CHAPTER 1
OVERVIEW OF GOVERNMENT ACCOUNTING
(Revised April 2021)
LEARNING OBJECTIVES:
At the end of this chapter, a student will be able to:
a)
b)
c)
d)
e)
Define and understand what government accounting is in relation to commercial
accounting;
Know the objectives of government accounting;
Know and give examples of the three (3) general groups of government agencies;
Know the peculiarities of government operations and its effects on the accounting
system of government; and
Know responsibility, accountability and liability over government funds and
property.
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 government accounting are:
a)
b)
to establish accountability over receipts, property and expenditures; and
to generate information that permits continuous review of government 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)
b)
c)
d)
bookkeeping, referred to as analysis and recording;
posting, grouping or classifying of similar items (e.g., arrangement of items
according to account classifications, liquidity, or nature);
preparation of periodic financial reports such as the trial balance, the financial
statements and other supporting schedules;
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 (PD 1445 is the State Audit Code of the Philippines), namely:
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1. to produce information concerning past operations and present condition;
2. to provide a basis for guidance for future operations;
3. to provide 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 positions and results of operations of government agencies
for the information of all persons concerned.
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 into three general groups namely:
1. National Government Agencies (NGAs) - consisting of departments, bureaus, commissions,
boards, offices, tribunals, councils, authorities, administrations, centers, state colleges or
universities (SUCs);
2. Local Governments (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
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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 incurred out of the appropriation for the period and how much 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 are 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.
RESPONSIBILITY OVER GOVERNMENT FUNDS AND PROPERTY
It is the declared policy of the State that all resources of the government shall be
managed, expended or utilized in accordance with laws and regulations, and safeguarded
against loss or wastage through illegal or improper disposition, with a view to ensuring
efficiency, economy and effectiveness in the operations of government. The responsibility to
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take care that such policy is faithfully adhered to rests directly with the chief or head of the
government agency concerned. (Sec. 2, P.D. No. 1445)
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.
(Sec. 4(4), P. D. No. 1445)
The head of any agency of government is immediately and primarily responsible for all
government funds and property pertaining to his agency. Persons entrusted with the
possession or custody of the funds or property under the agency head shall be immediately
responsible to him, without prejudice to the liability of either party to the government. (Sec.
102, P. D. No. 1445)
ACCOUNTABILITY OVER GOVERNMENT FUNDS AND PROPERTY
Every officer of any government agency whose duties permit or require the possession
or custody of government funds or property shall be accountable therefor and for the
safekeeping thereof in conformity with law. Every accountable officer (AO) shall be properly
bonded in accordance with law. (Sec. 101, P.D. No. 1445; Section 50, Chapter 9, Subtitle B,
Book V, Executive Order No. 292, otherwise known as the Administrative Code of 1987)
Transfer of government funds from one officer to another shall, except as allowed by
law or regulation, be made only upon prior direction or authorization of the Commission or its
representative. (Sec. 75, P. D. No. 1445)
When government funds or property are transferred from one AO to another, or from an
outgoing officer to his successor, it shall be done upon properly itemized invoice and receipt
which shall invariably support the clearance to be issued to the relieved or outgoing officer,
subject to regulations of the Commission. (Sec. 77, P. D. No. 1445)
LIABILITY OVER GOVERNMENT FUNDS AND PROPERTY
Expenditures of government funds or uses of government property in violation of laws
or regulations shall be a personal liability of the official or employee found to be directly
responsible therefor. (Sec. 103, P. D. No. 1445)
Every officer or accountable for government funds shall be liable for all losses resulting
from the unlawful deposit, use, or application thereof and for all losses attributable to
negligence in the keeping of the funds. (Sec. 105(2), P. D. No. 1445)
No AO shall be relieved from liability by reason of his having acted under the direction of
a superior officer in paying out, applying, or disposing of the funds of property with which he is
chargeable, unless prior to that act, he notified the superior officer in writing of the illegality of
the payment, application, or disposition. The officer directing any illegal payment or disposition
of the funds or property shall be primarily liable for the loss, while the AO who fails to serve the
required notice shall be secondarily liable. (Sec. 106, P. D. No. 1445)
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When a loss of government funds or property occurs while they are in transit or the loss
is caused by fire, theft, or other casualty or force majeure, the officer accountable therefor or
having custody therefor shall immediately notify the Commission or auditor concerned and,
within 30 days or such longer period as the Commission or auditor may in the particular case
allow, shall present his application for relief, with the available supporting evidence. Whenever
warranted by the evidence, credit for the loss shall be allowed. An officer who fails to comply
with this requirement shall not be relieved of liability or allowed credit for any loss in the
settlement of his accounts. (Sec. 73, P. D. No. 1445)
REFERENCES:
1. Government Accounting Manual (GAM) for National Government Agencies – available at
www.coa.gov.ph
2. PPSAS (Philippine Public Sector Accounting Standards – Volumes I, II, & III) adopted
under COA Resolution No. 2014-003 dated January 24, 2014
3. Presidential Decree 1445 – Government Auditing Code of the Philippines
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