4.

Flow of Entries for Major Transactions

Presented below are the journal entries to be made for the major transactions entered into

by the City Government of Binan. As the subject city government is under the Commission on

Audit, it is required to strictly follow the New Government Accounting System (NGAS). The

journal entries stated below are based on the pro-forma journal entries given by the NGAS.

Revenue Cycle

The revenue cycle of the City Government Binan has fifteen major transactions. All of

these can be seen below with their respective pro-forma entries.

1. Operating and Service Income

a. Receipt of Income Cash in Treasury xxx

Tax Revenue xxx
b. Deposit of Collections Cash in Bank - LCCA xxx
Cash in Treasury xxx
Taxes paid is recognized upon collection from the taxpayers. It is recognized with a debit

to Cash in Treasury and a credit to the appropriate tax revenue account. Once it is deposited to

the authorize government bank, Cash in Treasury will be closed to Cash in Bank Local

Currency, Current Account (LCCA).

2. Receipt of Real Property Tax - Basic

a. Setting up of RPT Receivable Real Property Tax Receivable xxx

Deferred Real Property Tax xxx
Income

b. Receipt of Payment Cash in Treasury xxx

Real Property Tax Receivable xxx

c. Distribution of Collection Deferred Real Property Tax Income xxx

Real Property Tax Due to LGUs xxx
 d. Deposit of Collection Cash in Bank LCCA xxx
Cash in Treasury xxx

e. Remittance of Share Real Property Tax Due to LGUs xxx

Cash in Bank - LCCA xxx
Setting up of the RPT Receivable is to be done at the beginning of the year based on the

list of taxpayers and their amount due and collectible for the year. It is recorded with a debit to

Real Property Tax Receivable and a credit to Deferred Real Property Account. Deferred Real

Property Tax Income represents the real property tax recorded at the beginning of the year. It is

to be credited only once the Real Property Tax is distributed to the LGUs.

3. Share from Internal Revenue Collections

a. Receipt of Notice of Funding Cash in Bank LCCA xxx

Check Issued and credit Share from Internal Revenue
Memo Collections xxx
b. Receipt of Notice of Due from NGAs xxx
Funding
Check Issued Share from Internal Revenue
Collections xxx
Due from NGAs is to be debited and Share from Internal Revenue Collections is to be

credited upon receipt of the Notice of Funding Check Issued from DBM. However, Cash in Bank

- LCCA is to be debited if the Bank Credit Advice has been received regardless of whether or not

the Notice of Funding Check Issued has been received.

4. Liquidation of Cash Advances

a. Cash Advance by an Officer for Local Travel

i. To take up the cash advance Due from Officers and Employees xxx
Cash in Bank LCCA xxx
ii. To take up refund of cash Cash in Treasury xxx
Advance Due from Officers and
Employees xxx
 Cash advances made for local travel include a debit to Due from Officers and

Employees and a credit to Cash in Bank - LCCA. On the other hand, once the cash

advance is to be refunded, Due from Officers and Employees will be credited and Cash in

Treasury will be debited. Due from Officers and Employees is the amount of cash

advances given for travel as well as other receivables from the city governments officers

and employees.

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

i. To take up the cash advance Cash Disbursing Officers xxx

Cash in Bank LCCA xxx
ii. To take up refund of cash Cash in Treasury xxx
Advance Cash Disbursing Officers xxx
Cash advances made for the payment of salaries and wages include a debit to

Cash - Disbursing Officers and a credit to Cash in Bank - LCCA. Refund of which will

credit Cash - Disbursing Officers and debit Cash in Treasury. Cash - Disbursing Officers

represents the amount of cash advances given to designated disbursing officers for the

payment of authorized official expenditures.

5. Receipt of Performance Bonds

a. To take up receipt of Cash in Treasury xxx

performance bond in cash Bonds Payable xxx

b. To take up deposit of Cash in Bank LCCA xxx

performance bond Cash in Treasury xxx

c. To take up refund of Performance Bonds Payable xxx

performance bond Cash in Bank LCCA xxx
 Performance bonds guarantee the contractors and suppliers full and fair performance of

the terms of the contract. It is recognized upon the issuance of the receipt of the payor. Upon

recognition, a debit to Cash in Treasury and a credit to Performance Bonds Payable is recorded.

Once the contract is completed, the performance bonds are to be refunded back to the

contractors/suppliers. This is recorded by debiting Performance Bonds Payable and crediting

Cash in Bank LCCA, assuming that the cash initially received are already deposited. If not,

Cash in Treasury will be credited.

6. Subsidies

a.
GENERAL FUND BOOKS
Transfer subsidy to Special Subsidy to Other Funds xxx Subsidy
Education Fund Cash in Bank LCCA xxx
from Other
SPECIAL EDUCATION
FUND BOOKS Funds
Receipt of subsidy funds Cash in Treasury xxx
Subsidy from Other Funds xxx (General

Fund to Special Education Fund)

Subsidies from Other Funds are the transfer of funds from one fund to another. As each

fund have separate books of accounts, both receiving and subsidizing funds must record the

transfer. The subsidizing fund is to debit Subsidy to Other Funds and credit Cash in Bank - Local

Currency, Current Account. Meanwhile, the receiving agency will debit Cash in Treasury and

credit to Subsidy from Other Funds. At the close of each accounting period, Subsidy to Other

Funds and Subsidy from Other Funds must be equal.

b. Special Accounts (Subsidy from General Fund proper to Operation of Public Market)
 GENERAL FUND BOOKS
Transfer subsidy to Subsidy to Special Accounts xxx
Special Account Cash in Bank LCCA xxx

BOOKS OF SPECIAL
ACCOUNT
Receipt of subsidy funds Cash in Bank LCCA xxx
Subsidy from Special
Accounts xxx
The use of special accounts is allowed in local government units. They are to be

found in the General Fund complete with subsidiary ledgers. Similar to subsidies made

from one agency to another, the subsidizing fund and receiving special account must

record the receipt and transfer of the aforementioned subsidy. Subsidy to Special

Accounts represents the amount transferred to a particular special account while, Subsidy

from Special Accounts is the amount received from the fund.

7. Dividend Income

a. Declaration of dividends Dividend Receivable xxx

Dividend Income xxx

b. Payment of dividends Cash in Treasury xxx

Dividend Receivable xxx
Dividends are cash derived from the city governments investment on stocks of

government corporations and private enterprises. It is recognized upon declaration of the

investee company with a debit to Dividend Receivable and a credit to Dividend Income. Upon

receipt of the dividend, Dividend Receivable will be credited and Cash in Treasury will be

debited.

8. Interest Income

a. Accrual of interest income Accrued Interest Receivable xxx

Accrued Interest Income xxx
b. Payment of interest income Cash Collecting Officers xxx
Interest Receivable xxx
Interests are the earnings of the city government from their deposits with banks, loans,

and investment on bonds, treasury notes, treasury bills and promissory notes. Interest income is

recognized upon its accrual. A debit to Accrued Interest Receivable and a credit to Accrued

Interest Income will be recorded and upon receipt of the interest, Cash Collecting Officers will

be debited and Interest Receivable will be credited.

9. Gain on Sale of Investment Security

a. Sale of Securities Cash in Treasury xxx

Investment Security xxx
Gain on Sale of Securities xxx

Gain on sale of securities are profits realized from the sale of bonds and securities. It is

recorded by debiting Cash in Treasury with the selling price of the security, crediting Investment

Security with its carrying value, and crediting Gain on Sale of Securities for the difference

between the selling price and carrying value of the security.

10. Gain on Sale of Fixed Assets

a. To recognize sale of asset Cash in Treasury xxx

Accumulated Depreciation xxx
Property, Plant and Equipment xxx
Gain on Sale of Property, Plant and
Equipment xxx
Gain on sale of fixed assets is the difference between the carrying value of the fixed asset

to be given up and its selling price. It is recognized upon sale of the asset. To record it, a debit to

Cash in Treasury and Accumulated Depreciation will be made and a credit to Property, Plant and

Equipment; and Gain on Sale of Property, Plant and Equipment will be made.
11. Sale of Confiscated Goods and Properties

a. To record the forfeiture of Land xxx

asset Due to National Treasury xxx

b. To record sale of forfeited Cash Collecting Officer xxx

asset Land xxx
Due to National Treasury xxx

c. To record remittance of Due to National Treasury

Collection to BTr Cash Collecting Officer

Confiscated goods and properties or commonly known as forfeited assets are assets

subject to auction under the Tax Code. To record its acquisition, a debit to the appropriate asset

account and a credit to Due to National Treasury is made. Once sold, Cash Collecting Officer is

debited and Land and Due to National Treasury are credited. Afterwards, proceeds of the sale is

to be remitted to the Bureau of Treasury.

12. Foreign Exchange Gains

a. Purchase of inventory Inventory xxx

Accounts Payable xxx

b. Recognize change of Accounts Payable xxx

exchange rate at year-end Gain on Foreign Exchange xxx

c. Settlement of Liability Accounts Payable xxx

Cash in Treasury xxx
Gain on Foreign Exchange xxx
Gains on foreign exchange represent the gain in the revaluation of accounts in foreign

currency denomination to the local currency at balance sheet date and settlement of liability. To

recognize the gain at year end, a debit to Accounts Payable and a credit to Gain on Foreign

Exchange is made for the change in amount of the liability brought about by the change of

exchange rates at balance sheet date. Once the liability is settled, Accounts Payable is debited
and, Cash in Treasury and Gain on Foreign Exchange are credited. The gain will be the

difference between the exchange rates at balance sheet date and settlement date.

13. Fines and Penalties

a. Receipt of fines and Cash in Treasury xxx

penalties Fines and Penalties xxx

Fines and penalties are those imposed by the city government for the violation tax and

other ordinances. It is recognized upon the violation and payment of the ordinance. To record the

transaction, a debit to Cash in Treasury and a credit to Fines and Penalties is made.

14. Grants and Donations

a. Receipt of grants and Cash in Treasury xxx

donations Income from Grants and Donations xxx

b. Receipt of grants and Motor Vehicles xxx

donations in kind Invested Equity xxx

c. Adjustments at the end of the Invested Equity xxx

Year Government Equity xxx
Grants and donations are all non-repayable grants and donations made either in cash or in

kind. A grant/donation made in cash will be recorded with a debit to Cash in Treasury and a

credit to Income from Grants and Donations. If the grant/donation is in kind, a debit will be

made at the appropriate asset account and a credit to Invested Equipment. At year end,

Investment Equity is to closed to Government Equity.

15. Borrowings

a. Receipt of borrowed funds Cash in Bank LCCA xxx

 from bank Loans Payable Current, Domestic xxx
Bank Charges xxx
Interest Expense xxx
Cash in Bank LCCA xxx

b. Receipt of borrowed funds Cash in Treasury xxx

from other agency Loans Payable Current, Domestic xxx
Interest Expense xxx
Cash in Bank LCCA xxx

c. Payment of loan amortizationLoans Payable Current, Domestic xxx

Cash in Bank LCCA xxx
Borrowings are recognized with a debit to Cash in Bank - Local Currency, Current

Account and a credit to Loans Payable - Current, Domestic upon the receipt of the advice from

the bank or lending agency informing the city government of the release of the proceeds.

However, if the borrowed funds are from another agency, Cash in Treasury will be debited

instead. Payment of aforementioned borrowing will only require a reversal of the Loans Payable

- Current, Domestic and Cash in bank - Local Currency, Current Account.

Disbursement Cycle

There are three major transactions under the disbursement cycle of the City Government

of Binan such as check disbursements, advances and subsidies. Presented below are its

respective pro-forma entries and the different instances they apply to.

1. Check Disbursements

a. Maintenance and Other Operating Expenses

Enter obligation in RAAMO for respective expense account
Payment of Expense Expense xxx
Cash in Bank - LCCA xxx
 b.
Enter obligation in RAAOFE for bank charges
i. Bank Charges upon receipt Bank Charges xxx Financial
of bank statement Cash in Bank - LCCA xxx
Expenses
Enter obligation in RAAOFE for interest expense
ii. Interest Expense Interest Expense xxx
Cash in Bank LCCA xxx

Journal entries to be made for check disbursements for Maintenance and Other

Operating Expenses and, Financial Expenses are similar. Both of which starts with

entering the obligation on their respective registries. It will then debit the appropriate

expense account and credit Cash in Bank - Local Currency, Current Account.

c. Purchase of Equipment
Enter obligation in RAAOCO for purchase of equipment
i. Issuance of PO to dealer No Entry

ii. Receipt of office equipment Office Equipment xxx

Accounts Payable/
Cash in Bank LCCA xxx

iii. Payment of office Accounts Payable xxx

equipment Cash in Bank LCCA xxx

Purchase of Office Equipment needs to be entered first in the Registry of

Appropriations, Allotments, and Obligations - Capital Outlay. Upon receipt of the

purchased equipment, a debit to Office Equipment and Cash in Bank - Local Currency,

Current Account is to be made. Office Equipment is the cost/appraised value of

equipment purchased.
d. Construction of Property, Plant and Equipment by Contract

Enter obligation in RAACO

i. Receipt of performance Cash Collecting Officers xxx
bond Guaranty/Security Deposits
Payable xxx

ii. Deposit of performance Cash in Bank LCCA Xxx

bond Cash Collecting Officers xxx

iii. Payment of Advances to Contractors Xxx

mobilization
fee to contractor Cash in Bank LCCA xxx

iv Recognize progress Construction in Progress Buildings

and
billing Other Structures Xxx
Advances to Contractors xxx
Accounts Payable xxx

v. Payment of progress Accounts Payable Xxx

billing Cash in Bank LCCA xxx
Due to BIR xxx

vi. Close Withholding Due to BIR Xxx

Tax Payable account Subsidy from National
Government xxx

vii. Recognize finished Public Infrastructure Xxx

Roads Construction in Progress
Buildings and Other Structures xxx

viii. Return of performance Guaranty/Security Deposits Payable

bond Cash in Bank LCCA

Property, Plant and Equipment (PPE) can be built by external suppliers and

contractors. The transaction begins with the payment of the supplier/contractor of the

performance bond. The performance bond guarantees the fair and full performance of the

supplier/contractor. If the contract is followed, the bond will be released and will be given

back to the supplier/contractor. If not, the performance bond will be used to cover for any
additional expense brought about by the nonconformance to the contract. In the end, the

completed asset will be closed to Public Infrastructure.

e. Repairs and Maintenance of Equipment

Minor Repairs
i. Recognize minor repair Repairs and Maintenance -
Transportation
of motor vehicle Equipment xxx
Cash in Bank LCCA xxx
Due to BIR xxx

ii. Close withholding tax Due to BIR xxx

Subsidy from National Government xxx

Major Repairs
i. Recognize major repair Motor Vehicles
of motor vehicle Cash in Bank LCCA

ii. Close withholding tax Due to BIR xxx

Subsidy from National Government xxx

Repairs and maintenance done to an equipment can either be minor or major.

Minor repairs are those done to the PPE to maintain the functionality and capacity of the

asset. Major repairs are those repairs that increase the functionality, capacity and life of

the asset. If the repair is minor, the cost will be expensed while if it is major, the cost will

be capitalized and added to the improved asset.

 f.
Enter obligation in RAACO
i. Payment of mobilization Advances to Contractors xxx
fee to contractor Cash in Bank LCCA xxx

ii. Recognize progress Construction in Progress Roads,

Billing Highways and Bridges xxx
Advances to Contractors xxx
Accounts Payable xxx

iii. Payment of progress Accounts Payable xxx

Billing Cash in Bank LCCA xxx
Due to BIR xxx
Guaranty/Security Payable xxx

iv. Close Withholding Due to BIR xxx

Tax Payable account Subsidy from National
Government xxx

v. Recognize finished Public Infrastructure xxx

Roads Construction in Progress
Roads, Highways and Bridges xxx

vi. Refund of retention fee Guaranty/Security Payable

Cash in Bank LCCA
Construction of Public Infrastructure by Contract
 Public Infrastructure can be constructed by external suppliers/contractors. The

transaction begins with the payment of the mobilization fee to the supplier/contractor.

Such fee is to be used in the start-up costs of the construction. It can also be noticed that

a retention fee is part of the progress billings. This serves as a guarantee for the city

government that the supplier/contractor will follow the stipulations in the contract

between them and the city government. If the contract is followed, the guaranty will be

refunded to the supplier/contractor. If not, the security will be used to cover for any

additional expense brought about by the nonconformance to the contract. In the end, the

completed asset will be closed to Public Infrastructure.

g. Self-Construction of Building
Enter obligation in RAACO
i. Issue PO for building No Entry
materials

ii. Payment of construction Construction Materials Inventory xxx

materials Due to BIR xxx
Cash in Bank LCCA xxx

iii. Issue of construction Construction in Progress Agency xxx

materials Construction Materials Inventory xxx

iv. Recognize payment of Construction in Progress Agency xxx

Labor costs Cash in Bank LCCA xxx
Due to BIR xxx

v. Recognize payment of Construction in Progress- Agency xxx

overhead expenses Expenses xxx

vi. Close withholding tax Due to BIR xxx

Subsidy from National Government xxx

vii. Completion of building Public Infrastructure xxx

Construction in Progress - Agency xxx

Construction of a public infrastructure by the city government is similar to the

regular construction of a building by a private entity. The cost of the asset includes the

direct materials, direct labor and manufacturing overhead applied to the asset. Any

asset yet to be finished is included in the Construction in Progress. Once it is ready to

be used, it is transferred to Public Infrastructure.

h. Purchase of Land and Building at a Lump Sum Price

Enter obligation in RAACO for purchase of land and building

i. Purchase of land and Land xxx
Building Building xxx
Cash in Bank LCCA xxx
Due to BIR xxx

ii. Close withholding tax Due to BIR xxx

Subsidy from National Government xxx
 In case any PPE is acquired at a lump sum price, the cost shall be divided between

the acquired assets. The purchase price is to be distributed based on the relative fair value

of the assets purchased. Such costs will be the basis for depreciation, if any.

i. Purchase of Inventories
Enter obligation in RAAMO for purchase of inventory
i. Receipt of inventory Merchandise Inventory xxx
Withholding Taxes Payable xxx
Accounts Payable xxx

ii. Payment of inventory Accounts Payable xxx

Cash in Bank LCCA xxx

iii. Close withholding tax Withholding Taxes Payable xxx

Subsidies from National
Government xxx

The purchase of inventories is recognized upon receipt of the inventory itself. A

debit to Merchandise Inventory and, a credit to Withholding Taxes Payable and Accounts

Payable/Cash in Bank LCCA is recorded. The Withholding Taxes Payable will later be

on closed to Subsidies from National Government.

2. Cash Advances
 a.

Enter obligation in RAAOPS Cash

i. Grant of Cash Advance Cash Disbursing Officer xxx
Cash in Bank LCCA xxx Advance

ii. Liquidation of Cash Salaries and Wages Regular Pay xxx for
Advance PERA xxx
Additional Compensation xxx Personal
Withholding Taxes Payable xxx
GSIS Payable xxx Services
PAG IBIG Payable xxx
Cash Disbursing Officer xxx

iii. Government share for Life and Retirement Insurance

life and retirement Contributions xxx
insurance and PAG IBIG Contributions xxx
PAG IBIG GSIS Payable xxx
Contributions PAG IBIG Payable xxx

Payment of salaries could be done by authorizing a disbursing officer to handle

and distribute the Payroll Fund. Such is to be entered first into the Registry of

Appropriations, Allotments and Obligations - Personal Services. Granting of the cash

advance requires a debit to Cash - Disbursing Officer and a credit to Cash - Local

Currency, Current Account.

On the other hand, liquidation of the cash advance will have a debit to Salaries

and Wages - Regular Pay, Personnel Economic Relief Allowance (PERA) and Addition

Compensation. Salaries and Wages - Regular Pay is the salary and wages of regular
government employees. PERA is the allowance given to appointive government

employees while, Additional Compensation is the allowance given to regular/casual

government personnel on temporary status/contractual. The liquidation of cash advance

will also recognize the liability for withholding taxes, GSIS contributions, and Pag-IBIG

contributions. The city government will also recognize their share of GSIS and Pag-IBIG

contributions by debiting Life and Retirement Insurance Contributions and Pag-IBIG

contributions, and crediting its equivalent liability accounts.

b. Petty Cash Fund

For establishment of fund, enter obligation RAAMO as Other Expenses

i. Release of Cash Advance Petty Cash Fund xxx
For Petty Cash Fund Cash in Bank LCCA xxx

Enter obligation in RAAMO for respective expense account

ii. Replenishment of Petty Expense xxx
Cash Fund Cash in Bank LCCA xxx

Cancel RAAMO for setting up of petty cash fund at the start of the year
iii. Return of Unused Petty Cash in Treasury xxx
Cash Fund Petty Cash Fund xxx

iv. Record unreplenished petty Expense

cash at year-end Petty Cash Fund
The city governments petty cash fund is set up at the beginning of the accounting

period with a debit to Petty Cash Fund and a credit to Cash in Bank LCCA. To

recognize all expenses paid out of the fund, a debit to the appropriate expense account

and a credit to Cash in Bank LCCA will be recorded. At year end, all unreplenished

vouchers will be recorded at its appropriate expense accounts.

c. Cash Advances for Travel

Enter obligation in RAAMO for Travel
i. Grant of Cash Advance Due from Officers and Employees xxx
Cash in Bank - LCCA xxx

ii. Liquidation of Cash Travelling Expenses - Local xxx

Advance
Due from Officers and
Employees xxx

Adjust RAAMO for refund of cash advance

iii. Refund of Cash Advance Cash in Bank LCCA xxx
Due from Officers and
Employees xxx

To recognize any cash overage

iv. Recognize forfeiture of Cash Collecting Officer xxx
cash overage Miscellaneous Income xxx

v. Deposit of forfeited cash Cash in Bank LCCA xxx

Cash Collecting Officer Xx
x

To recognize any cash shortage

vi. Recognize cash shortage
Due from Officers and Employees xxx
Advances for Operating
Expenses/Advances for
Payroll/Advances to Special
Disbursing Officer xxx

vii. Recognize restitution of Cash Collecting Officers xxx

cash shortage Due from Officers and
Employees xxx

viii. Deposit of cash shortage Cash in Bank LCCA xxx

Cash Collecting Officers xxx

Cash advances may be done for local travels by government officials and

employees. First, the obligation must be entered into the Registry of Appropriations,

Allotments and Obligations - Maintenance and Other Operating Expense. Grant of such

advance requires a debit to Due from Officers and Employees, and a credit to Cash in

Bank - Local Currency, Current Account. Liquidation of the cash advance will reverse
 Due from Officers and Employees. It will also debit Travelling Expenses - Local. Any

cash overage will be reported as Miscellaneous Income and any shortage will be recorded

as a deduction from the salary of the disbursing officer, or an addition to expense.

3. Subsidies

Enter obligation in RAAMO for subsidy to LGU

Cash assistance to LGU Subsidy to Local Government Units xxx
Cash in Bank LCCA xxx
a. Subsidy to Local Government Units

Subsidy to Local Government Units represent all financial aid given by the City

Government of Binan to other city governments for their projects and programs. It is

recorded with a debit to Subsidy to Local Government Units and a credit to Cash in Bank

LCCA.

b.
Enter obligation in RAAMO for subsidy to SEF
Cash transfer to SEF as Subsidy to Other Funds xxx Subsidy to
subsidy Cash in Bank LCCA xxx
Special Education Fund

Cash transferred from one fund to another is to be entered in the Registry of

Appropriations, Allotments and Obligations - Maintenance and Other Operating

 Expenses. A debit to Subsidy to Other Funds and a credit to Cash in Bank - Local

Currency, Current account is to be made.

c. Cash Transfers to Trust Fund

Enter obligation in RAAMO for grants and donation to Trust Fund
Cash transfer to Trust Fund as Grants and Donations xxx
counterpart LGU funds Cash in Bank LCCA xxx

Grants and donations transferred to Trust Fund is to be entered in the Registry of

Appropriations, Allotments and Obligations - Maintenance and Other Operating

Expenses. Upon transfer, a debit to Grants and Donations, and a credit to Cash in Bank -

Local Currency, Current account is to be made. Grants and Donations represents the

amount of cash/asset given as grants/donations.