UNIVERSIDAD DE ZAMBONGA

Sunken Garden, City Campus,

Zamboanga City

Master in Public Administration

School of Graduate Studies

GOVERNMENT ACCOUNTING & ACCOUNTING FOR NON-PROFIT

ORGANIZATIONS BY ZEUS VERNON B. MILLAN

In Partial Fulfilment of the Requirements of

MPA204: Governmental Budgeting & Accounting
9:00AM-12:00AM, Saturday, 2nd Semester SY. 2020-2021

Submitted by:

CHRISTINE H. LEAL

Submitted to:

BENNETT V. MANDIADI, CPA, MBA

June 9, 2021
 TABLE OF CONTENTS

I. INTRODUCTION 1

II. SCOPE OF THE TOPIC REPORT 2

III. LIMITATION OF THE TOPIC REPORT 2

IV. TOPIC REPORT PROPER 3-15

V. ILLUSTRATIVE PROBLEM 16

VI. SOLUTION TO THE ILLUSTRATIVE PROBLEM 16-17

VII. OBSERVATION 17-18

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I. INTRODUCTION

WELCOME TO BOOK REVIEW in Government Accounting & Accounting for

Non-Profit Organization entitled REVENUE and OTHER RECEIPTS!

In this Book review, we will converse the sources of revenue of

government and the underlying accounting principles. We will be able to

understand the journal entries involved in the measurement and recognition of

revenue. We will explore the different types of accounts that are directly and

indirectly related to the Revenue & other Receipts of the Government. I am pretty

sure that, At the end of this book review you would be able to Understand the

Accrual of revenue to the General Fund, Identify the sources of revenue of

government, Explain the recognition and measurement of revenue from

government revenue transactions , Create journal entries for various revenue

transactions and Familiarize with the revenue disclosure requirements in the

financial statements.

This would be an immense help to the students and readers to understand

how the government and non-profit organization recognized and measure the

revenue and other receipts that occurs in the government agency and non-profit

organization. They will also be enlightened where the sources of revenue are coming

from and how they manage and utilized the revenue and other receipts.

By understanding the concept of revenue and other receipts of the

government and non-profit organization we can better understand how we properly

spend and use the revenue and other receipts of the government efficiently and

effectively.
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II. SCOPE THE TOPIC

This book review primarily focused on the assessment of revenue and other

receipt of the government and non-profit organization. It does not cover other

chapters in Government Accounting topics. The creator of this book review aims to

discuss and elaborate the sources of revenue of the government and how it is

measured and recognized. The context is well-presented and illustrated to easily

comprehend and understand. The main source or references of this book review is

the book for Government Accounting and Accounting for Non-profit organization of

Zues Vernon B. Millan.

III. LIMITATION OF THE TOPIC

In every study, there are some limitations to be considered to mainly know the focus

of the study and here are the limitations of the topic:

1. The topic only focuses on the sources of revenue and underlying principles other

chapters of the course are not included.

2. The creator specifically uses particular book for references.(Government

Accounting and Accounting for Non-profit organization by Zues Vernon B. Millan.

3. The topic only talks about the sources, recognition and measurement of the

revenue in government and non-profit organization.

To further explore the topic you are also recommended to research and look for

other references that might help you to understand and appreciate the topic: revenue

and other receipts in government and non-profit organization accounting.

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IV. TOPIC REPORT PROPER

REVENUE AND OTHER RECEIPTS

Revenue -- is the gross inflow of economic benefits or service potential during

the reporting period when those inflows result in an increase in equity, other than

increases relating to contribution from owners.

Revenue includes only those that are received or receivable by the entity in its

own account. Receipts refer to actual cash collections from all sources during a

period.

FUNDAMENTAL PRINCIPLE OF REVENUE

a. All revenues of an entity shall be remitted to the National Treasury and included

in the General Fund of the National Government unless another law specifically

allows otherwise.

b. All moneys and property received by a public officer, acting in any capacity or

upon any occasion, shall be accounted for as government funds and government

property, unless another law specifically states otherwise.

c. Amounts received in trust and from business-type activities of the government

may be separately recorded and disbursed accordance with relevant rules.

d. Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds, or

Funds other than the General Fund only when authorized by law.

e. A collecting officer shall immediately issue an official receipt (OR) upon

collecting a payment of any nature.

f. Where mechanical devices (e.g. electronic official receipt) are used to

acknowledge cash receipts, the COA may approve, upon request, the exemption

from the use of accountable forms.

g. Temporary receipts shall never be used to acknowledge the receipt of public

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funds.

h. Pre-numbered official receipts (ORS) shall be issued in strict numerical

sequence. Duplicate copies shall be the exact copies of the original.

i. A collecting officer shall accept payments to the government in the form checks,

upon proper endorsement and identification of the payee or endorsee. The

collecting officer shall not use government funds to en cash private checks.

j. Receipts of government funds shall be acknowledged in accordance with the law

– indicating the date of receipt, from whom and on what account the fund was

received. (P.D. No. 1445 & Chapter 2, Sec. 4 of GAM for NGAs)

TYPES OF FUND

1. General fund – a fund which is available for any purpose other than those which

other funds have been designated to.

2. Special fund – a fund designated for special purposes.

3. Trust fund (Fiduciary fund) - fund held by a government agency or public

officer acting as trustee, agent, or administrator for the fulfillment of a condition.

4. Revenue fund - comprises all funds derived from the income of any government

agency and available for appropriation or expenditure in accordance with the law.

5. Depository fund - fund held in an authorized depository bank over which the

recipient agency retains control for the 1awful purposes for which the fund was

received.

6. Special Account in the General Fund (SAGF) – established to facilitate the

funding of priority activities of the government The SAGF is sourced from specific

fees, grants and donation and other sources identified under the law. The following

are relevant legal provisions regarding the SAGF:

a. All income and collections for Special and Fiduciary Fund shall be
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remitted to the Treasury and treated as SAGF.

b. The SAGF shall be considered as being automatically appropriated for

purposes authorized by law, except when the General Appropriations

Act (GAA) provides otherwise.

c. SAGF shall be released to government agencies subject to the approval of

the President.

7. Special Purpose Funds (SPFs) - are "funds that the President allocates for

special programs and projects. Unlike for other funds, SPFs are not under the

accountability of any particular government agency/office or unit.” (2012 Annual

Financial Report of the Republic of the Philippines)

Relevant provision of law:

» All money collected on any tax levied for a special purpose shall be treated as

a special fund and paid out for such purpose only. If the purpose for which a

special fund was created has been fulfilled or abandoned, the balance, if any,

shall be transferred to the general funds of the Government. (Art. VI, Sec. 29(3),

Philippine Constitution)

Sources of Revenue Revenues may arise from exchange and non-exchange

transactions.

a. Exchange transactions (Reciprocal transfers ) - are transactions in which one

entity receives assets or services, or has liabilities extinguished, and directly

gives approximately equal value to another entity in exchange. (PPSAS 9.11)

Examples: sale of goods and rendering of services.

b. Non-exchange transactions (Non-reciprocal transfers) - are transactions in

which an entity either receives value from another entity without directly giving

approximately equal value in exchange, or gives value to another entity without

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directly receiving approximately equal value in exchange. (PPSAS 9.11)

Examples: tax revenue, fines and penalties and donations.

When the consideration transferred does not approximate the fair value of the

resources received, the entity determines whether the transaction includes a

combination of exchange and non- exchange transactions. Each component shall

be recognized separately. (PPSAS 23.10)

If it is not immediately clear whether a transaction is an exchange or non-

exchange transaction, the substance of the transaction shall be examined to

determine its type. For example, the sale of goods is normally an exchange

transaction. However, if the transaction price is subsidized, the transaction falls

within the definition of a non-exchange transaction.

The receipt of trade discounts, quantity discounts, or other reductions in price

does not necessarily mean that the transaction is a non-exchange transaction.

(PPSAS 23.11)

Exchange Transactions Revenues from exchange transactions arise from

the following:

I. Sale of Goods or Provisions of Services to third parties or other government

entities.

Examples:

a. Service Income - Permit Fees, Registration Fees, Franchising Fees,

Licensing Fees, Legal Fees, Passport and Visa Fees, Processing

Fees, and the like.

b. Business Income - School Fees, Examination Fees, Rent/Lease Income,

Communication Network Fee, Income from Hostels/Dormitories, Sales

Revenue, Hospital Fees Share in the Profit of Joint Venture, and the like.
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II. Use by other entity of assets yielding interest, royalties and dividends or similar

distributions.

Examples:

a. Interest income - charges for the use of cash or cash equivalents, or

amounts due to the entity;

b. Royalties – fees paid for the use of the entity's assets such as

trademarks, patents, software, and copyrights; and

c. Dividends – share of the National Government from the earnings of its

capital/equity investments in Government Owned or Controlled

Corporations (GOCCs) and other entities.

RECOGNITION OF REVENUE AND EXCHANGE TRANSACTIONS

Sale of Goods:

Revenue from the sale of goods shall be recognized when following conditions are

satisfied:

I. Significant risks and rewards of ownership of the goods are transferred to

the buyer;

II. The entity does not retain continuing managerial involvement or effective

control over the goods sold;

III. It is probable that economic benefits will flow to the entity;

IV. Revenue can be measured reliably; and

V. Costs relating to the transaction can be measured reliably.

Rendering of Services:

Revenue from the supply of services is recognized on a straight line basis over

the period the services are rendered.

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However, revenue is recognized by reference to the stage of completion (e.g.,

percentage of completion method) if the outcome of the transaction can be

estimated reliably, such as when all of the following conditions are satisfied:

I. The stage of completion of the transaction at the reporting date can

be measured reliably;

II. It is probable that economic benefits will flow to the entity;

III. Revenue can be measured reliably; and

IV. Costs relating to the transaction can be measured reliably.

For practical purposes, when services are performed by an indeterminate number

of acts over a specified time frame, revenue is recognized on a straight line basis

over the specified time frame unless there is evidence that some other method

better represents the stage of completion. (PPSAS 9.24)

When the outcome of the transaction involving the rendering of services cannot

be estimated reliably, revenue is recognized only to the extent of the expenses

recognized that are recoverable. (PPSAS 9.25)

Interest, Royalties & Dividends

a. Interest is recognized on a time proportion basis that takes into account the

effective yield on the asset;

b. Royalties are recognized as they are earned in accordance with the substance

of the relevant agreement; and

c. Dividends are recognized when the entity's right to receive payment is

established.

A government entity normally recognizes to service income when the services

are rendered, except when this is not practicable, in which case, revenue is

recognized when fees are collected.

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Similarly, revenue from business income (except sale of goods) is recognized

when fees are billed, or if not practicable, when fees are collected. (GAM for

NGAs, Chapter 5, Sec. 7)

MEASUREMENT OF REVENUE FROM EXCHANGE TRANSACTIONS

Revenue from exchange transactions are measured at the fair of the consideration

received or receivable. Any trade discounts and volume rebates shall be taken into

account.

 Fair value - is the amount for which an asset could be exchanged, or

a liability settled between knowledgeable willing parties in an arm's

length transaction.

Example:

Entity A sells goods with a list price of 10,000, on account, with the following

credit term 10%, 10%, and 5%. Revenue is recognized as follows:

Date Accounts Receivable 7,695

Sales Revenue (10,000 x 90% x 90% x 95%) 7,695

To recognize sale of goods on account

When cash flows are deferred, the fair value of consideration may be less

than its nominal amount. In this case the fair value of the consideration receivable

is determined by discounting all future cash flows using an imputed rate of

interest. The difference between the fair value and the nominal amount of the

consideration is recognized as interest revenue.

When the consideration is received in advance, it is initially recognized as

a liability and subsequently recognized as revenue only when the revenue

recognition criteria are met.

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Exchanges of Goods or Services

Exchanges of goods or services with:

I. Similar nature and value do not give rise to revenue.

II. Dissimilar nature and value give rise to revenue measured using the

following order of priority:

a) Fair value of the goods or services received, adjusted by the amount of any

cash transferred. ii. Fair value of the goods or services given up, adjusted by

the amount of any cash transferred.

NON-EXCHANGE TRANSACTIONS

Revenue from non-exchange transactions are derived mostly from taxes, fines and

penalties, gifts, donations and goods in-kind. These are received without directly

providing something of value in return.

I. Taxes – are compulsory payments intended to provide revenue to the

government. Taxes do not include fines and penalties.

II. Fines and penalties - are monetary sanctions received as a consequence of

breach of laws.

III. Gifts, Donations and Goods/Services In-kind - are voluntary transfers of

assets and services that one entity makes to another, normally free from

stipulations.

RECOGNITION OF REVENUE FROM NON-EXCHANGE TRANSACTIONS

Revenue from non-exchange transactions are recognized on a cash basis until a

reliable measurement model is developed. Accordingly, the asset and revenue or

liabilities arising from a non-exchange transaction are recognized when collected

or when these are measurable and legally collectible. (GAM for NGAs, Chapter 5,
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Sec. 12)

Tax revenue

Tax revenue is recognized at a gross amount and not reduced for expenses paid

through the tax system.

Expenses paid through the tax system are those expenses which should

be paid irrespective of whether the taxpayer pays taxes, or uses a particular

mechanism to pay taxes.

Tax revenue shall not be grossed up for the amount of tax expenditures.

Tax expenditures are preferential provisions of the tax law that provide

certain taxpayers with concessions that are not available to others. Tax

expenditures are foregone revenue, not expenses.

Type of Tax Taxable Event

Income Tax Earning of Taxable Income
Value Added Tax Undertaking of a taxable activity
Purchase or sale of taxable goods or
Good and Services Tax
services
Movement of dutiable goods or services
Costume duty
across the customs boundary
Death of the owner of the taxable
Death duty
property
Passage of time period for which the tax
Property Tax
is levied

Transfers

Transfers are inflows of future economic benefits or service potential from non-

exchange transactions, other than taxes (PPSAS 23)

Transfers include fines, gifts, donations and goods and services in-kind, debt

forgiveness, bequests, and grants. All of these transactions transfer resources

without approximate equal value in exchange and are not taxes but some are with

conditions.
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Fines and penalties

Fines and penalties are recognized as income in the year they are collected.

However, fines are recognized as revenue when the receivable meets the

recognition criteria for asset and are measured at the best estimate of inflow of

resources to the entity. (GAM for NGAs, Chapter 5, Sec. 24)

An entity collecting fines in the capacity of an agent shall not treat those fines as

revenue.

Gifts, Donations and Goods In-kind

Gifts, donations and goods in-kind are recognized as revenue when it is probable

that future economic benefits or service potential will flow to the entity. Those that

are received without conditions are recognized immediately as revenue. Those

with conditions are initially recognized as liability and recognized as revenue only

when the conditions are satisfied.

Services In-kind Services In-kind are not recognized as revenue due to the

uncertainties affecting the entity's ability to control those services and measure

them at fair value. Examples of services in-kind include technical assistance from

foreign bodies, community services rendered by persons convicted of offenses,

volunteer services, and the like. Services in-kind received may be disclosed in the

notes.

Measurement

Assets, liabilities and revenue arising from a non-exchange transaction are

measured as follows:

A. Assets – at the acquisition-date fair value.

B. Liabilities - at present value, when the effect of time value of money is

material.
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C. Revenue – at the amount of increase in net assets. If the non-exchange

transaction is initially recognized as a liability, the subsequent reduction in that

liability (e.g., because the condition is satisfied) is recognized as revenue.

Debt Forgiveness

When a lender cancels the debt of a government entity the debtor

recognizes revenue equal to the carrying amount of the debt forgiven.

However, when a controlling entity cancels the debt of a wholly owned

controlled entity, the cancelled debt is the contribution from owners and not

revenue.

Bequests

Bequests are transfers made according to the provisions of a deceased

person's will. A bequest that satisfies the recognition criteria for asset is

recognized as revenue, measured at the fair value of the resources received or

receivable.

Grant with Condition

An asset received under a grant with condition is initially recognized as liability

and recognized as revenue only when the condition is satisfied.

Pledges

Pledges are unenforceable undertakings to transfer assets to the recipient

entity. Pledges are not recognized as revenue because they do not meet the

recognition criteria for asset, i.e., at present, the entity has not yet obtained

control over the item pledged. If the pledged item is subsequently transferred to

the recipient entity, it is recognized as a gift or donation. Pledges may warrant

disclosure as contingent assets.

Concessionary Loans
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Concessionary loans - are loans received by an entity at below market terms.

The entity considers whether the difference between the transaction price (loan

proceeds) and the fair value of the loan on initial recognition is a non-exchange

transaction.

If it so, the difference is recognized as revenue, except if a present obligation

exists, in which case the difference is recognized as a liability and recognized as

revenue only when the obligation is satisfied.

Impairment Losses and Allowance for Impairment Losses

When an amount already recognized as revenue becomes uncollectible, it is

recognized as expense (impairment loss), rather than as an adjustment to the

revenue originally recognized.

Entities shall evaluate the collectability of accounts receivable on an ongoing

basis based on historical bad debts, customer/recipient credit-worthiness,

current economic trends and changes in payment activity. An allowance is

provided for known and estimated bad debts.

OTHER RECEIPTS

Other receipts include, but not limited to, the following:

a. Receipt of subsidy from the National Government (ie, disbursement authority),

such as receipt of:

I. Notice of Cash Allocation (NCA)

II. Tax Remittance Advice

III. Non-Cash Availment Authority

IV. Cash Disbursement Ceiling

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V. ILLUSTRATION PROBLEM

1. Entity A is authorized to print accounting manuals for sale to other NGAs.

Assume that on July 16, 2014, Entity A sold accounting manuals on account

with a list price of P100,000 less trade discounts of 10%, 10% and 5%.

Compute the invoice price of the merchandise and give the journal entry of the

transaction.

2. Assume that on August 5, 2015, Entity A received a 60-day, 9%, P12,000

promissory note from X entity for accounting manuals sold. On October 4,

2015, Entity X paid cash in settlement of its note. Provide the accounting

entries.

3. The national government (NG) received a foreign grant of 10M conditioned on

the construction of a flood control system which must be completed within the

next 2 years, otherwise, the grant must be returned to the grantor. The

Department of Public Works and Highways (DPWH) is the implementing entity.

Provide journal entries in the book of NG and DPWH

VI. SOLUTION TO THE ILLUSTRATIVE

PROBLEM

1. The invoice price of the merchandise is computed as follows:

List price P100, 000

Less: 10% x 100,000 (10,000)

90,000

Less: 10% X 90,000 (9,000)

81,000

81,000
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Less: 5% x 81,000
4,050
Total
P 76,950
81,000
Less: 5% x 81,000
4,050
Total
P 76,950
81,000
Less: 5% x 81,000
4,050
Total
P 76,950
81,000
Less: 5% x 81,000
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4,050
Total
P 76,950
Less 5% X 81,000 (4,050)

Total 76,950

The journal entry shall be as follows:

Account Title Account Code Debit Credit

Accounts Receivable 10301010 P 76,950

Sales Revenue 40202160 P76,950

To recognize the sale of the accounting manuals when the inflow of cash or cash

equivalents received or receivable is deferred, the fair value of the consideration

may be less than the nominal amount of cash received or receivable. The fair

value of the consideration is determined by discounting all future receipts

using an imputed rate of interest. The difference between the fair value and

the nominal amount of the consideration is recognized as interest revenue.

2. The accounting entries shall be as follows:

Account Title Account Code Debit Credit

August 5 Notes Receivable 10301020 P12, 000
Sales Revenue 40202160 P12, 000

To recognize the sale

October 4 Cash-Collecting Officers 10101010 P12, 180

Notes Receivable 10301020 P12, 000
Interest Income 40202210 P 180
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To recognize the collection of

notes receivable
Interest = P12,000 x 9% x
60/360 = P180
To recognize the collection of
notes receivable
Interest = P12,000 x 9% x
60/360 = P180
To recognize the collection of notes receivable

Interest = P12,000 x 9% x 60/360 = 180

3. Receipt of grant

Books of the NG – BTr Books of DPWH

Cash in Bank-Local Currency, Cash - Modified Disbursement
Bangko Sentral ng Pilipinas System (MDS), Regular 10M
10M Subsidy from NG 10M
Other Deferred Credits 10M

Disbursements for materials and labor amounting to P10M

Books of the NG – BTr Books of DPWH

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Subsidy from NG 10M Construction in Progress

Cash in Bank-Local Currency,, Infrastructure Assets 10M
Bangko Sentral ng Pilipinas 10M Cash - Modified Disbursement
To recognize replenishment of System (MDS), Regular 10M
MDS checks issued for payment of
the materials and labor for the
construction of a flood control system

Completion of the project

Books of the NG - BTr Books of DPWH

Other Deferred Credits Flood Control Systems 10M
10M Income from Construction in Progress-
Grants and Infrastructure Assets
Donations in Cash 10M 10M

VII. OBSERVATION

At the end of this paper I observed that, unless otherwise specifically provided

by law, all revenue (income) accruing to the departments, offices and agencies by

virtue of the provisions of existing laws, orders and regulations shall be deposited in

the NT or in the duly authorized depository of the Government and shall accrue to

the xxx General Fund of the Government: Provided, that amounts received in

trust and from business-type activities of government may be separately

recorded and disbursed in accordance with such rules and regulations as may be

determined by the Permanent Committee. Receipts shall be recorded as revenue

of Special, Fiduciary or Trust Funds (TF) or Funds other than the GF, only when

authorized by law and following such rules and regulations as may be issued by

the Permanent Committee consisting of the Secretary of Finance as Chairman,

and the Secretary of the Budget and the Chairman, Commission on Audit, as

members. The same Committee shall likewise monitor and evaluate the activities

and balances of all Funds of the NG other than the GF and may recommend for
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the consideration and approval of the President, the reversion to the GF of such

amounts as are: (1) no longer necessary for the attainment of the purposes for

which said Funds were established, (2) needed by the GF in times of emergency, or

(3) violative of the rules and regulations adopted by the Committee: provided, that

the conditions originally agreed upon at the time the funds were received shall be

observed in case of gifts or donations or other payments made by private

parties for specific purposes.

In a transaction where the

entity may provide some
consideration directly in return
for
the resources received, but that
consideration does not
approximate the fair value of
the resources received, the
entity determines whether
there is a combination of
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exchange and non-exchange

transactions. Each component
of which is recognized
separately. (Par. 10, PPSAS
23)
There are transactions where
it is not immediately clear
whether they are an
exchange or a non-exchange
transaction. In these cases,
an examination of the
substance of the transaction
will determine if they are on
exchange or non-exchange
transactions.
In a transaction where the entity may provide some consideration directly in

return for the resources received, but that consideration does not approximate the
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fair value of the resources received, the entity determines whether there is a

combination of exchange and non-exchange transactions. Each component of

which is recognized separately. There are transactions where it is not

immediately clear whether they are an exchange or a non-exchange

transaction. In these cases, an examination of the substance of the transaction will

determine if they are on exchange or non-exchange transactions.