Ethiopian Government Accounting Module

Department of Accounting and Finance FGE Accounting and Budgeting
Acronyms
BA Bank Account
BI Budgetary Institution
CAD Central accounts department
CPR Council of people's representatives
DSA Decentralization support activity project
EC Ethiopian Calendar
FGE Federal Government of Ethiopia
MOFED Ministry of finance and economic development
PB Public body
Harambee University College Page 1

Unit one: Introduction

Contents
Introduction
1.1 Goals achieved by FGE Accounting System
1.2 Changes in the FGE accounting system
1.3 Systems and procedures for professionals working in the FGE accounting
system
Summary
Self-assessment questions
Introduction
This unit is presented in three sub topics. What Public Body is explained in relation to
the regulation and control on Public bodies under which they are working. Due to the
unique environment in which public bodies are operating, characteristics of public
bodies accounting and similarities with business organizations is worth considering. In
light of this, the objectives of FGE accounting system will be explained. Furthermore,
this unit will present Chart of accounts and Basis of accounting in detail, as they are the
important components for FGE accounting system.
After completing this unit, you should be able to:
 Explain the importance of accounting information system in
government budgetary institutions.
 Identify the objectives of FGE Accounting system.
 Identify the classification of any account in FGE chart of accounts.
 Record transaction in FGE accounting system.
1.1 Goals achieved by FGE Accounting System

As stated in the first volume of FGE Accounting system, Manual 3, The FGE
accounting system achieves three goals: budget control, cash control, and
accountability.
Budget control
 The ability of the accounting system to report expenditure consistent with
budgetary principled and
 Including accounting for commitments in the system. A commitment is an
amount of budgeted funds that is reserved for a specific future expenditure. Any
committed budgeted funds are no longer available for future commitments.
Commitments are made against the budget when a purchase order is approved .

Cash control
 Maintaining the balance of cash at bank and cash in safe in a general budget.
 Clarifying the responsibilities and duties of the cashier and the accountant for
cash at bank and cash in safe. The cashier handles cash in safe, while the
accountant is assigned overall responsibility for cash in safe and specific
responsibility for the checkbook and cash at bank.
 Using on imprest system to control cash in safe. In an imprest system, the can
safe is from the safe is documented. The cash in safe is periodically reimbursed,
based on vouchers, for the exact amount necessary to restore the original cash
balance deposited in the bank intact.
 Applying double entry bookkeeping techniques in the accounting system.
Double entry bookkeeping creates a set of self balancing account ledgers
(general ledger), Because the account ledgers are self balancing accounting
records in a general ledger, So cash also in controlled by double entry
bookkeeping. Therefore a running cash balance in the register ledger reflects the
actual cash available.
 Employing a modified cash basis of accounting when accounting for
transactions, the modified cash basis of accounting allows the accounting system
to recognize revenue and expenditure consistent with the budgetary process and
financial low.
Accountability
 Imploring a general ledger system. Each accounting unit maintains a general
ledger for each source of funding, so each unit maintains a balanced and
continuous record of its responsibilities and performance. A set of financial
reports can be produced from any single general ledger or from any combination
of general ledgers.
 Creating the ability to record and report on any assets and liabilities using a cost
method of valuation. The FGE a accounting system included a simplified
process for recording any assets and liabilities in a set of registers and in a
general ledger that is independent of accounting for transactions using a
modified cash basis of accounting.

 Establishing a system of financial reporting that produces two reports for use by
government and a statement of changes in cash position for use by interested
p[arties outside of Budget and Actual for revenue and expenditure and a
statement of Net assets.
 Every attempt is made to design a system that is consistent and clear. To permit
jurisdictions some ability to adapt the system to their capacity, the design allows
implementation of the system initially for recording other assets and liabilities
using the cost method can be deferred for later implementation.
Activity 2: Identifying cash control mechanism

Allow about 10 minutes.
The purpose of this activity is to let you know cash control methods. You can
contact whoever is serving in financial institutions in your locality to brief you about
the mechanisms that are working so far in Ethiopia with regard to cash control.
Explain at least four different ways through which FGE Accounting System can
achieve the cash control.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
_______________________________________________________
Feedback: As you know cash is a liquid asset that could be easily stolen. It needs
caution for its management .The handling of cash and recording of the cash amount
should be done by different people. It should also be put in different places like, in
safe and at Bank. Having this in your mind, you can suggest many other methods
for cash control.
1.2 Changes in the FGE accounting system
 The Federal government of Ethiopia (FGE) accounting system used in 1994 EC

has been in service for more than hast a century. The system has been revised at
various times and the revisions through time house brought major changes in
recording, summarizing and reporting of the government financial information.
 The federal government decided that there was a need to revise the current
accounting process as an integral part of the civil service Reform. The civil
service Task force, formed in the prime minister‟s office, began the revision
process. Further study and implementation responsibilities were given to the
accounts Reform Team established by the ministry of finance and Economic
Development (MOFED)

 The overall strategy of the civil service Reform for accounts is to mode from
strictly cash controls to on emphasis on management and accountability, The
FGE accounting system described in this module is now the FGE accounting
system.
1 . 3 Systems and procedures for professionals working in the FGE accounting
Cashier and Accountant

In the FGE accounting system of cash control, the cashier's function and the
accountant's function are distinct. Cash consists of currency and checks. The cashier's
function is to maintain and control cash in the safe. The accountant's function is to
maintain and control cash at the bank.
Only the cashier can receive currency and checks and make disbursements in currency.
Daily, the cashier should count cash on hand and reconcile ending cash on hand to the
cash book.
The cash in safe is controlled by an imprest system. When cash is received as per the
budget or other sources, the cashier will:
 Issue a cash receipt,
 Segregate the cash received from cash available to disburse,
 Deposit the cash received intact in the bank as soon as practical, usually
daily, and
 Surrender copies of all cash receipts and a copy of the bank deposit slip to
the accountant.
In the imprest system, a balance is established for cash in safe. The accountant issues
this amount of cash to the cashier using a check. When cash is disbursed to establish
the Imprest Fund, the cashier will issue a receipt voucher. If the amount of cash in safe
is to be replenished, the cashier will surrender all payment vouchers to the accountant.
The accountant will replenish the cash in safe by issuing a check to the cashier for the
total amount of the payment vouchers that are surrendered. The replenishment should
return the balance of cash in safe to the established level.
The accountant's responsibility for cash is to maintain a record of the total cash position
of the entity, including cash at the bank and cash in the safe. The accountant records
cash movements that flow through the cashier and cash movements that flow directly
through the bank. Direct cash movements through the bank normally include bank
transfers and charges, checks written, and any other transactions that do not require cash
handling by the cashier.
When a PB has more than one cashier, one cashier is designated as the main cashier.
The other cashiers are designated as assistant cashiers. Each PB is responsible for
organizing assistant and main cashiers. However, some general principles apply.
Assistant cashiers are responsible for:

 Collection of Cash

 Issuing deposit and/or receipt vouchers

 Making deposits at Bank
The main cashier is responsible for:
 Reconciling cash and vouchers for each assistant cashier
 Depositing cash in the bank
 Disbursing cash for the proper functioning of the PB
 Managing the petty cash
To accomplish these responsibilities, most PB s with multiple cashiers are organized as
follows:
Each assistant cashier:
 Collects revenue and issues receipt vouchers
 May summarize receipt vouchers on Model 16
 Sends a copy of receipt Vouchers and Model 16 to accounts
 Sends cash to main cashier
 Receives Model 64 as receipt from main cashier
The main cashier:
 Collects cash from cashiers
 Verifies cash with accounts
 Verifies the amount on receipt vouchers equals cash received
 Verifies amount for each revenue account
 Completes Model 64
 Gives the copy of Model 64 with the deposit slip to accounts
 Gives a copy of Model 64 to assistant cashiers
 Deposits cash in bank
 Attaches the deposit slip to Model 64
 Gives the copy of Model 64 with the deposit slip to accounts
The accountant:
 Receives receipt vouchers and Model 16 from assistant cashiers
 Verifies accounts and amounts on receipt vouchers
 Dispatch the documents to the main cashier
 Receives Model 64 with deposit slip attached from main cashier
 Records Model 64 in the transaction register and ledgers

Summary
As explained in the budget manual which is prepared by ministry of Finance and
Economic Development and in the financial law of Ethiopia, Public Bodies are those
government institutions which have got legal responsibilities (mandates), receive their
partial or full budget from the government to discharge their responsibilities. These
Public Bodies are also required to submit their reports to ministry of Finance and
Economic Development and respective Finance or Planning both at Federal and
Regional states.
Due to the difference in the environment or situation in which they are operating,
accounting for Public Bodies has got both similarities and differences with that of
private businesses or organizations as already discussed in this unit. To mention few
similarities, both of them use scarce resources such as financial, human and material
resources, both of them prepare financial reports, they strive to meet their own goals.
The difference between the two is that their objective is not the same. Private
organizations are established generate profit whereas Public Bodies are established to
provide goods and services for the public at large. The source of finance to undertake
their activities also differs. There are complex administrative and regulatory controls in
Pubic Bodies accounting. The source of finance for private organizations is limited to
sale of goods and services whereas, the source of finance for Public Bodies is from
different sources such as direct and indirect taxes, aid, loans, fines, etc.,
The broad objectives of FGE accounting are Cash control, Budget control and
accountability using different mechanisms. In FGE Accounting system, there is also
budget classification for easily identifying and Budgets. This is done by Public Bodies
in consultation with MOFED /respective finance and planning offices. The budget
classification defines the budgetary institutions and the source of funding. Specific
codes are given to different items of expenditures to differentiate one from the other.
The chart of accounts is a map that helps to systematically coding to identify and
classify financial entities and events. This will help to facilitate the recording of
transactions and the reporting of information in accordance with the budget for the
interested decision makers. The current FGE chart of account consists of both
temporary and permanent account.
The basis of accounting is a set of different principles and rules employed by the
accounting system to determine when and how to record economic events called
transaction. There are different basis of accounting that are being used by different
countries. Ethiopia has been using cash basis of accounting for a long period. Cash basis
of accounting is basis of accounting which recognizes transaction and other economic
events when cash is received and paid. Now days, Ethiopia is employing (using)
modified cash base of accounting which is a double entry accounting at federal level
and in some regions.

Self-Assessment Questions (SAQs 1)

Part I. Multiple Choice Questions
Choose the best answer and circle the letter of your choice. Compare your answers with
answers given at the end of the module.
1. What information does the budget classification provide for accounting purpose?
a. Financial administration structure required.
b. Types of budget.
c. Source of funding.
d. A and C
e. All of the above
2. Which of the following is true about a public body coded as 236?
a. The first digit “2” tells you that the type of budget appropriated to
this PB is a capital budget.
b. The first digit (2) indicates that the functional classification of this
PB is Economic.
c. The second digit (3) represents the level of government to which the
budget applies is social sector.
d. The third digit (6) shows that this PB is classified in Administrative
and General sub-functional budget category.
e. B and C.
3. Which of the following generates Capital revenue for government?
a. Government revenue from sales of land to investors.
b. Government sales of used goods including cars.
c. Privatization proceeds from the sale of government equity in public
enterprises.
d. Sales of durable goods acquired for military purposes.
e. None of the above.
4. Which of the following is false about the chart of accounts?

a. The ordering within assets in the chart of accounts represents the
relative ease with which each could be converted into cash.
b. The ordering within liabilities in the chart of accounts represents the
timing of repayment.
c. The ordering within assets in the chart of accounts represents the
liquidity of assets.
d. The chart of accounts is designed to distinguish assets and liabilities
that are the result of modified cash-basis accounting from those that
are the result of the cost method of accounting.


5. Which of the following is classified under cash and cash equivalent category of
accounts?
a. Cash on hand.
b. All demand deposits in local and foreign currency accounts.
c. All demand deposits in restricted and unrestricted accounts.
d. Investments that are readily convertible to known amounts of cash
and which are subject to insignificant risk of change in value.
e. All of the above.
6. Which particular activities in the system better serve to accountability
achievement?
a. Employing a general ledger system to produce reports.
b. Employing a modified cash-basis of accounting when accounting for
transactions.
c. Applying double entry bookkeeping techniques in the accounting
system.
d. Accounting for commitments in the system.
7. Among the following one is not a practical procedure in the system to enhance
the control over cash. Which one?
a. Using pre-numbered source documents in the system.
b. Clearly defined assignment of responsibility between cashier and
accountant.
c. Applying the imprest system to control cash in safe.
d. Using a bank account system.
Part II: Short answer questions

Instruction: Write your brief answers for the questions given below.
1. What does the basis of accounting determines for accounting system?
2. List the type of information the FGE chart of accounts contains.
3. Explain the built-in mechanisms for FGE accounting system to achieve
accountability.

Unit Two: Basic FGE Accounting System Concepts
Contents
Introduction
1.1 Chart of Accounts of FGE Accounting Systems
1.2 Basis of accounting of FGE Accounting System
1.3 Bookkeeping Method of FGE Accounting System
Summary
Introduction
This unit is presented in six sub topics. What Public Body is explained in relation to the
regulation and control on Public bodies under which they are working? Due to the
unique environment in which public bodies are operating, characteristics of public
bodies accounting and similarities with business organizations is worth considering. In
light of this, the objectives of FGE accounting system will be explained. Furthermore,
this unit will present Chart of accounts and Basis of accounting in detail, as they are the
important components for FGE accounting system.
 Explain the importance of accounting information system in
government budgetary institutions.
 Identify the objectives of FGE Accounting system.
 Identify the classification of any account in FGE chart of accounts.
 Record transaction in FGE accounting system.
1.5 Chart of Accounts of FGE Accounting Systems
A chart of accounts is a system of coding used to identify and classify financial entities
and events. The current chart of accounts, described in the Budget Reform Manual
incorporates detailed codes for items of domestic revenue, external assistance, external
loans, and items of expenditure. This unit completes the FGE chart of accounts by
adding detailed codes for transfers, assets, liabilities, letters of credit and net
assets/equity.
The classification of the chart of accounts is structured in a systematic manner and
facilitates the recording of transactions and the reporting of information in accordance
with the budget.
The chart of accounts treats all detailed account codes as temporary accounts and
permanent accounts. Temporary accounts are accounts that begin each year with a zero
balance. Permanent accounts are detailed account codes whose balance at the end of a
year becomes the balance in the account at the beginning of the next year.

Revenue, expenditure and cash transfers are temporary account code categories.
Account codes in these categories:
 are always treated as temporary accounts, and
 begin each year with a zero balance.
Assets, liabilities and net asset/equity are permanent account code categories. Account
codes in these categories:
 are always treated as permanent accounts, and
 begin each year with the account balance as long as they had at the end of
the previous year. In other words, these accounts are not closed.
Activity 3: Identifying FGE permanent and temporary accounts.

FGE accounting system comprises both permanent and temporary accounts classified
into six ledger groups. Identify the groups and determine which one is permanent or
temporary. Then give your justification for the division you identified for the six ledger
groups.
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
__________________________________________
Feedback: For the detailed understanding of permanent and temporary accounts, you
could refer annex 1 which is attached at the end of this module.
Activity 4: Understanding Budget classification schemes
Allow 8 minutes
This activity is meant to help you identify whether the given budget categories
are standardized or discretionary.
As you identify whether these budget categories are standardized or
discretionary respond by putting a √ mark under the appropriate column
heading.
Budget Category Standardized Discretionary
Sub-Program
Type of Budget
Public body
Project
Source Finance
Sub-Functional classification
Jurisdiction

Item of Expenditure
Functional classification
Programs
Sub-Agency
Feedback: You can see the following

Budget Category Standardized Discretionary
Sub-Program √
Type of Budget √
Public body √
Project √
Source Finance √
Sub-Functional classification √
Jurisdiction √
Item of Expenditure √
Functional classification √
Programs √
Sub-Agency √
Activity 5: Identifying budget classification of public body

This activity is meant to give you an insight into the budget
classification of public bodies. Determine the budget classification
of a public body designated by the following digits.
Jurisdiction Types of Public

budget body
15 1 154
15 2 319
10 1 263
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______________________________________________________________________
_____________________

Feedback: Look at the following for the above situation
Jurisdiction Types of budget Public body Explanation
15 1 154 Recurrent budget for central statistical

Authority.
15 2 319 A capital budget to Ethiopian Civil

Service College, Federal Government
10 1 263 A recurrent budget of Addis Ababa

City Administration for Ethiopian Civil
Aviation Authority
Chart of Temporary Accounts

The Budget Reform Team under the Expenditure Management and Control Sub-
Program of the Civil Service Reform designed codes in the chart of accounts for
detailed coding of:
 Items of domestic revenue, external assistance and external loans using code
numbers 1000 through 3,999, and
 Transfers using code numbers 4000 through 4099.
 Items of expenditure using code numbers 6,000 through 6,999.
The Budget Manual created account codes for the FGE chart of accounts as follows:
 Items of domestic revenue using account codes 1000-1799,
 External assistance using account codes 2000-2999,
 External loans using account codes 3000-3999,
 Transfers using code numbers 4000 through 4099, and
 Items of expenditure using account code 6000-6999.
The chart of accounts for these classifications is presented in Annex 2 at the end of this
module.
Chart of Permanent Accounts

The Accounts Reform Team under the Expenditure Management and control Sub-
Program of the Civil Service Reform designed codes for detailed coding of:
 Assets using code numbers 4100 through 4999.
 Liabilities using code numbers 5000 through 5499.

 Letters of Credit using code numbers 5500 through 5599.

 Net Assets/Equity using code numbers 5600 through 5699.
Although a general description of these account codes is described here, refer the
account titles with their corresponding codes in Annex 1 and 2 presented at the end of
this module for detail and complete list of accounts.
Assets: As written by different scholars at different times, Assets are resources
controlled by an entity as a result of past events and from which future economic
benefits or service potential are expected to flow to the entity. The categories of assets
in the FGE accounting system are: cash and cash equivalents, receivables, goods in
transit, stocks, fixed assets, loans receivable, investments, liabilities, letters of credit,
and net assets/equity.
Cash and cash equivalents: Cash is cash on hand and cash at bank. Cash equivalents
are short-term, highly liquid investments that are readily convertible to known amount
of cash and which are subject to an insignificant risk of change in value.
Receivables: receivables are amounts owed to (given to) a government unit by another
government unit, a person, or a non-government entity except public enterprises. Salary
advances to employees and advances to suppliers are two examples of receivables
commonly occurring in FGE transactions.
Goods in transit: Goods in transit are goods that are owned by the FGE but not yet in
the FGE's possession. Typically, these are goods that are purchased overseas using a
letter of credit.
Stocks: Stocks are goods that are consumed in less than one year.
Fixed assets: Fixed assets are physical items that are expected to have a useful life of
longer than one year and have a certain minimum value.
Loans receivable: Loans receivable are amounts due from public enterprises over a
period of time exceeding one year.
Investments: Investments are FGE investments in public enterprises and private
organizations that are held for more than one year.
Liabilities: Liabilities are formally defined by the Institute of Public Sector Accounting
standards as "present obligations of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefits or service potential." Liabilities are better defined by example. The
categories of liabilities in the improved and expanded accounting system are:
 Payables. Payables are obligations to pay that are due in less than one year.
Examples of FGE payables are deposits, grace period payables, treasury
bills, and retention on contracts.
 Long-term debt. Long-term debt is an obligation to pay that is due in more
than one year.
Letters of Credit: A letter of credit represents a guarantee to pay suppliers with cash
set aside in bank account restricted for that purpose.
Net assets/equity: Net assets/equity is formally defined by the Institute of public sector
accounting standards as "the residual interest in the assets of the entity after deducting

all its liabilities." Net assets/equity is the balance remaining after liabilities are deducted
from assets. This balance represents the equity interest of Regional and Federal
Governments.
Activity 6: Differentiating codes with Account Title
The intent of this activity is to enable you identify account code and account title
Refer the chart of accounts in Annex 1 and match the code with the account title.
Account code Account title
4007 ? (a)
? (b) Cash in foreign currency bank account
? (c) Building under progress: non-residential
6212 ? (d)
5001 ? (e)
? (f) Revenue form Income tax
______________________________________________________________________
______________________________________________________________________
________
Feedback: You will find the following situation (look at annex 1 and 2 at the end of
this module)
Account code Account title

4007 Cash Transfer for Grace Period payables
4102 Cash at back in foreign currency and
cash at bank in Birr equivalent to
Foreign Currency
4552 Building under progress: non-residential
6212 Expenditure for supplies
5001 Grace Period payables
1101 Revenue form Income tax
1.6 Basis of Accounting

A transaction is an economic event that affects the financial position of the government.
The basis of accounting is the basic set of principles and rules employed by the
accounting system to determine when and how to record transactions. The cash basis of
accounting is a basis of accounting that recognizes transactions and other events when
cash is received or paid.

Although organization‟s earnings and related operating activities are continuous, they
are reported at specific intervals (i.e. an accounting period or budget year) in order to
provide useful information for decision-making on a timely basis. Some activities may
begin and end during the accounting period, while others may require two or more
accounting periods for completion. Budget year for FGE is from Hamle 1 to Sene 30.
In summary, accrual accounting is based on cash flows but reports transactions and
other events with cash consequences at the time the transactions occur rather than at the
time cash is received or paid. Accrual accounting is also superior to cash-basis
accounting from the standpoint of measuring financial statement elements.
The FGE accounting system employs a modified cash basis of accounting. Modified
cash basis of accounting is a compromising basis of accounting between the two
extreme bases of accounting. It adopts features from both bases of accounting. Most
transactions are recorded using cash basis of accounting and some transactions are
recorded using accrual basis of accounting. The modified cash basis of accounting in
FGE means that cash basis applies except for recognition of the following transactions:
 Revenue and expenditure are recognized when aid in kind is received.
 Expenditure is recognized:
 When payroll is processed.
 At the end of the year when a grace period payable is recognized.
 When goods are received or services are rendered if payment for the
goods or services was rendered in advance.
 When cash moves from an unrestricted to a restricted bank account to
meet the requirements of a letter of credit. When cash moves out of
he restricted account, no expenditure is recognized.
 Intergovernmental transfers are recognized in the absence of actual cash
movement.
 Transactions resulting from salary withholdings are recognized in the
absence of actual cash movement.
The modified cash basis of accounting is consistent with the budgeting process and
produces information useful for comparing budgeted and actual revenue and
expenditure. The modified cash basis accounting system requires the same temporary
accounts as the cash basis of accounting plus the following permanent accounts: cash
and cash equivalents, receivables and payables.
The FGE accounting system employs a combination of temporary and permanent
accounts. All account balances at the end of the year may not have a zero balance. So, a
process is necessary that distinguishes temporary accounts and sets them to zero. The
process of setting the balance in temporary accounts to zero is called closing the
accounts, and the process is performed by a closing entry. The closing entry is an
accounting activity that takes place at the end of each budget year. This process requires
a net assets/equity account.
All assets and liabilities are not recognized in the modified cash basis accounting
system. Only those receivables and payables included in the chart of accounts are
included in the system. The modified cash basis accounting system produces financial

information that is reported in a Statement of Changes in Cash Position and a Statement

of Budgeted versus Actual Expenditure.
Asset and liability accounts other than cash, receivables, payables, and letters of credit
are included in the chart of accounts to allow institutions that have the capacity to
maintain accounting records of all assets and liabilities. These other assets and liabilities
are recorded using the cost method. The cost method values assets at their original cost
and liabilities at the amount still due.
Recording these other assets and liabilities is an option for the future in the FGE
accounting system.
Activity 7 Identifying bases of Accounting

This activity is intended to help you get acquainted with bases of accounting to
recognize transactions.
Identify the appropriate bases of accounting to recognize the transactions listed below.
Transactions
Accrual basis cash basis
1. Recognition of salary expenditure
2. Payment of cash by MOFED on behalf of a budgetary
institution – in the book of the BI.
3. Recognition of revenue (in cash)
4. Recognition of revenue (in kind)
5. Payment of expenditures of the ended budget
year in the new budget year
6. Transfer of cash from cash account to cash for letter
of credit account.
Feedback: All transactions are recoded under accrual basis of accounting except
Transaction 3
Every transaction that is recorded by accounting has two aspects: effort and reward,
source and use, cash inflow and expenditure. The purpose can be, for example,
expenditure, revenue deposit, or transfer.
The FGE accounting system uses double-entry bookkeeping. Double-entry bookkeeping
means that both aspects of each transaction are recorded in the accounting records with
at least one debit and one credit so that the total amount of debits and the total amount
of credits are equal to each other.
The advantages of double-entry bookkeeping are numerous, including:

 All aspects of the transaction are properly recorded in accounts.

 The accounts are self-controlling because the total of all debits must equal
the total of all credits; therefore, many errors are easily detected and
corrected.
 Modified cash basis of accounting can be introduced.
Double-entry bookkeeping requires an understanding of some additional basic
accounting concepts and terms. The most basic are the terms debit and credit. Debit
literally means left and credit literally means right. By convention, the rules for
increases for Letter of Credit and Net Asset /Equity is Credit which is used in modified
cash basis of accounting.
Transfer Accounts:
 If cash is sent by transfer, Transfer account is debited.
 If cash is received by Transfer, Transfer account is credited
In a double-entry system, each debit to cash is matched by a credit to another account
of an equal amount, and each credit to cash is matched by a debit to another account of
an equal amount.
Because each transaction is entered in the accounting records as debits and credits of
equal amounts, the total debits in all account balances always equals the total credits in
all account balances. For FGE modified cash basis of accounting, the basic accounting
equation always applies.
FGE Basic Accounting Equation is as follows:
Asset = Liabilities + Net Assets/Equity
Cash & Cash Equivalents + Receivables = payables + Letters of Credit + Net Assets/Equity
In a double-entry bookkeeping system, the book of original entry is the register. A

register is a chronological listing of transactions and serves as the book of original entry
into the accounting system. Information regarding transactions is taken from various
documents (invoices, receiving reports, etc.) and recorded in the accounting system for
the first time on the register. The transactions in the register are in chronological order.
Each transaction entered on the register in the double-entry system affects at least two
accounts. One is a debit and the other is a credit, but both accounts are affected by the
same amount. Therefore, for each transaction that is recorded in the double-entry
register, the amount recorded as a debit equals the amount recorded as a credit. The total
of debits recorded in the register will always equal the total of all credit in the register.
In the double-entry system, a ledger card is created and kept for all accounts. All
transactions entered in the register must be transferred to ledger cards. The process of
transferring transactions information from the register to the ledger cards is called
posting.

In the double-entry system, a ledger card is created and maintained for each account.
Because each transaction is entered on the register as a debit to one account and a credit
to another account, each transaction is posted to at least two ledger cards.
The set of all ledger cards is called a general ledger. Two postings are made for each
transaction in the general ledger of equal amounts in different accounts, but one is
entered as a debit and one as a credit. Therefore, the total debit amount on all ledger
cards must equal the total credit amount on all ledger cards.
The general ledger contains a ledger card for each account. The ledger card contains the
running balance in that account. If postings to the ledger cards from the register are up-
to-date, monthly reports are easily prepared by taking the balance from each account's
ledger card. Mistakes are easily identified if the total debit balances on all ledger cards
do not equal the total credit balance on all ledger cards.
If a general ledger is kept, a set of self-balancing accounts (total debits equals total
credits) is maintained and a report of financial information is available. Financial
reports can be prepared from general ledgers.
Some accounts in a general ledger do not provide sufficient detailed information for
control purposes. The account "Advances to Employees" is an example. The account in
the general ledger maintains the total balance in the account, but identifying each
individual and the amount each owes is important.
A control account is an account in a general ledger that maintains the total balance of all
related accounts in a subsidiary ledger. For each control account, a subsidiary ledger is
kept. A subsidiary ledger is a ledger separate from the general ledger that contains a
group of related accounts. The control account is part of a general ledger. The
subsidiary ledger accounts provide details about the balance in the control account.
Any account in the general ledger that requires more detail than simply the amount in
the account becomes a control account with a subsidiary ledger. An example of a
subsidiary ledger is presented here. Suppose advances are provided to three employees.
The account code in the general ledger for Advances to staff is 4203. A subsidiary
ledger for account code 4203 is created where each advance is assigned an account code
as follows:
No Employee Subsidiary
Account code
1 Gebremariam 4203-01
2 Kidane 4203-02
3 Hassen 4203-03
The specific advance provided, for example, to Kidane for example, is maintained
in account code 4203-02 in the subsidiary ledger. The total of all advances is the
total of all account balances in the subsidiary ledger and is the balance recorded in
control account code 4203 in the general ledger.

Bookkeeping method
Accounting similarities FGE Accounting system with business
organizations
There are many similarities between the accounting for business and not-for-profit
government organizations. A double entry system of accounting is recommended for
both. The general mechanics for record keeping are the same: documents form the basic
record, books of original entry (journals) are kept and posted to general ledgers and
subsidiary ledgers, trial balances are drawn to prove the equality of debits and credits, a
chart of accounts properly classified and properly fitted to the organization‟s structure is
essential to good accounting, and of course, uniform terminology is highly desirable in
both fields. Both prepare financial statements, closing entries, etc.
In most of the operations, government budgetary institutions are not concerned with
profit measurement, but only to assure continuity and/or improvement of services to the
public, and the need to ensure compliance with extensive legal requirements often
results in government organizations having more stringent operational and
administrative controls than in commercial organizations. But the market in which they
operate regulates commercial businesses. If the management is not responsive to the
market demand and fails to provide the quality of services demanded by the market,
the commercial organization will ultimately be forced out of business.
Activity 1: Distinguishing the difference between accounting for public bodies and
business organizations.
Allow about 20 minutes
The intent of this activity is to enable you to explain the differences and similarities
between accounting for public bodies and business organizations.
You are required to distinguish between Accounting for public bodies and business
organizations?
______________________________________________________________________
______________________________________________________________________
__________________________________________________
Feedback: the public bodies and the business organization have got some similarities
and some differences. You can see the motives why they are established for; their
accounting works, the sources of financial resources they are using, regulation and
control, and etc., and distinguish between the two easily.

Summary
As explained in the budget manual which is prepared by ministry of Finance and
Economic Development and in the financial law of Ethiopia, Public Bodies are those
government institutions which have got legal responsibilities (mandates), receive their
partial or full budget from the government to discharge their responsibilities. These
Public Bodies are also required to submit their reports to ministry of Finance and
Economic Development and respective Finance or Planning both at Federal and
Regional states.
Due to the difference in the environment or situation in which they are operating,
accounting for Public Bodies has got both similarities and differences with that of
private businesses or organizations as already discussed in this unit. To mention few
similarities, both of them use scarce resources such as financial, human and material
resources, both of them prepare financial reports, they strive to meet their own goals.
The difference between the two is that their objective is not the same. Private
organizations are established generate profit whereas Public Bodies are established to
provide goods and services for the public at large. The source of finance to undertake
their activities also differs. There are complex administrative and regulatory controls in
Pubic Bodies accounting. The source of finance for private organizations is limited to
sale of goods and services whereas, the source of finance for Public Bodies is from
different sources such as direct and indirect taxes, aid, loans, fines, etc.,
The broad objectives of FGE accounting are Cash control, Budget control and
accountability using different mechanisms. In FGE Accounting system, there is also
budget classification for easily identifying and Budgets. This is done by Public Bodies
in consultation with MOFED /respective finance and planning offices. The budget
classification defines the budgetary institutions and the source of funding. Specific
codes are given to different items of expenditures to differentiate one from the other.
The chart of accounts is a map that helps to systematically coding to identify and
classify financial entities and events. This will help to facilitate the recording of
transactions and the reporting of information in accordance with the budget for the
interested decision makers. The current FGE chart of account consists of both
temporary and permanent account.
The basis of accounting is a set of different principles and rules employed by the
accounting system to determine when and how to record economic events called
transaction. There are different basis of accounting that are being used by different
countries. Ethiopia has been using cash basis of accounting for a long period. Cash basis
of accounting is basis of accounting which recognizes transaction and other economic
events when cash is received and paid. Now days, Ethiopia is employing (using)
modified cash base of accounting which is a double entry accounting at federal level
and in some regions.

Self-Assessment Questions (SAQs 1)

Part I. Multiple Choice Questions
Choose the best answer and circle the letter of your choice. Compare your answers with
answers given at the end of the module.
1. What information does the budget classification provide for accounting purpose?
a. Financial administration structure required.
b. Types of budget.
c. Source of funding.
d. A and C
e. All of the above
2. Which of the following is true about a public body coded as 236?
a. The first digit “2” tells you that the type of budget appropriated to
this PB is a capital budget.
b. The first digit (2) indicates that the functional classification of this
PB is Economic.
c. The second digit (3) represents the level of government to which the
budget applies is social sector.
d. The third digit (6) shows that this PB is classified in Administrative
and General sub-functional budget category.
e. B and C.
3. Which of the following generates Capital revenue for government?
a. Government revenue from sales of land to investors.
b. Government sales of used goods including cars.
c. Privatization proceeds from the sale of government equity in public
enterprises.
d. Sales of durable goods acquired for military purposes.
4. Which of the following is false about the chart of accounts?
a. The ordering within assets in the chart of accounts represents the
relative ease with which each could be converted into cash.
b. The ordering within liabilities in the chart of accounts represents the
timing of repayment.
c. The ordering within assets in the chart of accounts represents the
liquidity of assets.
d. The chart of accounts is designed to distinguish assets and liabilities
that are the result of modified cash-basis accounting from those that
are the result of the cost method of accounting.

5. Which of the following is classified under cash and cash equivalent category of
accounts?
a. Cash on hand.
b. All demand deposits in local and foreign currency accounts.
c. All demand deposits in restricted and unrestricted accounts.
d. Investments that are readily convertible to known amounts of cash
and which are subject to insignificant risk of change in value.
6. Which of the following is true about basis of accounting in FGE accounting

system?
a. All revenues are recognized when cash is received.
b. All expenditures are recognized when cash is paid.
c. Expenditures could be recognized when incurred and their payments
arranged in grace periods.
d. All expenditures are recognized when incurred.
e. Expenditure for letter of credit is recognized when items purchased
overseas are received.
7. Among the following one is not a practical procedure in the system to

enhance the control over cash. Which one?
accountant.
Part II: Short answer questions

Instruction: Write your brief answers for the questions given below.
1. What does the basis of accounting determines for accounting system?
2. Explain the built-in mechanisms for FGE accounting system to achieve
accountability.

Unit Three
Overview of Financial Administration in FGE Accounting
System
Contents
Introduction
3.1: FGE Financial Administration
3.2: FGE accounting system
Summary
Self assessment Questions
Introduction
The purpose of this unit is to present Financial Administration of Public Bodies without
Branch Accounts. It provides the financial administration issues and a general
description of the roles and responsibilities of each unit within the assumed
administrative structure for Public Bodies without Branch
To describe the FGE accounting system, its operations, and roles and duties within the
system, the structure of financial administration and authority in the federal and regional
governments must be understood to the extent that it impacts the accounting system.
Although the structure of financial administration is not standard across all units in the
Regional and Federal governments, a general pattern exists. Throughout this unit the
structure of financial administration under MOFED is assumed, because the structures
differ at Regions due to decentralization.. Furthermore, this unit will also present an
issue of Public Bodies with Branch Bank Accounts.
After studying this unit, you should be able to:
 Identify parties involved in administration of the public trust fund.
 Explain the roles and responsibilities associated with all of the participants in
the financial administration.
 Identify the responsibilities of cashier and accountant at the grass root level.
 Explain the treatment of branch account as an accounting unit and as a safe.
2.1 Financial Administration

The financial administration in FGE mainly involves Ministry of Finance and Economic
Development (MOFED) and Regional Finance and planning offices and a Public Body.
The specific Federal and Regional government administrative authorities and the
required organizational structure in public bodies are illustrated in the following Figure
2.1 and Figure 2.2 below as it is presented in Manual3 FGE Accounting system
Volume I, Accounting for modified Cash Basis Transactions, Version
1.0.(January,2002,P.15 and 13) respectively.

Figure 2.1
Structure of Financial Administration in the Budget Process
Ministry of Finance and Economic Development
Public Body
Budgetary Institution:
Project or Sub-Agency
Budgetary Institution:
Sub-Project or Sub-Sub-Agency

Figure2.2: Structure of financial administration within public Body
Head of public Body
Head of Administration and Finance
Head of Budget
and Accounts General Services
and Administration
Budget Section
Accounts section
Accountant Cashier

The following are responsibilities of MOFED, Budgetary Institutions, Accounting unit,

Reporting Entity, Cashier and Accountant in the financial administration in the Budget
process and within the Public Body
Ministry of Finance and Economic Development (MOFED)

MOFED administers the financial system for the federal government and has the
highest level of administrative authority. MOFED consists of a:
 Budget Department that prepares and distributes notification of approved
federal budgets and administers the budget.
 Central Accounts Department that receives monthly repots and compiles
financial statements for the federal government.
 Central Treasury Department that receives and distributes cash from central
treasury.
 Credit and Investment Department that manages the federal government's
investments and debt.
This is not a complete description of MOFED or its departments. This is description of
their roles and responsibilities within the accounting system.
Activity 8: Identifying Units in Public Bodies

The purpose of this activity is to make you aware of the roles of some units in a public
body.
What units in a public body have a prominent administrative role in the FGE accounting
system?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Feedback: No doubt your responses would be: Public body's head is the highest level
of authority in a public body with regard to administration of government budget.
Budgetary Institution (BI)

Budgetary Institutions are defined as those institutions that are fully or partially
financed by Government. The budget process assumes the appropriation of budgets.
The appropriated budget is the budget approved by the Council of people's
Representatives (CPR). The appropriated budget is broken down by:
 Recurrent and capital expenditure for the federal government, and
 Subsidy for each regional government
The federal government's portion of the appropriated budget is assigned to projects and
sub-agencies within PBs and broken down by sources of funding (domestic, assistance

and loan). This is called the approved budget. The approved and appropriated budget is
published in the Negarit Gazeta.
A PB's entire approved budget is assigned to projects and sub-agencies under its
immediate administrative control. The budget of a PB is the total budget of its projects
and sub-agencies.
A project or sub-agency may allocate any portion of its approved budget to sub-projects
or sub-sub-agencies. The budget of a sub-project or sub-sub-agency is called an
allocated budget. A sub-project or sub-sub-agency for which a budget is allocated is
always at a different location from the project or sub-agency. A notification of any
allocation is sent to MOFED.
Projects, sub-agencies, sub-projects, and sub-sub-agencies are defined and coded in the
chart of accounts. Any entity that receives an approved or allocated budget from a PB's
approved budget is called a Budgetary Institution (BI). Generally:
 PBs are ministries, authorities, and commissions.
 BIs are projects, sub-agencies, sub-projects, and sub-sub-agencies.
 BIs are administered by PBs.
 The entire approved budget of a PB is assigned to BIs.
Figure 2.1 shows the structure of financial administration in the budget process. There
are exceptions to these generalities, but the majority of government is organized in this
manner. The focus of budgetary control is on the BI. PB's budgetary compliance can
be computed by consolidating reports from all BIs included in its approved budget.
Accounting Unit
For cash management, another entity is created: the Bank Account (BA). The BA is not
coded in the chart of accounts and does not receive a budget. However, it is important
for cash Management and control. The FGE accounting system includes the BA in the
accounting system.
A PB may administer many BIs and many BAs, or a PB may have only one BI and one
BA. Each BA:
 Is managed by an accountant.
 May:
 Have its own cashier,
 Share a cashier with other BAs, or
 Have no cashier associated with it (like foreign currency bank
accounts)
 Handles cash flows:
 For one or more than one BI, and
 From one source of financing (domestic, assistance or loan).
 For more than one type of budget (capital/recurrent).

An accounting unit is the unit that initially captures and records transactions into the
accounting system. If a BA handles cash for only one BI(BI/BA), the accounting unit:
 Processes transactions for the BI/BA,
 Maintains registers for the BI/BA,
 Maintains a general ledger for the BI/BA.
 Maintains subsidiary ledgers for:
 Asset accounts.
 Liability accounts.
 Letters of credit.
 Prepares a monthly report for the BI/BA.
A complete set of accounts and general ledger is maintained for each BI by bank
accounts, because each source of funding is budgeted distinctly, and the cash from each
source is physically separated in distinct bank accounts.
Each month, a monthly report is prepared from the general ledger for the Bank Account
(BA). Cash ledger cards in the general ledger control the cash balances in the bank and
in the safe. If more than one BI shares a single BA, the accounting unit:
 Processes transactions for all BIs.
 Maintains a register for the BA.
 Maintains a general ledger for the BA.
 Maintains subsidiary ledgers for:
 Items of expenditures by BI and by type of budget.
 Asset accounts.
 Liability accounts.
 Prepares a monthly expenditure report for each BI.
 Prepares a consolidated monthly Trial Balance for the BA.
One general ledger is maintained for the BA. The only records maintained for each BI
are accounts in subsidiary ledgers for items of expenditure. Monthly, the subsidiary
ledger information is used to prepare an expenditure report for each BI. These reports
are consolidated with information from the general ledger into a monthly report for the
BA.
The balances of cash in safe and cash in bank are maintained in ledger cards of general
ledger for the BA.
Reporting Entity
A reporting entity is the entity that sends monthly reports to MOFED. Although the
accounting unit prepares monthly reports, every accounting unit may not send monthly

reports directly to MOFED. The reporting entity may be the accounting unit or a higher
level of authority (perhaps a PB).
Each of the following may apply to a reporting entity:

 A reporting entity may be an accounting unit, and an accounting unit may
consist of only one BI. Therefore, a single BI may be a reporting entity.
 A reporting entity may be a PB that receives the monthly reports from
several accounting units.
Whoever sends the reports to MOFED is the reporting entity. Therefore, the reporting
entity is not, necessarily, an accounting unit.
Cashier and Accountant

In the FGE accounting system of cash control, the cashier's function and the
accountant's function are distinct. Cash consists of currency and checks. The cashier's
function is to maintain and control cash in the safe. The accountant's function is to
maintain and control cash at the bank.
Only the cashier can receive currency and checks and make disbursements in currency.
Daily, the cashier should count cash on hand and reconcile ending cash on hand to the
cash book.
The cash in safe is controlled by an imprest system. When cash is received as per the
budget or other sources, the cashier will:
 Issue a cash receipt,
 Segregate the cash received from cash available to disburse,
 Deposit the cash received intact in the bank as soon as practical, usually
daily, and
 Surrender copies of all cash receipts and a copy of the bank deposit slip to
the accountant.
In the imprest system, a balance is established for cash in safe. The accountant issues
this amount of cash to the cashier using a check. When cash is disbursed to establish
the Imprest Fund, the cashier will issue a receipt voucher. If the amount of cash in safe
is to be replenished, the cashier will surrender all payment vouchers to the accountant.
The accountant will replenish the cash in safe by issuing a check to the cashier for the
total amount of the payment vouchers that are surrendered. The replenishment should
return the balance of cash in safe to the established level.
The accountant's responsibility for cash is to maintain a record of the total cash position
of the entity, including cash at the bank and cash in the safe. The accountant records
cash movements that flow through the cashier and cash movements that flow directly
through the bank. Direct cash movements through the bank normally include bank
transfers and charges, checks written, and any other transactions that do not require cash
handling by the cashier.
When a PB has more than one cashier, one cashier is designated as the main cashier.
The other cashiers are designated as assistant cashiers. Each PB is responsible for
organizing assistant and main cashiers. However, some general principles apply.

Assistant cashiers are responsible for:

 Collection of Cash
 Issuing deposit and/or receipt vouchers
 Making deposits at Bank
The main cashier is responsible for:
 Reconciling cash and vouchers for each assistant cashier
 Depositing cash in the bank
 Disbursing cash for the proper functioning of the PB
 Managing the petty cash
To accomplish these responsibilities, most PB s with multiple cashiers are organized as
follows:
Each assistant cashier:
 Collects revenue and issues receipt vouchers
 May summarize receipt vouchers on Model 16
 Sends a copy of receipt Vouchers and Model 16 to accounts
 Sends cash to main cashier
 Receives Model 64 as receipt from main cashier
The main cashier:
 Collects cash from cashiers
 Verifies cash with accounts
 Verifies the amount on receipt vouchers equals cash received
 Verifies amount for each revenue account
 Completes Model 64
 Gives the copy of Model 64 with the deposit slip to accounts
 Gives a copy of Model 64 to assistant cashiers
 Deposits cash in bank
 Attaches the deposit slip to Model 64
 Gives the copy of Model 64 with the deposit slip to accounts
The accountant:
 Receives receipt vouchers and Model 16 from assistant cashiers
 Verifies accounts and amounts on receipt vouchers
 Dispatch the documents to the main cashier
 Receives Model 64 with deposit slip attached from main cashier

 Records Model 64 in the transaction register and ledgers
2.2 Public Bodies with Branch Bank Accounts

Some PB s establishes operations or branches in more than one location, and opens a
bank account at each branch. These branch bank accounts do not receive or send
transfers directly to MOFED.
The public Body uses Branch bank accounts for operations within the Public Body.
They are blocked at the end of the year. Some public Bodies maintain other types of
bank accounts for special purposes, such as deposits. These are not blocked at the end of
the year and are not considered branch bank accounts.
Depending on the capacity of the PB, accounting for the branch bank account can be
handled in one of the two ways:
o If there is sufficient capacity, each branch bank account can be treated as an
accounting unit.
o If there is no sufficient capacity, each branch bank account can be treated as a
safe.
Branch Bank Account treated as Accounting Unit
If the branch bank account is treated as an accounting unit:
 A general ledger is established for the branch bank account
 Cash movements between the main bank account of the PB and the branch
bank account are recorded as transfers,
 Subsidiary ledgers are established fro each BI receiving funds from the branch
bank account, and
 A monthly report is prepared and sent to the accounting unit of the PB's main
bank account
The accounting unit of the PB's main bank account consolidates the monthly report
from the branch bank account with the monthly report of the main bank account. The
consolidated monthly report is sent to MOFED. This process is shown in Figure 2.3.

Figure 2.3
Branch Bank Account Treated as Accounting Unit
 This is an Accounting Unit

 A general ledger is maintained
 Subsidiary ledgers are maintained for each BI using this account
 Transfers are recorded for funds sent to other bank accounts
 A subsidiary ledger is maintained for the transfer account
 Monthly reports are received from other bank accounts
 Monthly reports are combined into one monthly report for MOFED
Cash is transferred Monthly report is sent
Branch Bank Account

 This is an Accounting Unit
 A general ledger is maintained
 Subsidiary ledgers are maintained for each BI using this account
 Transfers are recorded for funds received from PB bank account
 Monthly report is prepared sent to main bank accounts accounting unit
Branch Bank Account treated as a Safe
If the branch bank account is treated as a safe:

 A cash book is maintained for the branch bank account, and
 Receipt and payment vouchers are given to the main bank account's
accounting unit.
The accounting unit of the PB's main bank account does the following:
 Cash movements between the main bank account of the PB and the branch
bank account are recorded as advances, and
 Receipt and payment vouchers received from the branch bank account are
recorded in general and subsidiary ledgers.

The Process is shown in Figure 2.4 below.
Figure 2.4: Branch Bank Account Treated as Safe
PB Main Bank Account

 This is an Accounting Unit
 A General Ledger is maintained
 Subsidiary Ledgers are maintained for all BI under this PB
Cash is Sent Vouchers are sent
Branch Bank Account

 A Cashbook is maintained
 Receipt and payment vouchers are sent to the main bank
account's BAU
Activity 9: Maintaining General and Subsidiary Ledger Accounts
This activity is intended to help you get familiarized with how general and subsidiary
ledgers are maintained.
Assume a staff loan of Birr 180,0000 was extended by MOFED to three BIS, X, Y and
Z each Birr 60,0000.The general ledger for staff loan in MOFED and the respective BI s
is with an account codes of 4203.
Instruction
Show how these transaction can be maintained in a General \ledger and subsidiary
ledgers accounts both at MOFED and the BIS ( X,Y and Z).
Feed back:
This transaction can be maintained by the MOFED in a general ledger account in total
and subsidiary ledgers to each of the BIS. The respective BIS named as X,Y and Z can
also maintain a general ledger account for the total amount of loon; as well the BIS
should maintain a subsidiary ledgers by the names of the employees whom the is
extended to.
It would be advisable, if you answer it in the following manner:

1. Transaction by MOFED
4203 ------------------ G.L. Account
180,000
4203 – X 4203 – Y 4203 - Z
Subsidiary Ledgers
Note that the sum total of the subsidiary ledgers must equal the General ledger Account.
2. Transaction at the BIS
Assume that each BI has divided the total loan of Birr 60000 to 20 employees with
Birr 3000 each. Thus, the General ledger and subsidiary ledger Accounts can be
maintained as follow:
4203 ------------------ G.L. Account
60,000
4203 – / Kebede 4230/Almaz 4203/Lemlem Subsidiary

Ledgers to
3,000 3000 3000 20 employees
Note, the above is Just a sample for only one BI and 3 employees out of the 20
employees in each BI.

Summary
Although there are no uniform standardized financial administrations, there exists a
general pattern in both federal and regional states. The financial administration in FGE
mainly involves the Ministry of Finance and Economic Development (MOFED) and
respective finance and Planning office at regional offices and the public body. MOFED
has the highest level of financial administrative authority in the country as whole and
respective finance and planning offices at regions, which have financial administrative
authority.
For cash management (control) purposes, entities are created such as Bank accounts
(BA). The FGE includes the bank account in the accounting system. This bank account
is managed by accountant and may have a cashier. The cashier and the accountant have
segregation of duties for cash control purposes. Some public bodies might not have
branch bank accounts and some might have branch accounts depending on the capacity
of the public bodies, accounting for the branch bank account can be treated as an
accounting unit or it could be treated as a safe.

Self-Assessment Questions (SAQs ) 2

Part I. Multiple Choice questions
Instruction: Choose the best answer and Circle the letter of your choice.
1. Which of the following is true about Bank Account?
a. FGE accounting system includes bank account in the accounting system.
b. An accountant manages bank account.
c. One bank account handles cash flows from one source of financing.
d. One bank account may handle cash flows for one or two types of budget.
2. An accounting unit:
a. Is the unit that initially captures and records transactions into the accounting
system.
b. Is required for each bank account operating.
c. Can serve many budgetary institutions sharing a single bank account.
d. Maintains a separate subsidiary ledger for each budgetary institution sharing
a single bank account.
3. Identify the true statement about reporting entity.
a. A reporting entity is necessarily an accounting unit.
b. An accounting unit is necessarily a reporting entity if it sends monthly
reports directly to MOFED.
c. A single budgetary institution cannot be a reporting entity.
d. A public body cannot be a reporting entity.
4. Among the following, one is not a practical procedure in the system to enhance the
control over cash. Which one?
accountant.

5. Accounting for transactions on modified cash basis cause increases or decreases to:
a. Cash and cash equivalent accounts.
b. Transfer ledger accounts.
c. Receivable accounts.
d. Payable accounts.
Part II: Short answer questions.

Instruction: Explain the following questions on a separate sheet of paper.
1. Draw the relationship between Accounting unit, Reporting entity, and Bank
account.
2. Describe the role of various MOFED departments in FGE accounting system.
3. Explain the role of an accountant and a cashier in FGE accounting system.

Unit Four
Budget Control in FGE Accounting System
Content
Introduction
4.1. Overview of Accounting for Transactions
4.2. Budget Control
Summary
Introduction
The FGE accounting system is organized in two subsystems: accounting for
transactions using a modified cash basis of accounting, and accounting for other assets
and liabilities using a cost method of valuation. All accounting units will account for
transactions and other assets and liabilities despite the later is not discussed in this
module.
The budget that is appropriated by the Council of People's Representatives (CPR), each
year provides a BI with its authorization to spend money. How can accounts help in
capturing all the necessary information to control the budget utilization? This and other
questions will be answered in this unit.
 Explain the authorization, capturing procedures and documents used.
 Identify the activities in recording transactions,
 Explain the methods of summarizing and communicating information in FGE
accounting system.
 Define budget related terminologies in simple terms.
 Comment on the budget control procedures used in FGE accounting system.
 Record /complete the budget ledger card given with all budget information.
3.1. Overview of Accounting for Transactions
This topic will try to explain issues related to authorization of Transactions, capturing
transactions when they occur, and recording transaction in the accounting system,
summarizing transactions by accounts, and reporting to appropriate authorities.
Accounting for transactions means recognizing/recording daily economic activities.
Transactions cause increases and decreases to revenue, receipts from external
assistance, receipts from external loans, expenditures, transfers, cash and cash
equivalents, receivables, payables, letters of credit.

Most transactions involve only domestic currency, but a few transactions involve
foreign currency. No accounting unit handles both types of currencies; an accounting
unit's transactions are either all domestic currency or all foreign currency. The
processes for handling both types of currency are the same, but the forms used in the
processes differ.
Although accounting for transactions provides a complete picture of the economic
activity, the picture of the economic resources owned and owed is incomplete. Other
assets and liabilities that result from transactions complete the picture. As indicated in
MOFED and DSA Project manual, January 2002,Manual 3 Volume assets, other
liabilities and I include:
 Stocks
 Goods in transit
 Fixed assets
 Long-term loans
 Investments
 Long-term debt
The remaining modules that is, Modules II&III in this course, provide a detailed
description of accounting for transactions.
Authorization of transactions
Authorization of transactions is not limited under the jurisdiction of the FGE accounting
system. Financial law, proclamations and directives determine who has authority and
how to exercise that authority. However, a basic tenet of the financial law is that
expenditure is controlled by the budget. The process that maintains budget control over
expenditure is included in the description of the accounting system (MOFED and DSA
Project manual, January, 2002).
Generally, the Budget section is responsible for creating, recording, maintaining and
controlling the budget. A set of budget ledger cards, one for each budgeted item of
expenditure, is established and maintained by the Budget Section for each BI in each
accounting unit. Since accounting units are organized by bank account/source of
funding, Budget Section maintains a set of budget ledger cards for each BI by source of
funding (MOFED&DSA Project manual, January, 2002,).
The budget ledger cards contain the updated revised budget for each item of
expenditure. To determine if a particular expenditure does not exceed the budget for a
particular item of expenditure, the expenditure must be compared to the revised budget
as part of the expenditure authorization process.
In addition, a strong budget control is achieved if authorized expenditure is recorded as
a budget commitment at the time the expenditure is authorized. The process of
maintaining a continuous record of commitments by the Budget Section ensures that
proposed expenditure is authorized against:

 The updated revised budget, and

 A budget amount that is still available for expenditure (an amount that has not
been committed to any other expenditure).
Now you are going to see how transactions are captured, recorded, summarized and
reported to the appropriate authority.
Capturing Transactions When They Occur
Transactions are captured by the first document prepared by the accounting unit when
the transaction occurs. The source document varies depending on the nature of
transaction. Examples include:
 Receipt vouchers when cash is received,
 Payment vouchers when expenditures are made, and
 Journal vouchers when the transaction does not involve cash.
The accounting unit prepares the source document when the transaction occurs and may
be supported by another document received from an external party. For example, a
bank statement may show a charge that supports a payment voucher, or a tax bill may
support a cash receipt. The other document is a supporting document only; the
accounting unit must prepare a source document when the transaction occurs
(MOFED&DSA Project, Manual 3 Volume I, January 2002).
The source document contains the information necessary to record the transaction in the
accounting system. Generally, an accountant in the accounting unit prepares the source
document.
Exhibit 1.
Overview of Accounting for Transactions
Accounting System Accounting Form Party Responsible for

Activity Employed Activity
Transaction Budget Ledger Cards Budget Section

Authorization (for each BI and bank
(verification that Account)
budget is available
for proposed
expenditure )
Capture Transaction Receipt vouchers, Cashier and Accountant

(at the time payment vouchers, Cashier and Accountant
transaction occurs) Journal vouchers Accountant
(for each transaction) (in accounting unit)
Record Transaction Transaction Register Accountant

(in the accounting (for each accounting (in accounting unit
unit)

Summarize General Ledger Accountant

Transactions (for each accounting (in accounting unit)
(by account) unit)
Subsidiary Ledger
(as required)
Monthly Report Accountant

Reporting (by BI, accounting unit, (in accounting unit and
To MOFED) &/or reporting entity) in reporting entity)
Recording Transactions in the Accounting System

The accountant in the accounting unit records information from the source document in
a transaction register. The transaction register is the book of original entry into the
accounting system. A transaction register is maintained for each accounting unit (BA).
Transactions are recorded in the transaction register from source documents as they
occur.
The transaction register is designed to provide sufficient information to record the
transaction in the general ledger.
Activity10. Identifying, Capturing & Recording Transactions
This activity is meant to help you identify capture and record transactions.
Assume that the following transaction related to payments and collections occurred in
your organization.
- Cash of Birr 1000 was received by the cashier from a customer.

- Cash payment made for telephone expenditure during the day was Birr 500.
Instruction:
If you are the accountant of the organization, then you are expected to capture and
record the transactions using an appropriate format.
Feed back:
I believe that you are already familiar with the types of receipt and payment vouchers.
Accordingly, transactions data should be captured into the source documents. i.e., the
collections part to the receipt voucher and the payments to the payments to the payment
voucher. Following this the accountant should transfer the same to the transaction
Register,

Summarizing Transactions by Account

Each transaction recorded in the transaction register affects the balance of two account
codes by the same amount, but one is a debit and the other is a credit. Each debit and
credit amount for each transaction must be recorded on a ledger card in the general
ledger. An accountant in the accounting unit performs this activity (MOFED and DSA
In the general ledger of the accounting unit, the accountant must record the amount of
the transaction as a debit or as a credit, depending on how the amount is recorded in the
transaction register, on the corresponding ledger cards for the two accounts involved in
the transaction (MOFED&DSA Project manual, January, 2002).
Each ledger card contains the identity of the BA, the account code, and the running
total of debits and credits recorded on the card. The balance in an account is the
difference between the total debits and total credits recorded on the ledger card
(MOFED and DSA Project manual, January, 2002).
Some ledger cards in the general ledger contain control accounts. For each control
account, more detailed information is maintained in a subsidiary ledger. Table 3.1
shows the categories of account codes that usually require a subsidiary ledger and the
nature of the account that the subsidiary ledger should contain (MOFED and DSA
Table 3.1 Account Code Categories and Nature of

Related Subsidiary Ledger Accounts
Account Code Category Nature of Subsidiary

Ledger Accounts
Revenue None
Item of Expenditure BI (or none, if the accounting
unit contains only one BI)
Transfers None
Cash and Cash Equivalents None
Receivables Individual item
Payables Individual item
Letters of Credit Individual item
Net Assets/Equity None
Reporting to Appropriate Authorities

Monthly, an accountant in the accounting unit prepares a report for the accounting unit.
The monthly report contains the total debits and credits by account. The information for
the monthly report is taken from the general ledger.
If the accounting unit is a reporting entity, the accountant sends the monthly report
directly to MOFED. Otherwise the accounting unit forwards the monthly report to a
reporting entity. The reporting entity sends the consolidated report to MOFED at
federal level.

3.2 Budget Control

Under this topic, the sub topics such as approved budget, payments received for
approved budget, procedures to achieve budget control and the expenditure approval
process will be dealt in detail
Budget control has two key elements:
o Expenditure is incurred only if there is an available budget.
o Actual expenditure does not exceed budgeted expenditure.
The budget section is tasked with the responsibility of budget control
Approved Budget
At a national level, Council of People's Representatives approve budget and the total
budget is published in Negarit Gazet both for capital and recurrent budgets.
The approved budget is the detailed break down of the appropriated budget by:
 Sub-Agency or project, and
 Source of finance.
The budgetary institution is notified of its approved budget on Me/Be/Ma 4 Recurrent
Budget Notification for Sub-Agency and Ka/Be/Ma 4 Capital Budget Notification for
project at the beginning of a fiscal year.
Additions/Reductions to Approved Budget
During the year, the approved budget may be revised in two ways:
Budget supplement: A budget supplement is an additional appropriated budget.
The supplementary amount increases the approved budget. Notification of budget
supplement is made on Me/Be/Ma 6 for recurrent budget and Ka/Be/Ma 6 for
capital budget.
An addition to one budget item and a corresponding reduction to the budget of
another item of expenditure: There are two processes for accomplishing this
transfer: budget transfers and vehement changes
 Budget transfers, is Transfer of expenditure Budget from one Public
Body to another. The transfer can be made from recurrent Budget of a
Public body to recurrent Budget of another Public Body and from
recurrent budget of one Public Body to capital budget of another Public
body. But Transfer from Capital Budget to recurrent budget is
impossible.
 Virement changes, when transfers of budgeted expenditure are made
from one item of expenditure to another within the same BI.
Once the approved budget is adjusted for additions and / deductions, it is considered as
revised Budget. The revised budget is the benchmark for budget control, as an item of
expenditure must not exceed its revised budget.

Payments Received for Budgeted Expenditure

Treasury funds are the primary source of domestic expenditures for most BIs. MoFED
transfers amounts to Public bodies monthly based on requests made by the PBs at
federal level.
In addition, MOFED may make payments on behalf of a BI. When this happens, a non-
cash transfer is recorded and considered as a payment received by the BI to meet
budgeted expenditure.
As indicated in Manual 3 Volume I accounting for modified cash basis transactions
which is prepared by MOFED and DSA Project manual, January, 2002, a Public Body
also receives cash for budgeted expenditure in a variety of other ways depending on the
source as follows:
Retained revenue: Retained revenue is revenue earned and collected directly by the BI
that it is allowed to keep and expend for its own purposes.
Assistance: various donors using one of three channels provide Assistance.
Channel 1: Some donors provide assistance through MOFED. These funds are
requested and distributed from MOFED to the BI like treasury funds. The
processes for requesting donor funds from MOFED differ.
Channel 2: Some donors provide assistance directly to the BI. These funds are
requested and distributed from the donor to the BI in a manner prescribed by the
donor.
Channel 3: Some donors provide assistance without cash movement. The donor
maintains control over these funds. When a budgeted expenditure is incurred,
the donor pays the invoice directly to the provider on behalf of the BI. Channel 3
funds are not requested or received.
Loan: Donors provide loan funds using Channel 1 or 2 as described for assistance.
Aid in kind: Any goods received by a PB as assistance or loans are also considered as
payments received by a BI to meet budgeted expenditure.
Activity 11: Identifying options for budgetary institutions on utilization of domestic

expenditure
The purpose of this activity is to help you identify option for BI for domestic budget
utilization.
What options are available for budgetary institutions to put their hands on the funds
appropriated to them for domestic expenditure? You can contact whoever you feel has
the knowledge of this in any of the financial institutions in your area and try to see if
these options are available.
_____________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________

Feedback: Based on the sources, public bodies can receive funds in many ways for
budgeted expenditures. To clearly see this options, you better go back and read your
notes in this unit and discuss with your friends about this issue.
Procedures to achieve budget control
Budget control is achieved through a combination of commitment accounting and
expenditure approvals at the Budget Section. Each of these processes is described
below.
Commitment Accounting
A commitment is a way of marking part of the budget that has not yet been spent but
that is obligated for a specified expenditure. After the budget has been approved, the BI
may enter into contracts or issue purchase orders. These obligations to spend money are
treated as commitments; that is, before the good or service is ordered and before the
payment is actually made, the amount of the purchase order is subtracted from the BI's
approved budget. A commitment is a tool that prevents overspending by identifying
amounts committed to pay for items that have been requested but not yet ordered and to
determine the budget that is available (uncommitted) for expenditure (MOFED and
DSA Project manual, January, 2002).
If the uncommitted balance is reduced to zero or if the budget is not available to meet
planned expenditure, no further spending will be approved. Commitments are a
budgetary control device. Because the Budget Section must approve spending requests,
they also serve as a budgetary control measure (MOFED and DSA Project manual,
January, 2002).
Example:
A BI has an approved budget for Birr 300,000 for stationery. The Procurement Section
approves a purchase order for Birr 200,000 for purchase of stationery. The purchase
order of Birr 200,000 represents a commitment although it has not been paid. The
remaining budget available for expenditure after incorporating the commitment on
stationery is Birr 200,000.
Further, assume that the procurement section approves another purchase order for Birr
200,000 for purchase of stationery from another supplier on the same day. The purchase
order of Birr 200,000 represents another commitment. However, as the remaining
budget available for expenditure on stationery is only Birr 100,000, the Budget section
will not approve the expenditure as the Budget section has already recorded a
commitment for Birr 200,000 from the previous purchase order.
Recording Commitment
Each time expenditure is to be incurred as evidenced by any one of the source
documents mentioned below, it is taken to the Budget section to ensure that the
commitment is recorded in the budget ledger card and to obtain confirmation from the
Budget section that there is an available budget to meet the expenditure (MOFED&DSA
Project, January, 2002).
The Budget section records the commitment and signs the source document as evidence
of recording the commitment in the budget ledger card and confirming that budget is

available for spending .In the same manual, it is indicated that the evidence of a
commitment is either one or combination of the following forms:
 Pro forma invoice
 Purchase order
 A contract
 A letter or minutes of a meeting
 Journal Voucher
 Payment Voucher
Occasionally, a commitment may be cancelled or revised. In such cases, the Accounts

Section must inform the Budget section of the changed to ensure that the budget ledger
card is updated to amend the commitment and the uncommitted balance. If the Budget
section is not informed about a cancelled or revised commitment, the balance available
in the budget will not get updated. Consequently the budget section will disapprove a
valid purchase order for want of an available budget (MOFED&DSA Project manual,
January, 2002).
Example:
Assume the preceding example, and Procurement Section cancelled the purchase order
for Birr 200,000 for purchase of stationery a week later. The purchase order will be
marked "void" to indicate that it is cancelled.
The cancelled purchase order is returned to the Budget Section to ensure that the
commitment is cancelled in the budget ledger card and the remaining budget available
for expenditure (uncommitted balance) is updated to Birr 300,000 in the budget ledger
card.
If the cancelled purchase order is not taken to the Budget Section through an oversight,
the commitment would not get cancelled and the remaining budget available for
expenditure (uncommitted balance) would incorrectly remain as Birr 100,000 instead of
Birr 300,000.
The Expenditure Approval Process
As an additional control measure, when expenditures are to be incurred by a BI, all
payment vouchers are verified by the Budget Section prior to approval for payment by
the Accounts Section. The Budget Section approves all expenditures to verify that
expenditure remains within the budget.
Prior to signing the payment voucher, the Budget Section verifies that:
 the amount of the purchase order for the expenditure has been committed in the
same amount as the actual expenditure,
 if the amount of the expenditure has not been committed,
 the available (uncommitted) budget is sufficient to cover the expenditure,
 the commitment is recorded, and
 the uncommitted balance is updated.

If the commitment is already recorded, the Budget Section verifies the recording of the
commitment and signs the payment voucher. If the commitment is not already
recorded, the Budget Section records the commitment and signs the payment voucher.
The signature on the commitment line of payment voucher by the Budget Section
indicates that the budget for the item of expenditure has been recorded as a commitment
and that there is an available budget to meet the expenditure (MOFED and DSA Project
manual, January, 2002).
Budget Ledger Card
The purpose of the budget ledger card is to maintain a continuous and updated record
for each budgeted item of expenditure by BI and source of finance with respect to:
 Approved budget
 Revised budget
 Payments received for budgeted expenditure.
 Amount remaining to be requested.
 Commitments
 Balance in the revised budget that is not committed.
The budget ledger card is divided into two parts:

A. The top of the card contains information to identify the
 BI,
 Type of budget, and
 Item of expenditure.
 The table on the card contains detailed information about each budget
transaction.
B. The Budget Section maintains a budget ledger card for each individual item of
budgeted expenditure by BI and source of finance. The appropriate budget ledger
card is updated each time a transaction occurs. Figure 3.1 shows the Budget Ledger
Card

Figure 4.1: Budget Ledger Card

Me/He 16
Page No:_____
Name of Public Body: ___________________________ Code: ________
Name of Program: ______________________________ Code: ________
Name of sub Agency: ____________________________ Code: ________
Name of Sub Program ___________________________ Code: ________
Type of Budget: ________ Code: _____
Name of Project ________________________________ Code: ________
Source of Finance _______________________________ Code: ________
(Donor/Lender______ Item of Expenditure: _____ Code: ____
NO Addition Balance Not

to Budget Committed
Refere Approve Reduction Revised Payment Unpa
nce d Budget to Budget Budget Received id
Date Descripti No. Bala Commit
on nce ment
(Source: MOFED&DSA Project manual, December 2002)
Purpose of Each Field in the Budget Card

Upper part of the Budget Ledger Card
Name of Public body and Public Body code: the field is to identify the PB to which the
budgeted expenditure is related.
Name of Program and program Code: the field is to identify the Program to which the
Name of sub agency & Sub Agency Code: the field is to identify the BI to which the
Name of Sub Program and Sub Program Code: the field is to identify the Sub Program
to which the budgeted expenditure is related.
Name of Project & Project code: the field is to identify the BI to which the budgeted
expenditure is related.
Source of Finance & code: the field is to identify the source of funding that is recorded
on the ledger card.
Page Number: the field identifies the page number of the budget ledger card.

Type of Budget and Code: the field is to identify whether the item of expenditure is a
part of the recurrent or capital expenditure budget.
Item of Expenditure & Code: the field is to identify and describe the item of expenditure
by its budget code.
Lower Part of the Budget Ledger Card
Number, Date, Description & Reference Number: the purpose of these fields is to
respectively identify:
 The sequential number of the transaction.
 The date of the transaction.
 A brief narrative of the description of the transaction.
 The reference number of the source document to the transaction.
Approved Budget: the field identifies the amount of the original approved budget for
the item of expenditure.
Additions/Reductions to approved Budget: the fields are used to track changes to the
approved budget and provide information to compute the revised budget.
Revised Budget: the field contains the approved budget adjusted for any additions or
reductions. The revised budget is key for budget control. An item of expenditure must
not exceed its revised budget.
Payment Received for Budgeted Expenditure: the field is used to record payments
received (Whether as cash or non-cash from the appropriate source of funding and
assists in keeping track of the amounts of money received for the item of expenditure.
Unpaid Balance: the field is the difference between the revised budget and the amount
of funds received (whether as cash or non-cash) to meet the budgeted expenditure and
assists in keeping track of the remaining amounts of money that may be requested for an
item of expenditure.
Commitment: the field is used to record current commitments and assists in identifying
the balance available in the budget for expenditure.
Balance not committed: the field contains the difference between the revised budge and
the commitments. The balance not committed is the available budget for future
spending. Once the uncommitted balance is reduced to zero, the Budget Section will
approve no further spending.

Summary
Accounting for transactions, which is recognition of daily economic activities of public
bodies (institutions) causes increases or decreases to different accounts, which are being
used in modified cash basis of FGE accounting system. Most transactions include only
local currency except a few which involves foreign currency. The currency, which could
be handled by an accounting unit, is either domestic or foreign currency, it could not be
both. In FGE accounting, transactions must be authorized, captured, recorded,
summarized, and reported to the appropriate authority for budget control purposes and
enhancing accountability and responsibility.
As a budgetary principle, expenditure is incurred if there is available budget, and actual
expenditures should not exceed budget. In Ethiopia, Council of People Representatives
approves the budget of the country. The approved budget, which consists of both
recurrent and capital budget, is allocated to sub agencies or projects together with
source of finance. The country's approved budget is published in Negarit Gazetta.
Budgetary institutions are notified their approved budgets of both the recurrent and
capital budget using different forms. The public bodies receive the payments in different
forms either directly from MOFED/ respective finance and Planning Offices or other
parties depending on the sources. The budget control is achieved through a combination
of a commitment accounting and expenditure approvals at the budget section. Before
the accounting section approves the payment for any expenditure, the budget section has
to check whether the item of expenditure has got an approved budget on the budget
Ledger Card. If it has an approved budget, the budget section records the commitment
on the budget ledger card and approves the payment and the budget ledger card is
updated.

Self-assessment questions (SAQs) 3

Part I: Multiple-choice questions.
Instruction: choose the best answer and circle the letter of your choice.
1. What is the source document for cash you paid in check for telephone bills?
a. Check.
b. Telephone bills or cash receipts of Telecommunication Corporation.
c. Payment voucher.
d. Receipt voucher
e. Journal voucher
2. Office supplies of some amount is purchased on credit and recorded as payables.
What document do you need to capture the transaction in the accounting system?
a. Journal voucher.
b. Check stub and Invoice attached as evidence of submission of the items at
store.
c. Journal voucher and payment voucher.
d. Receipt voucher or payment voucher.
3. The accounting unit in which you are working had written a letter to its bank ordering
transfer of Br. 10,000 to bank account of creditor in Nazareth branch. What source
document do you need to capture this transaction?
a. Bank advice.
b. The letter issued to order the bank.
c. Receipt that you will get from the recipient upon arrival of the money.
d. Payment voucher.
e. Journal voucher.
4. The cashier for the accounting unit, in which you are the accountant, brought a bank
statement for the month attached with bank advice to you. The bank advice
indicated all information including name of the person who made the transfer to
your bank account. You know that this transaction needs to be recorded. But what
source document is appropriate to do so?
a. The bank statement collected from the bank.
b. The bank advice you have received.
c. Ask the person who transferred the money for more written documents.
d. Get cash payment voucher from the person who made the transfer.

5. Authorization of transactions:
a. involves getting permission to proceed creation of a transaction from the
appropriate authority
b. includes approval of budget availability for a transaction from budget
section.
c. Support authorities by providing up to date decision support information to
achieve budget control.
d. Is part of the financial administration system, which is a stage of screening
information before taking as an input into an accounting system.
6. Which of the following is the reason for capturing transactions in foreign currency
and in Birr simultaneously?
a. To facilitate reporting.
b. To get information for computing the exchange rate gain or loss.
c. To reconcile the bank statement balance and foreign currency account
balance.
d. All of the above.
7. Public bodies can receive cash for payments of budgeted expenditure in one of the
ways. Which one?
a. Payments made on behalf of PB by MOFED.
b. Retained revenue.
c. Assistance via Channel 1.
d. Loan via Channel 2.
8. One of the following is not a source document to record Commitment into a budget
ledger card. Which one?
a. Deposit slip d. Purchase order
b. Contract e. None of the above.
c. Minutes of management.
9. Identify the type of transaction or information that should not be captured on a budget
ledger card.
a. Each individual item of budgeted expenditure.
b. Transactions which results in cash outlay from the budgeted expenditure in
the future.
c. Payment of cash from the budgeted expenditure.
d. Cash received for budgeted expenditure from MOFED.

10. Which of the following is the mode of collection for foreign currency?
a. Currency
b. Collection by the cashier.
c. Bank transfer
d. Cash deposited in the bank
11.6271 (Local training) ------------ 20,000
5002 (sundry creditors) 20,000
What source document do you use for this transaction?
a. Journal voucher d. Check
b. Receipt voucher e. Commitment (related
documents)
c. Payment voucher
12. All transactions involving one of the following ledger categories are not recorded in
a transaction register.
a. Revenue d. Fixed Assets
b. Transfers e. Payables
c. Expenditures
13. Transfer accounts typically are considered as contra accounts.

a. True
b. False
14. An accounting unit is necessarily required to report revenue at the level of each BI
managed by it.
a. False
b. True
Part II. Short answer questions
Instruction: Answer the following questions after you complete reading the third
unit.
1. Balance not Committed = Balance carried forward from the balance not committed -
Y + Commitment Cancelled +/- Additions to/Reductions
from Approved Budget.
What does the letter „Y‟ designates in the equation?
2. A set of six transactions is detailed below to illustrate the process of completing the
budget ledger card for each transaction. The examples are not intended to be
comprehensive or include all possible types of transactions, but only to serve as an
exercise. Complete the budget ledger card using the following information.
Transaction # 1

MOFED is notified of its approved recurrent budget on Me/Be/Ma 4 at the beginning of

a fiscal year. The Me/Be/Ma 4 dated July 11, 2001 contains the following information
for the sub-agency Administration & General Service:
 The reference number of Me/Be/Ma 4 is M/1/94
 The name of the public body is MOFED -code 152 and the sub-agency code is
02.
 The approved budget for stationery is Birr 300,000.
 The item of expenditure is office supplies - code 6212.
 The source of funding is treasury - code 1800.
This information is used to complete the identification information required at the top of
a budget card, and to record the first transaction in the table on a budget card.
Transaction # 2
The Procurement Section approves a purchase order No. PO/1/94 dated 1 August 2001
for Birr 200,000 for purchase of stationery. The approved purchase order is taken to the
Budget Section for recording the commitment.
Transaction # 3
On 1, September the BI requests Birr 200,000 for stationary from MOFED on
Ge/Be/We 11 with a reference number PR/1/94. However, Birr 70,000 is deducted by
MOFED from the request for the unused balance of stationery stocks from the previous
year. The actual payment received by the BI is Birr130, 000.
The original 200,000 commitments is reversed and new commitments consistent with
cash actually received and deducted must be recorded and committed
Note: The BI will record the payment received as Birr 130,000 for the actual cash
received and also record the non-cash transfer of Birr 70,000.
Transaction #4
The Procurement Section approves a purchase order No. PO/2/94 dated 2 September
2001 for Birr 100,000 for purchase of stationery from another supplier. The approved
purchase order is taken to the Budget Section for recording the commitment.
Transaction # 5
On September 10, the Procurement Section cancels purchase order No. PO/2/94 dated 2
September 2001 for Birr 100,000 for purchase of stationery. The purchase order is
marked "VOID" by the Procurement Section and is taken to the Budget Section for
canceling the commitment.
Transaction # 6
Notification of a budget supplement is made on Me/Be/Ma 6 dated 15 September 2001
with reference number RC/1/94. The notification adds Birr 100,000 to the stationery
budget.

Glossary
Accountant The person in the accounts section who performs the accounting duties
Accounting Unit The Unit that records and maintains accounting transaction
Accounting section The Section that performs accounting duties and handles cash
Administration and The department in charge of financial activities (Budgeting, accounting,
Finance department Cash management) for a PB that has the next level of authority and
Responsibility below the head of public body.
Allocated Budget The budget of a sub-project or Sub-sub-agency that is allocated from the
approved budget of a project or sub agency.
Appropriated Budget The budget approved by CPR
Approved Budget The budget assigned to projects and sub agencies with in PBs; the entire
federal government's portion of the appropriated budget is assigned and
the approved budget is published in Negarit Gazeta
Assets Resources controlled by an entity as a result of past events and from
which future economic benefits or service potential are expected to flow
to the entity.
Budgetary Institution A sub-Agency or project that is allocated a budget
Budget Section The Section that prepares submits, records and administers the budget
Cash Cash on hand and cash at bank
Cash Equivalents Short term, highly liquid investments which are readily convertible
known amounts of cash and which are subject to an insignificant risk of
change in value.
Cashier The person in the accounts section who performs the duties of handling
cash in safe
Chart of accounts A System of coding used by financial management system to identify
and classify financial entities and events.
Commitment Amount of budgeted funds that is reserved for a specific future
expenditure.
Closing entry An accounting entry that takes place at the end of each year to set
balances in all temporary accounts to zero.
Cost Method A method of accounting where by assets are recorded at cost and
liabilities are recorded at the amount of principal to be repaid.
Credit Right hand side; used by accounting convention when referring to the
right - hand entry when recording a transaction in a double - entry book
keeping system
Debit Left hand side; used by accounting convention when referring to the left
hand entry when recording a transaction in a double - entry book
keeping system.
Double entry book Each transaction is recorded in the accounting records with at least one

keeping debit and one credit so that the total amount of debits and total amount
of credits are equal to each other.
Goods in Transit Goods (either stocks or fixed assets) that are purchased abroad by a BI
but not yet in its possession.
Imp rest system A System of control over cash Fund. Under this system, a cash fund is
established at a fixed amount. The fund is periodically reimbursed for
the exact amount necessary to restore the original cash balance.
Letter of Credit A guarantee to pay suppliers with cash set aside in bank account
restricted for that purpose.
Liabilities Present obligation of the entity arising from past events, the settlement
of which is expected to result in an out flow from the entity of
resources embodying economic benefits or service potential.
Loan an amount due to a government unit that will be repaid in accordance
with the terms of a signed agreement
Net assets (Equity) The residual interest in the assets of the entity after deducting all
liabilities and letters of credit.
Payables Liabilities that are expected to be settled in less than one year
Permanent Account An account whose balance at the end of each year becomes the balance
in the account at the beginning of the next year
Program The main objective of a public body as stated in its establishment law
Project A set of activities administered by a PB that receives an approved
budget.
Public Body An institution that has a legal mandate, receives a partial or complete
budget directly from the respective finance and planning bodies,
submits its final accounts directly to MOFED, and is on the approved
list of public bodies issued by the office of the prime minister.
Receivables Amounts owed to a government unit by other Government units, a
person, or a non - government entity that are not loess.
Reporting Entity The Entity that sends monthly reports to MOFED assets that are
Stocks Sub agency consumed in less than one year. An administrative unit of a PB that
receives on approved budget.
Sub - Project A subset of activities under a project that receives an allocated budget.
Sub-Sub-agency A sub unit under a sub agency that receives an allocated budget
Sub program A subset of a program
Suspense item Cash given by a cashier that is not recorded in accounts at the time of
the cash movement but are expected to settle in less than one month.
Temporary account An account that begins each year with a zero balance
Transaction An economic event that affects the financial position of the Government
Un appropriated Not included in the budget that is formally approved by the council of
people's representatives.

References
Ainsworth, P, et al. (1997). Introduction to Accounting: An integrated Approach
McGraw - Hill: Boston.
Fees Warren. Accounting principles. 14th-17th ed.*
Fees Warren. Accounting principles. 10th-13th ed. South Western publishing
company*
FGE Accountings System - Manual 3, Accounting for Modified cash basis transactions,
Volume II, DSA project and MOFED, January, 2002 Addis Ababa, Ethiopia
FGE Accountings System - Manual 3, Accounting for Modified cash basis transactions,
Volume I, DSA project and MOFED, December, 2002 Addis Ababa, Ethiopia.
FGE Accounting System - Manual 3, FGE Chart of Accounts - Volume II, DSA project
and MOFED, January, 2002 Addis Ababa, Ethiopia.
FGE Accounting System - Manual 3, FGE Chart of Accounts - Volume II, DSA project
and MOFED, December, 2002 Addis Ababa, Ethiopia.
FGE Accounting System - Manual 3, Cases and Analysis of transactions - Volume II
DSA project and MOFED, January 2002, Addis Ababa, Ethiopia.
Jay M.Smith Jr. and K. Fred Skousen. (1987). International Accounting South Western
publishing Co: USA.
Mehari Haile. (1991). Simplified Bookkeeping and Accounting Kuraz Agency: Addis
Ababa.
Swanson, Boynton, et al, (1977). Century 21Accounting: 2nd edition; South Western
publishing Company: Cincinnati.
Swan son Ross and Hason. (1983). Century 21st Accounting. Western Publishing.
Walter B. Meigs. (1984). Accounting, the basis for Business Decisions. 6th Ed.
McGraw-Hill: International Book Company.**
Weygandt, Kieso, Kell.(1993). Accounting Principles, 3rd ed. John Wiley & Sons, Inc.:
New York.
Weygandt, Kieso, Kimmel.(1999). Accounting Principles, 5th ed. John Wiley & Sons,
Inc.: New York
N.B. * No date of publication
**No place of publication

Answer keys to self-assessment questions

Unit 1
Part I
1. e 5.b 9.c
6.e
2. b
7.e 10.c
3. b 8.a
4. c
Part II.
1. A transaction is an economic event that affects the financial position of the
government. The basis of accounting is the basic set of principles and rules employed
by the accounting system to determine when and how to record transactions. The cash
basis of accounting is a basis of accounting that recognizes transactions and other events
when cash is received or paid.
2. Jurisdiction
Type of Budget
Sub-Functional classification
Public body
Programs
Sub-Agency
Sub-Program
Project
Item of Expenditure
Source of Finance
3. Accountability is achieved by:
 Establishing a system of financial reporting that produces two reports for use
by government and a Statement of Changes in Cash position for use by
interested parties outside of government.
 Creating the ability to record and report on any assets and liabilities using a
cost method of valuation. The FGE accounting system includes a simplified
process for recording any assets and liabilities in a set of registers and in a
general ledger that is independent of accounting for transactions using a
modified cash basis of accounting.
 Employing a general ledger system. Each accounting unit maintains a
general ledger for each source of funding, so each unit maintains a balanced
and continuous record of its responsibilities and performance.

Unit 2.
Part I. 1. e 2. e 3. b 4. e 5. e
Part II.
1. Each bank account will have its own
accounting unit separately. This bank account can involve the cash flow to various
types of budget and contain the cash flow from one source of finance. One
budgetary institution can use this bank account or many budgetary institutions
could share it. An accounting unit which accounts for a bank account which is
shared by one budgetary institution and submits its report directly to MOFED,
then the accounting unit is a reporting entity. Whereas an accounting unit that
administers a bank account shared by many budgetary institutions and submits its
report to another accounting unit at the public body level for compilation is not a
reporting entity.
2. MOFED administers the financial system

for the federal government and has the highest level of administrative authority.
MOFED consists of a:
 Central Treasury Department that receives and distributes cash from central
treasury.
 Central Accounts Department that receives monthly repots and complies
financial statements for the federal government.
 Budget Department that prepares and distributes notification of approved
federal budgets and administers the budget.
 Credit and Investment Department that manages the federal government's
investments and debt.
3. In the FGE accounting system of cash
control, the cashier's function and the accountant's function are distinct. The
accountant will replenish the cash in safe by issuing a check to the cashier for the
total amount of the payment vouchers that are surrendered The accountant's
responsibility for cash is to maintain a record of the total cash position of the
entity, including cash at the bank and cash in the safe.
The cashier's function is to maintain and control cash in the safe. The accountant's
function is to maintain and control cash at the bank. Only the cashier can receive
currency and checks and make disbursements in currency. Daily, the cashier
should count cash on hand and reconcile ending cash on hand to the cash book..
The accountant records cash movements that flow through the cashier and cash
movements that flow directly through the bank. Direct cash movements through
the bank normally include bank transfers and charges, checks written, and any
other transactions that do not require cash handling by the cashier.

Unit 3.
Part I.
1. c 2 c 3. d 4. e 5. e 6. d 7. e 8. e 9. e
10. e 11. a 12.d 13.b 14. b
Part II.
1. Balance not Committed= Balance carried forward from the balance not committed-
Current Commitment + Commitment Cancelled+/-
Additions to/Reductions from Approved Budget.
Therefore, “Y” designates current commitment.

2. Recording Transactions in a Budget Ledger Card

Page No. 1
Name of Public Body: MOFED Code: ___152_
Name of Program: ______________________________ Code: ______
Name of sub Agency: Administration &General Service Code: ____02_
Name of Sub Program ___________________________Code: ____00__
Name of Project ________________________________Code: ___000__
Source of Finance: treasury Code: ___1800_
Type of Budget: RECURRENT
Code: _1_
Item of Expenditure: OFFICE SUPPLIES
Code: 6212
Addition Reduction Payment Balance Not

Reference No. Approved Budget to Budget to Budget Revised Budget Received Unpaid Balance Commitment Committed
No D a t e D e s c r i p t i o n
1 11/07/01 Approved Budget M/1/94 300,000 - - 300,000 - 300,000- - 300,000
2 01/08/01 Purchase Order PO/1/94 - - - - - 300,000150,1 200,000 100,000
3 01/9/01 Adjustment to PO/1/94 PR/1/94 - - - - - 300,000 (200,000) 300,000
3 01/09/01 Payment for September PR/1/94 - - - - 130,000 170,000- 130,000 170,000
3 01/09/01 Unused Stocks PR/1/94 - - - - 70,000 100,000- 20,000 100,000
4 02/09/01 Purchase Order PO/2/94 - - - - - 100,000100, 100,000 Nil
5 10/09/01 Cancel Purchase Order PO/2/94 - - - - - 100,000(100, (100,000) 100,000
6 15/09/01 Supplementary Budget RE/1/94 - 100,00 - 400,000 - 200,000- - 200,000
0
Revised Budget = Approved budget + Additions to budget -Reductions to budget

Unpaid Balance = Revised Budget - Cash and Nominal Cash Payments received to date
Balance not Committed= Balance carried forward from the balance not committed-
Current Commitment + Commitment Cancelled+/-
Additions to/Reductions from Approved Budget.

Annex 1 Budget Classification scheme, Budget Categories and

their standardized codes
There are eleven budget categories in the budget classification scheme presented below.
The presentation of codes in the budget begins with the "head" class of accounts that are
assigned to the budget categories of functional classification, sub-functional
classification, and public body. Public Bodies have the discretion to code their
programs, sub-agencies, sub-programs and projects. Each Public Body in consultation
with MOFED does the coding of these budget categories.
Table 1.1
Budget Classification Scheme
Budget Class of Code
Category Account (#Of digits, Standardized or
Jurisdiction Discretionary codes)
2, Standardized
Type of Budget
1, Standardized
1, Standardized
Sub-Functional classification Head
1, Standardized
Public body Head
1, Standardized
2, Discretionary
Programs Head
2, Discretionary
Sub-Agency S-Head
2, Discretionary
Sub-Program S-S-Head
3, Discretionary
Project S-S-S-Head
4, Standardized
Item of Expenditure S-S-S-S-Head
4, Standardized
Source Finance Item Source
The eleven budget categories listed in the table above are defined as follows and the
codes for the categories that are standardized are to be discussed and listed below.
Jurisdiction: Jurisdiction is the government level to which the budget applies. There
are twelve jurisdictions that include the Federal Government, nine Regions and two
Administrative Councils (Addis Ababa and Dire Dawa). The code for jurisdictions is a
standardized two-digit code.
Type of Budget: There are two types of expenditure budgets: recurrent and capital.
The code is one digit and standardized.
Functional classification: Functional classifications are the broad areas of expenditure
that are used for analysis and national accounts. There are four functional
classifications of expenditure: Administrative and General, Economic, Social, and

Other. The "Administrative and General" functional classification covers expenditures

for the following services: executive, legislative, judicial, financial and fiscal affairs,
defense, public order, general services (personnel management, and standards)." The
"Economic" functional classification covers expenditures that directly deliver economic
services or provide services that enable economic services. The "social" functional
classification covers expenditures that deliver social services and includes the sub-areas
of education, culture and sport and health. The "Other functional classification covers
expenditures that are not classified by the other three categories and includes transfers.
The Functional classification code is one digit and standardized.
The Other functional classification coded with the 400 series includes four sub-
functional classifications: transfers, debt, contingency and miscellaneous. Transfers
include the subsidies to regions; debt includes domestic and external obligations;
contingency covers past commitments and write-offs, and miscellaneous can include
items such as duty drawbacks and capital contributions.
The functional classification is the first digit of the three-digit head code. For example,
the functional classification code for economic expenditure is 200. The second digit of
the three digit code is the sub-functional classification and the third digit is the public
body code.
Sub-Functional classification: The four functional classifications are further divided
into sub-functional classification of expenditure. Sub-functional classification is the
second digit of the three-digit "head" code.
Public bodies are assigned a unique three-digit head code under the budget classification
scheme presented in the above table. The first digit of the head code identifies the
public body's functional classification, the second digit identifies the sub-functional
classification, and the third digit is a unique number for public body within the sub-
functional classification. The second table provides the current list of federal public
bodies and their head codes.
Programs: A public body may have programs that are broad objectives of expenditure.
Programs are a sub-head class of account and are coded with one digit assigned by the
public body in consultation with the MOFED.
Sub-Agencies: A public body is often divided into administrative units of sub-
agencies. Sub-agencies are usually the departments of a public body. Sub-agencies are
a sub-sub-head class of account and are coded with a unique two-digit number assigned
by the public body in consultation with the MOFED.

Table 1.2
Budget Categories and their Standardized codes
Code
- Jurisdiction Central government 15
Tigray Region 1
Afar Region 2
Amhara Region 3
Oromiya Region 4
Somalia Region 5
Benishangual Gumuz Region 6
Southern Nations, Nationalities and
Peoples Region 7
Gambella peoples Region 8
Harari Peoples Region 9
Addis Ababa Administrative Council 10
Dire Dawa Administrative Council 11
Type of budget Recurrent 1

Capital 2
Public Bodies 100 - 399
Functional Administration & General 100
Classification Economic 200
Social 300
Other expenditures 400 - 499
- Sub-Functional Administrative & General 100

Classification Organ of State 110
Justice and Public order 120
Defense 140
General Service 150-170
-Sub-Functional Economic 200
Classification Agricultural and Natural Resources 210
Water Resources 220

Trade and Industry 230

Mining and Energy 250
Transport and Communication 2601
Construction 270
Social Service 300
Education & Training 310
Culture and Sport 330
Health 340
Labor and social Affairs 350
Prevention and Rehabilitation 360
Other Expenditures 400

Transfer recipients 410
Regional Subsidy 430
Public debts 450
Provisions 460
Others 470
- Public Bodies
House of People's Representatives 111
Sub functional Office of the council of ministers 112
Classification Federal Auditor General 113
The federation council 114
Office of the President 115
Palace Administration 116
National Electoral Board of Ethiopia 117
Ministry of Federal Affairs 118
Ministry of Justice 121
1
Federal Supreme court 122
Special Public Prosecutor's Office 123 123
Federal Tax Appeal Tribunal 124 124
Justice and Legal system Research Institute 125 125
Security, Immigration and Refugee Affairs Authority 126
Federal Police Commission 127
Federal Anti Corruption Commission 128
Federal Anti Prisons Administration 129

Mines Defusing Office 130

Ministry of National Defense 141
Ministry of Foreign Affairs 151
Ministry of Finance & Economic Development 152
Ministry of Information 153
Central Statistical Authority 154
Federal Civil Service Commission 155
Ministry of Revenue 156
Inland Revenue Administration 157
Ethiopian customs Authority 158
Broadcasting Agency 159
Science and Technology commission 161
Ethiopian Mapping Authority 162
Office of Population & Houses census Committee 163
Ethiopian Quality and Standards Authority 236
Ethiopian Privatization Agency 237
Coffee and Tea Authority 238
Live stock Marketing Authority 239
Office of the Board of trust for privatized Public
Enterprises 168
Ethiopian Development Research Institute 171
Ministry of Agriculture 211
National Fertilizer Industry Agency 212
Ethiopian Agricultural Research Organization 213
Bio-diversity Institute 214
Ministry of Rural Development 215
Commission for Cooperatives 216
National Seed Industry Agency 218
Environmental Protection Authority 219
Ministry of Water Resources 221
Ministry of Trade and Industry 231
Micro and Small Enterprise Development Agency 232
Ethiopian Export Promotion Agency 333
Basic Metals and Engineering Industry Agency 234
Ethiopian Investment Authority 235

Public Enterprise Supervising Authority 241

Ethiopian Tourism Commission 242
Ministry of Mines 251
Geological Survey of Ethiopia 252
Ethiopian Electric Agency 253
National Fuel Reserve Depots Administration 254
Ethiopian Rural Energy Development & Promotion Center 255
Ministry of Transport and Communications 261
Ethiopian Telecommunications Agency 262
Ethiopian Civil Aviation Authority 263
Ethiopian Road Transport Authority 265
National Urban Planning Institute 272
Ethiopian Road Authority 273
Office of Road Fund Administration 274
Ministry of Education 311
Addis Ababa University 312
Alemaya University 313
Bahir Dar University 314
Mekele University 315
Debub University 316
Jimma University 317
Ministry of Capacity Building 318
Ethiopian Civil Service College 319
Ministry of Youth & Sport Culture 331
Ministry of Health 341
Health & Nutrition Research Institute 342
Drug Administration and Control Authority 343
Ethiopian Radiation Protection Authority 344

National HIV/AIDS Prevention & Control Secretariat 345

Ministry of Labor and Social Affairs 351
National Population Affairs Office 353
Disaster Prevention and Preparedness Commission 361
Food Security Reserve Administration 362
National Disaster Prevention and Preparedness Fund
Administrative Office 363
Transfer Recipients
Ethiopian Social Rehabilitation Development Fund 411
HIV 412
Ethiopian Electric & Power Corporation 413
Ethiopian Patriots Association 414
Ethiopian Red Cross 415
Support for other Organizations 416
Construction & Business Bank 417
African Development Bank 418
Kalub Gas Share Company 419
Emergency & Rehabilitation Administration Unit 421
Demobilization & Reintegration Coordination Office 422
Women's Affairs 423
Food Security Program 424
National Parks, Nech Sara, Mago, Omo 425
Regional Subsidy
Tigray Region 431
Afar Region 432
Amhara Region 433
Oromiya Region 434
Somali Region 435
Benshangul - Gumuz Region 436
Southern Nations, Nationalities and People's Region 437
Gambella People's Region 438
Harari people's Region 439
Addis Ababa City Administration 441
Dira Dawa Administration Council 442
Public Debts
Internal Debt 451
External Debt 452
Provisions
Provision for past Commitments 461
Provision for Salary & Operation Expenditure 462
Provision for Bank Charges 463
Insurance for Government Vehicles 464
Others
Duty Draw Back 471
Compensation Payment 472

(Source: MOFED and DSA Project, December 2002)
Annex 2 - FGE Chart of account

Items of Domestic Revenue
Code Area/Sub-Area/Item of Domestic Revenue
1000-1399 I. TAX REVENUE
1100-1199 Tax on income, profit and capital gain
1101 Wages and salaries
1102 Rental income
1103 Profits to individuals
1104 Profits to corporations
1105 Dividend and chance winnings
1106 Capital gains
1107 Agricultural income
1108 Royalties
1109 Withholding tax on imports
1111 Interest income tax
1200-19 Excise taxes on locally manufactured goods
1201 Petroleum and its products
1202 Sugar
1203 Salt
1204 Soft drinks
1205 Mineral water
1206 Alcohol and alcoholic products
1207 Beer
1208 Tobacco and tobacco products
1209 Textiles
1211 Leather
1212 Plastic goods
1219 Other goods
1220-39 Sales tax on locally manufactured goods
1221 Petroleum and its products
1222 Sugar
1223 Salt

1224 Food
1225 Soft drinks
1226 Mineral water
1227 Alcohol and alcoholic products
1228 Beer
1229 Tobacco & tobacco products
1231 Cotton, yarns and fabrics, textiles and clothing
1232 Leather and leather products
1233 Chemical and chemical products
1234 Iron and steel
1236 Non metallic mineral products
1239 Other goods
1240-69 Service sales tax
1241 Telecommunication
1242 Garage
1243 Laundry
1244 Tailoring
1245 Legal
1246 Photography and Photocopying
1247 Auditing
1248 Works contract
1249 Lodging
1251 Consultancy
1252 Commission Agent
1253 Entertainment
1254 Barbers & Beauty Salon
1255 Tourism
1256 Rent of Goods
1257 Advertisement
1258 Pesticide service
1259 Financial
1269 Other services
1270-79 Stamp sales and duty
1271 Sale of stamps
1272 Stamp duty

1300-29 Customs duty on imported goods

1301 Motor vehicles and accessories
1302 Machinery‟s, capital goods and accessories
1303 Building materials and metals
1304 Electrical equipment and appliances
1305 Household, office goods and appliances
1306 Films, film recorders and reproducers and musical instruments
1307 Stationery, calculating machines and appliances
1308 Personal goods and appliances
1309 Pharmaceutical equipment, drugs and supplies
1313 Alcohol and alcoholic beverages
1314 Wood and wood products
1315 Food
1329 Other goods
1330-49 Excise tax on imported goods
1331 Petroleum
1332 Automobiles
1333 Textiles
1336 Plastic products
1339 Other goods
1350-79 Sales tax on imported goods
1351 Motor vehicles and accessories
1352 Petroleum products & lubricants
1353 Machinery, capital goods and accessories
1354 Building materials and metals
1355 Electrical equipment and appliances
1356 Household, office goods and appliances
1357 Films, film recorders and reproducers and musical instruments
1358 Stationery, calculating machines and appliances
1359 Personal goods and appliances
1361 Pharmaceutical equipment, drugs and chemicals


1365 Wood and wood products
1366 Food
1379 Other goods
1380-89 Export duties
1381 Coffee
1400-99 II. NON-TAX REVENUE
1410-29 Administrative fees and charges
1411 Passports and visas
1412 Registration of foreigners
1413 Work permits
1414 Court fines
1415 Court fees
1416 Forfeits
1417 Business and professional registration and license fees
1418 Warehouse fees
1419 Television license fees
1421 Coffee inspection and other fees
1422 Standards charges
1429 Other fees and charges
1430-59 Sales of public goods and services
1431 Sales of government newspapers, magazines, and publications
1432 Media
1433 Advertising revenue
1434 Veterinary services
1435 Health Services
1436 Sales of medicines and medical supplies
1437 Medical examinations and treatments
1438 Handicrafts
1439 Printed forms
1441 Prisons administration revenue
1442 Research and development services
1443 Vocational and educational institutions

1444 Entertainment
1445 Engineering industry
1446 Cultural services
1447 Meteorological services
1448 Mapping services
1449 Civil aviation services
1451 Road transport services
1452 Science and technology services
1453 National examination service fees
1454 Postal services
1455 Farm products
1456 Forest products
1459 Other goods and services
1460-79 Government investment income
1461 Residual surplus
1462 Dividend income from government assets
1463 National lottery surplus
1464 Interest on loan to government agencies
1465 Interest on loan to government employees
1466 Interest on government bank accounts
1467 Capital charges
1468 Rural land use fee
1469 Urban land lease
1480-89 Extraordinary and miscellaneous revenue
1481 Proceeds from sugar auction sales
1482 Pre-shipment inspection fees
1485 Other miscellaneous revenue
1500-99 III. CAPITAL REVENUE

1501 Sales of movable and immovable properties
1502 Sales of stock
1503 Royalty on public assets
1504 Privatization proceeds
1505 Collection of principal from on-lending
1506 Capital transfers from non-government sources

External Assistance
Codes Categories of Assistance
2000-2099 DONOR CODES UNRELATED TO PROJECTS
2001 African Development Bank
2002 African Development Fund
2005 Christian Blindness Mission
2008 European Union
2009 Food and Agriculture Organization
2010 Global Environment Facility
2011 International Atomic Energy Agency
2014 International Development Association
2018 International Monetary Fund
2025 United Nations Children‟s Fund
2026 United Nations Conservation & Development Fund
2027 United Nations Development Program
2029 United Nations Fund for Population Activity
2030 United Nations Industrial Development Organization
2032 World Bank
2033 World Food Program
2034 World Health Organization
2036 UNCA & GLRA
2053 Austria
2057 Canada
2058 China, People‟s Republic
2061 Finland (DIDC)
2062 France (Government & CRD)
2063 Germany (GTZ)
2064 Germany (KFW)
2067 Ireland
2069 Italy
2070 Japan (JICA)
2078 Sweden (SIDA)
2081 The Netherlands (SNV)
2082 The Netherlands Government (KNCB)
2084 United States (USAID)

2091 EU Grant
2092 Bilateral Grant
2100-2999 SOURCE OF FINANCING (PROJECT/DONOR)
2100-2199 Administrative and General Projects
2200-2599 Economic Projects
2600-2799 Social Projects
2800-2849 Other Projects
2850-2899 Counterpart Funds
2900-2949 Stable Grant
2950-2999 Others
External Loan
Codes Categories of Loan
3000-3099 LENDER CODES UNRELATED TO PROJECTS
3001 African Development Bank
3002 African Development Fund
3003 Arab Bank for Economic Development
3007 European Investment Bank
3014 International Development Association
3016 International Fund for Agricultural Development
3021 Nordic Development Fund
3071 Kuwait Fund (KREAD)
3091 Fertilizer Loan
3092 Balance of Payment Support (IDA)
3100-3999 SOURCE OF FINANCING (PROJECT/DONOR)
3100-3199 Administrative and General Projects
3200-3599 Economic Projects
3600-3799 Social Projects
3800-3849 Other Projects
3850-3899 Counterpart Loans
3900-3999 Other

TRANSFERS 4000-4099
Cash Transfers
4000-4049
Recurrent salary and allowances
4001
Recurrent operating expenditure 4002
Capital salary and allowances 4003
Capital expenditure 4004
Staff Advances 4005
SSDP funds
4006
Grace period payables 4007
Between BI and/or region 4008
Other cash transfers 4009
Non-Cash Transfers 4050-4099
Recurrent salary and allowances: non-cash 4051
Recurrent operating expenditure: non-cash 4052
Capital salary and allowances: non-cash 4053
Capital expenditure: non-cash 4054
Other non-cash transfers 4055
Items of Expenditure
Code Area/Sub-area/Item of Expenditure
6100 PERSONNEL SERVICES
6110 Emoluments
6111 Salaries to permanent staff
6112 Salaries to military staff
6113 Wages to contract staff
6114 Wages to casual staff
6115 Wages to external contract staff
6116 Miscellaneous payments to staff
6120 Allowances/benefits

6121 Allowances to permanent staff

6122 Allowances to military staff
6123 Allowances to contract staff
6124 Allowances to external contract staff
6130 Pension contributions
6131 Government contribution to permanent staff pensions
6132 Government contribution to military staff pensions
6200 GOODS AND SERVICES
6210-20 Goods and supplies1
6211 Uniforms, clothing, bedding
6212 Office supplies
6213 Printing
6214 Medical supplies
6215 Educational supplies
6216 Food
6217 Fuel and lubricants
6218 Other material and supplies
6219 Miscellaneous equipment
6221 Agriculture, forestry and marine inputs
6222 Veterinary supplies and drugs
6223 Research and development supplies
6224 Ammunition and ordinance
6230 Traveling and official entertainment services
6231 Per Diem
6232 Transport fees
6233 Official entertainment
6240 Maintenance and repair services
6241 Maintenance and repair of vehicles and other transport
6242 Maintenance and repair of aircraft and boats
6243 Maintenance and repair of plant, machinery, and equipment
6244 Maintenance and repair of buildings, furnishings and fixtures
6245 Maintenance and repair of infrastructure
6246 Maintenance and repair of military equipment
6250 Contracted services
1
Code number 6220 is skipped because it does not designate a new sub-area of expenditure.

6251 Contracted professional services

6252 Rent
6253 Advertising
6254 Insurance
6255 Freight
6256 Fees and charges
6257 Electricity charges
6258 Telecommunication charges
6259 Water and other utilities
6270 Training services
6271 Local training
6272 External training
6280 Stocks of emergency and strategic goods
6281 Stocks of food
6282 Stocks of fuel
6283 Other stocks
6300 FIXED ASSETS AND CONSTRUCTION
6310 Fixed assets
6311 Purchase of vehicles and other vehicular transport
6312 Purchase of aircraft, boats, etc.
6313 Purchase of plant, machinery and equipment
6314 Purchase of buildings, furnishings and fixtures
6315 Purchase of livestock and transport animals
6316 Purchase of military equipment
6320 Construction
6321 Pre-construction activities
6322 Construction of buildings-residential
6323 Construction of building-non-residential
6324 Construction of infrastructure
6325 Construction for military purposes
6400 OTHER PAYMENTS

6410 Subsidies, investment and payments
6411 Subsidies to Regions and Administrative Councils
6412 Grants, contributions and subsidies to institutions and enterprises

6413 Government investment

6414 Contributions to international organizations
6415 Contingency
6416 Compensation to individuals and institutions
6417 Grants and gratuities to individuals
6418 Contributions to sinking funds
6419 Miscellaneous payments
6430 Debt payments
6431 Payments on the principal of external public debt
6432 Payments of interest and bank charges on external public debt
6433 Payments on the principal of domestic public debt
6434 Payments of interest and bank charges on domestic public debt
6440 Pension payments
6441 Government pension payment to permanent staff
6442 Government pension payment to military staff

Annex 3: Account codes by account category

ASSETS 4100-4199
Cash and Cash Equivalents 4100-4199
Cash on hand 4101
Cash at bank in foreign currency 4102
Cash at bank 4103
Letter of Credit restricted account 4104
Cash at bank in central treasury 4105
General budget support from loan 4106
General budget support from assistance 4107
Commodity credit grant 4108
Grant deposit account 4109
SSDP loan 4110
SSDP assistance 4112
Sinking fund 4113
Receivables 4200-4299
Suspense 4201
Cash shortage 4202
Advances 4203-4249
Advance for SSDP 4204
Advance for staff from next year's budget 4205
Advance for recurrent expenditures from next year's budget 4206
Advance for capital expenditures from next year's budget 4207
Advance to regions 4208
Other advances to BI 4209
Other advances within government 4210
Prepayments 4250-4269
Advance to contractors 4251
Advance to consultant 4252
Advance to supplier 4253
Other advances outside government 4254
Other Receivables 4270-4299
Peasant associations 4271
Cooperatives 4272

Individuals and private organizations 4273
Other 4274
Goods in Transit 4300-4399
Organs of state 4301
Justice and public order 4302
National Defense 4303
General services 4304
Agricultural and natural resources 4305
Water resources 4306
Industry and trade 4307
Mining and energy 4308
Transportation and communication 4309
Construction 4310
Education and training 4311
Culture and sport 4312
Health 4313
Labor and social affairs 4314
Relief and rehabilitation 4315
Others 4316
Stocks 4400-4499
Uniforms, clothing, bedding 4401
Office supplies 4402
Printed materials 4403
Medical supplies 4404
Educational supplies 4405
Food 4406
Fuel and lubricants 4407
Miscellaneous equipment 4408
Agriculture, forestry and marine inputs 4409
Veterinary supplies and drugs 4410
Research and development supplies 4411
Ammunition and ordinance 4412
Building and construction materials 4413
Spare parts 4414

Factory raw materials 4415

Factory work-in-progress 4416
Factory finished goods 4417
Other materials and supplies 4418
Fixed Assets 4500-4599
Construction in Progress 4500-4519
Construction of buildings – residential 4501
Construction of buildings – non-residential 4502
Construction of infrastructure 4503
Construction for military purpose 4504
Property and Equipment 4520-4599
Vehicles and other vehicular transport 4521
Aircraft, boats, etc. 4522
Plant machinery and equipment 4523
Military equipment 4524
Buildings – residential 4525
Buildings – non-residential 4526
Infrastructure 4527
Military purpose buildings 4528
Furnishings and fixtures 4529
Livestock and transport animals 4530
Long Term Loans 4700-4799
Long Term Loans to Public Enterprises 4700-4719
Food sector 4701
Beverage 4702
Textile leather 4703
Trade and industry 4704
Chemical 4705
Printing 4706
Trade 4707
Metal 4708

Agriculture 4709
Financial institutions 4710
Hotel and tourism 4711
Transport and communication 4712
Construction 4713
Others 4715
Investments 4800-4899
Public Enterprises 4800-4819
Food sector 4801
Beverage 4802
Textile leather 4803
Chemical 4804
Printing 4805
Trade 4806
Metal 4807
Agriculture 4808
Financial institutions 4809
Hotel and tourism 4810
Construction 4812
Others 4814
Private Organizations 4820-4899
MOENCO 4821
LIABILITIES 5000-5499
Payables 5000-5099
Accounts Payable 5000-5019
Grace period payables 5001
Sundry creditors 5002
Pension contribution payable 5003
Salary payable 5004

Payables within Government 5020-5039

Due to staff
5021
Due to MOFED for SSDP 5022
Due to MOFED for staff from next year's budget 5023
Due to MOFED for recurrent expenditures from next year's5024
budget
Due to MOFED for capital expenditures from next year's budget 5025
Due to regions 5026
Other payables to MOFED 5027
Other payables within government 5028
Government Payables 5040-5049
Direct advance 5041
28 day treasury bill 5042
Deposits 5050-5059
Custom deposits 5051
Court deposits 5052
Hospital deposits 5053
Other deposits 5054
Retentions 5060-5069
Retention on contract 5061
Long-Term Debt 5100-5399
Local Loans 5100-5149
Bonds 5101
Special bonds 5102
Foreign Loans 5150-5399
Special Purpose 5150-5179
Commodity credit 5151
Credit fund 5152
Private 5180-5199
Commercial loan 5181
Multilateral 5200-5299
ADB 5201

ADF 5202
BADEA 5203
EDF 5204
EIB 5205
EU 5206
FAO 5207
GEF 5208
IAEA 5209
CIMMYT 5210
ICAO 5211
IDA 5212
IDRC 5213
IFAD 5214
ILO 5215
IUCN 5216
KFAED 5217
NTF 5218
NDF 5219
OPEC 5220
TAF 5221
UNCDF 5222
UNICEF 5223
UNDP 5224
UNESCO 5225
UNFPA 5226
UNIDO 5227
UNSO 5228
WFP 5229
World Bank 5230
WHO 5231
WWF 5232
Bilateral 5300-5399
Algeria 5301
Australia 5302

Austria 5303
Belgium 5304
Bulgaria 5305
Canada 5306
China, People‟s Republic of 5307
Czechoslovakia 5308
Finland 5309
France 5310
Germany 5311
Hungary 5312
Israel 5313
Italy 5314
Japan 5315
Korea, Democratic Republic of 5316
Libya 5317
Netherlands 5318
Norway 5319
Poland 5320
Spain 5321
Sweden 5322
Switzerland 5323
United Kingdom 5324
United States 5325
Yugoslavia 5326
LETTERS OF CREDIT 5500-5599
Organs of state 5501
Justice and public order 5502
National defense 5503
General services 5504
Agriculture and natural resources 5505
Water resources 5506
Industry and trade 5507

Construction 5510
Education and training 5511
Culture and sport 5512
Health 5513
Labor and social affairs 5514
Relief and rehabilitation 5515
Others 5516
NET ASSETS/EQUITY 5600-5699
Net Assets/Equity 5601
Reserves 5610-5699
Sinking Fund 5611
Capital of Public Enterprises 5612
Capital in Private Organizations 5613
Pension Fund 5614
Road Fund 5615
Fuel Stabilization Fund 5616
NEW ACCOUNT
Description Account Code
1. Inter bank transfer ……………………………………………….4010
2. Transfer b/n Finance Beuro and Woreda Finance
/District Finance / office…………………………………………. 4011
3. Deposit interest account code…………………………………… 4114
4. Purchase Advance………………………………………………… 4211
5. Other Payroll deduction (like court order, idir, mortgage, family
Allotment etc.)……………………………………………………. 5005
6. With holding Tax payable account code…………………………… 5006
7. Family pay (The code is used to record a payable to individuals
from military)………………………………………………………..5029
8. Repatriation (The code is used to record a payable to
individuals from the repatriation fund)……………………………… 5030
9. Internally Displaced persons (The code is used to record
a payable to individuals from the internally displaced persons fund….5031
10. Demobilization (The code is used to record a payable to
Individual from the Demobilization fund…………………………… 5032

11. War veterans (The code is used to record a payable to individuals

from the war veterans fund)…………………………………………..5033
12. Due to MOFED revolving fund (fund given for long term
Employee loans, for hospital and other revolving fund)…………… 5035
13. Bid bond deposit ………………………………………………… 5055
14. Counter part fund deposit from grant. (This type grant indicate
Ownership by MOFED ie., the bank account jointly signed by
MOFED and donor's)……………………………………………… 5057
15.Value added tax Retention payable……………………………… 5058

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Department of Accounting and Finance FGE Accounting and Budgeting

Harambee University College Page 1

Unit one: Introduction

1.1 Goals achieved by FGE Accounting System

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Activity 2: Identifying cash control mechanism

1.2 Changes in the FGE accounting system

 The Federal government of Ethiopia (FGE) accounting system used in 1994 EC

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Cashier and Accountant

Assistant cashiers are responsible for:

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 Issuing deposit and/or receipt vouchers

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Self-Assessment Questions (SAQs 1)

4. Which of the following is false about the chart of accounts?

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e. None of the above.

Part II: Short answer questions

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Unit Two: Basic FGE Accounting System Concepts

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Activity 3: Identifying FGE permanent and temporary accounts.

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Feedback: You can see the following

Activity 5: Identifying budget classification of public body

Jurisdiction Types of Public

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Feedback: Look at the following for the above situation

Jurisdiction Types of budget Public body Explanation

15 1 154 Recurrent budget for central statistical

15 2 319 A capital budget to Ethiopian Civil

10 1 263 A recurrent budget of Addis Ababa

Chart of Temporary Accounts

Chart of Permanent Accounts

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 Letters of Credit using code numbers 5500 through 5599.

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Account code Account title

1.6 Basis of Accounting

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information that is reported in a Statement of Changes in Cash Position and a Statement

Activity 7 Identifying bases of Accounting

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 All aspects of the transaction are properly recorded in accounts.

Asset = Liabilities + Net Assets/Equity

In a double-entry bookkeeping system, the book of original entry is the register. A

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Allow about 20 minutes

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Self-Assessment Questions (SAQs 1)

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6. Which of the following is true about basis of accounting in FGE accounting

7. Among the following one is not a practical procedure in the system to

Part II: Short answer questions

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2.1 Financial Administration