BADVAC3X – GOVERNMENT AND NON-FOR-PROFIT ACCOUNTING

MODULE 5: TRIAL BALANCE AND FINANCIAL STATEMENTS

Trial Balance

Trial Balance is a list of all the GL accounts and their balances at a given time. The accounts are listed in the order in
which they appear in the RCA

The TB is prepared to:

1. Prove the mathematical equality of the debits and credits after posting:
2. Check the accuracy of the postings:
3. Uncover errors in journalizing and posting: and
4. Serve as basis for the preparation of the financial statements

Adjusting Journal Entries

Adjusting journal entries are made at the end of an accounting period to allocate revenue and expenses to the period in
which they actually occurred.

Other Adjustments

The following adjustments shall also be made if applicable) for fair presentation of the results of operation of the entity in
the financial statements:

a. Unused NCA (National)

b. Petty Cash Fund
c. Unreleased Commercial Checks
d. Allowance for/Accumulated Impairment Losses accounts of asset
e. Write-down of Inventories
f. Correction/Reclassification Entries
g. Adjustment for reversal of Impairment Losses
h. Depreciation Expense
i. Exchange differences on foreign currency
j. Other adjustments

Petty Cash Fund Adjustments

All unreplenished Petty Cash Fund expenses shall be reported and supporting papers submitted to the Accounting
Division/Unit the end of the year.

If no replenishment could be made for lack of fund, a JEV shall be prepared to recognize all the expenses paid under the
Petty Cash with a credit to the account "Petty Cash”

If replenishment is made, the credit shall be the appropriate cash account.

Reversion of Unused Notice of Cash Allocation

Adjusting for the reversion of the unused or unutilized NCA of NGAS receiving subsidies from the national government in
the form of NCA

Subsidy from national government xx

Cash – MDS, Regular xx

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Adjustments for Unreleased Commercial Checks

All unreleased checks at the end of the year shall be reverted back to the cash accounts

A Schedule of Unreleased Commercial Checks shall be prepared by the Cashier for submission to the Accounting
Division/Unit

Cash in bank-local currency, current account xx

Accounts payable xx

Allowance for Impairment Losses

The uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognized as an
expense (impairment losses), rather than as an adjustment of the amount of revenue originally recognized

Impairment loss receivable xx

Allowance for impairment AR xx

Depreciation expenses

• Systematic allocation of depreciable amount of the asset over its useful life.
• Useful life of an asset is the asset's expected utility to the entity.
• The estimation of useful life is a matter of judgement
• Depreciation is recognized even if the fair value of asset exceeds its carrying amount, as long as its residual value
does not exceed the carrying amount.
• RV and UL should be reviewed at least each annual reporting date.

Pre-Closing Trial Balance/ Adjusted Trial Balance

• Shall be prepared after posting the AJE in the GJ and the same to the GL
• It shows the adjusted balances of all accounts as at a given period.
• TB shall be supported with the schedule of SL balances of the controlling accounts

Closing Journal Entries

Entries which close out the balances of all nominal/temporary and intermediate accounts at the end of the year.

The closure will reduce the balance of those accounts to zero.

The nominal and intermediate accounts that shall be closed at the end of the year are as follows:

1. Balance of all revenue accounts to the Revenue and Expense Summary account.
2. Balance of all expense accounts to the Revenue and Expense Summary account;
3. Balance of the 'Revenue and Expense Summary to the "Accumulated Surplus/ (Deficit)" account,
4. Balance of all "Cash-Treasury/Agency Deposit, Regular" to the "Accumulated Surplus/(Deficit)" account, and
5. Other Closing Entries.

Post-Closing Trial Balance

Shall be prepared at the end of the year after preparing and posting the closing journal entries in the GJ and posting to
the GL

Basis of FP and TB

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Purpose of Financial Statements

The objectives of general purpose financial reporting in the public sector should be to provide information useful for
decision making, and to demonstrate the accountability of the entity for the resources entrusted to it, by:

1. providing information about the sources. allocation. and uses of financial resources;
2. providing information about how the entity financed its activities and met its cash requirements:
3. providing information that is useful in evaluating the entity's ability to finance its activities and to meet its
liabilities and commitments,
4. providing information about the financial condition of the entity and changes in it:
5. providing aggregate information useful in evaluating the entity's performance in terms of service costs. efficiency
and accomplishments:

General purpose financial statements predictive or prospective role by providing information useful in predicting the:

1. level of resources required for continued operations.

2. the resources that may be generated by continued operations.
3. the associated risks and uncertainties

Financial reporting may also provide users with information:

1. indicating whether resources were obtained and used in accordance with the legally adopted budget, and
2. indicating whether resources were obtained and used in accordance with legal and contractual requirements.
including financial limits established by appropriate legislative authorities

Components of Financial Statements

Necessary for a person to understand the information presented

a. name of the reporting entity or other means of identification and any change in that information from the
preceding reporting date
b. whether separate or consolidated
c. reporting date or period covered
d. name of fund cluster
e. reporting currency
f. level of rounding used

Complete set of financial statements: (submitted to Government Accountancy Sector, COA FS and TB by cluster)

1. statement of financial position

2. statement of financial performance
3. statement of changes in net assets/equity
4. statement of cash flows
5. statement of comparison of budget and actual amounts
6. notes to financial statements

Qualitative Characteristics of Financial Reporting

1. understandability
2. relevance
3. materiality
4. timeliness
5. reliability
6. faithful representation

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 7. substance over form
8. neutrality
9. prudence
10. completeness
11. comparability

Financial reporting for the national government

a. each entity of the national govt maintains complete set of accounting books by fund cluster which is reconciled with
the records of cash transactions maintained by BTr

b. the BTr accounts for cash, public debt and related transactions of the national government

c. each entity maintains budget registries which are reconciled with the records maintained by DBM and GAS, COA

d. the COA through GAS:

• maintains budget records showing the overall approved budget of the NG and its execution/implementation
• consolidates the FSs and budget accountability report of all NGAS and the BTr with COA's records come up with
an Annual Financial Report (sept. 30 last day)
• prepares other financial reports required by law

Fair Presentation and Compliance with PPSAS

A fair presentation also requires an entity.

a. To select and apply accounting policies in accordance with PPSAS 3, Accounting Policies, Changes in Accounting
Estimates and Errors. PPSAS 3 sets out a hierarchy of authoritative guidance that management considers, in the absence
of a Standard that specifically applies to an item.

b. To present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information.

c. To provide additional disclosures when compliance with the specific requirements in PPSASS is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity's financial position
and financial performance.

Consistency of Presentation.

The presentation and classification of items in the financial statements shall be retained from one period to the next
unless:

a. it is following a significant change in the nature of the entity's operations

b. another presentation or classification would be more appropriate

c. PPSAS requires a change in presentation

Materiality and Aggregation.

Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar nature
or function shall be presented separately, unless they are immaterial.

Offsetting

Assets and liabilities, and revenue and expenses, shall not be offset unless required or permitted by a PPSAS Generally,
BAWAL Pero pag coming from same account, pwede.

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Reporting Period

Financial statements shall be presented at least annually If period longer or shorter than one year, an entity shall
disclose, in addition to the period cred by the financial statements:

1. The reason for using a longer or shorter period; and

2. Fact that certain statements are not entirely comparable

Statement of Financial Position (Assets, Liab, equity)

Shows the financial condition of the entity as at a certain date, presented in comparative, detailed and condensed format
Shall present current and noncurrent assets, and current and non-current liabilities, as separate classifications on the face
of its Statement of Financial Position

Condensed Statement of Financial Position - presents only the major sub-classification of Statement of Financial Position
accounts in the Revised Chart of Accounts. Submitted at year-end to the concerned auditor

Detailed Statement of Financial Position - presents all Statement of Financial Position accounts in the Revised Chart of
Accounts as a line item in the financial report. submitted at yearend to the Government Accountancy Sector, COA, as part
of the yearend financial statements

Statement of Financial Performance

Shows the results of operation/performance of the entity at the end of a particular period

Taken from Pre-closing Trial balance

Normally, all items of revenue and expense recognized in a period are included (surplus or deficit.)

Items that may be excluded from surplus or deficit for the current period, as follows:

The correction of prior period errors.

The effect of changes in accounting policies Gains or losses on remeasuring available-for-sale financial assets

Statement of Changes in Net Assets/Equity

The Statement of Changes in Net Assets/Equity shows the changes in equity between two accounting periods reflecting
the increase or decrease in the entity's net assets during the year.

1. Surplus or deficit for the period

2. Each item of revenue and expense for the period that, as required by other Standards, is recognized directly in net
assets/equity, and the total of these items

3. Total revenue and expense for the period (calculated as the sum of (a) and (b):

4. The effects of changes in accounting policies and corrections of errors for each component of net asset/equity
disclosed; and

5. The balance of accumulated surpluses or deficits at the beginning of the period and at the reporting date, and the
changes during the period.

Statement of Comparison of Budget and Actual Amount

Shall be prepared because the financial statements and budget of NGAS are not on the same accounting basis. The
statement shall present the ff:

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a. Original and final budget amounts

b. Actual amounts on a comparable basis

c. Difference is explained by way of disclosure pag material lang ang amount

Statement of Cash Flows (govt-direct method)

Summarizes the cash flows from operating, investing and financing activities of an entity during a given period. Cash flow
information provides users of financial statements with a basis to assess:

a. ability of the entity to generate cash and cash equivalents

b. the needs of the entity to utilize those cash flows.

Cash flows exclude movements between items that constitute cash or cash equivalents because these components are
part of the cash management of an entity rather than part of its operating, investing and financing activities.

Operating Activities - Cash flows from operating activities are primarily derived from the principal cash-generating
activities of the entity.

Investing Activities - Involve the acquisition and disposal of non-current assets and other investments not included in
cash equivalent

Financing Activities - Are activities concerning buildup of equity capital or borrowings of the entity

Notes to Financial Statements

These are integral parts of the financial statements. Notes provide additional information and help clarify the items
presented in the financial statements.

It provides narrative description or disaggregation of items in the financial statements and information about them that
do not quality for recognition. The notes shall:

a. present information about the basis of preparation of the financial statements and the specific accounting policies
used.

b. disclose the information provide additional information that is not presented on the face of the financial statement

Events After the Reporting Date

Events after the reporting date are those events, both favorable and unfavorable, that occur between the reporting date
and the date when the financial statements are authorized for issue

Two types of events can be identified:

a. Adjusting events after the reporting date - those that provide evidence of conditions that existed at the reporting date;
and

b. Non-adjusting events after the reporting date - those that are indicative of conditions that arose after the reporting
date.

Disclosures of Events after the Reporting Date

The required disclosures for events after the reporting date are as follows:

a. Authorized date for issue of FS and who gave that authorization. If another body has the power to amend the financial
statements after issuance, the entity shall disclose that fact

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b. Information received after the reporting date, but before the financial statements are authorized for issue

c. Disclose if material

d. Accordingly, the entity shall disclose the following for each material category of non-adjusting event after the reporting
date: (i) the nature of the event; and (ii) an estimate of its financial effect or a statement that such an estimate cannot
be made.

The following, among others are examples of non-adjusting events after the reporting date which requires disclosure:

a. an acquisition or disposal of a major controlled entity:

b. announcement of a plan to discontinue an operation or a major program;

c. major purchases and disposal of asset; and the destruction of a major building by a fire after the reporting date.

Changes in Accounting Policies

The entity should be consistent in the application of an accounting policy.

Change is not allowed in PPSAS unless the change:

a. Is required by PPSAS; or

b. Results in the financial statements that providing reliable and more relevant information about the effects of
transactions, other events and conditions on the entity's financial position, financial performance

The following are considered changes in accounting policies:

a. Change from one basis of accounting to another basis of accounting; and

b. Change in the accounting treatment, recognition or measurement of a transaction, event or condition within a basis of
accounting

Changes in Accounting Estimates

Changes in accounting estimates results from new information or new developments and, accordingly, are not correction
of errors.

Errors

Include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of
facts, and fraud.

Current period errors - are errors committed and discovered within the same period. It shall be corrected by an adjusting
entry, within the same year before the financial statements are authorized for issue.

Prior period errors - are omissions from, and misstatements in, the entities financial statements for one or more prior
periods

An entity shall correct material prior period errors retrospectively in the first set of financial statements authorized for
issue after their discovery by:

1. restating the comparative amounts for prior period(s) presented in which the error occurred; or

2. it the error occurred before the earliest prior period presented, restating the opening balances of assets. liabilities and
net assets/equity for the earliest prior period presented.

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Disclosure of Prior Period Errors

An entity shall disclose the following:

1. the nature of the prior period error;

2. for each prior period presented, to the extent practicable, the amount of the correction for each financial statements
line item affected;

3. the amount of the correction at the beginning of the earliest prior period presented;

4. if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of
that condition and a description of how and from when the error has been corrected

Interim Financial Statements

Financial statements that are required to be prepared at any given period or at a financial reporting period without
closing the books of accounts

Shall be prepared by employing the same accounting principles used for annual reports.

Preparation and Submission of Other Reports.

The following reports/schedules/statement shall be submitted to GAS, COA:

a. Pre-Closing Trial Balances

b. Post-Closing

c. Other schedules

Regional Breakdown of Income

Regional Breakdown of Expenses

Deadlines on Submission of Reports

All NGAS shall prepare and submit the following financial statements and schedules as follows, within the prescribed
deadline:

Provincial Offices and Operating Units

Entity/Office Statement/Report Deadline Submit to
Monthly TB and SS 10 days after end of the Auditor, Regional
month accountant
Quarterly TB, FS and SS 10 days after the end of Auditor, Regional
quarter accountant
Year-end TB, FS and SS On or before January 20 of Auditor, Regional
the following year accountant

Regional/Branch Offices
Entity/Office Statement/Report Deadline Submit to
Monthly TB and SS 10 days after end of the Regional auditor, Central
month office chief accountant
Quarterly TB, FS and SS 10 days after the end of Regional auditor, Central
quarter office chief accountant

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Year-end TB, FS and SS (combined On or before January 31 of Regional auditor, Central
RO and OUs) the following year office chief accountant

Central/Head/Main Offices
Entity/Office Statement/Report Deadline Submit to
Monthly TB and SS 10 days after end of the Auditor, DBM, Management
month
Quarterly TB, FS and SS 10 days after the end of Auditor, DBM, Management
quarter
Year-end TB, FS and SS (combined On or before February 14 COA Auditor, DBM, COA-
CO, RO and OUs of the following year GAS