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:

1. Appropriations, Allotments and Obligations
2. Collections and Deposits
3. Disbursements –
• By cash
• By check
4. 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.

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:

1. Registry of Appropriations, Allotments and Obligations - Capital Outlays (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)

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 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:

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:

1. 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



2. 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.)
• Benefits (e.g. bonus, cash gifts, productivity, pension, etc.)
• Government Shares on Employees’ Contributions



3. 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.



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

C.   INCOME/COLLECTIONS AND DEPOSITS

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:

1. Tax revenues, fees and charges
2. Share from Internal Revenue Collections
3. 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:

1. Subsidy from Other LGUs
2. Subsidy from Other Funds
3. Subsidy from Special Accounts
4. Sales Revenue
5. Dividend Income
6. Interest Income
7. Gain on Sale of Securities
8. Gain on Sale of Assets
9. Sale of Confiscated Goods and Properties
10. Foreign Exchange (FOREX) Gains
11. Miscellaneous Operating and Service Income
12. Fines and Penalties – Government Services and Business Operations
13. 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:

1. 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.

2. 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.

3. 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.

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:

1. Borrowings
2. Sale of Property, Plant and Equipment
3. Refund of Cash Advances
4. 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 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 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.

1. 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.

2. 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.

3. 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 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:

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:

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.

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:

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. 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.

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 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 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.

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:

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.

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

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 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:

1. Prepayments; and
2. 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:

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:

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 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: