12.1 Government Accounting: The GAM for National Government Agencies

Government Accounting: The GAM for National Government Agencies

Government accounting carries two AFAR items (syllabus topic 12.0): basic concepts, the budget process, the Government Accounting Manual (GAM), and journal entries in the books of a national government agency. This section explains the roles of COA, DBM, and the Bureau of the Treasury, the four budget phases, budgetary registries, and the entries for cash allocations, withholding and tax remittance advice, and year-end reversion.

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1. Constitutional Foundations and Institutional Responsibilities

Under Article IX-D, Section 2(2) of the 1987 Philippine Constitution, the Commission on Audit (COA) possesses exclusive authority to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures.

                     Institutional Triad of Public Fiscal Administration
                                              │
                    ┌─────────────────────────┼─────────────────────────┐
                    ▼                         ▼                         ▼
        Department of Budget               Bureau of the               Commission on
          and Management                     Treasury                      Audit
              (DBM)                            (BTr)                       (COA)
     Prepares & executes budget;       Cash custodian of NG;      Promulgates accounting rules;
     releases allotments and NCAs      manages Treasury Single    audits agencies; keeps the
     to spending agencies              Account (TSA)              General Accounts of the Gov

General Principles of the GAM for NGAs:

• Accrual Basis of Accounting: The GAM adopts the accrual basis in accordance with PPSAS (harmonized with International Public Sector Accounting Standards, IPSAS). Revenues are recognized when earned or when non-exchange events occur, and expenses are recognized when incurred, regardless of the timing of cash receipts or disbursements.
• Revised Chart of Accounts (RCA): Uses account codes that are part of the Unified Accounts Code Structure (UACS) prescribed jointly by DBM, COA, and DOF, so budget and accounting data can be matched.
• Fund Cluster Accounting: Financial records are kept by fund cluster: 01 Regular Agency Fund; 02 Foreign Assisted Projects Fund; 03 Special Account - Locally Funded/Domestic Grants Fund; 04 Special Account - Foreign Assisted/Foreign Grants Fund; 05 Internally Generated Funds; 06 Business Related Funds; and 07 Trust Receipts.

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2. The Four Phases of the National Budget Process

Government operations are governed by the constitutionally mandated budget cycle:

┌──────────────────────┐     ┌──────────────────────┐     ┌──────────────────────┐     ┌──────────────────────┐
│ 1. Budget            │ ──> │ 2. Budget            │ ──> │ 3. Budget            │ ──> │ 4. Budget            │
│    Preparation       │     │    Legislation       │     │    Execution         │     │    Accountability    │
│ (DBM Budget Call,    │     │ (House of Reps,      │     │ (Allotments, ORS,    │     │ (BFARs, COA Annual   │
│  Agency Estimates,   │     │  Senate, Bicameral,  │     │  NCA Releases,       │     │  Audit Reports,      │
│  President's NEP)    │     │  GAA Enactment)      │     │  MDS Disbursements)  │     │  Performance Review) │
└──────────────────────┘     └──────────────────────┘     └──────────────────────┘     └──────────────────────┘

1. Budget Preparation: DBM issues the National Budget Call. Agencies submit budget proposals via Budget Preparation (BP) forms. DBM conducts technical budget hearings, the Executive Review Board finalizes figures, and the President submits the National Expenditure Program (NEP) and Budget of Expenditures and Sources of Financing (BESF) to Congress within 30 days from the opening of every regular legislative session.
2. Budget Legislation: In accordance with Article VI, Section 24 of the Constitution, all appropriation bills must originate exclusively in the House of Representatives. Following committee hearings, plenary approval, Senate concurrence, and reconciliation by the Bicameral Conference Committee, the bill is signed by the President into the General Appropriations Act (GAA).
3. Budget Execution: Implementation of the GAA. DBM issues allotments authorizing agencies to incur obligations, followed by the release of cash disbursement authorities (Notice of Cash Allocation, NCA).
4. Budget Accountability: Continuous monitoring and post-execution review. Agencies submit Budget and Financial Accountability Reports (BFARs) quarterly to DBM and COA. COA conducts independent audits and transmits Annual Audit Reports (AARs).

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3. Budgetary Tracking: Registries and Obligation Accounting

In Philippine government accounting, budgetary authorizations are tracked in registries rather than in formal general ledger debit/credit accounts. General ledger journal entries occur only when financial assets, liabilities, revenues, or expenses arise.

The Hierarchy of Budgetary Authorities:

Appropriation (GAA Law) ──> Allotment (DBM Authority) ──> Obligation (Agency Contract) ──> Disbursement (Payment)
     Tracked in RAPAL             Tracked in RAAO                Documented by ORS            Paid via MDS / ADA

1. Appropriation: An authorization made by law (the GAA or special statutory enactment) directing the payment of goods and services out of government funds under specified conditions. Tracked in the Registry of Appropriations and Allotments (RAPAL).
2. Allotment: An authorization issued by the DBM to an agency to incur obligations up to a specified amount for a specified purpose (e.g., via the GAA as Allotment Order [GAAO] or Special Allotment Release Order [SARO]). Tracked in the Registry of Allotments, Obligations and Disbursements (RAAO), maintained separately for:
   • PS: Personnel Services (salaries, allowances, mandatory employee benefits);
   • MOOE: Maintenance and Other Operating Expenses (supplies, utilities, travel);
   • FE: Financial Expenses (bank charges, interest);
   • CO: Capital Outlays (infrastructure, equipment, buildings).
3. Obligation: An act of a duly authorized official which binds the government to the immediate or eventual payment of a sum of money. Documented through the Obligation Request and Status (ORS) for NGAs, or the Budget Utilization Request and Status (BURS) for GOCCs and state universities.
4. Disbursement: The actual settlement of validated legal obligations, executed through Modified Disbursement System (MDS) checks or electronic Advice to Debit Account (ADA).

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4. Accounting for Notice of Cash Allocation (NCA) and Tax Remittance Advice (TRA)

A. Notice of Cash Allocation (NCA)

The NCA is an authorization issued by the DBM to government servicing banks (e.g., Land Bank of the Philippines) to honor Modified Disbursement System (MDS) checks or list of due and demandable accounts payable (LDDAP-ADA) issued by agencies against the Bureau of the Treasury account.

Standard Journal Entries for NCA Cycle:

1. Receipt of NCA from DBM:

   Cash - Modified Disbursement System (MDS), Regular    XXX,XXX
       Subsidy from National Government                             XXX,XXX
   

2. Incurrence and Payment of Obligations (e.g., Office Supplies with Tax Withholding):

   Office Supplies Expense                               XXX,XXX
       Cash - Modified Disbursement System (MDS), Regular           XXX,XXX
       Due to BIR (Withholding Tax Payable)                          XX,XXX
   

3. Reversion of Unutilized NCA at Year-End: Under government cash management rules, all unutilized NCA cash authority expires at the end of the fiscal year (December 31) and must be reverted:

   Subsidy from National Government                      XXX,XXX
       Cash - Modified Disbursement System (MDS), Regular           XXX,XXX
   

B. Tax Remittance Advice (TRA)

National Government Agencies do not physically disburse cash to pay internal revenue taxes withheld from employees or private suppliers. Instead, under the joint circular of COA, DBM, and DOF, taxes are remitted through the Tax Remittance Advice (TRA) mechanism. The agency files the TRA with the BIR, which serves as the basis for constructive revenue receipt and tax remittance.

Standard Entries for the TRA Mechanism:

1. Upon Withholding Taxes during Disbursement:

   Accounts Payable (or Expense)                         XXX,XXX
       Cash - MDS, Regular                                          XXX,XXX
       Due to BIR                                                    XX,XXX
   

2. Upon Constructive Remittance via Validated TRA:

   Due to BIR                                             XX,XXX
       Subsidy from National Government                              XX,XXX
   

   (Note: In detailed GAM journals, this is reflected constructively through 'Cash - Tax Remittance Advice', which nets out directly against Due to BIR and Subsidy from National Government).

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5. Worked Example: A National Government Agency (DOH Regional Office)

During the fiscal year 2026, the DOH Regional Office records the following transactions under Fund Cluster 01 (Regular Agency Fund):

1. Received Notice of Cash Allocation (NCA) from DBM: PHP 10,000,000.
   Dr. Cash - Modified Disbursement System (MDS), Regular    10,000,000
       Cr. Subsidy from National Government                         10,000,000

2. Incurred and paid medical supply expenses of PHP 6,000,000 via MDS checks,
   withholding 5% VAT and 1% expanded withholding tax (Total 6% tax = PHP 360,000):
   Dr. Medical Supplies Inventory                              6,000,000
       Cr. Cash - Modified Disbursement System (MDS), Regular        5,640,000
       Cr. Due to BIR                                                   360,000

3. Issued and submitted validated Tax Remittance Advice (TRA) to the BIR for PHP 360,000:
   Dr. Due to BIR                                                360,000
       Cr. Subsidy from National Government                             360,000

4. Paid electricity and utility bills of PHP 3,500,000 with zero tax withholding:
   Dr. Electricity Expenses                                    3,500,000
       Cr. Cash - Modified Disbursement System (MDS), Regular        3,500,000

5. At December 31, 2026, unutilized cash in MDS account is PHP 860,000
   (PHP 10,000,000 received - PHP 5,640,000 - PHP 3,500,000 = PHP 860,000).
   Reversion of unused NCA to the National Treasury:
   Dr. Subsidy from National Government                          860,000
       Cr. Cash - Modified Disbursement System (MDS), Regular          860,000

Net Subsidy from National Government Recognized in 2026 Profit/Loss:
$\text{PHP }10{,}000{,}000 \text{ (Initial NCA)} + \text{PHP }360{,}000 \text{ (TRA)} - \text{PHP }860{,}000 \text{ (Reversion)} = \text{PHP }9{,}500{,}000$.