Revenue and Other Receipts
Atty. Allen Jonas D. Jaca, CPA, MBA
Objectives
Discuss the receipts/income collection and deposits and disbursement
systems
Compare the different methods of accounting for income
Journalize revenue, other receipts, and disbursement transactions
Analyze the implications of accounting transactions of NGAs on its financial
position/operation
Criticize and examine recent jurisprudence on accounting for income
recognized by government agencies
Introduction
• Revenue is defined as 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
contributions from owners.
• Revenue include 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 Principles for Revenue
1. All revenues of an entity shall be remitted to the Bureau of Treasury and
include in the general fund of the National Government, unless another law
specifically allows otherwise.
2. 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.
3. Amounts received in trust and from business-type activities of the government
may be separately recorded and disbursed in accordance with relevant rules.
4. Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds, or
Funds other than the General Fund only when authorized by law.
5. A collecting officer shall immediately issue an official receipt (OR) upon
collecting a payment of any nature.
Fundamental Principles for Revenue
6. Where mechanical devices (e.g. electronic OR) are used to acknowledge
cash receipts, the COA may approve, upon request, the exemption from the
use of accountable forms.
7. Temporary receipts shall never be used to acknowledge the receipt of public
funds.
8. Pre-numbered ORs shall be issued in strict numerical sequence. Duplicate
copies shall be the exact copies of the original.
9. A collecting officer shall accept payments to the government in the form of
checks, upon proper endorsement and identification of the payee or
endorsee. The collecting officer shall not use government funds to encash
private checks.
10.Receipts of government funds shall be acknowledged in accordance with the
law (i.e. indicating the date of receipt, from whom and on what account the
fund was received).
Types of Funds
Types of Funds
Fund Definition
General Fund A fund which is available for any purpose other than those
which other funds have been designated to
Special Fund A fund designated for special purposes
Trust Fund / Fiduciary A fund held by a government agency or public officer acting
Fund as trustee, agent or administrator for the fulfillment of a
condition
Revenue Fund Comprises all funds derived from the income of any
government agency and available for appropriation or
expenditure in accordance with the law
Depository Fund Fund held in an authorized depository bank over which the
recipient agency retains control for the lawful purposes for
which the fund was received
Types of Funds
Fund Definition
Special Account in theEstablished to facilitate the funding of priority activities of the
General Fund (SAGF) government. The SAGF is sourced from specific fees, grants and
donations, and other sources identified under the law. The
following are the relevant legal provisions regarding SAGF:
1. All income and collections for Special and Fiduciary Funds
shall be remitted to the Treasury and treated as SAGF.
2. The SAGF shall be considered as being automatically
appropriated for purposes authorized by law, except when
the GAA provides otherwise.
3. SAGF shall be released to government agencies subject to
the approval of the President.
Special Purpose Funds These are funds that the President allocates for special programs
(SPFs) and projects. Unlike other funds, SPFs are not under the
accountability of any particular government agency, office or unit.
NOTE: All money collected on any
tax levied for special purpose shall
be treated as 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] of the 1987 Constitution)
Sources of Revenue
Sources of Revenue
Revenues may arise from either an (1) exchange transaction or (2) non-
exchange transaction.
1. Exchange Transaction – also called as “Reciprocal Transfer”; this
is a transfer in which one entity receives assets or services, or has
liabilities extinguished, and directly gives approximately equal value
to another entity in exchange (e.g. sale of goods and rendering of
services)
2. Non-Exchange Transaction – also called as “Non-reciprocal
Transfer”; this is a transfer 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 directly
receiving approximately equal value in exchange (e.g. tax revenue,
fines and penalties, donations)
Sources of Revenue
• 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, and each component shall be recognized separately.
• 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.
• Example: The sale of goods is normally an exchange transaction.
However, if the transaction price is subsidized, the transactions falls
within the definition of a non-exchange transaction (i.e. donation).
• The receipt of trade discounts, quantity discounts or other reductions in
price does not necessarily mean that the transaction is a non-
exchange transaction.
Exchange
Transactions
Exchange Transactions
1. 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
b. Business Income – school fees, examination fees, rent/lease income, communication
network fees, hospital fees
2. Use by other entity of assets yielding interest, royalties and dividends or similar
distributions
Examples:
a. Interest income – charges for the use of cash
b. Royalties – fees paid for the use of the entity’s assets such as trademarks, patents,
software and copyrights
c. Dividends – share of the National Government from earnings of its capital/equity
investments in GOCCs
Recognition of Revenue: Exchange Transactions
Sale of Goods:
Revenue from the sale of goods shall be recognized when all of the
following conditions are satisfied:
1. Significant risks and rewards of ownership of the goods are transferred
to the buyer;
2. The entity does not retain continuing managerial involvement or
effective control over the goods sold;
3. It is probable that economic benefits will flow to the entity;
4. Revenue can be measure reliably; and
5. Costs relating to the transaction can be measured reliably.
Recognition of Revenue: Exchange Transactions
Rendition of services:
As a general rule, revenue from the rendition of services is recognized on
straight line basis over the period the services are rendered. However,
revenue is recognized by reference to the stage of completion (i.e.
percentage of completion method) if the outcome of the transaction can be
estimated reliably, such as when all of the following conditions are satisfied:
1. The stage of completion of the transaction at the reporting date can be
measured reliably;
2. It is probable that economic benefits will flow to the entity;
3. Revenue can be measured reliably; and
4. Costs relating to the transaction can be measured reliably.
Recognition of Revenue: Exchange Transactions
Rendition of services:
• For practical purposes, when services are performed by an
indeterminate number of acts over a specified time frame,
revenue 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.
• When the outcome of the transaction involving the rendering of
services cannot be estimated reliably, revenue is recognized
only to the extent of the expense recognized that are
recoverable.
NOTE: According to GAM, a
government entity normally
recognizes revenue from service
income when the services are
rendered, except when this is not
practicable, in which case revenue is
recognized when fees are collected.
Similarly, revenue from business
income (except sale of goods) is
recognized when fees are billed, or if
not practicable when fees are
collected.
Recognition of Revenue: Exchange Transactions
Interests, Royalties and Dividends
Interests: Recognized on a time proportion basis that takes into
account the effective yield on the asset.
Royalties: Recognized as they are earned in accordance with the
substance of the relevant agreement.
Dividends: Recognized when the entity’s right to receive payment
is established.
Measurement of Revenue
Measurement of Revenue: Exchange Transactions
• Revenue from exchange transactions are measured at the fair value of the
consideration received or receivable. 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.
• Any trade discounts and volume rebates shall be taken into account.
• Example: Agency A sells goods with a list price of PHP10,000, on account, with the
10%, 10% and 5% trade discounts. The journal entry to recognize this transaction
is:
Accounts Receivable PHP 7,695.00
Sales Revenue (PHP 10,000 x 90% x 90% x 95%) PHP 7,695.00
To recognize sale of goods on account
• When consideration is received in advance, it is initially recognized as a liability
(i.e. credit to Unearned Income) and subsequently recognized as revenue when
the revenue recognition criteria are met. This is pursuant to the Accrual Basis of
Accounting.
Measurement of Revenue: Exchange Transactions
• Exchanges of goods or services with similar nature and value
DO NOT give rise to revenue.
• However, those exchanges of goods or services with
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.
b. Fair value of the goods or services given up, adjusted by
the amount of any cash transferred.
Measurement of Revenue: Non-Exchange Transactions
• Revenue from non-exchange transactions are derived
mostly from taxes, fines and penalties, gifts, donations and
goods in-kind. Accordingly, these are received without directly
providing something of equal value in return.
• Taxes are compulsory payments intended to provide revenue
to the government. Taxed do not include fines and
penalties.
• Fines and Penalties are monetary sanctions received as a
consequence of breach of laws.
• Gifts, Donations, Goods/Services In-kind are voluntary
transfers of assets and services that one entity makes to
another, normally free from stipulations.
Measurement of Revenue: 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 liability arising
from a non-exchange transaction are recognized when
collected or when these are measurable and legally
collectible.
Non-Exchange: Tax Revenue
• Tax revenue is recognized at a gross amount and not reduced for
expenses paid through the tax system.
o The expenses paid through the tax system are those
expenditures 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.
o 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.
Non-Exchange: Tax Revenue
Type of Tax Taxable Event
Income Tax Earning of taxable income
Value Added Tax Undertaking of a taxable activity
Purchase or sale of taxable foods
Goods and Services Tax
or services
Movement of dutiable goods or
Customs Duty services across the customs
boundary
Death of the owner of the taxable
Death Duty
property
Passage of the time period for
Property Tax
which the tax is levied
Non-Exchange: Transfers
• Transfers are inflows of future economic benefits or
service potential from non-exchange transactions other
than taxes.
• Transfers include fines, gifts, donations, goods, 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.
Transfers
Gifts, Donations and Good
Fines and Penalties Services In-Kind
In-Kind
• Recognized as income in the year • Recognized as revenue when it is • NOT recognized as revenue due to
they are collected. (GAM for probable that future economic the uncertainties affecting the
NGAs, Chapter 2, section 33) benefits or service potential will entity’s ability to control those
• However, fines are recognized as flow to the entity. services and measure them at fair
revenue when the receivable • Those that are received without value.
meets the recognition criteria for conditions are recognized • Examples of services in-kind
asset and are measured at the best immediately as revenue. include technical assistance from
estimate of inflow of resources to • However, those received with foreign bodies, community
the entity. (GAM for NGAs, Chapter conditions are initially recognized services rendered by persons
5, section 24) as liability (i.e. unearned) and convicted of offenses, volunteer
• An entity collecting fines in the recognized as revenue only when services and the like.
capacity of an agent shall not treat the conditions are satisfied. • Services in-kind may be disclosed
those fines as revenue. in the notes.
Non-Exchange: Measurement
• Assets, liabilities and revenue arising from a non-exchange transaction
are measured as follows:
a. Assets – fair value at the acquisition date
b. Liabilities – at present value, when the affect of time value of money
is material.
c. Revenue – at the amount of increase in net assets. If the non-
exchange transaction is initially recognized as a liability (e.g.
unearned), the subsequent reduction in that liability, considering
that the condition/s is/are satisfied, is recognized as revenue.
Debt Forgiveness
• When a lender cancels the debt of a government
entity, the debtor (i.e. the government entity in this
case) 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 treated as contribution from
owners (i.e. investment) 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 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.
• Illustration: The National Government received a foreign grant
of PHP10 million conditioned on the construction of a flood
control system, which must be completed within the next two
(2) years. Otherwise, the grant must be returned to the grantor.
The Department of Public Works and Highways (DPWH) is the
implementing entity. The journal entries are illustrated in the
next slide.
Grant with Condition: Journal Entries
Books of the National Government – BTr Books of DPWH
Receipt of grant
Cash in Bank – Local Currency, BSP 10,000,000 Cash – MDS, Regular 10,000,000
Other Deferred Credits 10,000,000 Subsidy from National Government 10,000,000
Disbursements for materials and labor
Subsidy to NGA 10,000,000 CIP – Infrastructure Assets 10,000,000
Cash in Bank – Local Currency, BSP 10,000,000 Cash – MDS, Regular 10,000,000
NOTE: This entry is recognized to replenish the MDS checks issued for
payment of the materials and labor for the construction of a flood control
system
Completion of the project
Other Deferred Credits 10,000,000 Flood Control Systems 10,000,000
Income from Grants and Donations in Cash 10,000,000 CIP – Infrastructure Assets 10,000,000
Pledges
• Pledges are unenforceable undertakings to transfer assets to
the recipient entity.
• Pledges are NOT recognized as revenue because they do not
meet one of the recognition criteria for an 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
• These are loans received by an entity at below market terms.
• The government entity considers whether the difference
between the loan proceeds and the fair value of the loan at
initial recognition is a non-exchange transaction.
• If such difference is a non-exchange transaction, the difference
is recognized as revenue, except if a present obligation exists
in which case the difference is recognized as a liability and will
be only recognized as revenue when the obligation is satisfied.
Impairment Losses
Allowance for Impairment Losses
• When an amount already recognized as revenue becomes
uncollectible, it is recognized as expense (i.e. impairment loss)
rather than as an adjustment to 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.
• Ann allowance is provided for known and estimated bad debts.
(GAM For NGAs, Chapter 5, Section 9)
Other Receipts
1. Receipt of subsidy from National Government (i.e.
disbursement authority) such as receipt of:
a. Notice of Cash Allocation (NCA)
b. Tax Remittance Advice (TRA)
c. Non-Cash Availment Authority (to be discussed in
Disbursements)
d. Cash Disbursement Ceiling (to be discussed in
Disbursements)
Other Receipts
2. Receipt of subsidy or assistance from other government agencies,
including LGUs and GOCCs.
Accordingly, the Collecting Officer shall issue an Official Receipt (OR) upon
receipt of any subsidy or assistance. The journal entries are as follows:
Cash – Collecting Officers 200,000
Subsidy from Other NGAs 150,000
Assistance from LGUs 30,000
Assistance from GOCCs 20,000
To record receipt of subsidy/assistance from other
government agencies
Cash – Treasury/Agency Deposit, Trust 200,000
Cash – Collecting Officers 200,000
To record remittance of collections to the Bureau of
Treasury
Other Receipts
3. Receipt of excess cash advance granted to officers and employees
Advances to Officers and Employees 10,000
Cash – MDS, Regular 10,000
To record cash advance of employee for local travel
Traveling Expenses – Local 8,000
Advances to Officers and Employees 8,000
To recognize liquidation of cash advance for local travel
Cash – Collecting Officers 2,000
Advances to Officers and Employees 2,000
To record refund of excess cash advance for local travel
Cash – Treasury/Agency Deposit, Regular 2,000
Cash – Collecting Officers 2,000
To record remittance of refund of excess cash advance for
local travel
Other Receipts
4. Receipt of refund of overpayment of expenses
Cash – Collecting Officers 1,000
Appropriate expense account 1,000
To record collection of refund of overpayment of expenses
Cash – Treasury/Agency Deposit, Regular 1,000
Cash – Collecting Officers 1,000
To record remittance of collection to Bureau of Treasury
Other Receipts
5. Receipt of performance bond or security deposit
Accordingly, a performance bond is a security deposit required from a
contractor or supplier to guaranty the full and faithful performance of a
contract. It may be in the form of cash or certified check.
Cash – Collecting Officers 1,000,000
Guaranty/Security Deposits Payable 1,000,000
To record collection of performance bond/security deposit
Cash – Treasury/Agency Deposit, Trust 1,000,000
Cash – Collecting Officers 1,000,000
To recognize remittance of collections to the Bureau of
Treasury
Other Receipts
6. Collections made on behalf of another entity
The collecting entity records the collection as a credit to the “Due to NGAs”
account. Upon receipt of remittance, the recipient entity records the
collection as credit to the “Trust Liabilities” account.
The fund transfer can either be intra-agency (i.e. within the same agency)
or inter-agency (i.e. transfers between different agencies)
Other Receipts
6. Collections made on behalf of another entity
INTRA-Agency Fund Transfer
Cash – Collecting Officers 400,000
Due to (Central Office, Regional Office, Operating Units 400,000
or Other Funds)
To recognize receipt of intra-agency fund transfer
Cash – Treasury/Agency Deposit, Trust 400,000
Cash – Collecting Officers 400,000
To recognize remittance of collections to the Bureau of
Treasury
Other Receipts
6. Collections made on behalf of another entity
INTER-Agency Fund Transfer
Cash – Collecting Officers 400,000
Due to (NGAs, LGUs or GOCCs) 400,000
To recognize receipt of inter-agency fund transfer
Cash – Treasury/Agency Deposit, Trust 400,000
Cash – Collecting Officers 400,000
To recognize remittance of collections to the Bureau of
Treasury
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