CHAPTER 1

OVERVIEW OF GOVERNMENT ACCOUNTING

LEARNING OBJECTIVES

At the end of this Chapter, a student will be able to:

a) Define and understand what government accounting in relation to commercial

accounting;
b) Know the objectives of government accounting;
c) Know the three (3) branches of Philippine Government and its roles.
d) Know and give examples of the three (3) general groups of government agencies;
e) Know the peculiarities of government operations and its effects on the accounting
system of government; and
f) Know some of the generally accepted government accounting principles.

DEFINITION OF GOVERNMENT ACCOUNTING

Government accounting encompasses the process of analyzing, recording,

classifying, summarizing and communicating all transactions involving the receipt and
disposition of government funds and property and interpreting the results thereof (Sec.
109, PD 1445).

The general purposes of accounting are:

a) to establish accountability over receipts, property and expenditures; and

b) to generate information that permits the continuous review of government
transaction and the efficiency with which they are implemented.

As a process, it consolidates all activities pertaining to the gathering of data which

are to be used as the bases for fiscal management decisions. It includes:

a) bookkeeping, referred to as analysis and recording;

b) posting, grouping or classifying of similar items (e.g., arrangement of items
according to account classifications, liquidity, or nature);
c) preparation of periodic financial reports such as the trial balance, the financial
statements and other supporting schedules;
d) analysis of financial reports to determine their accuracy and adequacy as well as
the efficiency and effectiveness of agency operations.

OBJECTIVES OF GOVERNMENT ACCOUNTING

Government accounting has four (4) objectives, as enumerated in Section 110 of

P.D. 1445, namely:

1) to produce information concerning past operations and present conditions;

2) to provide a basis for guidance for future operations;
3) to provide for control of the acts of public bodies and officers in the receipt,
disposition and utilization of funds and property; and
4) to report on the financial position and the results of operations of government
agencies for the information of all persons concerned.
FUNDAMENTAL PRINCIPLES

Financial transactions and operations of any government agency shall be governed

by the fundamental principles set forth hereunder, to wit (Sec. 4, PD 1445):

1. No money shall be paid out of any public treasury or depository except in

pursuance of an appropriation law or other specific statutory authority.
2. Government funds or property shall be spent or used solely for public
purposes.
3. Trust Funds shall be available and may be spent only for the specific
purpose for which the trust was created or the funds received.
4. Fiscal responsibility shall, to the greatest extent, be shared by all those
exercising authority over the financial affairs, transactions, and operations
of the government agency.
5. Disbursements or disposition of government funds or property shall
invariably bear the approval of the proper officials.
6. Claims against government funds shall be supported with complete
documentation.
7. All laws and regulations applicable to financial transactions shall be
faithfully adhered to.
8. Generally accepted principles and practices of accounting as well as of
sound management and fiscal administration shall be observed, provided
that they do not contravene existing laws and regulations.

THREE (3) BRANCHES OF THE PHILIPPINE GOVERNMENT

The Philippines is a republic with a presidential form of government wherein power

is equally divided among its three branches: executive, legislative, and judicial.

One basic corollary in a presidential system of government is the principle of

separation of powers wherein legislation belongs to Congress, execution to the Executive,
and settlement of legal controversies to the Judiciary.

• The Legislative branch is authorized to make laws, alter, and repeal them
through the power vested in the Philippine Congress. This institution is divided
into the Senate and the House of Representatives.

• The Executive branch carries out laws. It is composed of the President and the
Vice President who are elected by direct popular vote and serve a term of six years.
The Constitution grants the President authority to appoint his Cabinet. These
departments form a large portion of the country’s bureaucracy.

• The Judicial branch evaluates laws. It holds the power to settle controversies
involving rights that are legally demandable and enforceable. This branch
determines whether or not there has been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part and instrumentality of the government.
It is made up of a Supreme Court and lower courts.
Legislative Department

The Legislative Branch enacts legislation, confirms or rejects Presidential

appointments, and has the authority to declare war. This branch includes Congress (the
Senate and House of Representatives) and several agencies that provide support services
to Congress.

• Senate – The Senate shall be composed of twenty-four Senators who shall be

elected at large by the qualified voters of the Philippines, as may be provided by
law.

• House of Representatives – The House of Representatives shall be composed of not

more than two hundred and fifty members, unless otherwise fixed by law, who
shall be elected from legislative districts apportioned among the provinces, cities,
and the Metropolitan Manila area in accordance with the number of their
respective inhabitants, and on the basis of a uniform and progressive ratio, and
those who, as provided by law, shall be elected through a party-list system of
registered national, regional, and sectoral parties or organizations.

The party-list representatives shall constitute twenty per cent of the total number
of representatives including those under the party list. For three consecutive terms after
the ratification of this Constitution, one-half of the seats allocated to party-list
representatives shall be filled, as provided by law, by selection or election from the labor,
peasant, urban poor, indigenous cultural communities, women, youth, and such other
sectors as may be provided by law, except the religious sector.
Executive Department

The executive branch carries out and enforces laws. It includes the President, Vice
President, the Cabinet, executive departments, independent agencies, and other boards,
commissions, and committees.

Key roles of the executive branch include:

• President – The President leads the country. He/she is the head of state, leader of
the national government, and Commander in Chief of all armed forces of the
Philippines. The President serves a six-year term and cannot be re-elected.

• Vice President – The Vice President supports the President. If the President is
unable to serve, the Vice President becomes President. He/she serves a six-year
term.

• The Cabinet – Cabinet members serve as advisors to the President. They include
the Vice President and the heads of executive departments. Cabinet members are
nominated by the President and must be confirmed by the Commission of
Appointments.

Judicial Department

The judicial branch interprets the meaning of laws, applies laws to individual
cases, and decides if laws violate the Constitution. The judicial power shall be vested in
one Supreme Court and in such lower courts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or instrumentality of the Government.
The judicial branch interprets the meaning of laws, applies laws to individual cases, and
decides if laws violate the Constitution.

Each branch of government can change acts of the other branches as follows:

• The President can veto laws passed by Congress.

• Congress confirms or rejects the President's appointments and can remove the
President from office in exceptional circumstances.

• The Justices of the Supreme Court, who can overturn unconstitutional laws, are
appointed by the President and confirmed by the Senate.

The Philippine government seeks to act in the best interests of its citizens through this
system of checks and balances.

The Constitution expressly grants the Supreme Court the power of Judicial Review as
the power to declare a treaty, international or executive agreement, law, presidential
decree, proclamation, order, instruction, ordinance or regulation unconstitutional.
THREE (3) GENERAL GROUPS OF GOVERNMENT AGENCIES

The government business is complex. Philippine governmental functions and

responsibilities are consistently increasing with the growth of population and the
expanding demands for public services and benefits. The government’s activities and
business enterprises are administered by different agencies which are divided in to three
general groups namely:

1. National Government Agencies (NGAs) – consisting of departments, bureaus,

commissions, boards, offices, tribunals, councils, authorities, administrations,
centers, state universities or colleges (SUCs);
2. Local Government Unit (LGUs) – composed of provinces, chartered cities,
municipalities and barangays; and
3. Government – Owned and/or Controlled Corporations (GOCCs) – which were
created by law to manage specific types of government business.

Government accounting deals with the financial management of all these agencies
and their activities. It gives substance to the concept of public accountability of public
officers and employees with regard to:

✓ safeguarding government resources against loss or wastage;

✓ adherence to the requirements of law and administrative policies and
regulations;
✓ economy and efficiency in operations; and
✓ delivering the desired results of government programs and activities.

PECULIARITIES OF GOVERNMENT OPERATIONS AND THEIR EFFECTS ON THE

ACCOUNTING SYSTEM

The government accounting system differs in certain fundamental aspects from

that used in private concerns because the government has certain characteristics which
distinguish it from private business such as:

1. PURPOSE

The primary purpose of government business is to render service to the public at

the lowest cost possible as distinguished from the usual profit motive of the private
business. In cases where the government operates a utility to make profits, such profits
realized are retained for public use and not for use of specific individuals.

Thus, the government accounting systems are not concerned on determining the profit
and loss of the operations in the usual sense. Instead of a profit and loss accounting
procedure, the emphasis is on accounting for revenues and expenditures. The important
objective with revenues is to determine how much of the expected revenues has been
realized and has become available for use. With expenditures, the question is what
obligations have been liquidated. It is also important to determine whether actual revenues
are in excess of actual expenditures or there is a deficiency resulting from the excess of
actual expenditures over actual revenues.
2. OWNERSHIP
Individual ownership does not exist in the government business. The accounts
expressing proprietorship of a government body simply consist of various surplus
accounts or their equivalents. These accounts constitute the excess of assets and other
resources over liabilities and reserves. They represent the accumulated excess of revenues
over expenditures.

3. MANAGEMENT
Officers and managers in a private business have relatively few internal limitations.
They are held responsible for results. On the other hand, officers and administrators of
government are governed in almost every act by specific laws, rules and regulations.
Legislative bodies place limitations on executives, administrative officers and department
heads, through revenue and appropriation acts.

4. INCOME
Private business derives its income from charges made for services rendered or
commodities sold. These charges are based on the cost of goods and the demand for them.
The private business has no guarantee that it would be able to sell its goods and services.
The government derives most of its income from taxes and fees which levied on a uniform
basis against all citizens on a given area. Borrowings are likewise authorized to provide
funds for definite purposes. Gifts and trusts are received with restrictions on how they
should be used.

GENERALLY ACCEPTED ACCOUNTING PRINICIPLES

Each government agency shall record its financial transactions and operations
conformably with generally accepted principles and in accordance with pertinent laws and
regulations (Sec. 112, PD 1445). Some of these principles are as follows:

a. The accounts of an agency shall be kept in such detail and at the same time be
adequate to furnish the information needed by fiscal or control agencies of the
government (Sec. 111, PD 1445).
b. The highest standards of honesty, objectivity and consistency shall be observed in
the keeping of accounts to safeguard against inaccurate or misleading information
(Sec. 111, PD 1445).
c. The government accounting system shall be on a double-entry basis with a general
ledger in which all financial transactions are recorded. Subsidiary records shall be
kept where necessary (Sec. 114, PD 1445).
d. The chart of accounts for government bodies shall be prescribed by the COA and
shall be so designed as to:
1. Permit agency heads to review their activities according to selected areas
of responsibility;
2. Allow for a clearer definition of obligation accounting leading to more
precise budgetary control;
 3. Provide for a wider range of analytical information designed for use in
management audit or legislative review;
4. Furnish information regarding the production of income and the
investment in capital items which is of value in fiscal and economic
planning;
5. Enable tighter accounting control to be exercised over agencies’ financial
relationship with the Treasury;
6. Permit a more simplified preparation of trial balances and a simpler and
more orderly process of national consolidation; and
7. Facilitate the application of mechanized accounting procedures for more
effective protection against error and irregularity and yielding economies
in operation. (Sec. 113, PD1445).
e. To permit effective budgetary control and to establish uniformity in financial reports,
accounts shall be classified in balanced fund groups. The group for each fund shall
include all accounts necessary to set forth its operations and condition. All financial
statements shall follow this classification. (Sec. 16, PD 1445) - This is the basis of
FUND ACCOUNTING.
f. A common terminology and classification shall be used consistently throughout the
budget, the accounts and the financial reports. (Sec. 115, PD 1445).
g. Estimated revenues which remain unrealized at the close of the fiscal year shall not
be booked or credited to the unappropriated surplus or any other accounts. (Sec.
118, PD 1445)
h. All lawful expenditures and obligations incurred during the year shall be taken up
in the accounts of that year.

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REFERENCES:
1. Presidential Decree 1445- Government Auditing Code of the Philippines
2. Government Accounting Manual for National Government Agencies
3. PPSAS (Philippine Public Sector Accounting Standards- Volumes I, II & III) adopted
under COA Resolution No. 2014-003 dated January 24, 2014