan –

6 To record completed Public Infrastructures 243 800,000

roads Construction in
Progress – Roads,
Highways and
Bridges 232 800,000

At year end,upon full Government Equity 501 800,000

payment of laon – Public Infrastructures 243 800,000

e. General Repair/Construction of Building by Administration

1. Approval of the No entry

project P1M

Enter obligation in RAAOCO for P600,000 for construction materials

2. Issue PO for building No Entry

materials: Lumber,
nails, cement, sand
and gravel, paints,
etc. = P600,000

3. Payment for Construction Materials

construction materials Inventory 156 600,000
received Withholding Taxes
Payable 410 60,000
Cash in Bank – LCCA 110 540,000

4. Issuance of materials Construction in

P590,000 Progress – Agency
Assets 230 590,000
Construction Materials
Inventory 156 590,000

Enter obligation in RAAOCO for P380,000 for labor

5. Cash advance granted Cash – Disbursing

to Disbursing Officer Officers 107 350,000
for payroll Cash in Bank – LCCA 110 350,000

6. Liquidation by Construction in
Disbursing Officer of Progress – Agency
paid payroll Assets 230 380,000
Withholding Taxes

39
 Acct.
Particulars Account Title Code Debit Credit
Payable 410 30,000
Cash – Disbursing
Officers 107 350,000

7. Remittance of Withholding Taxes 410 30,000

withholding tax Payable
Cash in Bank – LCCA 110 30,000

8. Accomplishment Buildings 204 970,000

Report approved by Construction in
the LCE Progress – Agency
Assets 230 970,000

f. Acquisition of Land

Enter obligation in RAAOCO for P2million for purchase of land

1. Payment made for Land 201 2M

land purchased Withholding Taxes
Payable 410 200,000
Cash in Bank – LCCA 110 1.8M

2. Remittance of Withholding taxes

withholding tax Payable 410 200,000
Cash in Bank – LCCA 110 200,000

g. Land and Building

Enter obligation in RAAOCO for P600,000 for land and P400,000 for
building

1. Payment of the land Land 201 600,000

and building Building 204 400,000
(assessed value of Withholding Taxes 410 100,000
land is P600,000) for Payable
P1,000,000 Cash in Bank – LCCA 110 900,000

2. Remittance of Withholding Taxes

withholding tax Payable 410 100,000
Cash in Bank – LCCA 110 100,000

h. Purchase of Inventories

40
 Acct.
Particulars Account Title Code Debit Credit

Enter obligation in RAAOMO for purchase of P2,500 worth of spare arts

1. Payment of delivered Spare Parts Inventory 155 2,500

spare parts Withholding Taxes
Payable 410 250
Cash in Bank – LCCA 110 2,250

i. Enter obligation in RAAOMO for purchase of office supplies

1. Payment of office Office Supplies

supplies delivered Inventory 149 3,000
Withholding Taxes
Payable 410 300
Cash in Bank – LCCA 110 2,700

j. Fund Transfers

Enter obligation in RAAOMO for subsidy to LGU – XYZ

1. Cash assistance to Subsidy to Local

LGU –XYZ Government Units 895 30,000
Cash in Bank – LCCA 110 30,000

k. Enter obligation in RAAOMO for subsidy to SEF

1. Cash transfer to SEF Subsidy to Other

as subsidy Funds 897 10,000
Cash in Bank – LCCA 110 10,000

l. Enter obligation in RAAOMO for grants and donation to Trust Fund

1. Cash transfer to Trust Grants and Donations 889 500,000

Fund as counterpart Cash in Bank – LCCA 110 500,000
LGU funds.

E. MISCELLANEOUS TRANSACTIONS

Sec. 53. Miscellaneous Transactions. – Miscellaneous

transactions refer to transactions that are unique and not recurring in
the ordinary course of operations of the government. These

41
transaction types seldom take place or ideally should not happen at
all. The following maybe considered miscellaneous transactions:

1. Loss of Cash and Property Accountability

2. Cash Overage
3. Dishonored Check
4. Lost/Destroyed/Stale/Obsolete and Fraudulently
Encashed Check
5. Settlement of Suspensions/Disallowances/Charges
6. Refund of Overpayments

Sec. 54. Loss of Cash and Property. – Loss of cash and

property may be due to malversation, theft, robbery or other causes.

Cash shortage discovered during cash examination

conducted by auditors is reported through the Report of Cash
Examination within ten (10) working days from the completion of
examination pursuant to COA Memorandum No. 84-373A. The
auditor issues an audit report in case of shortage in property
accountability. As soon as a shortage is definitely established, the
Auditor shall issue a memorandum pertaining thereto and the
Accountant shall draw a Journal of Entry Voucher to take up the
shortage as a receivable from the accountable officer concerned.

In case of loss of property due to other causes (theft, force

majeure, fire, etc.), a report thereon shall be prepared by the
accountable officer concerned for purposes of requesting relief from
accountability. No accounting entry shall be made but the loss shall
be disclosed in the notes to financial statements pending result of
request for relief from accountability.

Sec. 55. Grant of Relief from Accountability. – When a

request for relief for shortages or loss of funds is granted, a copy of
the decision shall be forwarded to the Chief Accountant who shall
draw a JEV to record the transaction. The loss shall be debited to the
Loss of Assets account and credited to the appropriate receivable
account. In case the request for relief is denied, immediate payment
of the shortage shall be demanded from the accountable officer.
Restitution shall be acknowledged by the issuance of an official
receipt.

In case the request for relief from accountability for loss of

property caused by fire, theft, force majeure or other causes is

42
granted, a copy of the decision shall likewise be forwarded to the
Chief Accountant for the preparation of the JEV. The loss shall be
debited to the Loss of Assets account and credited to the appropriate
asset account. If request for relief from accountability is denied, the
loss shall be taken up as a receivable from the accountable
officer/persons liable and shall be credited to the appropriate asset
account.

Sec. 56. Cash Overage. – In case the cash examination

disclosed cash overage, as determined by the auditor, the amount
shall be forfeited in favor of the government and an official receipt
shall be issued by the collector/teller. The cash overage shall be
taken up as Other Specific Income.

Sec. 57. Dishonored Checks. – A check is said to be

dishonored when upon its being duly presented for payment, such
payment is refused or cannot be obtained.

Upon receipt of the debit memo and the dishonored check(s)

from the bank, constructive cancellation of the official receipt
covering the dishonored check shall be immediately effected by the
Treasurer on the copy in his possession. The Treasurer shall
immediately photocopy the dishonored checks and record as credit in
the Cashbook–Cash in Bank and cancel payment in the taxpayer’s
index card. He shall also notify the collector/teller of the dishonor
and the cancellation of the official receipt. The collector/teller shall
note the cancellation in the triplicate copies of the receipt. The
Treasurer shall then inform the Auditor who shall effect the
cancellation in the duplicate copy of official receipt, in case the same
has already been submitted for audit.

43
 The Treasurer shall forward the debit memo and the
photocopy of the dishonored checks to the Accountant. The
Accountant shall cancel the official receipt if still in his possession.
He shall prepare the Journal of Entry Voucher (JEV) taking up the
dishonored check by crediting the Cash in Bank account and debiting
the appropriate income account. In case of dishonor of check
payments for Real Property Tax (RPT) or Special Education Tax
(SET), the RPT/SET Receivables and corresponding Deferred
RPT/SET Income shall be restored. The accounts Due to LGUs,
RPT Income, Cash in Bank and RPT Discount shall be adjusted
accordingly. He shall furnish the Treasurer with a copy of the duly
approved JEV. The Treasurer shall record the JEV number in the
Cashbook-Cash in Bank as reference in the entry effecting the
cancellation of the dishonored check.

Sec. 58. Cancellation of Lost Check Issued. – A check is

considered lost when it is misplaced, waylaid or left behind
inadvertently/negligently by the payee or holder in due course or by
the custodian/carrier thereof and after diligent search cannot be
found or located; or when it is lost due to fortuitous event, theft or
robbery.

Upon submission of sworn statement from the payee that a

check issued by the LGU is lost, the treasurer shall immediately
notify the bank concerned for the stoppage of payment. He shall
forward the sworn statement to the accountant who shall prepare the
JEV to cancel the payment made. Copy of the JEV shall be
furnished the treasurer as basis for him to debit the amount in the
Cashbook – Cash in Bank.

Sec. 59. Spoiled and Stale Checks. – Checks may be

cancelled when they become spoiled or stale. A check is considered
spoil when, it is torn, mutilated, defaced or with erasures/errors
affecting the genuineness of any material information contained
therein.

It is stale, if it has been outstanding for over six months from

date of issue or as prescribed by the depository bank. At least one
month before a check becomes stale, the Treasurer shall send a
written notice to the payee of the existence of the check.

A spoiled or stale check shall be marked cancelled on its face

and reported as follows:

44
 1. For spoiled checks which are
immediately cancelled and for which the Report of
Checks Issued (RCI) has not yet been prepared, the
cancelled check shall be attached to the RCI and
reported chronologically with the other checks issued
and the word “Cancelled” shall be indicated on the
report.

2. For stale checks which have

been unclaimed and thus, the original DV and
supporting documents are still with the Treasurer, the
cancelled check shall be presented in the RCI after the
last check issued for the period indicated in the report.
The original DV and supporting documents shall be
returned to the Accountant who shall prepare a JEV to
record the transaction as Accounts Payable.

3. For checks which became

spoiled or stale in the hands of the payee and which
require replacement, a new check may be issued upon
submission of the spoiled or stale check to the
Treasurer. A certified copy of the DV shall be
requested from the Auditor for presentation to the
Administrator/Local Chief Executive who shall
countersign the check. The cancelled check shall be
reported and attached to the RCI prepared at the period
of cancellation. The replacement check shall also be
reported chronologically in the RCI.

Sec. 60. Suspensions, Disallowances and Charges. –

Disallowances and charges shall be taken up in the books of accounts
only when they become final and executory. The Accountant shall
prepare the Journal of Entry Voucher (JEV) to take up the Receivable
– Disallowances and Charges and credit the appropriate expense
account for the current year or prior years’ adjustment if pertaining to
expenses of previous years.

Cash settlement of disallowances shall be recorded thru the

JEV by debiting Cash in Treasury and crediting the Receivable –
Disallowances and Charges account.

45
 Suspensions in audit and settlement thereof shall not be
recorded in the books of accounts.

Sec. 61. Pro-forma Accounting Entries. – The following

the are pro-forma accounting entries for miscellaneous transactions:

Acct.
Particulars Account Title Code Debit Credit

1. Cash Shortage

a. Cash shortage of the of the Disbursing Officer

To take up cash Due from Officers and

shortage Employees 128 50
Cash – Disbursing
Officers 107 50

b. Cash Shortage of the Treasurer

To take up cash Due from Officers and

shortage Employees 128 50
Cash in Treasury 101 50

2. Grant of Relief from Accountability for Loss of Government Funds

To record the loss of Due from Officers and

fund by a Disbursing Employees 128 50
Officer (allegedly thru Cash – Disbursing
theft ) = P50 Officers 107 50

To take up relief from Loss of Assets (current

accountability year) or Prior
Years’ adjustments
(prior years) 948 50
Due from Officers and
Employees 128 50

3. Cash Settlement in case of denial of Request for Relief from

Accountability

To take up Cash in Treasury 101 50

payment/settlement Due from Officers and
Employees 128 50

4. Cash Overage

46
 Acct.
Particulars Account Title Code Debit Credit

To take up cash Cash in Treasury 101 50

overage discovered Other Specific Income
during cash of LGU 792 50
examination

5. Dishonored Checks

From payment of real property tax in the current year or prior year

Upon receipt of advice Real Property Tax

of dishonored check Receivable 124 50
and cancellation of Deferred Real
Official Receipt Property Tax
Income 448 50

Due to LGUs 431 30

Real Property Tax
Income 711 20
Cash in Bank – LCCA 110 50

Receipt of Cash in Treasury 101 50

refund/settlement Real Property Tax
Receivable 124 50

6. Lost/Destroyed/Stale/Obsolete Checks

Check issued in the current/prior year for replacement

Check cancellation Cash in Bank – LCCA 110 50

Accounts Payable 401 50

Replacement Accounts Payable 401 50

Cash in Bank – LCCA 110 50

7. Disallowances and Charges

a. Recording of disallowance for current year’s transaction

When the disallowance

becomes final and Receivables –
executory – Disallowances/
Overpayment of Office Charges 138 10
Supplies Office Supplies
Amount paid - P100 Expense 849 10

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 Acct.
Particulars Account Title Code Debit Credit
Should be - 90
Difference - 10

Settlement of Cash in Treasury 101 10

Disallowance Receivables –
Disallowances/
Charges 138 10

b. Recording of disallowance for prior year’s transaction

When the disallowance Receivables –

becomes final and Disallowances/
executory Charges 138 10
Prior Years’
Adjustments 533 10

Settlement of Cash in Treasury 101 10

disallowance Receivables –
Disallowances/
Charges 138 10

c. Settlement of Charges

c.1 Recording of charges which collection were made in the current year

When the charge

becomes final and Receivables –
executory – Disallowances/
Underpayment of Charges 138 10
Franchise Tax Franchise Tax 724 10
Amount Paid - P 100
Should be - 110
Charge - 10

Settlement Cash in Treasury 101 10

Receivables –
Disallowances/
Charges 138 10

c.2 Recording of charges which collection were made in the prior year

When the charge Receivables –

becomes final and Disallowances/

48
 Acct.
Particulars Account Title Code Debit Credit
executory Charges 138 10
Prior Years’
Adjustments 533 10

Settlement Cash in Treasury 101 10

Receivables –
Disallowances/
Charges 138 10

8. Refund of Overpayment

a. Overpayment taken up as receivable

To record overpayment Due from Officers and

of salaries and wages Employees 128 10
(When overpayment is Salaries and Wages –
ascertained) Regular Pay 801 10

To record refund of Cash in Treasury 101 10

overpayment Due from Officers and
Employees 128 10

b. Refund of overpayment not taken up as receivable

Refund of Cash in Treasury 101 10

overpayment of Salaries and Wages –
Salaries and Wages – Regular Pay 801 10
Regular Pay during the
current year

To take up refund of Cash in Treasury 101 10

over – payment in the Prior Years’
ensuing year Adjustments 533 10

F. ADJUSTING AND CLOSING ENTRIES

Sec. 62. Adjusting Entries. – Adjusting entries are

accounting journal entries made in order to ensure that revenues and
expenses are recorded in the period when they are earned or incurred
following the revenue recognition and the matching principles.

Adjusting entries are required every time financial

statements are prepared. The use of the adjusting entries makes it

49
possible to report on the Balance Sheet the appropriate assets,
liabilities and equity accounts at the statement date and the Statement
of Income and Expenses the net income/(loss) for the period.

Sec. 63. Types of Adjusting Entries. – There are two types

of adjusting entries:

a. Prepayments; and
b. Accruals

Sec. 64. Prepayments. – Prepayments are expenses paid or

revenues received before they are incurred or earned. Adjusting
entries for prepayments are required at the statement date to record
the portion of the prepayment that represents the expense incurred or
the revenue earned in the current accounting period. Sub-categories
of prepayments are prepaid expenses and unearned revenues.

Prepaid expenses are expenses paid in cash and recorded as

assets before they are used or consumed. Prepaid expenses expire
either with the passage of time (e.g. rent) or through use and
consumption (e.g. supplies). The adjusting entry for prepaid
expenses is a debit to the expense account and a credit to the asset
account. Examples are rent, supplies, etc. Acquisition of productive
facilities is viewed essentially as long term prepayments, hence,
periodic adjusting entries for depreciation are included in this
category. For depreciation, the entry is a debit to depreciation
expense and a credit to accumulated depreciation. The depreciable
or estimated life for different types of agency assets are presented in
Table 2 (Annex 7).

Unearned revenues are recorded as a liability when received

and considered earned upon rendition of service (e.g. tuition fees) or
the passage of time (e.g. advance payment of real property taxes).
The adjusting entry for unearned revenues is a debit to a liability
account and a credit to revenue account.

Illustrative accounting entries:

Acct.
Particulars Account Title Code Debit Credit

1. Report of supplies Office Supplies

utilized for P2,000. Expense 849 2,000
Office Supplies
Inventory 149 2,000

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 2. Application Deferred Credits to
of advance RPT for Income 440 2,500
P2,500. Real Property Tax 711 2,500

Sec. 65. Accruals. – Accruals are revenues earned and

expenses incurred in the current accounting period that have not yet
been recorded. Adjusting entries for accruals are required to record
revenues earned and expenses incurred in the accounting period.

Adjusting entry for accrued revenues is a debit to a

receivable account and a credit to an income account. Examples are
interest, share from internal revenue collections covered by notice of
funding checks issued, etc.

Adjusting entry for accrued expenses is a debit to the

appropriate expense account and a credit to a payable account.
Examples are accrued salaries, bad debts, etc. For bad debts, the
entry is a debit to Bad Debts Expense and a credit to Allowance for
Doubtful Accounts.

Illustrative accounting entries:

Acct.
Particulars Account Title Code Debit Credit

1. Receipt of the Due from NGAs 130 20,000

Notice of Funding Share from Internal
Check Issued for Revenue Collections 746 20,000
the December
Share from
Internal Revenue
Collections for
P20,000.

2. Unpaid salaries and Salaries and Wages –

wages of employees, Regular Pay 801 50,000
at end of accounting Due to Officers &
period, P50,000. Employees 428 50,000

Sec. 66. Closing Journal Entries. – Closing journal entries

are the accounting entries prepared to reduce all balances of the
nominal accounts to zero at the end of the accounting period in order
to prepare the accounts for the next accounting period. The

51
procedure followed in the reduction of the balances is called the
closing process. The closing process is as follows:

1. Debit all revenue accounts balances and

credit the total to the Income and Expense
Summary account.
2. Credit all expense accounts balances and
cost of goods sold and debit the total to the
Income and Expense Summary account.
3. Debit the credit balance of the Income and
Expense Summary account and credit the
amount in the Retained Operating Surplus
account, in case of a net income.
4. Credit the debit balance of the Income and
Expense Summary account and debit the amount
in the Retained Operating Surplus account, in
case of a net loss.
5. Debit all credit balances of the intermediate
accounts and debit the total to the Government
Equity account.
6. Credit all debit balances of the intermediate
accounts and credit the total to the Government
Equity account.

Illustrative accounting entries:

Acct.
Particulars Account Title Code Debit Credit

1. To close the Revenue Real Property Tax 711 100

accounts to the Share from Internal
Income and Expense Revenue Collections 746 10,000
Summary account.

Business Taxes &

Licenses 723 50
Registration Fees 761 20
Income and Expense
Summary 532 10,170

2. To close the Income and Expense

Income and Summary 532 5,670
Expense Summary Retained Operating
to Retained Surplus 534 5,670
Operating Surplus

52
 Acct.
Particulars Account Title Code Debit Credit
account.

3. To close the Retained Operating

Retained Operating Surplus 534 5,670
Surplus to Government Equity 501 5,670
Government Equity
account.

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