This document outlines accounting policies and procedures for local government units in the Philippines. It discusses the basic features of accrual accounting and the one fund concept used. It also describes the various books, journals, ledgers and financial statements required, as well as the budgeting and accounting processes for revenues, expenditures, assets, liabilities and financial reporting. Adjusting entries, closing entries and trial balances are discussed to ensure revenues and expenses are recorded properly.

1. Accounting for
Local
Government
Units
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2. Basic Features and Policy
1. Accrual Accounting
2. One Fund Concept
3. Special Accounts in the General Fund
4. Chart of Accounts and Accounts Code
5. Books of Accounts
• Journals
1. Cash Receipt Journal
2. Cash Disbursement Journal
3. Check Disbursement Journal
4. General JournalCJVM21

3. Ledgers
1. General Ledgers
2. Subsidiary ledgers
• Cash
• Receivables
• Inventories
• Investment
• Property plant and equipment
• Liabilities
• Income
• Expenses
Additional Book
1. Cash Book – Cash in Treasury
2. Cash Book- Cash in Bank
3. Cash Book – Cash Advances
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4. 6. Financial Statements
7. Appropriations, Allotments and Obligations
8. Financial Expenses
9. Perpetual Inventory and Supplies
10. Valuation of Inventory
11. Maintenance of Supplies and Property Plant
and Equipment Ledger Cards
12. Construction of Assets
13. Public Infrastructures
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5. 14. Depreciation
15. Reclassification of Assets
16. Allowance for Impairment – Accounts
Receivable
17. Elimination of Contingent Asset
18. Recognition of Liability
19. Interest Accrual
20. Accounting for Borrowings and loans
21. Elimination of Corollary and Negative Entries
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6. FORMS AND CONTENT OF BUDGET
The local government budget primarily consist of
two parts namely:
1. The estimates of Income certified collectible by the
treasurer; and
2. The total appropriation covering the current
operating expenditures and capital outlays.
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7. THE BUDGET PROCESS
1. Preparation
2. Legislative authorization
3. Execution and Accountability
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8. Changes in Annual Budget
-may be made within the fiscal year by way of
supplemental budget
Failure to Enact an Annual Budget
-whenever the local legislative fails to pass an
annual budget or when an enacted budget is declared
unenforceable, the annual appropriations are deemed re
–enacted.
Budgetary Accounting
-similar to the national government, the
budgetary accounting of the local government units are
composed of the following:
- Appropriations
- Allotments
- Obligations
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9. SOURCES OF INCOME
- the main sources of income of local government units are
as follows:
• Tax Revenues, fees and charges
• Share from Internal Revenue Collection
• Share from National Wealth
GENERAL INCOME ACCOUNTS
1. Subsidy from other local government units
2. Subsidy from other funds
3. Subsidy from special account
4. Sales revenue
5. Dividend revenue
6. Interest income
7. Gain on sale on securities
8. Gain on sale on assets
9. Sale of confiscated goods and properties
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10. 10. Foreign Exchange Gains
11. Miscellaneous operating and
service income
12. Fines and penalties- government
service and business operations
13. Income from grants and
donations
SPECIAL INCOME ACCOUNTS
1. Property taxes
2. Taxes on goods and services
3. Other taxes
4. Other specific income
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11. METHODS OF ACCOUNTING FOR INCOME
1. Accrual method
Illustration 1
- Received notice of Funding check issued from
the Department of Budget and Management, together with
credit memo from the bank for the share from internal
revenue collections in amount of P100,000
Cash in Bank 100000
Internal Revenue Allotment 100000
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12. Illustration 2
- Received notice of funding issued from the
Department of Budget and Management for share from
internal revenue collection in amount of P100000
Due from National Govt. Agency 100000
Internal Revenue Allotment 100000
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13. 2. Modified Accrual Method
-shall be established at the beginning of
the year
- shall be used for real property taxes
3. Cash Basis
- shall be used for all other taxes, fees,
charges, and other revenues.
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14. OTHER RECEIPTS
1. Borrowings
- are proceeds of repayable obligations generally
with interest from the bank, national agency, another local
govt. unit and private sector.
Illustration 1
Municipality X borrowed funds from a bank:
Principal – 500000; Bank Charges- 5000; Interest – 6000
Cash in Bank Local Currency 489000
Bank Charges 5000
Interest expense 6000
Loan Payable Domestic 500000
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15. 2. Sale of Property, Plant and Equipment
- refer to the proceeds from the sale of fixed assets,
such as land, building, equipment, furniture and fixtures, etc.
3. Refund of Cash Advances
-cash advances for official travel shall be recorded as
receivable from the concerned official of employee as
“Advances to Officers and Employees”. Refunds made shall be
credited to the receivable account previously recorded.
4. Receipt of Performance/Bidders Bonds
- performance bond in cash or certified check shall be
acknowledge through the issuance of official receipt and
recorded in the books by the accountant using a Journal Entry
Voucher.
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16. Accounting for Collections and Deposit
Disbursements
• Personnel services
• Maintenance and Other Operating Expense
• Capital Outlay
• Financial Expense
Payments by Check
Payments by Cash
Payments out of Petty Cash Fund
Purchase or Construction of Property, Plant and Equipment
Purchase of Supplies
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17. Miscellaneous Transactions
1. Loss of Cash and Property Accountability
Illustration 1
- The auditor of Municipality X discovered a loss of
fund by its disbursing officer in the amount of P5000. the
disbursing officer alleged that said amount was lost due to
theft and filed a request for relief from the accountability.
When the innocence of the accountable officer was
proven, the request for relief from accountability was
granted.
To record the loss:
Due from Officers and Employees 5000
Cash – Disbursing Officer 5000CJVM21

18. To record relief for accountability:
Loss of assets 5000
Due from Officers and Employees 5000
In case of denial of request for relief from accountability,
cash settlement is required;
Cash in Vault 5000
Due from Officers and Employees 5000
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19. 2. Cash Overage
- the cash overage shall be recorded as a credit to Other
Specific Income of LGU and debited to Cash in Treasury.
3. Dishonored Checks
Illustration 1
A check issued by a taxpayer for real property
tax in current year in the amount of P10000 was dishonored by a
bank upon presentation for payment. Accordingly, the official
receipt was cancelled. Upon notifications of the cancellation, the
taxpayer settled the obligation.
To record the receipt of advice of dishonored check
Real Property Tax Receivable 10000
Deferred Real Property Tax Income 10000CJVM21

20. To record cancellation of official receipt
Due to LGU – Real Property Tax Income 6000
Real Property Tax Income 4000
Cash in Bank Local Currency 10000
To record settlement
Cash in Vault 10000
Real Property Tax Receivable 10000
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21. 4. Cancellation of Lost Check Issued
- A check is considered lost when it is misplaced,
waylaid or left behind inadvertently/ negligently by the
payee or holder I due course or when it is lost due to
fortuitous event, theft or robbery.
To record the cancellation of check:
Cash in Bank – Local Currency Acct. 50000
Accounts Payable 50000
To record the repalcement
Accounts Payable 50000
Cash in Bank – Local Currency Acct. 50000
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22. 5. Spoiled and Stale Checks
- A check is considered spoil when it is torn,
mutilated, defaced or with erasures or errors affecting
the genuineness of any material information
contained therein.
- It is a stale, if it has been outstanding for over
six month from the date of issue or as prescribed by
the depository bank.
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23. 6. Suspensions, Disallowances and
Charges
Illustration:
During the examination conducted by the resident
auditor of the municipality of AB, it was discovered that
payment for office supplies delivered by a supplier was
overpaid by P10000. Accordingly, the auditor disallowed the
overpayment and required accountable officer to settle the
overpaid amount.
To record the disallowance:
Receivables – Disallowance charges 10000
Office Supplies Expense 10000
To record the settlement:
Cash in Vault 10000
Receivables – Disallowance charges 10000
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24. TRIAL BALANCE AND FINANCIAL STATEMENTS
- trial balance is a list of all the general ledger accounts and
their balances at a given time. The accounts are listed in the order in
which they appear in the ledger, with the debit balances in the left
column and credit balance in the right column.
ADJUSTING JOURNAL ENTRIES
- are accounting journal entries made in order to ensure
that revenues and expense are recorded in the period when
earned or incurred following the revenue recognition and
matching principle.
There are two types of adjusting journal entries, namely:
1. Prepayments
2. Accruals CJVM21

25. Pre – Closing Trial Balance
- is the one prepared from the general ledger accounts after
the adjusting entries have been journalized and posted. This is also
called adjusted trial balance.
Closing Journal Entries
- are the accounting entries prepared to reduce all the balances
of the nominal accounts to zero at the end of the accounting period in
order to prepare the accounts for the next accounting period.
Post – Closing Trial Balance
- is the trial balance prepared at the end of the year after the
closing entries are journalized and posted in the general ledgers
- it shall be submitted not later than the fourteenth day of
February after the end of the calendar year with the following
schedules:
1. Status of Appropriations, Allotments and Obligations
2. Subsidiary Schedule of General Ledger account balances
3. Summary of Public Infrastructures
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26. INTERIM REPORTS
- are financial statement required to be prepared at any
given period or at a financial reporting period shorter than a full
financial year, without closing the book of accounts.
The following interim financial statements and the Notes to Financial
Statements shall be prepared and submitted on quarterly basis;
1. Balance Sheet
2. Statement of Income and Expenses
3. Statement of Cash Flows
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR
FINANCIAL STATEMENTS
- shows the local govt. agencies responsibility for the
preparation and presentation of its financial statements. It shall be
signed by the Chief Accountant and the Head of the Agency or his
authorized representative.
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27. YEAR END FINANCIAL STATEMENTS
1. Balance Sheet
2. Statement of Income and Expenses
3. Statement of Cash Flows
4. Notes to Financial Statements
GENERAL FUND
- consists of monies and resources not accruing to
any other fund and shall be available for payment of
expenditures, obligations or purposes not specifically
declared by law.
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28. SPECIAL EDUCATION FUND
- consists of the respective shares of provinces, cities and
municipalities in the proceeds of the additional one percent tax on
the assessed value of real property for education purposes under
the Real Property Tax Code.
Proceeds for special education Fund shall be divided
between provincial and municipal school boards for the following
purposes:
1. Operation and maintenance in the public schools
2. Construction and repair of school buildings, facilities and
equipment
3. Education research
4. Purchase of book and periodicals
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29. BASIS OF RECORDING SPECIAL EDUCATION FUND
-based on Real Property Tax Account Register/Taxpayers
Index Card, the Special Education Tax Receivables shall be
established at the beginning of the year
- the Chief Accountant shall record the Special Education Tax
Receivables using the Journal Entry Voucher.
ACCOUNTING FOR SPECIAL EDUCATION FUND
- the treasurer or accountable officers shall maintain separate
cashbook for the special education fund
- the chief accountant shall maintain separate registries for
appropriation, allotment and obligations and books of accounts.
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30. TRUST FUND
- Consists of private and public monies received, by local
government official as trustee, agent or administrator, as guaranty
for the fulfillment of some obligations.
- A trust fund shall only be used for the specific purpose for
which it was intended.
ACCOUNTING FOR TRUST FUND
- Cash collections for the trust fund shall be acknowledged by
issuance of official receipt.
- The treasurer or concerned accountable officer shall
maintain separate cashbooks for the trust fund. The accountant on
the other hand, shall maintain separate books of accounts for trust
fund, prepare separate financial reports such as trial balance,
balance sheet, statement of cash flow and supporting schedules, to
be submitted on time.
- Disbursements from trust fund shall be in accordance with
the specific purpose stated in the trust agreement/approved budget
between the trustor and the trustee (LGU) as certified by the chief
accountant as to existence of funds held in trust
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31. THE NEW CODING STRUCTURE
- one of the key elements of the Unified Account
Code Structure under Joint Circular No. 2013-1 dated
August 6,2013, is the Location Code, which is a nine digit
code to reflect the
Region/Province/Municipality/Barangay following the
Philippine Standard Geographic Code prescribed by the
National Statistical Coordination Board.
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32. REGION
- it is a sub national administrative unit composed of
several provinces having more or less homogenous
characteristics such as ethnic region of inhabitants, dialect spoken,
agricultural produce etc.
- it is a two digit code that identifies a specific region
PROVINCE
- it is a political corporate unit of government which consists
of a cluster of municipalities and component cities.
- the province code is a two digit code that identifies the
province.
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33. CITY/MUNICIPALITY
- is a political corporate unit of government which consists
of a more urbanized and developed groups of barangays.
- the municipality code is a two digit code that generally
defines the relative alphabetical
BARANGAY
- it is the basic political unit of the government, it serves as
a primary planning and implementing unit of government
policies, plans, programs, projects and activities.
- it is a three digit code which generally defines the
relative alphabetical sequence of barangays within the
municipalities.
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34. SPECIAL ACCOUNTS IN THE GENERAL FUND
- local government units shall maintain special accounts,
through the use of complete subsidiary ledgers for each number of
the same economic enterprise, if any, in the General Fund for the
following:
1. Public utilities and other economic enterprise
2. Loans, interest, bind issues and other contributions for specific
purposes
3. Development projects funded from the share of the local
government concerned from the Internal Revenue Collections
4. Other special accounts which may be created by law or
ordinance
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35. ACCOUNTING FOR SPECIAL ACCOUNTS
- accounting procedures for the operations of the special
accounts are adopted for the following purposes:
1. To determine whether the income generated by the public
utilities or economic enterprises are sufficient to meet their
respective operating costs.
2. To provide adequate information as to the assets,
liabilities, and equity of each special account.
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36. ACCOUNTING FOR PROFIT FROM OPERATIONS
- profits or income derived from the operation of public utilities
and other economic enterprises shall be first be applied for the return
of the advances or loans made therefor . Any excess shall be from
part of the general fund of the local government unit concerned.
ACCOUNTING FOR SUPPLIES OR PROPERTY
- purchase of supplies and materials for stock, regardless of
whether or not they are consumed within the accounting period, shall
be recorded as inventory following the perpetual inventory method.
- the moving average method shall be used for costing
inventories
- items with serviceable life of more than one year but small
enough to be considered as property, plant and equipment shall be
recorded as inventories upon the acquisition and expense upon
issuance.
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37. CLASSIFICATION OF SUPPLIES OR PROPERTY
a. Expendable Supplies or Property
b. Non Expendable Supplies or Property
c. Non Personal Services
PROCEDURES FOR REQUISITION, DELIVERIES, AND
ISSUANCES OF SUPPLIES OR PROPERTY
Requisition shall be accomplished using the following forms:
1. Requisition Issue Slip (RIS) – for supplies carried in stock
2. Purchase Request (PR) – for supplies not carried in stock
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38. REVISED RATES OF REPRESENTATION AND
TRANSPORTATION ALLOWANCE
- Local Budget Circular No. 2009-91 dated March 27, 2009 is
issued to implement the revised RATA rates authorized under
Section 44, General Provisions of R.A. No. 9524, the General
Appropriation Act, for local government officials and
employees and to prescribe the funding source thereof. The
grant of RATA at the revised rates is subject to the 45%/55% limit
on personnel service expenditures mandated under Section
325(a) R.A. No. 7160, Local Government Code of 1991.
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39. The following officials and employees of provincial, city and
municipal governments are equated to national government
officials and employees entitled to RATA under the General
Appropriations Act:
1. Local Chief Executives (provincial governors, city mayors and municipal
mayors
2. Local Vice Chief Executives (Provincial Vice Governor, City Vice Mayors and
Municipal Vice Mayors
3. Sanggunian Members ( Sangguniang Panglalawigan Members, Sanggunian
Panglungsod Members, Sanggunian Bayan Members
4. Department Heads ( Provincial Government Department Heads, City
Government Department Heads, and Municipal Government Department
Heads
5. Assistant Department Heads ( Provincial Government Assistant Department
Heads, City Government Assistant Department Heads, and Municipal
Government Assistant Department Heads
6. Chief of Hospitals CJVM21