ADMAS UNIVERSITY

FAC
FACULITY OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE

Accounting for Public Sector and Civil Society (ACFN 4131)

4131

Compiled by: Zerai Hagos (BA, MA, MSc)

August,
August 2022
Addis Ababa
 CHAPTER ONE
INTRODUCTION TO ACCOUNTING & FINANCIAL REPORTING FOR
GOVERNMENTAL AND NOT-FOR-PROFIT ENTITIES
INTRODUCTION
Welcome to the strange new world of accounting for governmental and not-for-profit organizations!
Initially, you may find it challenging to understand the many new terms and concepts you will need
to learn. Moreover, if you are like most readers, you will question at the outset why governmental
and not-for-profit organizations find it necessary to use accounting practices that are very
different from those used by for-profit entities.
What Are Governmental and Not-for-Profit Organizations?
First it is necessary to know that Organizations are generally classified as
1) For profit (commercial, or business) organizations, and
2) Non profit (Not-for-Profit) organizations.
Generally speaking NFP entities are
 Organizations, which basically arise to provide goods, and services, which are not
commercially feasible or illogical to be provided by profit seeking organizations.
 an entity whose principal objective is not the generation of profit
 Organizations exist because the community or society considers it necessary to provide
certain goods or services to its group as a whole.
Non-Profit-Organization Is Also Classified as:-
1. Government organizations which include
 Federal Offices, Regional Offices, Municipalities, and other
governmental organizations
 Educational: Schools, Colleges and Universities
 Health and Welfare: hospitals, child protection agencies, clinics etc
 Religious: Associations and other religion related organizations
2. Nongovernmental organizations (NGOs) which include religious organization, voluntary
health and welfare organizations, charitable organizations, etc.
Different countries do have varying criteria so as how to count an entity as a non-for profit.
For Example
 In Canada, the criteria include lack of transferable ownership and lack of financial return
from the NFP entity by resource provider.
 In the U.S.A, the criteria include contributions of significant amounts of resources from
resource providers who do not expect commensurate or proportionate pecuniary return,
operating purposes other than to provide goods or services at a profit, and absence of
ownership interests like those of business enterprises. In New Zealand, it means
 organizations like charities, humanitarian trusts, welfare agencies, churches and sports
organizations are generally considered.

Distinguishing Characteristics of Governmental and Not-for-Profit Entities

In its Statement of Financial Accounting Concepts No. 4, the Financial Accounting Standards Board
(FASB) noted the following characteristics that it felt distinguished governmental and not-for-
profit entities from business organizations.
a) Receipts of significant amounts of resources from resource providers who do not expect to
receive either repayment or economic benefits proportionate to the resources provided.
Those contributing financial resources to the organizations do not necessarily receive a direct
or proportionate share of those organizations‘ services or goods:
b) Operating purposes that are other than to provide goods or services at a profit or profit
equivalent.
c) Absence of defined ownership interests that can be sold, transferred, or redeemed, or that
convey entitlement to a share of a residual distribution of resources in the event of
liquidation of the organization.
d) General Absence of profit Motive
How Do Governmental Entities Differ From Not-For-Profit Organizations?
 Power ultimately rests in the hands of the people
 People delegate power to public officials through the election process

 Empowered by and accountable to a higher level government

1.3. Similarities between NFPs and For Profit Organization

NFPs are similar in many ways to profit seeking enterprises. These includes
I. IN TERMS OF ACTIVITY
 Both are the integral part of an economic system and use financial, capital and human
resources to accomplish their purpose
 Both must acquire and convert scarce resources into their respective goods and
services to provide good or service.
 In some cases, both produce similar products. Example, both governments and private
enterprises may own and operate transportation systems and electric or gas utilities
 Both use financial management processes
 Both need financial information systems
 II. IN TERM OF ACCOUNTING SYSTEM
a) Both employ journals and ledgers, and then use those journals and ledgers as a basis
to produce financial reports which summarize the information in a meaningful way to
guide decisions.
b) Both use the same accounting principles such as Consistency principle,Objectivity,
Historical cost principles, adequate disclosure: Conservatism and unit of
Measurement.
DIFFERENCES BETWEEN BUSINESSES AND G&NP ENTITIES

Nature of Differences Business Entities G & NFP Entities

1. Objectives  To maximize income from  To provide good and services
revenues and other sources.

2. Operational Focus  They focus on short-term and  They focus on short-term,

also look to long-term annualbudget

3. Sources of Financial  They raise resources from sales,  They raise resources from grants,
Resources debt transactions, and capital shared revenues, and members’
stock. contribution. Taxation is unique
source of revenue to government.

4. Accounting and Financial  Accounting and reporting  Accounting & reporting focus on
Reporting focuses on netincome budgets and appropriations and funds
and fund accounting, etc

5. Basis of Accounting  Accrual Basis  Accrual and Modified accrual basis

6. Financial Reporting  FASB

Standards  FASB
 GASB

7. Other Distinguishing  Perfect competition  Monopolistic services

Characteristics  All the services are provided  User charges based on cost or without
with profit profit
 Use of matching concept  Matching is a concept used only in
 Use of going concept business-type activities
 Ownership rights are  Going Concern is only for business-
transferrable from one owner to type activities
theother  Absence of transferable ownership
rights
1.5. Sources of Financial Reporting Standards
Illustration 1-1 shows the primary sources of accounting and financial reporting standards for
business and not-for-profit organizations, state and local governments, and the federal
government.
 Specifically, the FASB sets standards for for-profit business organizations and
nongovernmental not-for-profit organizations;
 the GASB sets standards for state and local governments, including
governmental not-for-profit organizations; and the Federal Accounting Standards
Advisory Board (FASAB) sets standards for the federal government and its agencies
and departments. Thu, GASB has the responsibility for establishing accounting and
financial reporting standards for not-for-profit organizations that are considered to
be governmental in character.
OBJECTIVES OF FINANCIAL REPORTING FOR GOVERNMENT AND NFP

The objectives state that financial reporting by non business organizations should provide
information that is useful to present and potential resource providers and other users in making
rational decisions about the allocation of re- sources to those organizations.
Financial reporting should assist users in evaluating the operating results of the governmental entity
for the year by: Providing information about sources and uses of financial resources. Providing
information about how it financed its activities and met its cash requirements.
GASB Concepts Statement No. 1,“Objectives of Financial Reporting,” states that accountability.
“Accountabilityis the cornerstone of all financial reporting in government. Accountability requires
governments to answer to the citizenry—to justify the raising of public resources and the purposes
for which they are used.” The board elaborated:Governmental accountability is based on the belief
that the citizenry has a “right to know,” a right to receive openly declared facts that may lead to
public debate by the citizens and their elected representatives. Financial reporting plays a major role
in fulfilling government’s duty to be publicly accountable in a democratic society.
Comparison of Financial Reporting Objectives—State and Local Governments, Federal
Government, and Not-for-Profit Organizations
Objectives of Financial Reporting For State and Local Governments
Financial reporting is used in making economic, social, and political decisions and in assessing
accountability primarily by:
 Comparing actual financial results with the legally adopted budget.
 Assessing financial condition and results of operations.
 Assisting in determining compliance with finance-related laws, rules, and regulations.
 Assisting in evaluating efficiency and effectiveness.
Objectives of Financial Reporting For FederalGovernment
Accountability is also the foundation of Federal Government financial reporting. In addition to
accountability, Federal Accounting Standards Advisory Board (FASAB) identifies the following
financial reporting objectives for Federal Government and its agencies:
 To assist users in evaluating budgetary integrity
 To assist users in evaluating Operating Performance
 To assist users in evaluating Stewardship
 To assist users in evaluating adequacy of systems and control
Objectives of Financial Reporting for NFPEntities
Financial reporting should provide information useful in:
 Making resource allocation decisions.
 Assessing services and ability to provide services.
 Assessing management stewardship and performance.
  Assessing economic resources, obligations, net resources, and changes in them.
Comprehensive Annual Financial Report (CAFR)
General purpose financial reporting includes not financial statements but also all other means of
communicating information that relate directly or indirectly to the information provided by the
accounting system. In addition to the minimum financial information, GASB Standards state:
“Every governmental entity should publish, as a matter of public record, a comprehensive annual
financial report (CAFR). A CAFR includes
CAFR: IntroductorySection
Introductory section includes such items as
 Title page
 Contents page
 Letter of transmittal – a letter from the chief finance officer addressed to the chief executive
and governing body of the governmental unit or it may be a narrative over the signature of
the chief executive. The letter or narrative material should cite legal and policy requirements
for thereport
 Other (as desired by management)
1) CAFR: Financial Section (GASB Statement No.34)
The financial section of a CAFR should include:
 Auditor’s report
 management’s discussion and analysis (MD&A
 basic financial statements
 required supplementary information (other than MD&A
 Combining statements and individual fund statements and schedules.
2) CAFR: StatisticalSection
A CAFR should contain a statistical section. The statistical section typically presents tables and
charts showing and charts showing social and economic data, financial trends and the fiscal capacity
of thegovernment in detail needed by readers who are more than casually interested in the activities
of the government unit.
GENERAL PURPOSE FINANCIAL STATEMENTS
What are General Purpose Financial Statements? General purpose financial statements are
those financial statements released to a broad group of users. These statements include the
income statement, balance sheet, statement of cash flows, statement of shareholders' equity, and any
accompanying disclosures.This set of financial statements is called “general purpose” because it
consists of the basic financial statements that can be used by a broad group of people for a broad
range of activities
  GPFR are issued throughout the year to aid investors and creditors in their decision making
process. A set of general-purpose financial statements includes a balance sheet, income
statement, statement of owner’s equity/retained earnings, and statement of cash flows.
 Companies use this set of financial statements as a form of financial reporting to
communicate company performance with the people outside of the organization.
 More specific financial reports like production flow processes and market analyses are not
included in a set of general-purpose financial statements. These types of reports are only
available to company management.
 The primary users of general purpose financial reporting are present and potential investors,
lenders and other creditors, who use that information to make decisions about buying, selling or
holding equity or debt instruments, providing or settling loans or other forms of credit.

 Even though your GPFS is not required to be audited, we recommend you keep evidence
to demonstrate your GPFS has been prepared in accordance with Australian Accounting
Standards or CAAP where required
Users of Financial Reports
 Users of G&NP entity accounting information as both internal and external; Major external
users are:
 Resource provides (tax payers, donors and potential donors, investors and potential investors,
bond-rating agencies and grant providing organizations).
 Legislative and oversight bodies (higher-level governments and regulating agencies)
 Service recipients (citizen advocate groups)
THE CONCEPTUALFRAMEWORK FOR GENERAL PURPOSE FINANCIAL
REPORTING BY PUBLIC SECTOR ENTITIES (IPSASB)
TheConceptualFrameworkforGeneralPurposeFinancialReportingbyPublicSector:
 Exclusively to accounting information produced on an accruals basis and presented in the
form of “accounts” or “financial statements
 The conceptual framework does not apply to other documents including accounting
information, such as budget reports, management reports, cost accounting reports on the
sustainability of public policy or public sector performance indicators, even if these
documents are based entirely or partly on accrual accounting information..
 Establishesandmakesexplicittheconceptsthataretobeappliedindeveloping International
Public Sector Accounting Standards (IPSASs) and Recommended Practice Guidelines
(RPGs)applicable to the preparation and presentation of general purpose financial
reports(GPFRs)of public sector entities.
The Accrual Basis of Accounting
The Conceptual Framework deals with concepts that apply to general purpose financial reporting
(financial reporting) under the accrual basis of accounting.
Thus, IPSASB is currently in the process of developing the Conceptual Framework. Although all
the components of the Conceptual Framework are interconnected, the Conceptual Framework
project is being developed in 1 and 2 p h a s e s .Phase1 has now been completed. It comprises
Chapters1–4of the Conceptual Framework. These Chapters deal with:
Chapter1: Role and Authority of the Conceptual Framework
Chapter2: Objectives and Users of General Purpose Financial Reporting
Chapter3: Qualitative Characteristics
Chapter4: Reporting Entity
The other Phases of the Framework being developed deal with:
Phase2―The definition and recognition of the elements of financial statements
Phase3―The measurement of the elements that are recognized in the financial statements
Phase4―The presentation of information in general purpose financial reports
Chapter 1: Role and Authority of the Conceptual Framework
Role of the Conceptual Framework
 To establishes the concepts that under pin general purpose financial reporting (financial
reporting) by public sector entities that adopt the accrual basis of accounting. The
International Public Sector Accounting Standards Board (IPSASB) will apply these concepts
in developing International Public Sector Accounting Standards (IPSASs) and
Recommended Practice Guidelines (RPGs) applicable to the preparation and presentation of
general purpose financial reports (GPFRs)of public sector entities.
 Identifies the concepts that the IPSASB will apply in developing IPSASs and RPG s in
tended to assist preparers and others in dealing with financial reporting issues. IPSASs
specify authoritative requirements
 The Conceptual Framework under pin s the development of IPSASs. Therefore, it has
relevance for all entities that apply IPSASs. GPFRs prepared at the whole-of-government
level in accordance with IPSASs may also consolidate all governmental entities whether or
riot those entities have complied with IPSASs in their GPFRs.
 To assist IASB in setting and revising standards
 Authority of the Conceptual Framework
 Does not establish authoritative requirements for financial reporting by public sector entities
that adopt IPSASs, nor does it override the requirements of IPSASs or RPGs. Authoritative
requirements relating to the recognition, measurement and presentation of transactions
and other events and activities that are reported in GPFR s are specified in IPSASs.
 To provide guidance in dealing with financial reporting issues not deal t with by IPSASs or
RPGs .In these circumstances, preparers and other scan refer to and consider the
applicability of the definitions, recognition criteria, measurement principles, and other
concepts identified in the Conceptual Framework.
Chapter 2: Objectives and Users of General Purpose Financial Reporting
Objectives of Financial Reporting
 Provide financial information about the reporting entity that is useful to existing and
potential investors, lenders and other creditors in making decisions about providing
resources to the entity”
Users of General Purpose Financial Reports
Governments, The legislature (or similar body) and members of parliament(or a similar
representative body), service recipients, Citizens are primary users of GPFRs.
In addition to internal users, and citizens and their representatives, who are clearly primary users of
accounting information, information users are:
 Service recipients;
 Resource providers (taxpayers or lenders) ;
 Social partners ;
 Supervisory bodies ;
 Parties contracting with public entities;
 Foreign and international public entities that deal with French government units.
Chapter 3: Qualitative Characteristics
The qualitative characteristics of information included in GPFRs of public sector entities are
relevance,faithfulrepresentation,understandability,timeliness,comparability,andverifiability.
RELEVANCE
Relevance is the capacity of accounting information to make a difference to the external decision
makers who use financial reports. If certain information is disregarded because it is perceived to
have no bearing on a decision, it is irrelevant to that decision. Financial and non-financial
information is capable of making a difference when it has confirmatory value, predictive value, or
both. Thus, Relevance can be evaluated according to three qualitative criteria,
a) Timeliness – means available to decision makers before it loses its capacity to influence
their decisions. Accounting information should be timely if it is to influence decisions, like
the news of the world, state financial information has less impact than fresh information.
b) Predictive value – Accounting information should be helpful to external decision makers by
increasing their ability to make predictions about the outcome of future events. Decision
makers working from accounting information that has little or no predictive value are merely
speculating. For example, information about the current level and structure of asset holdings
help users to assess the entity’s ability to exploit opportunities and react to adverse situations
c) Feedback value: Accounting information should be helpful to external decision makers who
are confirming past predictions or making updates, or corrections to predictions.
RELIABILITY
Reliability means that users can depend on accounting information to represent the underlying
economic conditions or events that it purports to represent. Reliability of information is a necessity
for individuals who have neither the time nor the expertise to evaluate the factual content of
financial statements. It is especially important to the independent audit process. Like relevance,
reliability must meet three qualitative criteria.
a) Representational faithfulness – Accounting information should represent what it purports to
represent and should ensure that the selected method of measurement has been used without
error or bias. This attribute is sometimes called Validity: - Information must give a faithful
picture of the facts and circumstances involved. Accounting information must report the
economic substance of transactions, not just their form and surface appearance.
b) Verifiability:- Verifiability pertains to maintenance of audit trials to information source
documents that can be checked for accuracy. It also pertains to the existence of alternative
information sources as backing. Verification implies a consensus and implies that
independent measures using the same measurement methods would reach substantially the
same conclusions.
c) Neutrality: - Accounting information must be free from bias regarding a particular view
point, predetermined result, or particular party. Accounting information cannot be selected to
favor one set of interested parties over another. Neutrality in financial reporting is the
absence of bias.It should be factual and truthful.
 Completeness
The information in the financial statements must be complete, to the extent that an omission
can cause the information to be false or misleading.
Comparability: - Information that has been measured and reported in a similar manner for
different enterprise in a given year, or for the same enterprise in different years, is considered
comparable. Comparability is not a quality of an individual item of information, but rather a
quality of the relationship between two or more items of information.
For information to be comparable, it must be:
 Measured and reported in a similar manner for different enterprises.
 Useful in the allocation of resources to the areas of greatest benefit.
 Useful to users in identifying real differences between enterprises
Understandability
Understandability is the quality of information that enables users to comprehend its meaning.
Understandability is enhanced when information is classified, characterized, and presented clearly
and concisely. Comparability also can enhance understandability.
Chapter 4: Reporting Entity
 A public sector reporting entity is a government or other public sector organization,
program or identifiable area of activity (hereafter referred to as an entity or public sector
entity) that prepares
 GPFRs.A public sector reporting entity may comprise two or more separate entities that
present GPFRs as if they are a single entity—such a reporting entity is refer red to as a
group reporting entity.
 It is an entity that raises resources from, or on behalf of, constituents and/or use
resource to undertake activities for the benefit of, or on behalf of, those constituents.
Phase 2 Elements of financial statements
Phase 3 Recognition
The conceptual framework distinguishes recognition criteria from those included in the definition of
the elements. Recognition is the second logical step in accounting. As it takes place after
identification of an element, it enables any related uncertainties to be considered:
An element is recognized when it meets the two following combined criteria:
1. The element satisfies definition
2. It can be reliably measured.
The recognizing event criterion varies according to the type of element.
Recognition of asset
An asset is recognized when the government unit obtains control.
Recognition of a liability
A liability specific to public action is recognized when it is enforceable by the creditor on the
government unit.
A non-specific liability is recognized when it is a present obligation which can only be settled by an
outflow of resources.
Recognition of revenue
Revenue is recognized in the surplus/deficit statement when it is earned by the government unit.
Recognition of an expense
The recognizing event for an expense is the performance of the service
In the case of intervention expense, the service is considered to be performed when the beneficiary
has fulfilled, or continues to fulfill during the current accounting period, all the conditions necessary
to establish entitlement to the benefits
Phase 4 Measurement
The measurement bases determine the amount at which elements are stated on initial recognition and
at each subsequent reporting date.
Measurement is the process of determining monetary amounts at which elements are recognised and
carried
Phase 5 presentation of financial statement
The conceptual framework is concerned with the separate financial statements of government units
and the possible combinations of these accounts. Financial statements prepared on an accruals basis
are presented at least once a year. They make up an in dissociable set comprising:
 A statement of financial position
 A statement of profit or loss / A surplus/deficit statement
 A statement of changes in equity for the period
 A statement of cash flows for the period
 Notes, comprising
 A summary of significant accounting policies
 Other explanatory information
 CHAPTER TWO
PRINCIPLES OF ACCOUNTING AND FINANCIAL REPORTING FOR STATE AND
LOCAL GOVERNMENTS (SLGS
Introduction
Principles are guidelines that should be followed by professionals in a particular field of study. In
the profession of accountancy there are financial accounting GAAPs such as valuation, matching,
continuity, monitory, revenue realization, and entity principles or concepts that are applied in profit
seeking.
They are developed and monitored by Financial Accounting Standard Board (FASB). Similarly,
there are twelve GAAPs that are used by governmental units. Thus, to record, classify, summarize,
and report accounting data properly, governmental entities should follow or implement their GAAPs
appropriately.
Activities of government are classified as:-
1. Governmental-type activities such as Core governmental services, together with
general administrative support, comprise the major part of what GASB Concepts
Statement .Eg Protection of life and property, police and fire protection, Public works
(streets and highways, bridges, and public building, etc
2. Business-type activities such as These activities include, among others, public utilities (e.g.,
electric, water, gas, and sewer utilities), transportation systems, toll roads, toll bridges,
hospitals, parking garages and lots, liquor stores, golf courses, and swimming pools
3. Fiduciary activities such as a government may serve as agent for other governments in
administering and collecting taxes. Governments may also serve as trustee for
investments of other governments in the government’s investment pool, and for assets
being held for employee pension plans, among other trustee roles.
The twelve GAAPs used by governmental units are developed by Governmental Accounting
Standard Board (GASB) and briefly discussed as follows:
Principle # 1 Accounting & Reporting Capabilities
A government accounting system must make it possible both to:
a) To present fairly & with full disclosure the financial operation of the funds & account groups of
the governmental unit in conformity with generally accepted accounting principles (GAAP)
b) To determine & demonstrate compliance with finance-related legal and contractual provisions.
In some governmental units however under such circumstances where the laws require following
practices not consistent with GAAP, Governmental units may prepare two sets of financial
statements.
1. One set in compliance with legal requirements,
2. One set in conformity with GAAP
For, example the government regulation may state that revenue should be recognized either on cash
basis. Whereas GAAPs of governmental unit states that revenue should be recognized either on
accrual or modified accrual basis. But, if there are no difference between legal requirements and
GAAP, one set of financial statement satisfies both requirements. This option is generally true in
business organizations.
Principle # 2 Fund Accounting System (Fund defined)
Governmental accounting systems should be organized & operated on a fund basis.
“A fund is defined as a fiscal & accounting entity with a self balancing set of accounts recording
cash & other financial resources, together with all related liabilities & residual equities and
balances, & changes there in, which are segregated for the purpose of carrying on specifies
activates or attaining certain objectives in accordance with special regulations, restrictions or
limitations.”
- The word FUND is given special definition as it relates to Fund Accounting. The narrow definition
of Fund as used in ordinary conversation is a “resource of money”. However in this course it is
given the special definition above. It has key phrases indicating the following points; It is by itself
is an entity, having its own accounting existence and a self balancing set of books (double entry
system). That set of books is established for recording a specific financial activity. The
establishment of the fund will attain a specific objective and will have regulations, restrictions or
limitations.
Example
Two examples follow to illustrate the concept of fund.
First the ministry of education operates several colleges. Although all are part of the MINISTRY as
a whole each one is treated as a fund. Each college will be given money that is specifically for its
operations, is not to be mixed up with other institutions. Therefore each college will keep its own set
of books, and issue its own Financial Reports, irrespective of the performance of other individual
institutions or the ministry as a whole.
Or take the case of Nongovernmental organizations. For instance, a single NGO will likely have
several projects; it may have the following different projects, which are funded by different donors.
 1. Construction of a Dam in region 1
2. Water development project in region 2
3. Cattle development project in region 3
Under this case the donor for each project will not necessarily be given the financial statement of the
NGO as a whole. The donor for a cattle development project will want financial statements for only
the project, which he is funding. There for, each project will have its own set of books & produce its
own financial statements. So each project will be a separate distinct fund. The very reason of setting
up of funds accounting in governmental entity is that of legal requirement & good financial
management.
Principle #3 Types of Funds
To accomplish different purposes of the government unit, the unit establishes a variety of funds. The
governing bodies or other internal parties may assess the financial performance of each fund in the
fulfilment of the specific purpose for which it was established.
Governmental entities use seven types of funds, which are generally classified in to three major
categories based on the similarity of accounting and reporting methods used.
I. Governmental funds: Includes
Governmental funds account for everything else. This is where the bread-and-butter services can be
found—police, fire, social services, sanitation, and so on. There are five types of governmental
funds:
1. The General Fund
2. Special Revenue Funds
3. Capital Project Fund-
4. Debt Service Funds
5. Permanent Fund

II. Proprietary Funds: Includes

1. Enterprise Funds
2. Internal Service Funds-
III. Fiduciary Funds
1. Trust And Agency Funds
I. Governmental funds:
1. The General Fund- It is established to account for all financial resources except those required to
be accounted for in another fund. This fund includes transactions for general government services
provided by the executive, legislative, and judicial operations of the government unit.In addition,
public services such as fire and police protection and public cultural and recreation activities are
included here.
2. Special Revenue Funds- It is maintained to accounts for the proceeds of specific revenue sources
(other than expendable trusts or for major capital projects) that are legally restricted to expenditure
for specific purposes. It implies that specific sources of financial resources to be used for specified
purposes may be accounted for in special revenue fund. How ever, special revenue fund accounted
for resources and expenditures for operations of such items as public libraries.An example of a
special revenue fund might be “The Unity and safety of the motherland tax” that was collected
during the derg regime. Another example is the oil price contingency fund which was established by
the government specifically for the purpose of controlling the fluctuation of oil prices in the country.
3. Capital Project Fund- It is opened and used to account for financial resources to be used for the
acquisition or construction of major capital facilities other than those financed by proprietary &
trusts funds. Capital projects, such as public parks and municipal buildings that provide benefits to
everyone are accounted for by this fund. An example of Capital Projects Funds could be the
construction of new building for the city government Administration. The costs incurred in the
construction of the building are quite different from the operating cost of the city administration and
would need to be accounted for and reported on as an entity in itself.
4. Debt Service Funds-It is opened to account for the accumulation of resources for & the payment
of general long term debt principal & interest. As its name implies, this fund is responsible for
servicing the long-term debt of the governmental unit.Assume that 10,000,000 birr was borrowed at
10 % simple interests and is to be repaid in full in 10 years, each year 2,000,000 birr would be
needed to be put in a debt service fund- 1,000,000 for the payment of the principal plus 1,000,000
for the payment of each year’s interest.
5. Permanent fund-The fifth type of governmental fund is the permanent fund. A permanent
fundis used to account for permanent endowments created when a donor stipulates that the principal
amount of a contribution must be invested and preserved but earnings on amounts so invested can be
used for some public purpose. Public purposes include activities such as maintenance of a cemetery
or aesthetic enhancements to public buildings. If the earnings from a permanent fund can be used to
benefit only private individuals, organizations, or other governments, rather than supporting a
program of the government and its citizenry, a private-purpose trust fund—a fiduciary fund—is used
instead of a permanent fund.
II. PROPRIETARY FUNDS
Proprietary fund is used in governmental accounting to account for activities that involve
business-like interactions, either within the government or outside of it. These activities are similar
to what would be found in the private sector, so the reporting resembles what would be used by a
private business.
1. Enterprise Funds-
 It is established to accounts for operations: A public park could be an example of an
Enterprise Fund. The park would charge a user fee, from which it could pay the expenses
(e.g. Salaries) of operating the park
 That are financed and operated in a manner similar to private business enterprises-where
the intention of the governing body is that the costs or expenses, including depreciation of
providing goods or services to the general public on a continuing basis be financed or
recovered primarily through user charges; or
 Where the governing body has decided that periodic determinations of revenues earned,
expenses incurred and/or net income is appropriate for capital maintenance, public policy,
management control, accountability, or other purposes. Examples include sports stadium,
Municipal electric utilities, and municipal bus companies.

2. Internal Service Funds-

This fund is established to account for the financing of goods or services provided by one
department or agency to another department or agency of the governmental unit, or to the
other governmental units on a cost reimbursement basis. A shared garage is a common
example of an Internal Service Fund in government ministry offices. The garage would
repair all the ministries` vehicles regardless of which project, offices or a fund uses them
III. FIDUCIARY FUNDS
 Fiduciary funds contain resources held by a government but belonging to individuals or
entities other than the government. A prime example is a trust fund for a public employee
pension plan.
 This fund is maintained to account for assets held by the government unit for other.
Example
Trusts and agency fund is one type of fund and may be further classified as trust fund and
agency fund. Trust Fund is used to account for assets held by a government unit in a
 trustee capacity for individuals, private organizations , other government units , other
funds in the same governmental unit. And trust funds may be further classified as
1. Expandable trust funds
2. Non-expendable trust funds
3. Pension trust funds
4. Agency funds

Kinds of Funds – Expendable and Non-expendable

Expendable funds used to account resources which have to be expended (entirely used up), usually
within one year. All governmental funds are Expendable Funds; expendable funds are meant to be
expended or their resources are used up entirely usually within one fiscal year. The accounting
equation for an expendable fund is slightly different from an FP. recall the accounting equation for
an FP: A - L = C. The accounting equation for an expendable fund (from the definition of Fund
above) is cash plus other financial resources minus liabilities = fund balance. (C + OR - L = FB).
There are no ownership interests in an NFP. So there is no capital or owners equity. There is only a
balance remaining to be used for specific purpose.
Non-Expendable Funds are usedwhen maintenance of capital is desired, and the unexpended funds
are not meant to be returned. All proprietary funds are non-expendable funds
Principle #4 Numbers of Funds
Governmental units should establishes and maintain those funds require by law & sound financial
administration. Only the minimum number of funds in consistent with legal and operating
requirements should be established, however since unnecessary funds result in inflexibility, undue
complexity & inefficient financial administration.
The seven fund types are to be used if needed by Governmental unit to demonstrate compliance with
legal requirements or if needed to facilitate sound financial administration.
Principle #5 Reporting Capital Assets
A clear distinction should be made between general capital assets and capital assets of proprietary
and fiduciary funds. Capital assets of proprietary funds should be reported in both the government-
wide and fund statements. Capital assets of fiduciary funds should be reported in only the statement
of fiduciary net assets. All other capital assets of the governmental unit are general capital Assets.
They should not be reported as assets in governmental funds but should be reported in the
Governmental Activities column in the government-wide statement of net assets.
Principle #6 Valuation of Capital Assets
Capital assets should be reported at historical cost. The cost of a capital asset should include
capitalized interest (not applicable to general capital assets) and ancillary charges necessary to place
the asset into its intended location and condition for use. Donated capital assets should be reported at
their estimated fair value at the time of the acquisition plus ancillary charges, if any.

Principle #7 Depreciation of Capital Assets

Capital assets should be depreciated over their estimated useful lives unless they are either
inexhaustible or are infrastructure assets using the modified approach as set forth in GASBS 34, pars.
Inexhaustible assets such as land and land improvements should not be depreciated. Depreciation
expense should be reported in the government wide statement of activities; the proprietary fund
statement of revenues, expenses, and changes in fund net assets; and the statement of changes in
fiduciary net assets.
Principle # 8 Reporting Long-Term Liabilities
A clear distinction should be made between fund long-term liabilities and general long-term
liabilities. Long-term liabilities directly related to and expected to be paid from proprietary funds
should be reported in the proprietary fund statement of net assets and in the government-wide
statement of net assets. Long-term liabilities directly related to and expected to be paid from
fiduciary funds should be reported in the statement of fiduciary net assets. All other unmatured
general long-term liabilities of the government should not be reported in governmental funds but
should be reported in the Governmental Activities column in the government-wide statement of net
assets.
Principle # 9 Measurement Focus and Basis of Accounting in the Basic Financial Statements
a) Government-wide Financial Statements
The government-wide statement of net assets and statement of activities should be prepared using
the economic resources measurement focus and the accrual basis of accounting. Revenues,
expenses, gains, losses, assets, and liabilities resulting from the exchange and exchange-like
transactions should be recognized when the exchange takes place. Revenues, expenses, assets, and
liabilities resulting from non-exchange transactions should be recognized in accordance with Non
exchange Transactions.”
a) Fund Financial Statements
In fund financial statements, the modified accrual or accrual basis of accounting, as
appropriate, should be used in measuring financial position and operating results.
1. Governmental Funds Basis of Accounting
Governmental fund revenues and expenditures should be recognized on the modified accrual basis.
Revenues should be recognized in the accounting period in which they become available and
measurable. Expenditures should be recognized in the accounting period in which the fund
liability is incurred, if measurable, except for Un matured interest on general long-term debt,
which should be recognized when paid.
Measurable means when the amount to be collected is known with some certainty.
2. Proprietary Fund Basis of Accounting
Proprietary fund revenues and expenses should be recognized on the accrual basis. Revenues
should be recognized in the accounting period in which they are earned and become measurable;
expenses should be recognized in the period incurred, if measurable. Proprietary fund
accounting is virtually the same as for-profit accounting. Note the difference in wording for
recognizing revenues – “period in which they are earned” as opposed to ―become “measurable
and available”. And we use the word expenses like profit making entities not expenditure. Why?
The answer is these proprietary types of funds provide service on charge basis as the for-profits do.
3. Fiduciary fund Basis of Accounting
Fiduciary fund revenues and expenses or (as appropriate) should be recognized on the basis
consistent with the fund‘s accounting measurement objective. Nonexpendable trust (investment
trust funds) and pension trust funds should be accounted for on the accrual basis, expendable trust
funds should be accounted for on the modified accrual basis. Agency fund assets and liabilities
should be accounted for on the modified accrual basis. From our discussions for governmental and
proprietary funds basis of accounting we can generalize that expendable fund (remember: all
governmental funds are expendable) should use modified accrual basis to measure and report their
revenues and expenditures. Likewise, proprietary funds (non expendable) used accrual basis.
4. Inter fund transfer Basis of Accounting
Transfers should be recognized in the accounting period in which the inter fund receivable
and payable arise. It is common for a fund with surplus resources to transfer the idle amount to other
fund of the same governmental entity but run in short. Transfers are shifting of resources from one
fund to the other with no return. Because each fund is a separate accounting and reporting entity,
these transfers must be reported. This principle is saying that the transfer should be recorded when
the receivable and payable arise, rather than when the cash is actually shifted from one fund another.
This is the accrual basis. For example, consider that on December 31, 1999, the General Fund of a
governmental entity is required to transfer money to the Capital Projects Fund to help pay for
construction of a new office building . The transfer would be recorded at that time, even if the cash
did not actually change hands until July 31, 2000.

The difference between Expenses and Expenditure must be known properly to understand the
distinction between NFP and FP accounting. In the dictionary these words have almost exactly the
same meaning. However in fund accounting, they have been given specialized meanings.
1. An Expense is a current period consumption of resources.
2. Expenditure is a decrease in the fund financial resources.
For example in a profit making accounting a car would be considered as an asset and depreciation
would be recorded as an expense as the car is “used up” or “wears out”. In a governmental fund, the
car would be considered as expenditure at the time of purchase.
Principle# 10 Budget and Budgetary Accounting
i. An annual budget (s) should be adopted by every governmental unit.
ii. The accounting system should provide the basis for appropriate budgetary control.
iii. Budgetary comparison schedules (statements) should be included (as a supplementary
information) in the appropriate financial statements and schedules for governmental
funds for which an annual budget has been adopted . The budgetary
comparison should present: (i) the original budget(s), (ii) the final appropriated budge
t(s) for the reporting period and (iii) the actual in and out flows and the balances

1. Budgeting is the process of allocating of resource to meet unlimited demands. There are
three primary questions to ask when preparing a budget.
Q, How much will we spend?
Q, Why will we spend it?
Q, Where will we get the money?
Principle #11 Budgetary Reporting
Budgetary comparison schedules should be presented for the General Fund and each major special
revenue fund that has a legally adopted budget as part of therequired supplementary information
(RSI). Governments may elect to presentthe budgetary comparisons as part of the basic financial
statements.
Principle #12 Classification and Terminology
Transfer, Revenue, Expenditure, and Expense Account Classification
a. Transfers should be classified separately from revenues and expenditures or expenses in the basic
financial statements.
b. Proceeds of general long-term debt issues should be classified separately from revenues and
expenditures in the governmental fund financial statements.
c. Governmental fund revenues should be classified by fund and source. Expenditures should be
classified by fund, function (or program), organization unit, activity, character, and principal classes
of objects.
d. Proprietary fund revenues should be reported by major sources, and expenses should be classified
in essentially the same manner as those of similar business organizations, functions, or activities.
e. The statement of activities should present governmental activities at least at the level of detail
required in the governmental fund statement of revenues, expenditures, and changes in fund
balance—at a minimum by function. Governments should present business-type activities at least by
segment.
Principle #13 Financial Reporting
Interim financial reports
A. Appropriate interim financial statements & reports of financial position, operating results & other
pertinent information should be prepared to facilitate management control of financial operations,
legislative oversight & where necessary or desired for external reporting purpose.
Comprehensive Annual Financial Reports (CAFR)
The five combined statements that comprise the GPFS and that must be included in the financial
section of a CAFR are
1. Combined balance sheet- all fund types and account groups
2. Combined statement of revenues, expenditures and changes in fund balances- all governmental
fund types.
3. Combined statement of revenues, expenditures and change in fund balances- budget and actual-
general and special revenue fund types
 4. Combined statement of revenue, expenses, and changes in retained earnings (or equity)- all
proprietary fund types.
5. Combined statement of cash flows- all proprietary fund types and non-expendable trust funds.
The notes to the financial statement are also an integral part of the GPFS.
SUMMARY
1. Government –wide financial statements
 Statement of net asset
 Statement of activities
Fund Financial statement
1. Governmental funds
A. Balance sheet
B. Statement of Revenue, Expenditure and change in fund balance
2. Proprietary fund
A. Statement of net asset
B. Statement of Revenue, Expense and Retain Earning
C. Statement of cash flow
3. Fiduciary fund
A. Statement of fiduciary net asset
B. Statement of changes in fiduciary net asset

The Nature of Governmental Fund Information

The government-wide financial statements and the proprietary and fiduciary fund financial
statements report financial information on a full accrual basis. The governmental fund financial
statements, however, report what is commonly referred to as current financial resources on a
modified accrual basis. Whereas full accrual contains all inflows and outflows of economic
resources, short- and long-lived assets, and short- and long-term liabilities, the governmental fund
financial statements generally have a short-run perspective. Governmental fund assets generally are
expected to be used or liquidated within a year and governmental fund liabilities are normally
expected to be repaid or satisfied with current resources. Governmental fund revenues are those
collected within the year or soon enough thereafter that they can be used to finance current-year
expenditures. Expenditures represent the use or expected use of current financial resources.
The Balance Sheet
The governmental funds balance sheet presents first a government's assets, resources it controls that
enable it to provide services. Given the basis of accounting, these assets are generally current in
nature—cash, short-term investments, and short-term receivables. Most notably absent are capital
assets. However, some assets that are not current or not financial may still creep in. For instance, the
governmental funds may contain long-term receivables related to loans made from one fund to
another. They also often contain inventory. How do these items make their way into statements
reporting current financial resources? The answer lies in the meaning of modified accrual. Although
the accounting standards have been modified to remove capital assets and long-term debts from the
governmental funds, there are no specific modifications related to long-term receivables or
inventory.
The "balance" in the balance sheet is between assets on the one hand and liabilities and fund
balances on the other. Liabilities are amounts owed (more precisely, virtually unavoidable
obligations to sacrifice resources). The liabilities generally are expected to be satisfied within a year.
You will often find deferred revenue here as well. Under accrual accounting, deferred revenues
typically represent resources a government has received that are attributable to a future period. For
instance, a government may receive a payment in the current year that is for the following year's
property tax bills. That amount would be reported as deferred revenue until the next year. However,
under modified accrual, revenues may be deferred because the resources are not available—they
have not been received during the year or soon enough thereafter to be used to finance current-
period expenditures. If a given year's tax payments were not received by the government in time to
be considered available, then the revenue would be deferred until the payments were received.
FUND BALANCE
Fund balance is the difference between assets and liabilities—in essence, what would be left
over if the assets were used to satisfy the liabilities. It is, quite literally, the balance of each fund.
Fund balance may be the most widely used information in the entire governmental financial report,
but it is also highly problematic because of inconsistencies in the way governments interpret the
relevant standards.
Fund balance is reported in two basic components—reserved and unreserved. Fund balance may
be reported as reserved because it is related to resources that cannot be spent, like inventory, or
because there is a constraint on how the resources may be spent that limits them to use more specific
than the purpose of the fund.
Unreserved fund balance represents resources that are available to be used for the purposes of the
fund they are reported in. For the general fund, unreserved fund balance is legally available
for any purpose
The Statement of Revenues, Expenditures, and Changes in Fund Balances
The statement of revenues, expenditures, and changes in fund balances is the governmental funds'
income statement, tracking the flow of resources in and out. It will contain the same major funds as
the balance sheet.
 Revenues are shown by source or type, such as various taxes, fees and charges,
intergovernmental aid, and so on.
 Expenditures generally are shown by function and object with the current operating
expenditures presented apart from debt service and capital expenditures.
 Revenues and expenditures are not the only inflows and outflows of resources reported
in this statement.
 Other financing sources and uses include the cash received when bonds are issued, as
well as transfers between funds. Apart from the fact that these resource flows are not
revenues or expenditures, they are shown apart to assist the reader of the statement in
assessing the balance between ongoing revenues and expenditures related to the basic
operations of the government.
 CHAPTER THREE
IMPAIRMENT OF NON CASH GENERATING ASSET [IPSAS 21]
Impairment in accounting is a permanent value reduction of a company's assets. Usually, intangible
assets or fixed assets undergo impairment.Therefore, it reflects a decline in the utility of an asset to the
entity that controls it.Impairment is a loss in the future economic benefits or service potential of an
asset, over and above the systematic recognition of the loss of the asset’s future economic benefits or
service potential through depreciation or Amortization.
Cash generating assets are assets held with the primary objective of generating a commercial
return where as Non-cash generating assets are assets other than cash-generating assets.
Assets that are held with the primary objective to provide public services are non-cash-
generating assets and therefore are subject to the provisions of the Accounting Policy on Non-
Cash-Generating Assets.
A non-cash generating asset is impaired when the carrying amount of the asset exceeds its
recoverable service amount.
Recoverable service amount is the higher of a non-cash-generating asset’s fair value less costs to
sell and its value in use.
 Impairment losses need to be recognized when the asset’s Book Value > asset’s Recoverable
amount.
Where Asset’s Recoverable Amount = higher of (Fair value – Selling costs) OR value in use.
The value in use is calculated by discounting future cash flows expected from the continued use of
the asset.
a) IFRS requires the companies to assess the indications of the impairment annually by keeping
an eye on the several indicators mentioned above.
b) For identifiable intangible assets that cannot be amortized and goodwill, the companies are
required to test these for impairment at least annually.
c) The impairment loss is allowed to be reversed if the asset’s value recovers later
In assessing whether there is any indication that an asset may be impaired, an entity shall consider,
as a minimum, the following indications:
External sources of information
 Cessation, or near cessation, of the demand or need for services provided by the asset;
 Significant long-term changes with an adverse effect on the entity have taken place during
the period, or
  will take place in the near future, in the technological, legal, or government policy
environment in which the entity operates;
Internal sources of information
a) Evidence is available of physical damage of an asset;
b) Significant long-term changes with an adverse effect on the entity have taken place during
the period, or are expected to take place in the near future, in the extent to which, or manner
in which, an asset is used or is expected to be used. These changes include the asset
becoming idle, plans to discontinue or restructure the operation to which an asset belongs, or
plans to dispose of an asset before the previously expected date;
c) decision to halt the construction of the asset before it is complete or in a usable condition;
and
d) Evidence is available from internal reporting that indicates that the service performance of
an asset is, or will be, significantly worse than expected.
IPSAS 26 applies to cash-generating assets. These are assets held with the primary objective of
generating a commercial return. Holding an asset to generate a commercial return indicates that
central government entity intends to:
a) Generate positive cash inflows from the asset, and
b) Earn a commercial return that reflects the risk involved in holding the asset.
IPSAS 21 applies to what are referred to as non-cash-generating assets. Such assets are primarily
held for providing a public service.
An entity that prepares and presents financial statements under the accrual basis of accounting shall
apply this Standard in accounting for impairment of non-cash-generating assets, except:
Asset Relevant Standard
Inventories IPSAS 12
Assets arising from construction contracts IPSAS 11
Financial assets within the scope of IPSAS IPSAS 29
Investment property measured at fair value IPSAS 16
Assets arising from employee benefits IPSAS 25
Biological assets related to agricultural activity measured at fair
value less costs to sell IPSAS 27

Non-cash-generating property, plant, and equipment IPSAS 17,

Non-cash-generating intangible assets IPSAS 31,

The following examples are presented to help illustrate the difference between cash generating and
non-cash-generating assets.
11.1 Example 1
The primary objective of a public school within the Education Department is toprovide educational
services to students with no fee. However, a dedicated sectionis used as a bookshop to sell
educational books and materials at current market prices with the intention to generate profits.
Since the assets held by this bookshop are primarily employed to an activity that generates a
commercial return, being cash inflows from the sale of educational books and materials at current
market prices, IPSAS 26 will apply to these assets of the dedicated section.
Example 2
Mater Dei Hospital is primarily used by non-fee paying patients who use its wards, services and
facilities. However, an MRI machine at Mater Dei can generate cash flows when used by non-EU
resident patients since they need to pay for using such service.
Since the primary objective of Mater Dei is not to generate profits, in this case IPSAS 21 will
apply in the case of the MRI machine even if a fee is charged to non EU resident patients.
Example 3
The Ministry for Finance has a hall used for events organized by governmental departments. No fees
are charged for using such venue. However, occasionally same hall is rented out to third parties for
private events since they specifically request the use of such hall to enjoy its historical surroundings.
In such case, the ministry charges a rental fee at a commercial rate for the use of this hall.
Given that this hall generates a commercial return in the form of rental income is incidental and it
is mainly used for administration purposes, thus IPSAS 21 will apply.
Example 4
The Government Printing Press meets all the printing requirements of Government, ministries,
departments and other entities. Prices charged to customers for printing work are intended to cover
the costs incurred by the press but not to generate profits.
Since the objective is not to earn a commercial return but to accommodate the printing needs of
government ministries/departments, and since the prices charge dare not at market rates, the assets
of the government printing press are non-cash generate in gussets. IPSAS 21 will apply
EFFECT OF IMPAIRMENT LOSS
Impairment loss indicates that the company has overstated its earnings by not recognizing
enough depreciation/amortization expense in past. The impairment loss has the following effect on
various financial statements and ratios:
Book value/carrying amount of the asset is reduced on the balance sheet.
Net income is reduced on the income statement.
Since it reduces the book value of the fixed assets, the fixed asset turnover ratio and the debt-to-total
assets ratio will improve.
Basis Impairment Depreciation
Meaning Permanent reduction/decline in value of Asset Distributing the cost of the asset over its
useful life.
Reason Due to customer preference, Natural disaster, legal, Due to normal wear and tear or the use of
economic or operational reasons the asset for day-to-day operations or
obsolescence
Treatment Treated As Loss Treated as Expense
Duration Not recurring in nature Recurring in nature
method Subtract the fair value of an asset from its book There are many methods to calculate
value depreciation, such as straight-line method,
diminishing balance method.
Types of Asset Tangible, Intangible and natural resource Only Tangible asset

DISCLOSURE OF FINANCIAL INFORMATION ABOUT THE GENERAL

GOVERNMENT SECTOR (IPSAS22)
Introduction
The objective of this Standard is to prescribe disclosure requirements for governments that elect to
present information about the general government sector (GGS)in their consolidated financial
statements. The disclosure of appropriate information about the GGS of a government can
enhance the transparency of financial reports, and provide for a better understanding of the
relationship between the market and non-market activities of the government, and between
financial statements and statistical bases of financial reporting

A government that prepares and presents consolidated financial statements under the accrual
basis of accounting and elects to disclose financial information about the general government sectors
shall do so in accordance with the requirements of this Standard.
Segment Reporting
IPSAS18, Segment Reporting, requires the disclosure of certain information about the service
delivery activities of the entity and the resources allocated to support those activities for
accountability and decision-making purposes. Unlike the sectors reported under statistical
bases of financial reporting, segments reported in accordancewithIPSAS18 are not based on a
distinction between market and non market activities.
The disclosure of information about the GGS does not replace the need to make disclosures
about segments in accordance with IPSAS 18. This is because information about the GGS
alone will not provide sufficient detail to enable users to evaluate the entity’s past
performance in achieving major service delivery objectives, when those objectives are
achieved through non- GGS entities.
 Statistical Bases of Financial Reporting
The objectives of financial statements prepared in accordance with IPSASs and those
prepared in accordance with statistical bases of financial reporting differ in some respects.
The objectives of financial statements prepared in accordance wi t h IP S AS s are to provide
information useful for decision
Disclosure of information about the GGSis consistent with enhanced transparency of financial
reporting, and will assist users of the financial statements to better understand:
(a) There sources allocated to support the service delivery activities by the GGS, and the
government’s financial performance in delivering those services; and
(b) The relationship between the GGS and the corporation sectors, and the impact each has on
overall financial performance.
PRESENTATION OF BUDGET INFORMATION IN FINANCIAL STATEMENTS [IPSAS
24]
IPSAS 24, Presentation of Budget Information in Financial Statements, requires that financial
statements include a comparison of budget and actual amounts on a basis consistent with that
adopted for the budget. Where government budgets are prepared for the GGS rather than the
government as whole, financial information about the GGS disclosed in accordance with this
Standard will be relevant to the comparisons required by that IPSAS.
Definitions
The following term issued in this Standard with the meaning specified: The General Government
Sector comprises all organizational entities of the general government as defined in statistical
bases of financial reporting.
Accounting Policies
Financial information about the GGS shall be disclosed inconformity with the accounting policies
adopted for preparing and presenting the consolidated financial statements of the government, except
as required byparagraphs24 and25.

In presenting financial information about the GGS, entities shall not apply the requirements of
IPSAS6, Consolidated and Separate Financial Statements, in respect of entities in the PFCs and
public NFCS sectors.
The GGS shall recognize its investment in the PFC and public NFCS sectors as an asset, and shall
account for that asset at the carrying amount of the net assets of its investees.
Disclosures
Disclosures made in respect of the GGS shall include at least the following:
(a) Assets by major class, showing separately the investment in other sectors;
(b) Liabilities by major class;
(c) Net assets/equity;
(d) Total revaluation increments and decrements and other items of revenue and expense
recognized directly in net assets/equity;
(e) Revenue by major class;
(f) Expenses by major class;
(g) Surplus or deficit;
(h) Cash flows from operating activities by major class;
(i) Cash flows from investing activities; and
(j) Cash flows from financing activities.
 CHAPTER FOUR
BUDGETING AND PERFORMANCE REPORTING
Budgeting is a process of looking at a business’ estimated incomes (the money that comes into the
business from selling products and services) and expenditures (the money that goes out form paying
expenses and bills) over a specific period in the future. It allows a business to see if they will be able
to continue operating at their expected level with these projected incomes and expenditures.
Budgeting is the process of allocating scarce resources to unlimited demands. More specifically, it
can be defined as a plan of financial operation embodying an estimate of proposed expenditures for
a given time and the proposed means of financing them. Budget is a statement that shows the
financial plan for accomplishment of an operation. It is plan stated in terms of money. When we
assigned/estimate resources required for a certain task on our plan that is called budgeting.
We might summarize the process of budgeting into three basic questions.
 Where will we get the money from?
 How much can we send?
 Why will we spend it?
Uses of Budgets
The purpose of a budget is to plan, organize, track, and improve your financial situation. In
other words, from controlling you’re spending to consistently saving and investing a portion of your
income, a budget helps you stay on course in pursuit of your long-term financial goals.
In FP, the primary usefulness of budgets is planning.
In governments –management plans and laws
Control the activities authorized to carry out plans
Prepare statement that permit comparison of actual results with budget and evaluation of variances
Planning is a special concern for the following reasons:
1. The type, quantity and quality of governmental goods and services provided are not normally
evaluated and adjusted through the open market mechanism

2. Governmental goods/services (education, health, police etc) are often among the most critical to
the public interest

3. The immense scope and diversity of modern government activities make comprehensive,
thoughtful and systematic planning a pre-requisite to orderly decision making

4. Government planning and decision making is generally a joint process involving its citizens
Assumptions about GF Budget
Annual budget adopted on modified accrual (GAAP) basis
Appropriations are made for operating expenditures by function and for capital outlay and debt
service expenditures made directly in GF
Budget does notinclude appropriations for interfund transfers –assumes interfund transfers are
separately authorized
Classifications of budgets
States and local governments typically prepare and utilize several types of financial plans. It is
therefore important to distinguish among the various types of budgets, to understand the phases
through which each may pass and to be familiar with commonly used budgetary terminology. There
are five classifications of budgets and two types within each classification.
Capital or Current
Sound governmental fiscal management requires continual planning for several periods in to the
future. Most governments are involved in programs to provide certain goods and services
continuously and/or for acquisition of capital items. Multi-year schedule for acquisition of capital
items is called capital program. At the beginning of each year the balance that fall in the current
period will be included in the capital budget.
Capital budgets deal with the acquisition of fixed assets. The legislature will likely approve the
acquisitions one year at a time. But planning for the acquisitions several years in advance (called the
Capital Program) is very helpful to wise management of resources.
Typically used for acquisitions requiring several yearsTypically contains portion for current year
and for future years
Current budgets are concerned with the current year‘s operating expenditures, sometimes called
recurring expenditures, because similar sorts of expenditures are needed year after year.
Also known as operating budget
Contains proposed expenditures for current operations, debt service, & estimates of expendable
resources to be available during the year
Tentative or enacted
One key distinction among budgets is their legal status. Various documents may be called budgets
prior to approval by the legislative body. As the name implies, the tentative budget is still in process.
It has not yet been officially approved. An enacted budget has been officially approved and is a
binding legal document.
General or Special
The names of this classification are not quite as they sound. Budgets of governmental activities
commonly financed through the General, Special Revenue, and Debit Service Funds are referred as
General budges.
General budget is typically used for general governmental activities financed through General
Fund, Special Revenue Funds, & Debt Service Funds
A budget prepared for any other fund is Special. Special budgets are commonly limited to Capital
project funds, though Enterprise and Internal service funds do sometimes formally budgeted.
Special Budget is a budget enacted for any other type of activity
Fixed or Flexible
Fixed budgets are for a fixed total dollar (or Birr) amount and cannot be exceeded. The allocated
amount should not be exceeded. A flexible budget, on the other hand, fixes the cost per unit of goods
and services. If more units of goods and services are desired because of a change in circumstance or
need, the dollar amount of a flexible budget can increase.
Approaches to Budgeting
There are different types of budgetary approaches which differ to each other in their emphasis on
planning, control and evaluation. These approaches fall in to two categories: Modern and Traditional
Approaches
Modern (Rational) Approaches to budgeting
The modern approaches to budgeting are sometimes called rational. That is because they all
advocate thinking carefully about the relationship of inputs, with a special concern for the outputs.
Outputs are the goods or services actually provided; inputs are the resources that go in providing
those goods or services. Thinking carefully also involves analyzing the costs and benefits of
alternative methods of achieving objectives. The ―big-picture is the idea that lawmaking bodies
should focus on broad policy objectives rather than details of spending for particular departments is
emphasized. Long term, ultimate goals are stressed rather than annual budget requests. Attention is
directed to continual evaluation of services which are being performed. The different modern
approaches are considered; each one is explained briefly, below.
Performance Budgeting
Performance budget is a budget that bases expenditures primarily up on measurable performance of
activities and work programs. It focuses on the outputs generated by the department or
organizational unit, rather than looking primarily at the cost of the inputs. In this type budgets
attempt will be made to relate the input of governmental resources to the output of governmental
services. To provide the legislative body with a reasonable justification for its budget requests, each
department must do some clear thinking about what it is trying to do and how best to do it.
Under, PB, budgeted expenditures are based on a standard cost of inputs multiplied by the number
of units of an activity to be provided in that time period. The total budget for an organization is the
sum of all the standard unit costs multiplied by the units expected to be provided
The performance budget is mainly concerned with only one year at a time. Basically, the process of
making the budget may be summarized as follows:
1. The governmental entity decides what type of services to offer.

2. The entity decides how many units of the service to offer.

3. The cost of one unit of the service is calculated.

4. The budget is determined by multiplying units of service by the cost per unit.
Advantage
1. It emphasis on inclusion of narrative description of each proposed activity within the proposed
budget

2. Organization of the budget by activities, with requests supported by estimates of costs and
accomplishments in the quantitative terms and

3. Its emphasis on the need to measure output and input

Limitations
This approach is fundamentally sound but has the following drawbacks
1. Many government services and activities do not appear readily measurable in meaningful output
units or unit cost terms
2. This style makes data gathering difficult and impossible
3. Need highly qualified skill man power.
PLANNING-PROGRAMMING-BUDGETING (PPB)
Program budgeting refers to a variety of different budgeting systems that base expenditures
primarily on programs of work and secondarily on objects
PPB emphasizes broad policy goals, strategies and objectives, rather than details of spending. In
looking at these broad goals and objectives, it considers long-range plans. In those longrange plans
both ultimate goals and intermediate objectives must be explicitly stated. After formulating the long-
range plans, it then evaluates costs and benefits of different ways of meeting the goals and
objectives. It also emphasized the government‘s overall program, rather than a specific department.
For instance, both the Ministry of Health and the Ministry of Education might have some sort of
AIDS program – one for treatment and one for education. If the idea of PPB were adopted, both of
these programs would be looked at together to see they complemented each other in meeting the
government‘s overall objectives.
Distinctive characteristics of PPB
1.It focuses on identifying the fundamental objectives of the government and then relating all
activities to them
2. Future year implications are explicitly identified
3. All pertinent costs are considered
4. Systematic analysis of alternatives is performed
Advantages
1. Unlike performance and traditional budgeting which based principally on historical data and focus
in single period, PPB emphasizes on long range planning in which (i) ultimate goals and
intermediate objectives must be explicitly stated and (ii) the costs and benefits of major alternative
courses to achieve these goals and objectives are to explicitly evaluated

2. It assumes that all programs are to be evaluated annually, so that poor ones may be weeded out
and new ones added

3. It can be adapted to any level

Limitations
1. It is quite difficult to formulate a meaningful, explicit statement of a government‘s goals and
objectives that can be agreed by all the concerned

2. Official change matters on its effectiveness

3. Need highly qualified personnel

4. Objective measurement is difficult
Zero-Base-Budgeting (ZBB)
ZBB is one method of continually evaluating programs and services. The primary idea of ZBB is
that each program must justify its existence every year. No program is assumed to be continuing
from one year to the next. In this approach, the starting point for the budget each year is zero. First
the program itself must be justified, then different ways of carrying out the program are examined
and the best is chosen.
The basic tenet of zero-based budgeting (ZBB) is that program activities and services must be
justified annually during the budget development process. The budget is prepared by dividing all of
a government's operations into decision units at relatively low levels of the organization.
ADVANTAGES
It requires annual revision of all programs, activities and expenditures. This helps to
1. Save money by identifying outdated programs and unnecessary high levels of services

2. Concentrate the attention of officials on the costs and benefits of services 3. Cause a search for
new ways of planning and evaluation 4. provide better justification for the budget 5. Improve the
decisions of executives and legislative bodies
LIMITATIONS
1. It requires a great deal of paper work, staff time and effort to identify and rank decision units and
packages
2. It is difficult to obtain the data to compute costs of alternative methods of achieving objectives
and of alternative levels of services
TRADITIONAL APPROACH TO BUDGETING
For the reasons stated above, the modern approaches have not been adopted as widely as might be
expected. The traditional approach, called object-of-expenditure (OOE) is still the most widely used.
The objective of the OOE budget has an expenditure control orientation. It is to simply list expected
expenditures, and then say how much is required for each one. This approach involves three facets:
1. First, subordinate agencies submit budget requests to the chief executive in terms of the type of
expenditures to be made. These requests include the number of people to be hired in each specified
position and salary level and the specific goods or services to be purchased during the upcoming
period.
2. Next, the chief executive compiles and modifies the agency budget requests and submits an
overall request for the organization to the legislature in the same object – of - expenditure terms
3. Finally, the legislative body usually makes line - item appropriations, possibly after revising the
requests, along object - of – expenditure lines.
Advantages
1. It is simple for preparation and understanding
2. It allows a great deal of control over expenditure, and
3. It fits with practical realities.
Limitations
1. It is overly control centered, to the detriment of the planning and evaluation process
2. It provides only list of proposed personnel to be hired or goods to be purchased for decision
makers. It is only decision makers that are familiar with the departments function and activities do
understand the justification
3. It is long range planning, program justification, and outputs achieved are not necessarily formally
considered. In other words, it doesn‘t encourage asking of the questions, “Why are we really
spending this money?” or, “What are we getting for the money we are spending?” or, “Could this
objective be better met by another means?”
BUDGETS AND OUTTURN REPORTING (IPSAS 24)
Outturn reports are used to report to the Department any variations between the reported cargo
and the cargo that was actually unloaded from the ship or aircraft including surplus or short
landed cargo.
Outturn Reports means a detailed report prepared by a terminal to record discrepancies in the form
of over, shortand damaged cargo as manifested, and cargo checked at a time and place
of handling of ship. Outturn Reports is a collective term used to refer to a number of specific reports
designed to track and control the movement of cargo throughout the supply chain.
Examples of Outturn Reports in a sentence
It is an abbreviated message that is based on Advance Cargo Notices received by SARS, but stripped
of all consignor/consignee data, which is sent to licensees of Container Depots and licensees of De-
grouping Depots to enable those parties to timeously complete the Outturn Reports that they must
submit to SARS in respect of the cargo received at their premises. The focus now moves on to the
completion of the Annual Accounts and the Final Out-turn Reports, which will be the main priority
until June. The range of projections are based on increases in fares of between 0% and 6.25%.20
Labor market statistics: Scotland, Office for National Statistics, July 2011.21 Efficient Government
Efficiency Outturn Reports, Scottish Government, November 2009 and October 2010.22 Improving
public sector efficiency, Audit Scotland, February 2010
PERFORMANCE BUDGETING AND REPORTING
Budget Performance Report is the comparison of planned budget and actual performance. It
allows comparing the actual account transactions in a specific period with the budget figures of the
same periods. A performance report is a report on the performance of something. They are
routinely produced by government bodies which, being financed by public money, are required to
show that the money was spent efficiently and usefully. A performance report should compare
results in relation to prior years' results in order to show whether performance is stable, improving or
declining. Purpose: To better contextualize the performance information in relation to
historical performance and targets or goals that might have been set.
 CHAPTER FIVE
GENERAL FUND & SPECIAL REVENUE FUNDS
General Fund is
 Used for general governmental activities such as police, administration and the like.
 Account for all financial resources for which a separate fund is not required. All
governmental entities have a general fund(GF). Although it may be called the operating fund,
the current fund or something similar, the general fund will exist as long as the entity exists.
 Used to account for all financial resources except those required to be accounted for in
another fund.
 General fund refers to revenues accruing to the state from taxes, fees, interest earnings,
and other sources which can be used for the general operation of state government
Special Revenue Fund
 Special revenue funds are established to account for general governmental financial
resources that are restricted by law or contractual agreements to specific purpose (s) and
special revenue funds are exist for the life of restriction. For example, they may be used to
account for federal (state) grants which are restricted as to purpose or to account operating
activities of libraries and other services supported by special taxes. Another example might
be when a tax or other revenue source is restricted to a specific purpose by a legislative body;
its use assists in demonstrating compliance with that purpose.
 Special revenue fund (SRF) in contrast to GF is used to account for resources, which are
collected for a specified purpose. Fees for rubbish collection, state taxes on diesel fuel that is
required to be used only for road maintenance, tax on hotel rooms to be used to improve
tourist facilities, traffic violation fines are examples of governmental units revenues that may
be accounted for in a separate special revenue fund.
 A special revenue fund is an account established by a government to collect money that
must be used for a specific project.
The general fund and the special revenue funds have different purposes, but they are both revenue
funds, and the accounting and reporting procedure is the same for both.
They differ in that the General fund accounts for revenues and other financing sources raised to
provide for all day-to-day-operating activities, whereas Special Revenue Funds are used to
account for a specific revenue source that must be used only to finance a specified activity
Special revenue funds provide an extra level of accountability and transparency to taxpayers that
their tax dollars will go toward an intended purpose.
ACCOUNTING CHARACTERISTICS
Fixed assets are not capitalized in either fund. Their purchase is considered as expenditure, the same
as for salaries or utilities. Such fixed assets are not accounted for by these funds, because, they are
not normally converted into cash. Similarly the same categories of funds account for only those
liabilities incurred for normal operations that will be liquidated by use of fund assets.
GOVERNMENTAL FUND BALANCE SHEET AND OPERATING STATEMENT
ACCOUNTS
BALANCE SHEETACCOUNTS
General fund, special revenue funds, and all other governmental funds account for:-
 Only financial resources (cash, receivables, marketable securities and, if material, prepaid
items and inventories).
 Economic resources, such as land, buildings, and equipments utilized in fund operations, are
not accounted for by these funds because they are not normally converted in to cash.
 Similarly, these categories of funds account for only those liabilities incurred for normal
operations that will be liquidated by use of fund assets. General capital assets and general
long term liabilities are reported in the statement of net assets at the governmental wide
level.
 The Arithmetic Difference between the amount of financial resource and the amount of
liabilities recorded in the fund is the Fund Equity. Residents of the governmental unit have
no legal claim on any excess of liquid assets over current liabilities; there for, the fund
equity not analogous to the capital accounts of investors owned entity. Accounts in the fund
equity category of general funds and special revenue funds consists of reserve accounts
established to disclose that portion of the equity are not available for appropriations; the
portion of equity available for appropriation is disclosed in an account called Fund Balance
(also referred to as Unreserved Fund Balance).
OPERATING STATEMENTACCOUNTS
The General Fund and special revenue funds account for financial activities during a fiscal year in
operating statement accounts classified as Revenues, Other Financing Source, Expenditures, and
Other Financing Uses.
Revenue: - is the increase in the fund financial resources other than from inter fund transfers & debt
issue proceeds.
Other financing sources- are classified as an increase in the fund financial resources as a result of
operating transfers into a fund and debt issue proceeds received by a fund. It represents operating
transfers in from other funds and proceeds of long-term borrowing.
OFS is amount of financial resources estimated to be received during the period from inter fund
transfer.
Expenditure is defined as decrease in fund financial resources other than through inter fund
transfers, operating transfers out of a fund that are classified as other financing uses. It is a term
which replaces both the terms costs and expenses used in accounting for profit seeking entities.
Other Financing uses - a decrease in the fund financial resources as a result of operating transfers
out of a fund. It is an amount of financial resources estimated to be disbursed for other funds.
Budgeted inter fund transfers and debt issue proceeds may be recorded in Estimated Other
Financing Sources and Estimated Other Financing Uses control accounts supported by subsidiary
accounts as needed.
Both revenues and other financing sources are temporary accounts that increase fund balance at
year-end when closing entries are made. Similarly, expenditures and other financing uses are
temporary accounts that decrease fund balance when closing entries are made. GASB standards
emphasize, however, that other financing sources (uses) should be distinguished from revenues and
expenditures
BUDGETARY ACCOUNT
The two classifications of budget for governmental units are the same as those for business
enterprises. Annual budgets include the estimated revenues & appropriations for expenditures for a
specific fiscal year of the governmental unit. Annual budgets are appropriate for the general fund &
special revenue funds.
Three general ledger control accounts are needed to provide budgetary control; Estimated Revenue,
Appropriations and Encumbrances.
Budgetary Accounts include Estimated Revenues, Appropriation, Encumbrance, Estimated OFSs,
and Estimated OFUs
Estimated Revenues– different sources revenue for the governmental unit expected to be collected
during the year. It is an account maintained to show the amount of revenue that will be collected in
future. Major revenue source classes commonly used are:
• Taxes
• Special Assessments
• Licenses and Permits
• Intergovernmental Revenues
• Charges for Services
Appropriations – is both an authorization to spend and limitation of spending.Appropriation could
be further subdivided- by month or other periods; these subdivisions are called Allotments.
Encumbrances – Purchase orders (P.O.) in governmental entities have the function of keeping track
of coming expenditures so that the budget is not exceeded. This is done by actually recording the
P.O in the ledger account as an Encumbrance.
Encumbrance is an account used to record the estimated amount of purchase orders or contracts
An encumbrance differs from expenditure in the following perspectives.
 The encumbrance is an estimate of liability to be incurred while expenditure is an
actual liability which has been incurred. The reason that encumbrance is only an
estimate is that invoiced amounts sometimes differ from purchase order amounts.
 Encumbrance denotes amount stated on the purchase order, which is subject to
change whereas, expenditure is the actual amount of money a governmental unit
should pay up on delivery. This may be equal or greater/less than the encumbered
amount. For example a particular item may be out of stock, and either backordered,
or substituted by a similar item.
The normal balance of Budgetary and Operating Statement Accounts can be summarized as follows.
Budgetary Accounts Normal Balance Operating statement Normal balance

Estimated Revenues Debit Revenues Credit

Estimated Other Financing Debit Other Financing Sources Credit
Sources
Appropriations Credit Expenditures Debit
Estimated Other Financing Credit Other Financing Uses Debit
Uses
Encumbrances Debit
RECORDING THE BUDGET
The entry to record the budget is simple. It is normally done on the firstday of the fiscal year.
Estimated revenue is debited, Appropriations is credited, and fund balance is debited or credited for
the difference and at the end of fiscal period the entry is reversed.
Estimated Revenuexxx
July 1,2007 Appropriationxxx
Debit/credit Fund Balancexxx
To Record Budget at the beginning of the fiscal period
Note: Credit fund balance implies surplus of Budget and Debit fund balance indicate budget deficit.

Appropriation xxx
June 30,2007 Debit/credit Fund Balance xxx
Estimated Revenue xxx
To Close Budget at the end of fiscal period
Example Assume a budget with Estimated Revenues of 500,000 Birr and Appropriations of 480,000
Birr on june 1,2002
a) Record Budget on July1,2002
b) Record Budget on June 30,2002
Solution a)
July 1,2002 Estimated Revenues 500,000
Appropriations 480,000
Fund Balance 20,000
To Record Budget at the beginning of the fiscal period
b)
june 30,2002 Appropriations 480,000
Fund Balance 20,000
Estimated Revenues 500,000
To Close Budget at the end of fiscal period

Two Journal entries are needed for encumbrances:

1. When the order is paced, Encumbrances is debited and Reserve for Encumbrances (a
fund Balance account) is credited
2. When the goods/order is received,the above entry is reversed and another entry to
account actual liability would be recorder: a debit to Expenditure and a credit to
Cash/ Accounts Payable
Example 1- Adis Abeba cityadministration G.Fund places a purchase orders/ p.o no. 010/06/ for
equipment s to a supplier in an amount of 150,000.
Encumbrance 150,000
Fund Balance Reserved for Encumbrances 150,000
(To record encumbrances for p.o no. 010/06 to WABE company.)
The order is received from Adis Abeba city under purchase order no. 0010
Fund Balance reserved for Encumbrances 150,000
Encumbrances 150,000
/To reverse encumbrance for purchase order no. 0010 to WABE company
The suppliersReceived 180,500 invoice price .
Expenditures 180,500
Vouchers payable 180,500
As indicated by the example above the invoice amount may differ from the amount of the
governmental units purchase order because of such items as shipping charges, Sales Taxes, and price
changes.
Encumbrances are not necessary for every single expenditure. Expenditures that are regular and
predicable, such as payrollare not typically encumbered.Correct sequence in the expenditure process
in governmental accounting is
 APPROPRIATION ENCUMBRANCE EXPENDITURE DISBURSEMENT

Accounting for General Fund and Special Revenue Fund

Illustration
Assume that in addition to the budget illustrated earlier, the Adis Abeba Citygeneral fund had the
following summarized transaction and events for the fiscal year ended June 30, 2006

1) Property taxes were billed in the amount of 7,200,000 of which 140,000 was ofdoubtful
collect ability.
2) A total of 6,500,000 amount of Property tax were collected and a total of 1,020,000 amount
of cash from other revenue sources like licenses and permits, fines and forfeits,
miscellaneous sources were also collected
3) Property tax in the amount of 130,000 was identified to be uncollectible.
4) Purchase orders for office equipment were issued to outside suppliers in the total amount of
3,600,000.
5) 5. Invoice for services and supplies received from enterprise fund and internal service fund
totaled 300,000 and 200,000 respectively.
6) Cash payments on vouchers payable totaled 7,700,000. Cash payment to the Enterprise fund
and the internal service fund were 250,000 and 140,000 respectively.
7) Previous orders were received and the invoice totaled $4000,000
8) Approved budgets by the town council for the fiscal year ended on June 30, year6.
Estimated revenues:
- General property taxes.......................... 7,000,000
- Licenses and permits .......................... 400,000
- Charges for services ......................... 500,000
- Fines and for fits ............................... 300,000
- Miscellaneous revenues ........................ 200,000 8,400,000
Estimated other financing sources (transfer from EF) 100,000
Appropriation:
- General government .......................... 4,700,000
- Public safety .......................... 1,900,000
- Health and welfare .......................... 1,100,000
- Culture and recreation ...................... 400,000 8,100,000
Estimated other financing uses (transfer to DSF) 100,000
9) Assuming that the total (Actual) revenue and Expenditure for the Adis Abeba citytown is
composed of the following sources,
Revenues:
General Property Tax 7,060,000
Licenses and Permits 450,000
Charges for Services 470,000
Fines and Forfeits 310,000
Miscellaneous Revenue 190,000
Expenditure
General Government 4,590,000
 Public safety 2,000,000
Health and Welfare 1,200,000
Culture and Recreation 210,000
Estimated other financing uses 110,000
The following trail balance and balance sheet data is available for Adis Abeba city as of
June30,2006
Addis Abeba city town General fund
Trial Balance
June 30, 2006
Account title Debit Credit
Cash 1,420,000
Taxes Receivable- Delinquent 560,000
Inventory of Supplies 500,000
Vouchers Payable 700,000
Payable to Enterprise Fund 50,000
Payable to Internal Service Fund 60,000
Reserved Fund Balance 1,670,000
Budgetary Fund Balance 300,000
Estimated Revenues 8,400,000
Estimated Other Financing Sources 100,000
Appropriations 8,100,000
Estimated Other Financing Uses 100,000
Revenues 8,480,000
Other Financing Sources 100,000
Expenditures 8,000,000
Other Financing Uses 110,000
Encumbrances 50,000 .
Total 19,150,000 19,150,000
Required
a) Prepare necessary journal entry
b) Preparestatement of revenue expenditure and change in Fund balance
c) Prepare Balance sheet
SOLUTION a)
1. Property tax receivable- current 7,200,000
Allowance for uncollectible prop. taxes -current 140,000
Revenue 7,060,000
2. Cash 7,520,000
Property taxes receivable-current 6,500,000
Revenue 1,020,000
3. Allowance for uncollectable Property taxes – current 130,000
Property taxes receivable- current 130,000
4. Encumbrances 3,600,000
Reserved for Encumbrances 3,600,000

5. Expenditures 500,000
Payable (Due) to Enterprise fund 300,000
Payable (Due) to Internal Service fund 200,000
 6. Vouchers payable 7,700,000
Payable to Enterprise fund 250,000
Payable to Internal service fund 140,000
7. Reserve for encumbrance 3,600,000
Encumbrance 3,600,000
Expenditure 4000,000
Vouchers payable 4000,000
Cash 8,090,000
8Estimated revenues 8,400,000
Estimated other financing sources 100,000
Appropriations 8,100,000
Estimated other financing uses 100,000
Budgetary fund balance 300,000
Closing Entries for a General Fund

Appropriations 8,100,000
Estimated other financing uses 100,000
Budgetary fund balance 300,000
Estimated Revenues 8,400,000
Estimated Other Financing Sources 100,000
9 Expenditures 8,000,000
Other Financing Uses 110,000
Unreserved and undesignated Fund Balance 470,000
Revenue 8,480,000
Other Financing Sources 100,000
/ To close Revenues, Expenditures, Other Financing Sources and Uses

Revenue 8,480,000
Other Financing Sources 100,000
Expenditures 8,000,000
Other Financing Uses 110,000
Unreserved and undesignated Fund Balance 470,000
b) Adis Abeba City General fund
Statement of Revenues, Expenditures and Change in Fund Balance
For the Year ended June 30, 2006
Budget Actual Variance
Favourable
Revenues:

General Property Tax 7,000,000 7,060,000 60,000

Licenses and Permits 400,000 450,000 50,000
Charges For Services 500,000 470,000 (30,000)
Fines and Forfeits 300,000 310,000 10,000
Miscellaneous Revenue 200,000 190,000 (10,000)
Total Revenues 8,400,000 8,480,000 80,000
Operating Transfers In 100,000 100,000 0
Total of Revenue and O.F.S. 8,500,000 8,580,000 80,000
Expenditures:

General Government 4,700,000 4,590,000 110,000

Public Safety 1,900,000 2,000,000 100,000
Health an Welfare 1,100,000 1,200,000 (100,000)
Culture and Recreation 400,000 210,000 190,000
Total Expenditures 8,100,000 8,000,000 100,000
Other Financing sources (Uses): 100,000 110,000 (10,000)
Total of Expenditure and OFU 8,200,000 8,110,000 90,000

Operating Transfers Out

Excess of Revenue and O.F.S. over Expenditure and OFU 300,000 470,000 170,000
Add: Fund Balance, July 1, 2006 0 0 .
Fund balance June 30, 2006 300,000 470,000 170,000

C.Adis Abeba City General Fund

Balance Sheet,
June 30, 2006

Assets Dr Cr
Cash 1,420,000
Property Taxes Receivable- Delinquent 560,000
Inventory of Supplies 500,000
Total Assets 2,480,000
Liabilities and Fund Balance
Liabilities
Vouchers Payable 700,000
Payable to Enterprise Fund 50,000
Payable to Internal Service fund 60,000
Total Liabilities 810,000
Reserved Fund Balance 1,670,000
Total Liabilities and Fund Balance 2,480,000

ACCOUNTING FOR SPECIAL REVENUE FUNDS

The distinguishing feature of a special revenue fund is that its revenues are obtained primarily from
tax and non-tax sources not directly related to services rendered or facilities provided for use.
Separate special revenue funds are established by governmental units as mandated by legislative
enactments.
Illustration

To illustrate the accounting for a Special Revenue Fund, Assume that on July 1, 2006, The town
council of the Adis Abeba citytown authorized the establishment of a special Revenue Fund- its
first such fund- to account for Special Assessment against certain residents of the neighboring
village of Gute.
1) The town council adopted a budget for the special revenue fund for the year ending June 30
2007, providing for estimated revenues (from the special Assessments) of 800,000 and
appropriations for reimbursement to the General fund for expenditures made by that fund for
the services provided to the village of gute residents) of 750,000.
2) Special Assessments tax totaling 820,000 were levied which are to be paid in full in sixty
days.
3) Cash Receipts from Special Assessment Taxes of 820,000 were collected in full.
4) Out of the cash receipts, 630,000 was invested in Treasury bills with face amount of
650,000. The treasury bills mature on June 30 , 2007 and were redeemed in full on that date.
5) Billings from the Adis Abeba City General fund, requesting reimbursement of expenditures
of that fund, totaled 760,000; of that amount, 620,000 was paid to the General Fund by June
30, 2007
REQUIRED

1. Prepare necessary Journal entry

2. Prepare statement of Revenue expenditure and change in fund balance
3. Prepare Balance sheet
SOLUTION
1. Journal entry
1. Estimated Revenues 800,000
Appropriations 750,000
Budgetary Fund Balance 50,000
To record the annual adopted budget for fiscal year ending June 30 ,2007/
2. Special Assessment Tax Receivable- current 820,000
Revenues 820,000

/ To record special assessments billed, all of which are estimated to be collectable/

3. Cash 820,000
Special Assessment Tax Receivable- current 820,000
/ To record collection of special assessment tax in full during the year/
4. Short Term Investments 630,000
Cash 630,000
=/To record acquisition of 65,000 face amounts of treasury bills/
Cash 650,000
Short Term investments 630,000
Revenues 20,000
/ To record receipts of cash for matured U.S treasury bills..
5. Expenditures 760,000
 Payable to General Fund 760,000
/To record billings from general fund for reimbursement of expenditures for street cleaning and
street light maintenance for residents of the village of Gute
Payable to General Fund 620,000
Cash 620,000
/ To records payments of general fund during the year/
Closing Entries
Appropriations 750,000
Budgetary Fund Balance 50,000
Estimated Revenues 800,000

/ To close budgetary ledger accounts/

2. Statement of Revenue expenditure and change in fund balance

Addis Abeba City Special Revenue Fund

Statement of Revenues, Expenditures and Changes in Fund Balance
For the year ended June 30, 2007

Budget Actual Variance (Unfavourable)

Revenues:
Special Assessments 800,000 820,000 20,000

Other 20,000 20,000

Total Revenues 800,000 840,000 40,000

Expenditures
Reimbursement of General Fund- expenditures 750,000 760,000 (10,000)

Excess of Revenues over Expenditures 50,000 80,000 30,000

Add beginning Fund balance 0 0 0

(Fund Balance End of year)------------- 50,000 80,000 30,000

 3. Balance sheet
Adis Abeba city Special Revenue fund
Balance Sheet
June 30, 2007
Assets

Cash 220,000
Total Asset 220,000
Liabilities and Fund Balance
Payable toGeneral fund 140,000
Fund Balance Designated for Reimbursement of General fund 80,000
Total Liabilities and Fund Balance 220,000

TERMINOLOGY AND CLASSIFICATION FOR GOVERNMENTAL FUND BUDGETS

AND ACCOUNTS

I. Classification of Appropriations and Expenditures

The budgeted appropriations are often called estimated expenditures, and the appropriation budget is
called expenditure budget.
According to GASB’s Principles, Expenditures should be classified by: -
1. Fund
2. Function or program
3. Organization unit
4. Activity
5. Character (fiscal period)
6. Object
1. Classification by Fund
The primary classification of governmental expedition is by fund, since funds are the basics fiscal &
accounting entity of governmental unit.
Eg. G,F SRF CPF, DSF
2. Classification by Function or Program
Functions are group related activities that are aimed at accomplishing a major service or regulatory
responsibility.
E.g. The G.F. may –have the following programmes or functions.
-General Governmental
-Public safety
-Health & welfare
-Culture & recreation
3. Classification by organization unit
E.g. - Police dept
- Fire dept
- Public works dept
- Parks & recreation dept
4. Classification by activity
An activity is a specific & distinguishable line of work performed by an organizational unit to fulfill
the overall goals of the programme or function. For example, within the police dept, activities such
as the following may be performed.
- Crime control by -- Foot patrol
Car Patrol
- Traffic control by -- Traffic
5. Classification by character
This classification has to do with the expenditure itself than the department or fund in which it is
incurred. The character of expenditure is either.
 Current expenditure – meant to benefit the current period only.
 Capital expenditure – benefits the current period plus other periods the future.
 Debt service expend – includes payment of interest or debt & payment of debt principal that
arises from past period benefits which may also be expected to benefit the current and future
period.
6. Classification by object
Object of expenditure is the thing for which the expenditure was made. It is mainly a concern of
current period expenditures.
E.g. Personal services
Other services & charges
Supplies
Capital outlays
Adis Abeba City G.F
Public safety programmes /functions
Police dept organization unit
Crime control activity
Current expend. Character
Supplies object
II. Classification of Estimated Revenues & Revenues
Revenues are defined, as all increases in fund net Assets except those arising from inter fund
transfers and from proceeds of long-term debit. A governmental unit and the funds thereof,
mayMajor revenue source classes are: -
1. Taxes
2. Licenses & permits
3. Inter governmental revenues
4. Charges for services
5. Fines & forfeits
6. Miscellaneous revenues
1. Taxes
Taxes are a forced contribution imposed on the citizens by the government. There are a number of
different kinds of taxes possible, including property (land use) sales, excise, income, customs, and
capital gain etc….
  Taxes Receivables–Current: is used to accrue taxes which are due in the current Year.
Taxes which are expected to be collected within the current year are to be recorded
in this account.
 Taxes Receivable–Delinquent: is used to record any taxes which are past due. Taxes
which have been expected to be collected in the current year, but fail to do so are to be
recorded in this account.
 Tax Lien-Receivable: is used to record taking possession of goods on which an
owed tax has not been paid. This account is used to record the total amount of tax liability
that a tax payer fails to pay on the due date, including penalty and interest, for which the
taxing agency seized his/her/it‘s property.
 Interest and Penalties Receivable on Delinquent Taxes: is used, obviously, to record
interest and penalties due on unpaid taxes.
Liability Accounts
 Deferred Taxes: account of credited for taxes which are paid in a year before they may
legally be used for expenditure.
 Trust for Property Owners: If those possessed goods are sold in an attempt to
cover the tax any additional cost incurred in collecting it, the Trust for Property
Owners account is used to record any balance remaining from the selling price after the tax
and collection cost are deducted.
Contra Asset Account
Allowance for Uncollectible Taxes: is used for recording the estimate of taxes which
the government will not be able to collect. As there is no profit to determine, no expenses
will be recognized. Hence, Bad debt expense is not used for taxes. Rather any uncollectible
taxes are accounted for as a reduction in revenue and the balance is to be recorded in a
contra asset account called Allowance for Uncollectible Taxes. Note that this is different
from FP accounting
2. Licenses and permits
Licenses and permits may be divided into two categories.
a) Business - like merchants licenses, customs clearing Agency licenses, professional
(physician, attorney)
b) Non business - like driving licenses, hunting license, Residential permits
Revenue from licenses & permits are accounted on the cash basis.
3. Intergovernmental Revenue
Intergovernmental revenues include Grants, Entitlements & Shared Revenues.
a) Grant is money, which is given for a specific purpose & it should be classified according to both
its source & it purpose. A grant could be given from the federal governmental to regional state
government (called a subsidy) or from a foreign government to the federal government. Grants can
be divided into two types.
b) Shared revenues is a revenue levied by one government but shared on a predetermined basis,
often in proportion o the amount collected at the local level, with another government or class of
government.
Entitlement is the amount of payment to which a state or local government is entitled as determined
by the federal government pursuant to an allocation formula
4. Charges for services
Charges for services include revenue from charges for all activities of agovernmental unit, except
the operations of enterprise funds.
E.g. court costs, special parking meters.
It should be recognized as revenue when earned, if that is prior to the collection of cash.
5. Fines & forfeits
Fines & forfeits are penalties, which are paid to governmental unit, usually as punishment for
violating the law. It is accounted thorough cash basis.
6. Miscellaneous revenue
Any revenue types that do not fit one of the above five classifications
E.g. interest income on investments – should be accrued
 Sales of fixed assets
 Insurance claim
 Contribution from private individuals
REVENUE FROM NON EXCHANGE TRANSACTION(IPSAS 23)
An exchange or exchange-like transaction is one in which each party receives and sacrifices
something of approximate equal value.
This Standard addresses revenue arising from non-exchange transactions
Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange
transaction, an entity/Government receives or gives value from another entity without directly
giving or receiving value to another entity without directly receiving approximately equal value in
exchange.
While revenues received by public sector entities arise from both exchange and non-exchange
transactions, the majority of revenue of governments and other public sector entities is typically
derived from non-exchange transactions such as:
a. Taxes;
b. Transfers (whether cash or non-cash), including
 grants,
 debt forgiveness-lender forgives some or all of the debt you still owe on a
loan
 fines,
 bequests-gifts that are made as part of a will or trust
  Gifts, donations, and goods and services in-kind.
All these items have the common attribute that they transfer resources from one entity to another
without providing approximately equal value in exchange and are not taxes as defined in this
Standard
Classes of Non-exchange Transactions
Revenue from non exchange Revenue derived tax revenues; imposed non exchange
revenues; government-mandated non exchange transactions; and voluntary non exchange
transaction
1. Derived Tax Revenues – Examples: Sales taxes, Personal and Corporate income taxes excise
taxes, and similar taxes on earnings or consumption. In a derived tax revenue transaction, a tax
assessment is imposed because an underlying exchange takes place. When a sale occurs and a sales
tax is imposed or when income is earned and an income tax is assessed.
2. Imposed Non-Exchange Revenues – Examples: Property taxes, fines and penalties, forfeitures.
These are viewed as imposed non-exchange revenues because the government imposes an
assessment without existence of underlying transaction. Real estate or other property is owned and a
property tax is levied each period. Ownership is being taxed by the government and not a specific
transaction.
3.Government Mandated Non-Exchange Transactions – grants that are conveyed from higher
government to lower government to help pay for the costs of required programs (e.g. certain
education, social welfare, transportation services mandated and funded by a higher level of
government).
4. Voluntary Non-Exchange Transactions – in this final classification, money has been conveyed
willingly to the state or local government by an individual, another government, or an organization
usually for a particular purpose. Examples: grants and entitlements from higher level of government
and certain private donations

Inter-fund transactions and transfers

Inter fund transactions are transactions between individual funds. Inter fund transactions are
transactions between different entities within the governmental unit. As such, they need to be
recorded in two different sets of books. The five types of inter fund transactions commonly
encountered in governmental accounting are listed, defined, and illustrated below
1) Inter fund loans & advances
Often funds sometimes loan or advance money to each other in order to use idle cash effectively.
Short Period (one year or less is commonly used), the borrowing is called a loan;the money is only
temporarily transferred and must be repaid. Since each fund is a fiscal entity, these inter fund
payables and receivables must be disclosed in the financial statement of each fund involved.
For longer periods, the borrowing is called an advance.
Due from SRF xxx
Cash xxx
Cash xxx
Due to the GF xxx
For example, if the general fund loaned 50,000 Birr to a special revenue fund, the entries
required would be:
On the books of the general fund
Due from the special Revenue fund 50,000
Cash 50,000
On the books of the special revenue fund

Cash 50,000
Due to the General fund 50,000
(To record a loan from the general fund)
Inter fund loans and advances are not increases or decreases in f und net assets. On the
creditor fund‘s books they only move resources from one current asset (cash) to another
(Due from…). On the debtor fund‘s books, they increase a current asset (cash) by increasing a
current liability (Due to..). In both cases, the effect on net assets is zero. As such inter fund loans and
advances are not closed at the end of the year
2) Quasi –external transaction
These are transactions that would be treated as revenues, expenditures, or expenses if they
involved organizations external to the governmental unit.

Examples of quasi-external transactions include:

 Internal service fund billings to other funds for services provided

 Routine employer contributions from the general fund to a pension trust fund
 Routine service charges for services provided by an agency to another agency

They are the only type of inter fund transaction which is considered as revenue and
expenditure within the entity. These transactions are typically between an internal service fund
and the general or a special revenue fund. The fund giving the service recognizes revenue;
the fund receiving the service recognizes expenditure. An example of a quasi-external
transaction is a shared garage for the governmental unit which repairs any of its cars regardless of
which fund is responsible for it. The garage will charge the respective fund for work done,
and recognize revenue from it. The fund which is responsible for the vehicle recognizes expenditure.
The quasi-external transactions are recognized as revenue and expenditure only on the individual
and (sometimes) combining fund statements. These transactions are eliminated on the combined
statement of the government unit, and not included as revenue or expenditure for the unit as a whole.
GF
Expenditure xxx
Due to ISF xxx
SRF
Due from GF xxx
Revenues xxx
If a car repair of 1,000 Birr was done to a vehicle the general fund was responsible by internal
service fund, the following entries would be needed
On the books of the General Fund
Expenditures 1,000
Due to Internal service Fund 1,000
On the books of the Internal service fund
Due from the General fund 1,000
Revenues 1,000
The revenues and expenditures arising from quasi-external transactions are closed simply as part of
closing the other revenues and expenditures for the year. Due From accounts are not closed, because
they are balance sheet accounts.
3) Reimbursements
 Expenditures made by it on behalf of another fund i.e. one fund pays a bill on behalf of
another & is then reimbursed.
 Reimbursement is money you get back from a previous transaction you have made while
buying something for yourself or making a payment on behalf of a third party.

Expenditure xxx
Cash xxx
= To record payment of bill on behalf of ---
Cash xxx
Expenditure xxx
= To record reimbursement

For example, the Ministry of Health operates clinic in Addis Ababa and South Omo. The Addis
Ababa Clinic, for convenience, might pay a bill of 3000 Birr for medicine on behalf of South Omo
clinic. The South Omo clinic would then reimburse the AA clinic. The AA clinic would charge
expenditure at the time of purchase, and then credit expenditures to zero (0). Payment of the
reimbursement would then create expenditure for the South Omo clinic.
On the books of the AA Clinic
Expenditure 3,000
Cash 3,000
(To record payment of bill on behalf of south Omo clinic)
Cash 3,000
Expenditure 3,000
(To record reimbursement from south Omo clinic)
On the books of the South Omo Clinic
Cash 3,000
Expenditure 3,000
(To reimburse the AA clinic for medicine purchase)
Any expenditures arising from reimbursement transactions are closed simply as part of
closing the other revenues and expenditures for the year. No special attention is given to
reimbursements in the year-end closing process.
4) Residual Equity transfers
Residual Equity transfers are non-recurring or non-routine transfers of equity between funds made in
connection with the formation, expansion, contract or discontinual of a fund. not only are they not
Revenues or Expenditures, they are not Other Financing Sources or Uses, even though they are
technically increase / decreases in fund financial resources.
Equity transfer out xxx
Due to ISF xxx
Due from GF xxx
Equity transfer in xxx
For example, the GF might transfer the amount of 10,000 Birr to an internal service fund to open a
central supply store.
On the books of the General Fund
Equity Transfers Out 10,000
Due to Internal Service fund
10,000
On the books of the Internal Service Fund
Due from the General Fund 10,000
Equity transfers In
10,000
5) Operating transfers
Operating transfers are made in connection with the normal operation of the recipient fund. They are
legally authorized transfers from a fund, which receives revenue to the fund through which the
resources are to be expended. These transfers are other financing source of the receiving fund, other
financing uses of the paying fund.
Other Financing Uses-Operating Transfers Out xxx
Due to DSF xxx
Due from GF xxx
Other Financing Sources-Operating Transfers In xxx
For example, the general fund may make an annual transfer of 8,000 Birr to a Debit service Fund for
payment of interest on a general long-term debit. At time the transfer is authorized, the following
entries are needed:
On the books of the General Fund
Operating Transfers Out 8,000
Due to Debt Service fund 8,000
(To record a transfer to the debit service fund)
On the books of the Debit service fund
Due from General fund 8,000
Operating Transfers In 8,000
(To record a transfer from the general fund)
These transfers are similar to (residual) equity transfers in that they increase the net assets of the
receiving fund, and decrease the net assets of the giving fund. Therefore, they also must be closed to
fund balance at the end of the year
- 4 & 5 are properly called transfers& 1,2,3 are merely transfers.
 CHAPTER SIX
CAPITAL PROJECT FUNDS
Capital Projects Funds (CPF) account for financial resources to be used for the acquisition or
construction of major capital facilities (other than those financed by proprietary funds & trust funds).
 CPF do not account for the fixed assets acquired only for the construction of the fixed assets.
It exists only for the period of acquisition or construction of the fixed assets. After the
acquisition or construction is completed, the Capital Projects Fund will be abolished.
 The Fixed Assets constructed are accounted for in the GFAAG.
 It does not also account for the repayment & servicing of any debt obligations issued to raise
money to finance the acquisition of capital facilities. Such debt & debt related servicing
activities are accounted for in the General Long Term Debt Account Group (GLTDAG) &
Debt service fund (DSF).
 Capital projects funds differ from the General Fund and special revenue funds in that the
latter categories have a year-to-year life, whereas capital projects funds havea project-life
focus
 Since the purpose of capital projects fund is to account for the acquisition and deposition of
revenues for specific purpose, it contains balance sheet accounts for only liquid assets and
for the liabilities to be liquidated by those assets.
Establishment & operation

 C.P.F are usually established on a project-by-project basis, because legal requirements may
vary from one project to another. So the existence of the C.P.F as any other fund will depend
on the legal requirement & the need for good financial management.
 The focus of the CPF is the entire life of the project. It is by definition an expendable fund,
and all its resources are expected to be used up. However, CPFs do not have the same year-
by-year focus as the G.Fbecause of the multi-year focus of CPFs, some accountants prefer
not to close a CPF annually, but others do. Whether or not to close the CPF annually will
depend on the unique factors of each case & will be strongly influenced by the requirement
of the financing source.
 The decision to use budgetary accounts will also depend on the features & financing source
of the particular CPF. The decision to use or not to use budgetary accounts is influenced by
factors such as.
The number of projects in the C.P.F
 The amount of detail in the C.P.F budget
The use of an annual budget (rather than a project life budget) in the CPF

Financing a capital project

Capital projects project obviously need large amount of financing. Typically source of financing
include;
Long term debit issue proceeds
Grants from other governmental units
Transfers from other funds with in the governmental entity
Interest income from temporary investments.
Gifts from individuals or foundations
Special taxes or;
A combination of more than one of those Intergovernmental grants, gifts, special taxes & investment
interests are considered as Revenues, whereas Inter Fund Transfers & Long Term Debt issue
proceeds are not revenues and are presented as Other Financing Sources and are presented that
way on the statement of changes.
Governmental Funds and Government-wide

Government Fund Government-wide Governmental

Activities

 General capital assets acquired are not recorded in the  General capital assets acquired Under
governmental Fund. Fixed asset is not capitalized government funds are recorded at the
 depreciation Is not recognized government-wide level.
 Recognize only current liabilities.  depreciation Is recognized as expense
 Debit expenditure and credit cash/AP when fixed asset is  Recognize both current Long term
acquired liabilities.
 Property Taxes Receivable is recorded  Debit purchased fixed asset eg. Building
 purchase orders are reported and recorded and credit cash(A/P) when fixed asset is
 Budget entries are t reported and recorded acquired
 Record Other Financing Uses and Other Financing  Property Taxes Receivable is recorded
source  purchase orders are not reported
 Use Expenditure  Budget entries are not reported
 did not Record Other Financing Uses
and Other Financing source
 Use expense
Table 1. Measurement Focus and Basis of Accounting for Financial Statements
Financial Statements Measurement Focus Basis of Accounting
Government wide Financial Statements Economic Resources Accrual
Governmental Funds Financial Current Financial
Modified Accrual
Statements Resources
Proprietary Funds Financial Statements Economic Resources Accrual
Fiduciary Funds Financial Statements Economic Resources Accrual

Accounting for Capital Projects Fund

The following illustration will show how the construction and related activities are accounted for in
a capital projects fund.
Illustration
The town of X wants to construct a new library on the site owned by the town. The construction is
expected to cost 50,000,000. It is expected to be completed within two years on June 30 year 7. In a
special meeting held on July 2 year 5, the members of the town council approved a 30,000,000 issue
of General Obligation Bonds maturing in 20 years. The proceeds of this sale will be used to help
finance the construction of the new library. The remaining 20,000,000 will be financed by an
Irrevocable State Grant that has been awarded.
The following transactions occurred during the fiscal year ended June 30 year 6.

1. The General fund loaned 500,000 to the library Capital Projects Fund for defraying
Engineering and other preliminary expenses by receiving a note which is later to be settled from
the bond issue proceeds.
Cash 500,000
Notes Payable 500,000
2. Out of the Irrevocable grant of 20,000,000, the state contributed 5,000,000 and the
Remaining is supposed to be susceptible to accrual
Cash 5,000,000
Due from State Grant 15,000,000
Revenue 20,000,000
3. Preliminary engineering and planning costs of 320,000 were paid to the contractor.
There had been no encumbrances for this cost.
Construction Expenditure 320,000
Cash 320,000
4. The Bonds were sold at 101 the bond indenture agreement requires that any premium to be set
aside in the related Debt Service Fund.
 Cash 30,300,000
OFS-Bond proceeds 30,000,000
Due to DSF 300,000
5. The town of X library CPF invested its 10,000,000 bond proceeds on the Federal Government
treasury bills.
Short Term Investment-Treasury Bills 10,000,000
Cash 10,000,000
6. A construction contract for 44,270,000 is authorized and signed.
Encumbrances 44,270,000
Fund Balance Reserved for Encumbrances 44,270,000
7. Orders were placed for materials estimated to cost 550,000.
Encumbrances 550,000
Fund Balance Reserved for Encumbrances 550,000
8. The materials previously ordered (Transaction 7) were received at a cost of 510,000.
a) Fund Balance reserved for Encumbrance 550,000
Encumbrance 550,000
b) Construction expenditure 510,000
Construction Payable 510.000
9. In addition to the construction contract of transaction 6; 3,900,000 was incurred for the services
of the engineers; of this amount 3,100,000 was paid.
Encumbrances 3,900,000
Fund Balance Reserved for Encumbrances 3,900,000
Fund Balance Reserved for Encumbrance 3,900,000
Encumbrance 3, 900,000
Construction Expenditure 3, 900,000
Construction Payable 3, 900,000
Construction Payable 3,100,000
Cash 3,100,000
10. Received cash of 1,000,000 from the General fund as an operating transfer.
Cash 1,000,000
OFS- Operating transfers in 1,000,000
11. A partial payment of 10,000,000 was received from the state irrevocable Grants and also
the General Fund loan was repaid with interest amounting to 10,000.
Cash 10,000,000
 Due from State Grant 10,000,000
Notes Payable 500,000
Interest Expenditure 10,000
Cash 510,000
See transaction No 5 and 1 respectively
12. When the project was approximately half finished, the contractor submitted billing for a payment
of 12,000,000.
Fund Balance Reserved for Encumbrance 12,000,000
Encumbrance 12, 000,000
Construction Expéditeur 12, 000,000
Construction Payable 12, 000,000
13. The contractors initial claim was fully verified and paid.
Construction Payable 12,000,000
Cash 12,000,000
Town of X library Capital Projects Fund
Statement of Revenues, Expenditures and Changes in Fund Balance
For the year ended June 30, year 6
Revenues:
Irrevocable State Grant 20,000,000
Expenditures:
Construction Expenditures 16,730,000
Interest Expenditure 10,00016,740,000
Excess of Revenue over Expenditure 3,260,000
Other Financing Sources(Uses)
OFS- Bond Issue Proceeds 30,000,000
OFS- Operating transfers in 1,000,00031,000,000
Excess of Revenue and OFS over Expenditure 34,260,000
Add: Fund Balance - July 1, Year 5 -
Fund Balance - June 30, Year 6 34,260,000

Town of X Library Capital Projects Fund

Balance Sheet
June 30, year 6
Assets
Cash 20,870,000
Short Term Investment- Treasury Bills 10,000,000
Due from State Grant 5,000,000
Total Asset 35,870,000
Liabilities and Fund Balance
Construction Payable 1,310,000
Due to DSF 300,000
Fund Balance: 34, 260, 0000
Total Liabilities and Fund Balance 35,870,000
 CHAPTER SEVEN
DEBT SERVICE FUND
From time to time governmental entities have a shortage of cash to carry out their activities. In such
cases, governmental entities may turn to borrowing to supply the needed cash.
GENERAL CHARACTERISTICS OF DEBT SERVICE FUND
 Debt service fund is used to account for both the repayment of the principal and payment of
interest of the long-term debt when they are due.
 DSF is governmental funds and therefore is Expendable. Although, like a CPF, they have
focus more than a year.
 As expendable funds, DSF use the modified accrual basis of accounting. An application of
modified accrual, which is of special interest to DSF I.e. Interest payable is not accrued in
the DSF.
 Accounts recommended for use by a serial bond Debt service fund is similar with that of
General Fund and Special Revenue fund.
 The operations of DSF do not involve the use of purchase orders and contracts for goods
and services. So the Encumbrance accounting is not needed.
 The ledger accounts of a Serial Bond Debt Service fund include liquid assets and current
liabilities and Fund Balance Accounts.

TYPES OF LONG TERM DEBTS

Bond:- A written promises to pay a specified principal sum at a specified future date with interest.
They are typically issued in 1000 and 5000 denominations. All long term debts of governmental
units consists of one of the following two basic types of bonds;.
Term Bonds- term bonds are bonds whose principal is repaid in lump-sum at their maturity date.
Such lump-sum payment is usually made possible through accumulation of money in the DSF on an
actuarial basis over the life of the bond issue in a sinking fund.
Serial Bonds - this are bonds, which have periodic maturities. The principal of a serial bond so
repaid at various ore determined dates over the life of the issue. There are four types of serial bonds;
1. Regular Serial Bonds-The total Principal amount of an issue is repayable in a specified number
of equal annual installments over the life of the issue.
2. Differed Serial Bond-The total principal amount of the issue is repaid in equal annual
installments, but the first installment is delayed for a period more than one year.
3. Annuity Serial Bond- if the amount of annual principal repayment is scheduled to increase each
year by approximately the same amount that interest payments decrease (interest decrease of course,
because the amount of outstanding bond decreases) so that the total DSF remains reasonably level
over the term of the issue, the bonds are called Annuity Serial Bonds.
4. Irregular Serial Bonds-these types of serial bonds may have pattern of repayment that does not
fit the other three categories.
Generally, there are other types of long-term debts (bonds) which also arise because of different
activities of Governmental units. This long term debts may or may not be accounted for under DSF
for their repayment. They maybe categorized as follows;
a. Revenue Bonds- are issued to finance the establishment or expansion of activities accounted for
in Enterprise Funds (EF). These bonds are shown as liabilities of EF because their repayment and
servicing can only come from money generated from the operations of those funds.
b. General Obligation Bonds- this bonds serviced from the enterprise funds are also issued to
finance establishment or expansion of activities accounted for in EF. They bear the full faith and
credit of the governmental unit. When such bonds are to be repaid and serviced from money
generated from the operations of an EF, the bonds should be shown as liabilities of the EF and as a
contingent liability of the General Long Term Debt Account Group (GLTDAG).
c. All other long-term debt fitting into one of the two preceding categories is shown as a liability of
the GLADAG. DSF is created for long-term debt that is shown as a liability of the GLTDAG
which is a self balancing group of accounts that keep track of all unmetered long term debt in
group c above.
BUDGETING FOR DEBT SERVICE FUND AND SERVICES OF FINANCE
Sources of finances (resources)
A. Special Taxes- Special Taxes are not unusual when levied for servicing general long-term
debts. Sometimes a special tax is authorized with the issuance of bond -this is more common
with City Governments. The Tax itself could be accounted for in a Special Revenue Fund,
with periodic transfers to the DSF. If there is also a sufficient resource available in the
General Fund, periodic transfers can be made from it to the DSF. If taxes are directly raised
by the DSF, they are recognized as Revenues of the DSF. If the Taxes are to be raised by
another fund and transferred to the DSF, they must be recorded in OFS-Operating transfer-
Out in other fund accounts and OFS-Operating Transfer-In in the DSF.
 B. Investments- for a term bond issue the assets that accumulate in the DSF will be invested in
income producing securities. The investment income is to be accounted in the DSF as
Revenue.
C. Refinancing-The process of issuing new bonds to pay of the old ones is called
Refinancing.
it may be possible to use the proceeds of the Sinking Fund. (a means for accumulating resources
for a payment of a long Term Debt usually with Term Bonds) to periodically purchase some of
the outstanding bonds. If market interest fall later on, it may be advisable to issue new bonds for
the outstanding debt and use that money plus whatever is in the sinking fund to retire the old
Bonds.
D Bond Premium and Accrued Interest on Bonds Sold- Depending upon the bond indenture
agreement, the DSF may be entitled to receive bond premium and Accrued Interest on Debt Issue
sold which are to be recognized as Revenues of DSF.
E.Residual Equity Transfers- If capital Projects are completed with Expenditures less than
Revenues and Other Financing Sources, The Residual Equity is ordinarily transferred to the
appropriate DSF.

Budgeting for Debt Service Fund

Revenue Budget
If Taxes for payment of interest and principal on long term debt are to be raised directly by the DSF,
they are recognized as revenues of the DSF. If Taxes are to be raised by another fund and
transferred to the DSF, they must be included in the Revenues budget on the fund that will raise the
revenue (often the General Fund) and also budgeted by that fund as Operating transfer to the DSF.
Since the Debt Service fund is a budgeting and accounting entity it should prepare Revenues and
Other Financing Sources Budget that includes operating transfers from other fund. As well as
revenues it will raise directly from Earnings on its Investments. Although the items may be difficult
to budget accurately, DSF can often account on receiving Premium on Debt Issues Sold and Accrued
Interest on Debt Issues Sold. Premium and Accrued Interest on Debt Issues Sold are considered
Revenues of the recipient DSF. Similarly as indicated in the previous chapter and on the shown on
the services of finance previously, if Capital projects are completed with expenditures less than
Revenues and Other Financing Sources, the residual Equity is ordinarily transferred to the DSF

The appropriations budget of a DSF must provide for the payment of all interest on General long-
term debt that will become legally due during the budget year, and for the payment of any principal
amounts that will become legally due during the budget year. GASB standard currently require DSF
accounting to be on the same basis as is required for general and Special Revenue Funds. *** One
peculiarity of the accrual basis used by the governmental fund types which only relates to DSF is
that, interests on long term debt is not accrued. For Example: If the fiscal year of a governmental
units ends on December 31, 20x5 and the interest on its bond is payable on January 1 and July 1of
each year, the amount payable on January 1, 20x6 would not be considered a liability in the Balance
sheet of The Debt Service Fund prepared as of December 31, 20x5. The rationale for this
recommendation is that the interest is not legally due until January 1, 19x6. The same reasoning
applies to principal amounts that mature on the first day of the fiscal year. They are not liabilities to
be recognized in statements prepared as of the day before. In the events 20x5 appropriations include
January 1, 20x6 interest and /or principal payments, the appropriations expenditures (and resulting
liabilities) should be recognized in 20x5.

Persons budgeting and accounting for DSF should seek competent legal advice on the permit table
use of both premium on debt sold & residual equity transfer. In the some cases, one or both of these
items must be held for eventual debt repayment and may not be used for interest payments. In other
cases both Premium Revenue and Residual Equity Transfer- In may be used for interest payments.
ACCOUNTING FOR DEBT SERVICE FUNDS
Illustration The Following information is Available Town of X Serial Bond Debt Service Fund
on June 30,2008
The town of X uses a Serial Bond Debt Service Fund to pay off matured bonds and - -Interest
payable amounts. Information about the Bond issue is as follows;
- Principal Amount ----------------- 1,000,000
- Interest Rate ---------------------- 10% semi annually
- Bonds Dated ---------------------- January 1, 20x6
- Interest Payable--------------------- January 1 and July 1, beginning July 1, 20x6
- Bonds mature serially at the rate of 100,000 a year starting January 1, 20x7.
- The Fiscal Period runs from July 1, 20x7 - June 30, 20x8.
1. The Revenue Budget for Serial Bond Debt Service Funds for 20x8 consists of estimated Revenues
of 330,000 to be raised from Debt Service Tax Levy and Estimated Revenues of 50,000 from
earnings on investments. Appropriation Budget includes matured interest payable and matured
bonds payable i.e ;
Interest for July 1 and January 1 = 900,000 x 5% x 2 = 90,000
Bonds payable mature January 1 = 100,000
 1) Taxes receivable amount of 340,000 and estimated uncollectable taxes in the amount of
10,000 are recorded.
2) Half of the gross levy of taxes is collected in cash.
3) Interest payable on July 1, 20x7 is recorded as a liability is birr 45,000
4) Taxes in the amount of 160,000 are collected.
5) Cash of 100,000 is invested in short term notes which bear interest of 10%
6) Interest on investment is received for the four months 100,000 x 10% x 4/12 = 3333.33
7) Interest on Investment is received for three months 100,000 x 10% x 3/12 = 2,500
REQUIRED
1. Prepare a necessary journal entry Under the book of debt service Fund
2. Prepare statement of Revenue, Expenditure and change in Fund Balance
3. Prepare Balance sheet
Solution
a) Journal entries
1. Estimated Tax Revenue 380,000
Appropriations 190,000
Budgetary Fund Balance 190,000
2.Taxes Receivable- current 340,000
Allowance for uncollectable current taxes 10,000
Revenues 330,000
3. Cash 170,000
Tax Receivable-current 170,000
4. Expenditure 45,000
Interest Payable 45,000
5. Cash 160,000
Tax Receivable- Current 160,000
6. Short Term Investment- Note 100,000
Cash 100,000
7. Cash 3333.33
Revenue 3333.33
8. Cash 2,500
Revenue 2,500
 b) Town of X Serial Bond Debt Service Fund
Trial Balance
June30, 20x8

Account title Debit Credit

Cash 44,333.33
Short term Investment- Note 100,000
Interest Receivable 1,666.67
Tax Receivable 10,000
Allowance for Uncollectable Current Taxes 10,000
Unreserved and Undesignated Fund Balance -
Tax Revenue 330,000
Investment Revenue 7,500
Expenditure 191,500
Estimated Tax Revenue 330,000
Estimated Investment Revenue 50,000
Appropriation 190,000
Budgetary Fund Balance . 190,000
Total 727,500 727,500

C)Town of X Serial Bond Debt Service Fund

Statement of Revenue, Expenditure and Change in Fund Balance
for the year ended June 30, 20x8
Budget Actual VarianceFavorable
(Unfavorable)
Revenue:
Tax Revenue 330,000 330,000 -
Investment Revenue 50,000 7,500 (42,500)
Total Revenue 380,000 337,500 (42,500)
Expenditure 190,000 191,500 (1,500)

Excess of Revenue over Expenditure 190,000 146,000 (44,000)

Add: Fund Balance July 1, 20x7 - - -
Fund Balance June 30, 20x8 146,000
C)
Town of X Serial Bond Debt Service Fund
Balance sheet
June 30, 20x8
Assets
Cash 44,333.33
Short Term Investment- Note 100,000
Interest Receivable 1,666.67
Tax Receivable 10,000
Less: Allowance for Uncollectable current Taxes 10,000 0
Total Assets 146,000 .
Liabilities and Fund Balance
Unreserved and Undesignated Fund Balance 146,000
 CHAPTER EIGHT
ACCOUNTING FOR PROPRIETARY FUNDS
INTERNAL SERVICE FUNDS AND ENTERPRISE FUNDS

INTRODUCTION
Internal Service Fund (ISF) and Enterprise Fund (EF) are both classified by the GASB as
Proprietary funds. Internal service funds, as indicated on the principles of governmental accounting,
are used to account for services provided by one department or Agency of a governmental unit to
other department or agencies, or to other governmental units on a user charge basis. Enterprise
Funds are used by governmental units to account for services provided to the general public on a
user charge basis. Proprietary funds differ from Governmental funds in that they are not required by
GASB standard to record the budget in their accounting system, which is treated as a managerial
control device rather than a legislative control tool.
Proprietary funds use the economic resources measurement focus and the accrual basis of
accounting. Because revenues and expenses (not expenditures) are recognized on the accrual basis,
financial statements of proprietary funds are similar in many respects to those of business
organizations.
Fixed assets used in fund operations and long-term debt serviced from fund revenues are recorded in
the accounts of each proprietary fund. Depreciation on fixed assets is recognized as an expense,

INTERNAL SERVICE FUND (ISF)

Enterprise funds and internal service funds are distinguished primarily by the kinds of customers
they serve. Enterprise funds provide goods or services to the public, whereas internal service funds
mainly serve departments of the same government.
ISF (sometimes called Intergovernmental Service Funds, Working Capital Funds and Revolving
Funds) arose to meet the need to offer services within the entity in a more reliable or/and less
expensive manner than obtaining the same service outside.
Reason for ISF Establishment and Operations
 ISFs are established to meet some need within the entity, if it is believed that the entity can
provide the service to itself in a more reliable and/or less expensive manner than obtaining
the same service outside.
 ISF is to improve financial management of scarce resources, it should be stressed that a fund
is a fiscal entity as well as an accounting entity; consequently establishment of a fund is
subject to legislative approval.
  ISFs are established to improve the management of resources, it is generally considered that
they should be operated and accounted for on a business basis.
Accounting and Other Related Issues
 Under ISF, the donated fixed assets should be recorded at fair market value .If fixed assets
are purchased for cash; they should be recorded at historical cost.
 If a grant is given specifically for the purchase of fixed assets, it should be recorded as
Contributed Equity not as Revenue.
 Cost is the focus of an ISF rather than budgetary control.
 They also have retained earnings in their equity accounts and contributed equity should be
kept separate from retained earnings on the Balance sheet.
FINANCIAL STATEMENTS-
 It is far more like that of a profit business than that of an expendable fund.
 It is of a classified Balance Sheet type i.e Current Assets are segregated from Fixed Assets
and other assets and Current Liabilities are segregated from Long Term Debt.
 The main difference from that of a profit business is the Contributed Equity shown in the
equity section.
OPERATING STATEMENTS-
 The results of operations of an ISF should be reported periodically in a statement of
Revenues, Expenses and Changes in Retained Earnings and contributed equity, which is
equivalent of an Income Statement for a profit seeking entity.
 ISF operating Statement shows change in retained earnings and contributed equity rather
than change in fund balance.
 ISFs do not have Fund Balance rather than they have retained earnings like for a profit
business.
 The other difference from a profit income Statement is that changes in equity are shown of
the face of the operating statement of an ISF (like that of a Governmental Fund)
STATEMENT OF CASH FLOWS-
GASB requires the preparation of the cash flows in the FS for all Proprietary funds and non-
expendable trust funds. The standard provides four categories of Cash Flows.
a. Cash Flow from operating activities- includes receipts from customers, receipts from
quasi-external operating transactions with other funds, payments to suppliers of
goods or services, payment to employees, payment of Quasi-External transactions
 with other funds (including payment in lieu of Taxes) and other operating cash
receipts and payments.
b. Cash flow from non capital financing activities- includes proceeds from debt not
clearly attributable to acquisition, construction of improvement of Capital assets,
receipts from grants, subsidies or taxes other than those specifically restricted for
Capital Purposes, or those for specific operating activities, payment of interest on and
repayment of principal of non capital financing debt, grants and Subsidies paid to
other governmental funds or organization except payment for specific operating
activities of the grantor government.
c. Cash Flow from Capital and related Financing activities- includes proceeds of debt
and receipt from special assessments and taxes specifically attributable to acquisition,
construction or improvement of Capital Assets, Receipts from Capital grants, receipts
from the sale of capital assets, proceeds of insurance on Capital assets that are stolen
or destroyed, payment of interest and/or repayment of refunding of capital and related
financing debt.
d. Cash Flows from investing activities- includes receipt from collection of loan,
interest and dividends received on loans, debt instruments of other entities, Equity
securities and cash management and investment pools, receipt from the sale of debt
on equity instrument, withdrawals from investment pools not used as demand
accounts, disbursement for loans, payments to acquire debt on equity instruments and
deposits into investment pools not used as demand accounts.
DISSOLUTION OF AN ISF
When an ISF has completed the mission for which it was established, or when its activity is
terminated for any other reason, dissolution must be accomplished. Liquidation must be
accomplished in any one of the three ways or in combinations thereof. The three ways are:
1. Transfer of the fund assets to another fund that will continue the operation asa subsidiary activity.
2. Distribution of the fund’s assets in kind to another fund or to another governmental unit.
3. Conversion of all its noncash assets to cash and distribution of the cash to other funds.
ENTERPRISE FUND (EF)
 Enterprise funds provide services to the General Public. EF provides service on a user- pays
basis.
 Enterprise funds Provide services that are either should not be, cannot be, or otherwise are
not provided by for profit entities.
  The difference between Efs and Governmental Funds is that, Governmental funds typically
provide service to the citizens as needed (eg. the police) regardless of the citizens ability to
pay, while Efs provide services on the basis that the user of the service pay at least part of the
cost.
The most common example of EF is public utilities, notably Water and Sewer Utilities. Electric and
Gas Utilities, Transportation system, Airports, etc. services of the kinds mentioned are generally
accounted for by EF because they are intended to be largely self supporting. However, they are
properly accounted for by GF or SRF by those governments that support the activities largely from
general or special revenue sources other than user charges and are not concerned with measuring the
cost of the activities.
Illustrative Case for Internal service fund
The administrators of the town of X obtain approval from the town council to centralize the
purchasing, storing and issuing functions as of January 1, year 2
1. The town’s General Fund transferred to the new Supplies Fund a cash of 25,000 and its Inventory
of supplies of 61,500 to be used for working capital and which are not to be repaid.
Cash 25,000
Inventory of Supplies 61,500
Equity Transfer In 86,500
Exp- Transfer of this nature are initially are accounted for by the recipient fund as Equity transfer in
as shown in entry 1. The equity transfer in account is closed at the end of the fiscal period to an
appropriately named fund Equity account- Contribution from the General Fund, in this case and
reported in the changes in fund equity section of the operating statement.
2. Town of X Water Utility Fund advances of br 100,000 long term debt so as to be used for
acquisition of building and equipment by the Supplies Fund. The advances are to be paid in 20 equal
annual installments.
Cash 100,000
Advance from Water Utility Fund 100,000
3. A Warehouse building is purchased for 70,000; of which 10,000 of the purchase price is
considered the cost of the land. Warehouse machinery and equipment is purchased for 20,000.
Delivery equipment is purchased for 10,000 (all for cash).
Land 10,000
Building 60,000
Machinery & Equipment- warehouse 20,000
Equipment- Delivery 10,000
Cash 100,000
Exp-If the purchases are made for cash, the acquisition of the assets would be recorded in the books
of the supplies fund in such manner
4. Supplies are acquired at cost of 179,800 and the invoices are approved for payment.
Inventory of Supplies 179,800
Vouchers Payable 179,800
Exp-encumbrances need not be recorded for purchase orders if issued and so information about the
value of purchase orders if any is omitted from being recorded.
5. The Supplies fund issued cost of supplies used 170,000 to the GF. (A mark up of 35% on the cost
of the supplies used was billing to Department to cover its after cost.
Supplies expense 170,000
Inventory of Supplies 170,000
=> (170,000 x 135% = 229500);
Due from General Fund 229,500
Billings to Departments 229,500
6. Collections from General fund during the year from customer totaled 213,000.
Cash 213,000
Due from General fund 213,000
8. Payments on vouchers during the year for customers totaled 157,000.
Vouchers Payable 157,000
Cash 157,000
9. The Advance from the Water Utility Fund, first repayment has been made

Advance from Water Utility Fund 5,000

Cash 5,000

Town of X Supplies Fund

Balance Sheet as of December 31, year 2
Assets
Current Asset
Cash 25,000
Due from GF 16,500
Inventory of Supplies at average cost 71,300
Total Current Asset 112,800
Fixed Asset
Land 10,000
Building 60,000
Less: Accumulated Depreciation 3,000 57,000
Machinery & Equipment - Warehouse 20,000
Less: Accumulated Depreciation 2,000 18,000
Equipment - Delivery 10,000
Less: Accumulated Depreciation 2,000 8,000

Total Fixed Assets 93,000

Total Assets 205,800
Liabilities and Fund Equity
Current Liabilities:
Vouchers Payable 22,800
Long Term Debt:
Advance from Water Utility 95,000
Total Liabilities 117,800
Fund Equity:
Contributions from GF 86,500
Retained Earnings 1,500
Total Fund Equity 88,000
Total Liabilities and Fund Equity 205,800

Town of X Supplies Fund

Statement of Revenues, Expenses, and Changes in
Retained Earnings and Contributed Equity
For the year Ended December 31, Year 2
Billings to Departments ------------------------------- 229,500

Less: Cost of Supplies Issued ---------------------- 170,000

Gross Margin ------------------------------------------- 59,500
Less: Purchasing Expenses ------------------------- 18,300
Administrative Expenses --------------------- 10,300
Warehousing Expenses ----------------------- 15,400
Delivery Expenses ---------------------------- 14,000
Total Operating Expenses -------------------------- 58,000
Excess of Net Billings to-
Departments over Cost for the year------------------ 1,500
Retained Earnings, January, year 2------------------- 0
Retained Earnings, December 31, year 2 ------------ 1,500
Equity Transfer In from General Fund --------------- 86,500
Contributed Equity, January 1, Year 2 --------------- 0
Contributed Equity, December 31, year 2 ------------ 86,500
 Town of X Supplies Fund
Statement of Cash Flows
For the Year ended December 31, Year 2

Cash flows from operating activities:

Cash received from customers 213,000
Cash paid to employees for services (51,000)
Cash paid to suppliers (157,000)
Net Cash provided by operating activities 5,000
Cash Flows from non Capital Financing Activities:
Equity Transfer From GF 25,000
Net Cash provided by non Capital-
Financing activities 25,000
Cash Flow from Capital and Related Financing activities
Advance from Water Utility Fund 100,000
Partial repayment of advance from water utility fund (5,000)
Acquisition of capital assets (100,000)
Net cash provided by Capital and Related-
Financing activities (5,000)
Net Increase in cash and Cash Equivalents 25,000
Cash and Cash Equivalents January 1, Year 2 0
Cash and Cash Equivalents December 31, year 2 25,000
 CHAPTER NINE
TRUST AND AGENCY FUNDS
INTRODUCTION
The principle indicates that “Fiduciary Funds account for assets held by governmental unit, acting as
trustee or an agent for individuals, organizations, other governmental units or other funds of the
same governmental unit”. For that reason fiduciary funds are often identified in governmental
financial report as Trust and Agency Funds. Generally, the word agent indicate some body or a
person who acts on behalf of another. Trustee means someone holding legal title to property but is
not its beneficial owner. They may not profit from their position, but act for the benefit of the
beneficiary, who is the real owner of the property. The term fiduciary also means one who acts not
for his own profit but to safeguard the interest of an other. in law there is a clear distinction between
an Agency relationship and a Trust relationship. in accounting practice, the legalistic distinctions
between Trust Funds and Agency Funds are not of major significance. The important and perhaps
the sole consideration from an accounting stand point is: what can and what cannot be done with the
fund’s asset in accordance with laws and other pertinent regulations? The name of a particular fund
is not a reliable criterion for determining the correct accounting basis for trust and agency funds
merely, calling a fund by one name or another has no influence on the transactions in which it may
engage. In fact the word trusts and Agency funds are frequently omitted from the titles of funds in
this classification. Examples are “Public Employees Retirement System”. And “Condemnation and
Grading Fund”: the former, a Trust fund, the later, an Agency Fund, each classified according to the
circumstances under which its assets are held. It is sometimes said that practical basis for
distinguishing between the two types is the length of time specific assets are held. But this is not a
wholly reliable guide, since there is no generally recognized pronouncement stating the maximum
time restriction for holding assets to constitute an Agency Fund; nor is there a minimum time to
constitute a fund of the trust variety. As suggested earlier if not explicitly stated, the exact name of
designation of a given fund is of little significance in establishing its accounting procedure and
limitations. This depends on the enactment that brought about creation of the Fund, plus all other
regulations under which it operates. Regulations include pertinent statutes, Ordinances, wills, Trust
Indentures, and other instruments of endowment, resolutions of the governing body, statement of
purposes of the fund, kinds and amounts of assets held and others. This aggregate of factors, or such
as are applicable to a given fund, determines the transaction in which it may and should engage.
AGENCY FUNDS
GASB standard provides as one of the four types of Fiduciary funds, Agency funds. Agency funds
are used to account assets held by a governmental unit acting as agent for one or more other
governmental unit or for individuals or private organizations. Similarly, if a fund of a governmental
unit regularly receives assets that are to be transmitted to other funds of that unit, an agency
relationship exists. Assets accounted for in an Agency Fund belongs to the party or parties for which
the governmental unit acts as agent. Therefore Agency fund Assets are offset by Liabilities equal
in amount. No Fund Equity exists. Typically, there are no Revenues, Expenditure or Expenses
recognized by an Agency Fund. GASB’s standard require Agency fund to use the modified accrual
basis of accounting. As with Governmental Funds, unless an agency fund is required law or
administrative decision, the funds which are held maybe simply accounted for within governmental
or Proprietary funds. Even if the nature of the case is fiduciary, if the agency relationship is only
incidental (not vital or essential), no agency fund is needed. For example, Payroll tax withholdings
from deductions from salary until payment to the tax authority need no special agency fund, even
though their nature is fiduciary.

Agency Fund for Special Assessment Debt Service - A Special Assessmentis a compulsory levy
made against a certain property to defray part or all of the cost of a specific improvement or service
that is presumed to be of general benefit to the public and a particular benefit to the property against
which the special assessment is levied. GASB’s standard specify that a governmental unit which has
no obligation to assume debt service on special assessment debt in the event of property owners’
default, but does perform the functions of billing property owners for the assessments, collecting
instalment of assessments and interest on the assessment, and from the collections, paying interest
and principal on the special assessment debt, should account for those activities by use of an Agency
Fund. if the special assessment debt is special-special assessment debt, then the government acts
only as an agent to collect the special assessment and pay the creditors. The government as a whole
does not take responsibility for the debt. The collections and payments of it should therefore be
accounted for in an Agency Fund.
Tax Agency Funds - An agency relationship that does, logically, result in creation of an agency
fund is the collection of Taxes, or other Revenues, by one governmental unit for the several of the
funds it operates and for other governmental units.
To record the assessment of the taxes, the collecting fund may deduct a fee (often a percentage of
the amounted collected) in order to cover its cost of collecting the taxes:
Mailing bills, Receiving Payments, bookkeeping, etc... (This is Revenue for the collecting fund). If
the fee deduction is assumed to be a certain percentage, the remaining percentage balance amount
will be payable to the funds for which the taxes are collected.
Cash and Investment Pools- Earnings on pooled investments and gains or loses on sales of
investments are allocated to the funds having an equity in the pool in proportion to their relative
contributions to the pool. To ensure an equitable division of earnings, gains and losses, it is
customary to revalue all investments in the pool, and all investment being brought into the pool or
removed from the pool, to market value as of the time that investments of a fund are being brought
into or removed from the pool. (Some pools carry investments at market, revaluing them daily).
TRUST FUNDS
Trust funds differ from agency funds primarily in degree. Frequently a trust fund is in existence over
a longer period of time than an agency fund; it represents and develops vested interest to a greater
extent and it involves more complex administrative and financial problems.
An important reasons as to why governmental units accept assets in trust is that the donation of
assets to be used to produce income for some cultural or educational purpose. The donations are
sometimes made at the death of a person, as part of the will. Other times, they are made while the
person is still living. For example, suppose a wealthy elderly person wants his name to be
remembered long after his death, he could make a large donation to an organization, insisting that
the donation be invested in an income generating Investment. Each year the income could be used
for different humanitarian or other developmental activity, while the principal is reinvested to earn
income for the years, which follow. These types of donations are called Endowment Funds.

The basic idea of an Endowment Fund is that the principal must be held intact, either forever or for a
predetermined length of time, so that it continually produces income for the desired purpose. The
principal is therefore Nonexpendable. The income generated by the principal is to be used
according to the trustor’s purposes, so it is Expendable. Since the nature of the principal and the
income is different, accounting treatment in separate fund is required. The Nonexpendable
principal should be accounted for like a Proprietary Fund, the Expendable income like a
Governmental Fund.
Pension Trust Funds on the other hand are expendable for a specified purpose in both principal and
income, retirees may be paid from both. They are account for like a proprietary fund. Pension Trust
Funds are sometimes called - Public Employee Retirement Systems (PERS) when a pension trust
fund is considered to be part of the governmental reporting entity, its financial data are included in
the combined financial statements and the combining financial statements prepared for fiduciary
funds accounted for on the full accrual basis.
Accounting for pension trust Funds should be distinguished from the governmental unit’s
responsibility as an employer to account for Expenditures, Expenses and liabilities related to
Pension plans, and to disclose in the notes to the financial statements a long list of items specified in
GASB’s statements. Reporting requirements are complex and are in a process of change. Further,
reporting requirements vary depending on whether the plan is administered by a unit of the reporting
entity or by another entity. The GASB’s disclosure standards are based on the conclusions that the
primary objectives of pension disclosures by Pension Trust Funds and governmental employers is to
provide users with information needed to assess:
A. Funding Status of a Pension Trust Fund on a Going-concern Basis,
B. Progress made in accumulating sufficient Assets to pay Benefits when due,
C. Whether Employers are making actuarially determined contributions.
 CHAPTER 10
Introduction to Federal Government of Ethiopia Accounting and Financial
Management
Introduction
Accounting is mainly governed by conventional concepts and principles. As information
processing system of an organization accounting is affected by various factors such as its
environment and characteristics. Accounting provides critical information for good financial
administration system of organizations. Government money is a public resource which the
government has to spend as per clear directives and procedures. The accounting system has to
control this resource through a budget control. Thus, the overall objective of this course is
therefore to capacitate students on understanding basic concepts and principles of FGE
accounting and reporting system, budget preparation financial reporting and control mechanisms.
Historical overview of Federal 1Government Accounting System

The federal government of Ethiopia has been undertaking various reforms in the management of
government affairs service delivery, under the broad umbrella of
The Public Sector Capacity Building Program (PSCAP), which is a large national program
planned to be implemented by different government offices in different government structures.
The MoFED which is responsible for the disbursement of program fund to the different
beneficiaries and for the eventual gathering of financial reports, consolidating them and
preparation of financial reports to the government, donors and other stakeholders.

The FGE accounting system, as explained in the budget manual which is prepared by ministry of
Finance and Economic Development and in the financial law of Ethiopia, is applicable in all
Public bodies (PB). 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.
Similarities and Differences of 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 from 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.

1.2 Goals achieved by FGE Accounting System

As stated in the first volume, 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 impress 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 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.

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 sub section 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.
Chart of Temporary Accounts
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.

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.
Chart of Permanent Accounts
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.
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.
Assets: 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
Basis of Accounting
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 Hamiel 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 the 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.

Book keeping methods

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 rule 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. 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.

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 debt 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. 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 Empioyee Subsidiary
Account code
1 Abebe 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.
1.5 Legal framework of FGE 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
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

& Administration

Budget Section Accounts section

Accounta Cashier
nt
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 Deveiopment (MOFED)

MOPED administers the financial system for the federal government and has the highest level of
administrative authority. MOPED consists of a:

• Budget Department that prepares and distributes notification of approved federal

budgets and administers the budget.
• Central Accounts Department that receives monthly reports 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.
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.
Accounting Unit
Por 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 PGE 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:
Por one or more than one BI, and
Prom one source of financing (domestic, assistance or loan).
Por 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 MOPED. Although the accounting
unit prepares monthly reports, every accounting unit may not send monthly reports directly to
MOPED. 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 MOPED is the reporting entity. Therefore, the reporting entity is
not, necessarily, an accounting unit.

Cashier and Accountant

In the PGE 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 impress 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
Pund, 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

FGE budget process

Definition and importance of budget

The word budget was originally derived from French word "bougette" which means "small bag" or the
public purse which serves as a container for revenues and expenditures of the state. Budget is the most
important tool for the government to manage the public resources of the nation economy. It serves as an
instrument to allocate the scarce resources among the different computing unlimited needs of the
society. It is a document Containing planned program which planned ahead to reach objectives and
targets. A budget may be stated in terms of quantity, money or both and is prepared for definite time
period. A budget is a time bounded financial program systematically worked out and ready for execution
in the ensuing fiscal year.
Fundamental of FGE budget program (Classifications of budget)
The structure of government budget constitutes the formats in which the budget data are
organized and classified for different purposes. The government budget in Ethiopia is classified into: -
1.revenue budget 2. Expenditure budget

1. Revenue budget:- is usually structured into three major sources:

 a. Ordinary revenue b. external assistance and c. capital revenue
A. Ordinary revenue- consists of both tax and non-tax revenues. The tax revenues includes:
1. The direct tax of ordinary revenue consists of:
Personal income tax
Rental income tax
Business income tax
Tax on dividend and chance winning
Land use fee and lease
2. The indirect tax consists of:
Excise and sales tax on locally manufactured goods, services sale tax, stamps and
duty.
Tax on foreign trade includes customs duty on imported goods and export tax on
coffee.
3. Non tax revenues includes:
Charges and fees, investment revenue, miscellaneous revenue and so on.
B. External assistance - include cash grants from multilateral and bilateral donors for
different structural adjust programs; and technical assistance in cash and material form.
C. Capital revenue: - these could be from domestic (sales of movable properties and
collection of loans), external loan from multilateral and bilateral creditor mostly for capital
projects.
2. Expenditure budget
Government expenditures for administration and developmental activities are handled
through the expenditure budget. These expenditures are categorized into:
A. Recurrent expenditure:- is structured by implementing agencies(public bodies) under four
functional categories.
i. Administrative and general services includes such activities as:
Council of representatives and ministers, ministers, defense and so on. ii.
The economic services includes:
Agricultural, industrial and service sector activities
iii. The social service includes such activities:-Health, education and culture
iv. Other expenditures includes: - pension payments, repayment of public debts etc.
B. Capital budget expenditure: - is usually made on acquisition and improvement in to fixed
asset and consultant services. It is grouped under three headings;
1. Economic development
2. Social development and
3. General development
1. Economic development includes: - production activities in the agricultural and industrial sector,
economic infrastructure in mining, commerce and communication.
2. Social development includes: - education, health, urban development and welfare etc.
3. General development includes:-general governmental activities.
 The budget process in Ethiopia
Budgeting from the initial stage of forecasting the annual revenues and expenditures, to the final stages
of approval of the annual budget by the council of people representatives, passes through a sequential
and an interactive process. The budgetary process of PGE involves the following steps:
1. Preparation of macro-economic and fiscal frame work
The frame work is composed of macro-economic forecast and fiscal forecast. The macro-economic
forecast gives the forecast of gross domestic product based on past experience and estimates for future
years. Piscal forecast establishes the level of total resources available for expenditure, it provides a
more detailed forecast of revenue (both federal and regional), and projection of expenditure. Once
prepared by the concerned coordinating ministry, i.e MoPED.It will be reviewed and approved by
the prime minister's office (pmo).
2. Determination of federal government expenditure and subsidy to regional government.
The shares of federal government expenditures and subsidies for regional governments will
first prepare by MOPED, then reviewed by the PMO and finally approved by the federation council.
3. Allocation of federal government expenditures between recurrent and capital budget.
Pirst the amount of budget necessary to cover recurrent expenditures the balance will then be allotted to
capital expenditures. This will be performed by the PMO in consultation with MOPED.
4. Budget call and ceiling notification
Mofed issues detailed budget preparation guidelines to spending public bodies along with the ceilings
provided to each line institution. Mofed will send the ceilings for each sector.
5. Budget request - is prepared by public bodies by depending on the budget ceiling to fit budget
request to mofed.
6. Budget review by MOPED:
Prior to a formal budget hearing, spending public bodies will submit their budget proposals to the
MOPED-budget department. The sector department of the mofed reviews the budget requests from
different public bodies.
7. Budget hearing and defense:- spending public bodies defend their budget submission in a formal
hearing with the mofed. The hearing focuses on policies, programs and cost

issues, when necessary it might involve discussion down to line of items. Presenting the hearing
will be ministers and/or vice ministers, head of public bodies and the mofed.
8. Review and recommendation- Each sector of MOPED review the budget that requested by public
bodies and after review of the requested budget MOPED send the consolidated and submit to prime
minister's office then submitted to council of ministers. The budget committee of the MOPED
will review the discussion and make recommendation. If there is an increase (over ceiling) this
will go to PMO for approval.
9. Submission to the council of ministers:-
At this stage the two budgets (recurrent and capital) will be consolidated and MOPED will
prepare a brief analysis of the total budget. Pirst reviewed by ministers and vice ministers in an
economic affairs and then presented to the prime minister along with brief. The prime
minister may or may not make amendments and then will be sent to the council of ministers for
discussion. MOPED defend the budget in the council, the council of ministers may make some
adjustments.
10. Submission of budget to house of people representatives:-
 Once approved by the council of ministers, the prime minister will present both budget to
HPR.the budget then will be debated based on recommended of the budget of the committee and
approved.
11. Notification and publication
The approved budget will then get the legal status through the publication in the" Negarit gazeta'.
Spending public bodies will then formally be notified of their approved budget by line of items
from MOPED for recurrent and capital budgets, respectively. MOPED will notify spending public
bodies.
12. Supplementary budget: - in the course of budget year, supplementary (additional) budget will be
proclaimed when necessary. Pollowing almost same process as the initial budget preparation.
Likewise budget reallocation will be made mainly based on performance.

Budget Controi in FGE Accounting System

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 breakdown of the appropriated budget by:
• Sub-Agency or project, and
• Source of finance. 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.
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 I 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.

Procedures to achieve budget controi

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 (MOPED and DSA
Project manual, January, 2002).

OVER VIEW OF INEGRATED BUDGET AND EXPENDITURE SYSTEM (IBEX) AND

IFMIS

The IBEX system developed under the DSA project of Harvard University together with six
Ethiopian IT engineers and other American IT experts

Sinc1998Ec (2006Gc) IBEX has begun its operation by the budget module then after the 5 other
module added to the system, I,e

Account
Account consolidation
Budget control
Budget adjustment
Disbursement IBEX has now been implemented and use in all regions
(We have 11 regions).

Integrated financial management information system (IFMIS)

IPMIS is automated system that is used for financial management that interlinks planning,
budgeting, expenditure management and control, accounting, auditing and reporting.

IPMIS works very well in both national and country governments. The system was first rolled out to
government ministries in March 2003. It was latter rolled out to all the 47 countries in March 2013
following the establishment of developed government.
Questions
1. What is IPMIS role in public financial management?
2. How has the national treasury built capacity of IPMIS users?
3. How Does the IPMIS system support auditing?
4. Does the IPMIS system capture data on personnel and wages?
5. What is the role of IPMIS in procurement and payment?

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. Pigure 3.1 shows the Budget Ledger Card

Figure 4.1: Budget Ledger Card

MeIHe 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 Pinance Code:
(DonorILender Code:
Item of Expenditure:

N Additi Baiance
0 Refe Appro on to Reducti on Revise d Paym Un Not Committe
renc e ved Budge t to Budget Budge t ent Recei pai d d
Date Descri Com
No. Budge t ved Bai
ption mitm
anc e
ent
(Source: MOPED&DSA Project manual, December 2002)
Purpose of Each Fieid 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 budgeted expenditure is related.
• Name of sub agency & Sub Agency Code: the field is to identify the BI to
which the budgeted expenditure is related.
• 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 Pinance & 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.
• AdditionsIReductions to approved Budget: the fields are used to track changes to the
approved budget and provide information to compute the revised budget.

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 • 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 budget 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.

Introduction General and Subsidiary Ledgers

Page 2
This unit is made up of three main sections. In the first part a complete description of ledgers is
presented. How the ledgers are structured and organized as general and subsidiary ledgers are also
discussed.

The unit mainly describes the purpose and format of each ledger and the process of recording entries in
ledgers. The processes used in posting to the general ledger and in the subsidiary ledgers from all FGE
Registers are the same regardless of whether the transactions involve domestic or foreign currency. For
simplicity, in this unit, the term Register means local currency transaction register and foreign currency
transaction register.
After you complete this unit, you will be able to:
• Analyze the relationship that exists between controlling and subsidiary ledger
• Explain how ledgers in FGE accounting system are structured into general and
subsidiary ledger
• Identify the ledgers in FGE accounting system easily based on its organization
• List the activities in finance section at the end of the month and the budget year.

Description of Ledgers
A ledger is the entire group of accounts maintained by an accounting unit. The ledger
summarizes transactions by accounts. The ledgers summarize the transaction information from registers
in the form of accounts that facilitate reporting of financial results. Transactions are recorded in the
register, but reports are produced from the ledgers. Two types of ledgers are maintained in the FGE
accounting system: General Ledgers and Subsidiary Ledger.
General Ledger
A ledger card is maintained for every account code recorded in the register. Every amount that is entered
as either a debit or credit on the Register is also entered to the corresponding debit or credit column of
the appropriate ledger card. The aggregate of all such ledger cards is the general ledger. The general
ledger is a set of self-balancing ledger cards because at all times the total debits and the total credits
recorded in the general ledger are equal. The general ledger is maintained to classify information
reported in the Register by respective account codes. All transaction amounts recorded in the Register
are entered on ledger cards in the general ledger.
The balances for all individual accounts are maintained in the general ledger. Because the general
ledger serves as a basis to prove that the net cumulative debit and credit balances of all accounts are
equal, the general ledger simplifies and improves the report generation process.
Subsidiary Ledger
The accountant maintains a general ledger for each register. Where more than one BI shares the

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same bank account, the accounting unit maintains one Register and one general ledger for the bank
account. A system of control accounts in the general ledger and supporting subsidiary ledgers is used to
maintain sufficient account balance detailed to facilitate management reporting requirements. A control
account is an account in the general ledger that maintains the total balance of all related accounts in
a subsidiary ledger. A subsidiary ledger is a ledger that is separate from the general ledger and contains
transaction details of each control account in the general ledger. Any account in the general ledger that
requires more detail than simply the total account balance becomes a control account with a Subsidiary
Ledger.
A ledger card is maintained for every control account code recorded in the general ledger. Either every
amount that is entered as a debit or credit on a control account's ledger card in the general ledger is also
entered to the corresponding debit or, credit column in the subsidiary ledger card. The aggregate of all
subsidiary ledger cards for a single control account is the subsidiary ledger. For example, expenditure
account code 6111 salary expense has a ledger card in the general ledger that contains all salary
expenses recorded in the transaction register .A set of subsidiary cards, one for each BI, also is
maintained for expenditure account code 6111.At all times, the net cumulative balance of debits and
credits recorded in the subsidiary ledger is equal to the respective net cumulative balance of debits
and credits of the corresponding control account in the general ledger (MOFFED and DSA Project
manual, December,2002).

A subsidiary ledger is not a set of self-balancing accounts. A subsidiary ledger's total debits and credits
equal the balance in the corresponding control account in the general ledger. The purpose of control
accounts and subsidiary ledger accounts is to facilitate the report generation process, minimize the size
of the general ledger, and maintain sufficiently detailed records regarding account balances to assist
proper financial management. For example, total of advances to staff is a control account in the
general ledger, but the amount owed by each staff member is a subsidiary ledger account in the
subsidiary ledger. Total of advances to staff is a control account
in the general ledger because the reporting requirements require only the total amount of the advances to
staff (rather than the amount owed by each staff member). In addition, it is likely that the number of
staff members who owe advances is significant, and it may be cumbersome to maintain the amounts
owed by each staff member in the general ledger. However, the accounting unit will
maintain a record of the amount owed by each staff member in a subsidiary ledger in order to monitor
repayment of the amounts owed from each staff member. The accountant maintains a set of subsidiary
ledger cards for each control account in the general ledger. However, a subsidiary ledger is not
Page 4
maintained for all accounts in the general ledger. Subsidiary ledgers are only maintained for
accounts within the general ledger that requires more detail than simply the total account balance
(MOFFED and DSA Project manual, December, 2002).
Structures and Organization of Ledgers
This section presents the structure of ledgers, which is presented to discuss about recurrent
Expenditure, revenue, and other accounts, trans!ers, cash and cash equivalents, receivables, payables,
and letters o! credit. In this section, organization of ledgers in FGE accounting system will also be
discussed. Structure is about the relationship that exists between general and subsidiary ledger and
organization is about the systematic grouping in general ledger. You will study this issue in the next
presentations.
Structure of Ledgers

This section describes when an account in the general ledger is treated as a control account. Two criteria
define whether an account code is a control account with a related subsidiary ledger:
• Monthly reporting requirements
• Management and control of the account balance
Recurrent and Capital Expenditure
An accounting unit is required to report recurrent and capital expenditures at the level of each BI
managed by it. Expenditure control accounts are maintained in the general ledger for each item of
expenditure and type of budget. The control account contains information whose detail is shown in the
subsidiary ledger. In order to also track and report actual expenditure at the level of each BI managed by
the accounting unit, a subsidiary ledger is maintained for each expenditure control account by BI.
Accounts in the subsidiary ledger provide information on total
expenditures by type of budget and item of expenditure for each BI managed by the accounting unit
(MOPED and DSA Project manual, December, 2002).

Revenue
An accounting unit is required to report revenue at the level of the accounting unit and not the level of
each BI managed by it. In order to record and report actual revenue at the level of the accounting unit,
an account should be maintained in the general ledger for each item of revenue by account code. The
general ledger provides information on total revenues by item of revenue for the accounting unit as a
whole. Since there is no reporting requirement at the level of each BI, a subsidiary ledger is not
maintained for items of revenue (MOPED and DSA Project manual, December, 2002).

Page 5
Other Accounts
Other categories of accounts maintained in the general ledger include:
• Transfers
• Cash and Cash Equivalents
• Receivables
• Payables
• Letters of Credit
• Net Assets/Equity
An accounting unit is required to report on accounts in these categories at the level of the accounting unit
only and not at the level of each BI managed by it. However, some of these account categories contain
control accounts with Subsidiary Ledgers.
Transfers: Transfers accounts typically are not control accounts and have no related Subsidiary
Ledgers.
Cash and Cash Equivalents: Cash and Cash Equivalents accounts typically are not control accounts
and have no related Subsidiary Ledgers. If the accounting unit controls more than one safe, a Subsidiary
Ledger is needed for each safe under the general ledger control account for Cash in Safe(MOPED&DSA
Project,December,2002) .

Receivables, Payables, and Letters of Credit: Receivables, payables, and letters of credit accounts
typically are control accounts with related Subsidiary Ledgers. Accounts in the
Subsidiary Ledgers identify individual items under the control account (MOPED and DSA
Project, December, 2002).
Organization: The general ledger is organized into seven broad categories comprising:
• Revenue, Assistance or Loan accounts in sequence of the account codes
• Expenditure accounts in sequence of the account codes
• Transfer accounts in sequence of the account codes
• Asset accounts in sequence of the account codes
• Liability accounts in sequence of the account codes
• Letters of Credit accounts in sequence of the account codes
• Net Asset/Equity account
The subsidiary ledger is organized by the related control account maintained in the General
Ledger (MOPED and DSA Project manual, December, 2002).

Page 6
 Recording Entries in Ledgers
In this section, you will study the formats of ledgers. The type of information that each entry in
the ledger requires from a transaction register is also the focus of your study in the section. Try
to get the ledger formats from government institutions found in your area and ask people
working in finance section to get clear and practical experience in addition to your reading.
Recording Transactions into the Ledger Card of the General Ledger
Each transaction recorded in a register is also recorded in the related general ledger. Each
transaction is recorded in two separate ledger cards because two accounts are affected by each
transaction. Each account is recorded on its appropriate ledger card in the general ledger
immediately after it is recorded in the register. The only source document to the general Ledger
is the register.
Figure 3.1: Ledger Card

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

ME/HE/17
MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT
LEDGER CARD
Public body Code page
Program Code
Sub Agency Code Type of Budget
Sub-program Code

Page 7
 Project Code
account Code

Source of Pinance Code

Bank Account No. Description

Reference from
Register Balance
Date Month Page Item Date Description Debit Credit Debit Credit
no

(Source: MOPED&DSA Project manual, December 2002)

The ledger card has two parts:

• Top of the form contains information that identifies the general ledger to which the card
belongs, and the specific account code and type of budget recorded on the card.
• The table contains information from the transaction register for computing the balance for
the account code/type of budget.
Not all information on the left side at the top of the ledger card is needed for all general ledger
cards. The information provided on the left side must be sufficient to uniquely identify the
general ledger from all other general ledgers. The detail of information required will vary.
The information on the right side at the top of the ledger card is required to uniquely identify the
ledger card from all general ledgers except that the space for description is not necessary for a
ledger card in the general ledger.
According to MOPED&DSA Project, the table on the ledger card in the general ledger contains
the following features:
• Date is the date that the entry is made in the ledger card, not the date of the transaction.
• Reference from registrar contains sufficient information to uniquely identify the Register
source of the entry.
• Description is option. If additional information about the transaction is desired, it should
be written here.

Page 8
 • Debit and Credit contains the amount from the Register for the transaction. Every
amount that is entered as a debit (or credit) on the register is entered in a corresponding
debit (or credit) column of a ledger card in the general ledger.
• Balance is the net cumulative balance of the account. After every transaction is recorded
in the debit or credit column of the ledger card in the general ledger, the net cumulative
balance of the account is derived by appropriately adding or subtracting the amount of the
current transaction from the previous net cumulative debit or credit balance. The purpose
of the monthly net cumulative debit and credit balances is to record the net balance in the
monthly reports and Trial Balance.
Recording Transactions into the Foreign Currency Cash Account Ledger Card
The cash account ledger card for Account Code 4102 "cash at bank in foreign currency" requires
a special format. This account code, and only this account code, maintains a balance in Birr and
in foreign currency denomination. The same information is recorded in the foreign currency
transaction Register.
The foreign currency cash account ledger card is shown in figure 3.2. The foreign currency cash
account ledger card is identical to any other ledger card, except that the amount of each
transaction recorded from the foreign currency transaction register is recorded on the card twice:
once in Birr and once in foreign currency. In addition, the net cumulative balance of the account
is kept in both currencies.
Figure 3.2: Foreign Currency Cash Account Ledger Card
ME/HE/18
THE FEDERAL DEMOCRATIC REPUBLIC OF
ETHOPIA MINISTRY OF FINANCE &
ECOMOCIS DEVELOPMENT
Foreign Currency Cash Account Ledger Card
Page
Public Body Code_
Bank Account No. Code Account Code 4102
Code
Donor/lender

Page 9
 Date Reference fromRegister Descrip Cash at Bank Balance Cash at Balance
tion (birr) Bank(PC)
Month Page Item Date Debit Credit Debit Credit Debit Credit Debit Credit
no Credit Credit Credit Credit

Source: MOPED and DSA Project manual, December 2002)

Recording Transactions into the Ledger Card of the Subsidiary Ledger
A ledger card in the subsidiary ledger is maintained only for control accounts in the general
ledger. Transactions are recorded on the appropriate ledger cards in the subsidiary ledger from
the register immediately after they are recorded in the ledger cards in the general ledger. The
only source document for the subsidiary ledger is the register. The format of a ledger card in the
subsidiary ledger is the same as the format of the ledger card in the general ledger shown in
figure 3.1. Ledger cards are printed in two colors. One color of cards should be used for general
ledger account only, while the other should be used for all subsidiary ledger accounts. Not all
information on the left side at top of the ledger card is needed for all subsidiary ledger cards. The
information provided on the left side must be sufficient to uniquely identify the related general
ledger. If the subsidiary ledger consists of budgetary institutions, sufficient information to
uniquely identify the budgetary institutions is necessary.
The information on the right side at the top of the ledger card is required to uniquely identify the
control account in the general ledger, except the description. If the subsidiary ledger consists of
individual item (such as individual staff for advances or individual letters of credit), sufficient
description is necessary to uniquely identify the individual account in the subsidiary ledger.
According to MOPED and DSA Project, the table in the subsidiary ledger contains similar
information to that of the general ledger such as date, reference, description, debit and credit
sides and balances. After every transaction is recorded in the debit or credit column of the ledger
card in the subsidiary ledger, the net cumulative balance of the account is derived by
appropriately adding or subtracting the amount of the current transaction from the previous net
cumulative debit or credit balance
The net debit and credit cumulative balances on all ledger cards in a subsidiary ledger should be
totaled on a monthly basis and compared to the balance on the control account's ledger card in
the general ledger. The purpose is to verify the accuracy of the total net balance in the subsidiary

Page
10
ledger with net balance in the control account in the general ledger and to produce accurate
monthly reports for expenditure (MOPED and DSA Project, December 2002).

Summary
Transactions are recorded in the register, but reports are produced from the ledgers. Two types of
ledgers are maintained in the PGE accounting system: General ledgers and subsidiary ledgers.
Because the general ledger serves as a basis to prove that the net cumulative debit and credit
balances of all accounts are equal, the general ledger simplifies and improves the report
generation process. The general ledger is organized into seven broad categories comprising in
PGE accounting systems.
Any account in the general ledger that requires more detail than simply the total account balance
becomes a control account with a subsidiary ledger. The purpose of control accounts and
subsidiary ledger accounts is to facilitate the report generation process, minimize the size of the
general ledger, and maintain sufficiently detailed records regarding account balances to assist
proper financial management.

Based on two criteria that define whether an account code is a control account with a related
subsidiary ledger, structure of ledgers in PGE accounting system is summarized as follows:

A: Subsidiary Ledgers for Expenditure Control Accounts

Source of Punding Sub Ledger Items
Treasury Yes By BI for each item of
Expenditure/type of budget
Loans Yes By BI for each item of expenditure
Assistance Yes By BI for each item of
expenditure/type of budget

B: Subsidiary Ledgers for Revenue, Assistance and Loan Accounts

Source of Punding Sub Ledger Items
Treasury No Not applicable
Loans No Not applicable
Assistance No Not applicable

C: Subsidiary Ledgers for Other Accounts

Codes Sub Ledger Items
Cash at Bank No Not applicable
Cash in Safe Yes By safe, if accounting unit controls
more than one safe

Page
11
 Ethiopian Government
Accounting
Transfers No Not applicable
Receivables Yes By individual item
Payables Yes By individual item
Letters of Credit Yes By individual item
Net Assets/Equity No Not applicable

RECORDING COMMON TRANSACTIONS OF FGE

Transfer account is a nominal account and will be closed at the end of the year. The
transfer account is used to record monthly transfer of money. The agency which transfers the
money credits its bank account and debit transfer account, and the receiving agency debits its
bank accounts and credits the transfer account.
3.1. Cash Transfers
Cash transfers are cash movements among government units. Cash transfers may be made
in the form of currency, checks or direct cash movement between bank accounts.

Cash Transfers: Between Bank Accounts at Public Bodies and MOFED

Cash is transferred from MOPED bank accounts to bank accounts of public Bodies, and
cash is transferred from bank accounts of public Bodies to MOPED bank accounts. These
transfers are done in the form of Checks, and Direct bank transfers evidenced by bank
advices.
Cash transfers from MOPED bank accounts to bank accounts of public Bodies are
recorded:
 By MOPED, as a debit to the appropriate transfer code and a credit to 4105, and
 By the public Body, as debit cash at Bank 4103 and a credit to the appropriate
transfer code.

Example: Assume a public Body receives from MOPED a transfer of Birr 100,000 for
Capital expenditure and also further assume that you are an accountant in both the PB and
MOPED
Transaction Register of MOFED:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Cash transfer to PB -- 4004 100,000 100,000
Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer from MOPED - 4004 100,000 100,000

At MOPED, although a transfer authorization to one bank account may include funds for
more than one BI, the entire transfer is one. Therefore, only one entry should be made for the
total of the transfer in the Transaction Register maintained at MOPED. The BI code for the
entry should be the BI code of the Reporting Entity.

Page 12
 Ethiopian Government
Accounting
Cash Transfers: Between Bank Accounts at Public Bodies and MOFED: From Public
Bodies to MOFED at federal level
Cash transfers from bank accounts of public Bodies to MOPED bank accounts are
recorded:
 By MOPED, as a debit to Cash at Bank4105 and a credit to the appropriate transfer
code, and
 By the Public Body, as a debit to the appropriate transfer code and a credit to Cash
at Bank 4103.
Example: A Public Body collected revenue of Birr 60,000. The cash is transferred to
MOPED.
Transaction Register of MOFED
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Cash transfer from PB - 4009 60,000 60,000

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer to MOPED - 4009 60,000 60,000

Some public Bodies deposit cash directly into a MOPED bank account when revenue is
collected. If revenue is deposited directly to a MOPED bank account, the entry in the
Transaction Register of the public Body is a debit to the appropriate transfer account code
and a credit to the appropriate revenue account code.
Cash Transfers: Within Public Body
In the same Manual prepared by MOPED&DSDA Project, it is indicated that some public
Bodies maintain branch bank accounts. The public Body may transfer cash from one bank
account to another bank account of its branch. These transfers are done in form of: Checks,
and Direct bank transfers evidenced by bank advices. Cash transfers within a public body
from bank Account #1 to bank Account #2 are recorded:
 By the accounting unit for bank Account #1, as a debit to transfer code (transfer
between financial bureau and wereda finance/ district finance/ office) 4011 and a
credit to cash at Bank 4103, and
 By the accounting unit for bank account #2, as a debit cash at bank 4103 and a
credit to transfer code 4011.
After both transactions are recorded in the consolidated general ledger of the public body,
the net effect of the internal transfer is zero (the balance in transfer code 4011 is zero).
Por control purposes, if the public body transfers to more than one branch bank account, a
subsidiary ledger should be maintained by the main bank account. Each branch bank
account that receives or sends a transfer using account code 4011 should have its own

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 Ethiopian Government
subsidiary ledger card under transfer code 4011. This will aid consolidation in the general
Accounting
ledger of the public body and improve cash control within the public Body.
Example: Bank Account #1 transfers Birr 80,000 to Bank Account #2

Transaction Register of Bank Account #1:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer to BA #2 - 4011 80,000 80,00
0

Transaction Register of Bank Account #2:

No Description TB Account Other Cash at bank
Number 4103
Dr Cr Dr Cr
1 Cash transfer BA #1 - 4011 80,000 80,000

3.2 Non - Cash Transfers

Non-Cash transfers are used to record a transfer when cash does not actually move. The
authorization for a non-cash transfer usually is a letter from MOPED.

Cash payments made by MOPED on behalf of Public Bodies are recorded:

 By MOPED, as a debit to the appropriate transfer code and a credit to Cash at Bank
4105, and
 By the public Body, as a debit to the appropriate expenditure code and a credit to
the appropriate transfer code.
Example: The Ministry of Health (MOH) requests MOPED to pay for a motor vehicle on
its behalf amounting to Birr 280,000 from its capital expenditure budget.
Transaction Register of MOFED:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer to MOH - 4004 280,000 280,000

Transaction Register of Ministry of Health:

No Description TB Account Others
Number
Dr Cr
1 Purchase of motor vehicles 02 6311 280,000
Transfer from MOPED - 4004 280,000

3.3 Check Payments by Accountants

Only accountants are allowed to make payments using checks. Example: Assume that an accountant
pays by check an amount of Birr 50,000 for office supplies.

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 Ethiopian Government
Accounting
Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Office supplies paid in 6212 50,000 50,000
cash

3.4 Cash Expenditures: Cash Payment Requiring Withholding of Tax

The tax authority requires that a tax must be paid on specified purchases over a certain
amount. The purchaser collects the tax as a withholding from the purchase price.
The expenditure account code with a debit for the full purchase price. If the tax is federal,
withholding tax revenue code 1103 or 1104 (depending on whether the supplier is an
individual or a corporation) with a credit for the amount of the tax. The only exception is if
the payment is made with retained revenue. If retained revenue is the source of funds for
the payment, payable account code 5028 is credited for the amount of the tax. If the tax is
regional, payable account code 5026 with a credit for the amount of the tax. Cash at bank
4,103 with a credit for the actual amount paid to the supplier.

Cash Expenditures: Cash Payment Requiring Withholding of Tax: Federal Tax

When federal tax is withheld from a purchase, the tax is recorded as revenue immediately
subsequently; an amount of cash equal to the tax is transferred to MOPED.
Example: A public body buys office supplies from a corporation for Birr 200,000 from its
recurrent expenditure budget - Birr 198,000 relates to the cost of the office supplies and
Birr 2,000 is the withholding tax.
Transaction #1: Payment effected to supplier
Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Office supplies 01 6212 200,000
Withholding tax revenue 1104 2,000 198,000
Transaction #2: Transfer to MOPED
Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Transfer to MOPED 4009 2,000 2,000

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 Ethiopian Government
Accounting
Transaction Register of MOFED:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer to MOPED 4009 2,000 2,000

Cash Expenditures: Cash Payment Requiring Withholding of Tax: Regional Tax

When regional tax is withheld from a purchase, the tax is recorded as a payable to
the region. Subsequently, an amount of cash equal to the tax is transferred to
MOPED. MOPED pays the tax amount to the region. A subsidiary ledger should be
maintained for payable to region account code 5026 if tax is collected for more
than one region. Each region should be a separate account in the subsidiary ledger.
Example: A public body buys office supplies for Birr 200,000 from its recurrent
expenditure budget - Birr 198,000 relates to the cost of the office supplies and Birr
2,000 is the regional withholding tax.
Transaction #1: Payment effected to supplier
Transaction Register of public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Office Supplies 01 6212 200,000
Tax payable to Region 5026 2,000 198,000

Transaction #2: Transfer to MOFED

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Payable to MOPED 5026 2,000 2,000

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Tax payable to region 5026 2,000 2,000

3.5. Salary
Public Bodies pay salaries to employees every month. This section describes the
accounting for:
Payment of
salary Unpaid
salary
Unearned
salary

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 Ethiopian Government
Accounting

Payment of Salary
The salary payment transaction is complex. The public body must record the gross salary
amount and government's portion of pension as expenditure to maintain budget control,
but only the net salary amount is transferred to, and paid by the public body.

After the salary request is approved, MOPED transfers the net salary amount to the public
body and the total pension amount, employee and government contribution, to the pension
Authority. Although cash for pension is transferred directly to the pension authority,
MOPED records the cash transfer as if the cash was transferred to the public body. At
MOPED, two transfer entries to the public body are recorded in the transaction register:
 A debit to transfer coder 4001 and a credit to cash at bank 4105 for the net salary
amount.
 A debit to transfer coder 4001 and a credit to cash at bank 4105 for the total
pension amount sent to the pension Authority.
Each transfer amount is reported to the public Body separately on Ge/Be/We 12/1 with
Model 33. When the public Body receives Ge/Be/We 12/1, the public Body prepares:
 A receipt voucher for the total amount of cash received. The entry is a debit to cash
at bank 4103, a debit to pension payable account code 5003 for the amount of cash
paid to the pension Authority and a credit to transfer code 4001.
 A journal voucher to record salary and pension expense. The entry is a debit to
salary expense code 6111 (6112 for military) for the gross salary amount, a credit
to salary payable code 5004 for the net salary amount, a credit to pension payable
code 5003 for the amount of each paid to the pension Authority, a credit to income
tax code 1101 for tax withheld from salary, and a credit to any other withholding
amounts.

Example: Assume the Ministry of Agriculture (MOA) requests salary for the month of
July 2001 with the following details and also assume that you are the accountant in MOA
and MOPED.
Gross salary 40,000
Deduction: salary advance 1,200
Pension expense - 6% 2,400
Penalty for absenteeism 500
Employee pension - 4% 1,600
Net Salary payable 32,700
Income tax 4,000
Transaction Register of MOFED:
No Description TB Account Others Cash at bank
Number 4105
Page 17
 Ethiopian Government
Accounting
Dr Cr Dr Cr
1 Transfer for PB 4001 36000 36000
2 Transfer to PB 4001 4,000 4,000

Transaction Register of MOA:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Salary Expense 01 6111 40,000
Salary payable 5004 32,700
Income Tax 1101 4,000
Staff Advance 4203 1,200
Pines 1485 500
Pension Payable 5003 1600

Unpaid Salary
Net salary amount is recorded as salary payable when salary expense is recorded (see
above). When salary is paid, salary payable is debited for the amount paid. Any unpaid
salary is the amount remaining in the salary payable account code 5004 after salary is paid.
When unpaid salary is paid, the entry is a debit the salary payable code 5004 and a credit
to cash. After salary is paid, a subsidiary ledger for salary payable account should be
maintained. Each unpaid employee should be an account in the subsidiary ledger.

Unearned Salary
Occasionally, salary is requested and received, but the employee is not entitled to the
entire salary amount received. Por some reason, the employee quits working for the public
Body during the month. When this happens, the salary entry explained above must be
reversed for that employee, and the pension transfer must be corrected. In addition,
MOPED must be notified so that the pension transfer and subsequent months salary can be
adjusted.

Example: Suppose an employee in the Ministry of Agriculture worked only half of July
instead of the whole month. This is discovered after the salary expense entry in the
example above. The amounts of overpayment are:
Gross Salary 1000 Income tax 70
Pension expense - 6% 60 Salary Payable 890
Employee pension - 4% 40

Transaction #1: Reverse salary expense

Transaction Register of MOA:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Salary Expense 01 6111 1000

Page 18
 Ethiopian Government
Accounting
Pension Expense 01 6131 60
Salary Payable 5004 890
Income Tax 1101 70
Pension Payable 5003 100

3.6. Receivables and Payables

A receivable is an amount owed to a public Body that does not have terms of repayment
detailed in a signed agreement. Receivables usually are created when:
 Cash is transferred but must be returned unless certain conditions are met.
 Advances are given with the understanding that the amount must be repaid or
otherwise accounted for, or goods or services must be delivered.

A payable is amount owed by a public body that is due within one year. Payables usually
are created when:
 Cash is received but must be returned unless certain conditions are met.
 Goods or services are delivered but payment is not yet made.
Receivables and Payables: With MOFED
In some situations, MOPED advances cash to public Bodies. MOPED records the advance
as a receivable, and the public Body records the advance as a payable. Cash movements
between MOPED and a public Body are recorded as a receivable and a payable, rather
than a transfer, if the funds were not requested by Ge/Be/We 11/xx. Advances must be
repaid to MOPED or otherwise accounted for.
Example Prior to receipt of its budget notification, a public Body requests funds in June
to pay recurrent expenditures. MOPED sends Birr 7,000

Transaction Register of MOFED:

No Description TB Account Others Cash at
Number bank 4105
Dr Cr Dr Cr
1 Advance for Recurrent 4206 7,000 7,000

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Due to MOPED 5024 7,000 7,000

When the public Body receives its budget notification, a Ge/Be/We 11/2 is sent to
MOPED for Birr 14,000. This requests includes the 7,000 Birr received as an advance.
MOPED approves the request, reduces the cash transfer by 7,000 Birr, and transfers Birr
7,000 in cash.

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4105

Page 19
 Ethiopian Government
Accounting
Dr Cr Dr Cr
1 Advance Recurrent 4206 7,000
Transfer - Recurrent 4002 14,000 7,000

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Due to MOPED 5024 7,000
Transfer - Recurrent 4002 14,000 7,000
Receivables and Payables: with Employees
Three situations are described here:
 Long - term salary advances.
 Amounts due from employees as reimbursement for use of government property.
 Handling of funds held by a public body on behalf of an employee

Receivables and payables: with Employees: Long - Term Salary Advance

An employee can receive a long-term advance on salary (longer than one month) under
appropriate conditions. When a long-term salary advance is processed, interest is charged
and withheld from the advance. The public body is responsible for repayment of salary
advances to its employees.
Example: A long -term salary advance of Birr 2,000 is requested and approved. MOPED
transfers the net amount to the public body after deducting the applicable interest on the
advance amounting to Birr 200.
Transaction #1: cash transfer from MOPED
Transaction Register of MOFED:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Transfer 4005 1,800 1,800

Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer 4005 1,800 1,800

Transaction #2: Payment of Advance

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Staff Advance 4203 2,000
Interest 1465 200 1,800

3.7 Receivables and Payables: With Suppliers: Grace Period Payables

The first 30 days of the fiscal year are called the grace period. The financial Law permits
public Bodies to expend funds from their prior year's recurrent and capital budgets during
the grace period for goods and services delivered before the end of the fiscal year.

Page 20
 Ethiopian Government
Accounting
Amounts due to suppliers on the last day of the fiscal year, that are paid during the grace
period from the prior year's budget, are called grace period payables (account code 5001).
Transfers of funds from MOPED to public Bodies, that are used to pay grace period
payables, are given account code 4007.

Example: In the first 30 days of the fiscal year, a public body pays Birr 12,000 for office
supplies that were recorded as grace period payables from the prior year's capital
expenditure.
Transaction #1: Provision for grace period payables last year.
Last Year's Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4105
Dr Cr Dr Cr
1 Office supplies 02 6212 12,000
Grace period payables 5001 12,000

Transaction #2: Transfer of funds for grace period payables this year.
This year's Transaction Register MOFED:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer - GPP - 4007 12,000 12,000

This year's Transaction Register of Public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Transfer - GPP - 4007 12,000 12,000

Transaction #3: Payment of grace period payables this year.

This year's Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Grace period payables 5001 12,000 12,000

Receivables and Payables: with Regions

Occasionally, public Bodies make cash payments to regions. Payments to the regions from
the federal level are budgeted as part of the region's subsidy. The public Body should
record the payment as a subsidy payment. A rare exception occurs when the funds are part
of the approved budget for the public Body and in this rare case, the item of expenditure is
part of the approved budget for the public body, the region is simply action as a purchasing
agent for the ministry. The responsibility for the budgeted expenditure cash remains with
the public body, although the expenditure is executed in the regional since a settling of the
funds is expected, the transaction is recorded as a receivable By MOE at Pederal level.

Page 21
 Ethiopian Government
Accounting

Example: The Ministry of Education (MOE) sends Birr 55,000 to Amhara Regional
Education Bureau (AREB). The Amhara Regional Education Bureau returns invoices for
the book totaling Birr 47,000 and cash totaling Birr 8,000 to the Ministry of Education.

Transaction #1: Cash is sent to AREB

Transaction Register MoE:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Advance to region - 4208 55,000 55,000

Transaction #2: Cash and invoices are received from AREB.

Transaction Register of MOE:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Books 02 6215 47,000
Advance to region 4208 55,000 8,000

3.8 Receivable and Payables: Deposits

Some public bodies collect and return deposits. Deposits are not budgeted. The receipt and
return of deposits may be documented using special forms (Models 85 and 86 or Models
185 and 186). Deposits may be kept in the safe, in the main bank account of the public
body, or in a separate bank account.

A deposit is a payable for a public body. A public body must return the deposit upon
demand of the depositor. A public body should not spend deposit funds. When the deposit
is returned, the payable is cancelled.

Receivable and Payables: Deposits: Receipt and Return of Deposit

Example: A public body collects a deposit of Birr 40,000 as bid security. The bid is
unsuccessful and the deposit is returned at a later date.

Transaction #1: Receipt of Deposit.

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Bid security Deposit - 5054 40,000 40,000

Transaction #2: Refund of Deposit.

Transaction Register of Public Body:
No Description TB Account Other Cash at bank 4103
Number
Dr Cr Dr Cr
1 Bid Security Deposit - 5054 40,000 40,000

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 Ethiopian Government
Accounting
3.9 Aid in Kind

Aid in kind is goods or services (such as technical assistance) provided to a public body by
donors. Aid in kind is received when goods are received or services are rendered, and no
payment is expected. Aid in kind represents two transactions simultaneously: the receipt of
assistance and the expenditure of assistance. Aid in kind should be budgeted and recorded
as both revenue and expenditure. The expenditure should be recorded in the subsidiary
ledger for the budgeted project, using the 4-digit source of funding code assigned to the
project.

Example: Assume aid in kind is received by a public body in which you are working as an
accountant in the form of a motor vehicle with a cost of Birr 200,000 from USAID under
the capital expenditure budget for project code 2356.

Transaction Register of the public Body:

No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Motor vehicles 02 6311 200,000
Assistance 2084 200,000

All aid in kind entries are recorded in local currency only.

3.10 Cashier Functions

3.11 Cash Withdrawn from Bank to Safe

The accountant writes a check to the cashier to put cash in the transaction register and the
cashier records the bank payment voucher in the petty cashbook as a debit to cash.

Example: A check for Birr 3,000 is written to the cashier for petty cash.
Transaction Register of public Body:
No Description TB Account Cash at bank Cash in safe
Number 4103 4101
Dr Cr Dr Cr
1 Cash withdrawn from - - 3,000 3,000
safe

3.12 Cash deposited in to bank from the safe

The cashier transfers cash from the safe to the bank by depositing the cash in the bank. The
cashier brings the bank deposit slip to the accountant who prepares a receipt voucher. The
accountant records the receipt voucher in the transaction register and the cashier records
the receipt voucher in the receipt cashbook as a credit to cash.

Example: The Cashier deposits Birr 20,000 in the bank.

Page 23
 Ethiopian Government
Accounting
Transaction Register of Public Body:
No Description TB Account Cash in Safe Cash at bank
Number 4101 4103
Dr Cr Dr Cr
1 Cash deposited in to bank - - 20,000 20,000
3.13 Cash Imprest Payments to Cashier by Accountant
Each public body should establish the amount of cash to hold in petty cash. The cashier
makes cash payment from the impress fund using cash payment vouchers. When the petty
cash balance is low, the cashier submits the cash payment vouchers to the accountant. The
accountant writes a check to the cashier for the payment vouchers to the Accountant. The
Accountant writes a check to the cashier for the total amount of the cash payment voucher.
The accountant records each cash document for the check is bank payment voucher in the
transaction register. The cashier records the bank payment voucher from the accountant in
the petty cash book as a debit to cash.

Example: The Accountant pays the cashier Birr 4,000 by check using a bank payment
voucher to replenish the petty cash from a cash payment voucher from the cashier for Birr
4,000 paid to an employee for per diem. The cashier records the receipt in the petty
Cashbook. The accountant records the cash and bank payment vouchers in the transaction
register as follows:
Transaction Register of Public Body:
No Description TB Account Others Cash at bank Cash in Safe
Number 4103 4101
Dr Cr Dr Cr Dr Cr
1 Per Diem 01 6231 4,000 4,000
2 Cash to Cashier 4,000 4,000

Financial Document Transmittal Voucher: Me/He

Me/He is the document prepared as evidence for the transfer of financial documents, such
as expenditure vouchers, between responsible persons in the accounting system.The
purpose of the Pinancial Document Transmittal Voucher is to record the transfer of
financial documents from one responsible party to another.

Preparation and Source Documents: Whoever is receiving financial documents prepares

the Pinancial Document Transmittal voucher.The format of the Pinancial Document
Transmittal voucher is shown in Pigure 3.1

Page 24
 Ethiopian Government Accounting
Figure 3.1: Financial Document Transmittal Voucher
Model 42 Serial No.
Date
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA
MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT
FINANCIAL DOCUMENT TRANSMITTAL VOUCHER
No Date Description Reference Type Reference No Amount No. of Attachments Remark

Total
I have received the documents listed above from on the days of the month
year and issued .

Transferred by: Name and Signature Received: Name and Signature

Original -to-Transferor, second copy to Receiv

Page 14
 MONTHLY REPORT
Introduction

1
The purpose of this unit is to describe the monthly reports submitted by a reporting entity to
ministry of finance and Economic development. The reports are highly interrelated. The first
section of this unit deals with Revenue IAssistanceI Loan report which is prepared to provide
information on the year to date revenues of an accounting unit from each source of finance. It
also helps to facilitate consolidation of the actual revenues, assistance and loan collected by the
FGE and to facilitate comparison of budgeted revenues to actual revenues by account category.
The second and third section of this unit deals with Recurrent Expenditure Report, Capital
Expenditure Report respectively and these reports provide information on the year - to - date
expenditures of each BI managed by an accounting unit. Its function is to facilitate consolidation
of the actual expenditures made by the FGE and to facilitate comparison of budgeted expenditure
to actual expenditure.

The fourth section of this unit will describe about Transfer Report whose function is to serve as a
control tool to verify case transfers between MOFED and an accounting unit and vice versa. The
fifth section of this unit deals with Receivables Report, which provides information on the year -
to_ date receivables owed to an accounting unit. This report helps to facilitate consolidations of
the actual receivables owed to the FGE. The sixth section of this unit will present about the
Payables Report. The payables report provides information on the year-to-date payables owed by
an accounting unit. This report facilitates consolidation of the actual payables owed by the FGE.
The seventh section of this unit is about a trial balance, which is the summary of the net
cumulative year -to - date debit, and credit balances contained in the general ledger at the end of
each month for each account code represented by a general ledger card. It proves the arithmetical
accuracy of the general ledger. The total amount of debit column must be equal with the total
amount of the credit column in the trial balance. The trial balance serves as a basis to produce
financial statements.
1.1 Revenue/Assistance/Loan Report
According to MOFED and DSA Project manual, December 2002, the only monthly reports
verified by Ministry of Finance and Economic Development are the transfer report and the Trial
Balance. The transfer Report is verified by Ministry of Finance and Economic Development to
ensure that all disbursements to an accounting Unit by Ministry of Finance and Economic
Development and all disbursements from an Accounting Unit to Ministry of Finance and

Economic Development are accounted for within the accounting system to enhance control over
cash transfers.
2
The Trial Balance is verified by Ministry of Finance and Economic Development to ensure that
the total debits and credits are equal and that general Ledgers are balanced. Also, Ministry of
Finance and Economic Development verify the cash balance for the domestic source of finance
from the trial Balance to enhance cash management practices at federal level.
All other monthly reports that are submitted to Ministry of Finance and Economic Development
serve as input documents to consolidate reports and produce financial statements at the Federal
Level. The Inspection Department and the Office of The Auditor General verify these reports.
All monthly reports are prepared in two copies. The original copy is sent to Ministry of
Finance and Economic Development and the second copy is retained as a permanent record at
the reporting entity. The Revenue/Assistance/Loan Report provides information on the year-to-
date revenues of an accounting unit from each source of finance. The purpose of the
revenue/Assistance/Loan Report is to facilitate consolidation of the actual revenues, assistance
and loan collected by the FGE and Regional State to facilitate comparison of budgeted revenues
to actual revenues by account category (MOFED and DSA Project manual, January, 2002).

The Accountant prepares a revenue/Assistance/Loan report for the Accounting Unit. The source
document to prepare the revenue/Assistance/Loan report is the general Ledger. Each item of
revenue, assistance or loan is identified by account code. The amount from the balance column
in the general ledger card is transcribed into the revenue/assistance/Loan Report. The grand
totals from each revenue/Assistance/Loan report are carried forward to the trial Balance.
Balances in the Revenue/Assistance/Loan Report are normally credits. Each accounting Unit
prepares one revenue/assistance/Loan Report as indicated in figure 1.1 below.
Figure 1.1: Revenue/Assistance/Loan report Format
Me/He 21
Month
Name of Public Body: code:
Name of Program: code:
Name of Sub Agency: code:
Name of Sub Program: _ code:
Name of Project: code:
Bank Account Number:

3
 Account YEAR-TO-DATE
Code Account description Revenue
Debit Credit
1101 Tax on wages and salaries
1415 Court fees
1429 Other fees and charges
1465 Interest on loans to government employees
1485 Other miscellaneous revenue
Total (To Trial Balance)

Prepared by Name and Signature

Activity 1: preparing revenue/assistance/Loan Report

You are provided with the following general ledger balances as at May 31, 2004 for Ethiopian
Civil Service College with budget category 319/01/07/00/000/1800 and bank account
10645839.Further, assume also that you are the accountant of the college.
General Ledger
Account Code Debit Credit
1101 6750
1415 750
1429 1000
1465
1485 500
4001 57550
4002 33450
4005 9600
4009 2750
4055 6750
4101 22850
4103 3100
4203 9600
5004 19850
6111 67500
6131 4050
6213 7000
6217 15000
6241 1950
6257 1200
6258 600
6259 600
Required: Based on the above data, prepare revenue/assistance/loan report
Solution
Revenue/Assistance/Loan report
Me/He 21
Mont May
h
Name of Public Body:_ code: 319
ECSC
Name of Program:_ code: 01
4
Name of Sub Agency:_ code: 07
Name of Sub Program: code: 00

5
 Name of Project: code: _000
Bank Account 10645839
Number:_
Account YEAR-TO-DATE
Code Account description Revenue
Debit Credit
1101 Tax on wages and salaries 6750
1415 Court fees 750
1429 Other fees and charges 1000
1465 Interest on loans to government employees
1485 Other miscellaneous revenue 500
Total (To Trial Balance) 9000

Prepared by Name and Signature

1.2. Recurrent Expenditure Report
The recurrent expenditure report provides information on the year-to-date recurrent expenditures
of each budgetary Institution managed by an accounting Unit. The purpose of the recurrent
expenditure report is to facilitate consolidation of the actual recurrent expenditures made by the
FGE and regional state to facilitate comparison of budgeted expenditure to actual expenditure.
The Accountant prepares the recurrent expenditure report for each BI. The source document to
prepare the recurrent expenditure report is the subsidiary ledger. The balance of each subsidiary
ledger card is transcribed to the appropriate account code or in the recurrent expenditure report.
Balances in the recurrent expenditure Report are normally debits. Each accounting unit prepares
a recurrent expenditure Report for each BI that it manages (MOFED and DSA Project manual,
December 2002). The format of the report is indicated below
Figure 1.2: Recurrent Expenditure
Report
Me/He 22
Month
Name of Public Body: code:
Name of Program: code:
Name of Sub Agency: code:
Name of Sub Program:_ code:

6
 Name of Project: code:
Source of Finance: code:
Bank Account Number:
Account YEAR-TO-DATE
Code Account Description Expenditure
Debit Credit
Preprinted Preprinted

Total (To Trial Balance)

Prepared by Name an Signature

b. Activity 2 Based on the data given on Activity 1, prepare the Recurrent Expenditure report
Solution

Recurrent Expenditure Report

Me/He 22
Month May
Name of Public Body: ECSC code: 319
Name of Program: code: 01
Name of Sub Agency: code: 07
Name of Sub Program:_ code: 00
Name of Project: code: 000
Source of Finance: code: _1800
Bank Account Number: 10645839

7
 Account YEAR-TO-
Code Account Description DATE
Expenditure
Debit Credit
6111 Salary to permanent staff 67500
6131 Gov't contribution to perm. Staff-pension 4050
6241 Maintenance and repair of vehicles 1950
6257 Electricity charges 1200
6213 Printing 7000
6258 Telecommunication charges 600
6259 Water and other utilities 600
6217 Fuel and lubricants 15000
Total (To Trial Balance) 97900

Prepared by Name an
Signature
1.3 Capital Expenditure Report
Capital expenditure Report, provides information on the year-to-date capital expenditures of each
BI managed by an Accounting Unit. The purpose of the capital expenditure report is to facilitate
consolidation of the actual capital expenditures made by the FGE and state governments and to
facilitate comparison of budgeted expenditure to actual expenditure. The Accountant prepares
the capital expenditure Report for each BI. The source document to prepare the Capital
expenditure Report is the subsidiary Ledger. The amount from the balance column in each
subsidiary Ledger card is transcribed to the appropriate account code in the recurrent expenditure
Report. Balances in the Capital Expenditure Report are normally debits, which are similar to the
capital expenditure. Each Accounting Unit prepares a capital expenditure Report for each BI that
it manages. The format of the report is indicated below.

Figure 1.3: Capital Expenditure

Report
Me/He 23
Month code:
Name of Public Body:
Name of Program: code:
Name of Sub Agency: code:
Name of Sub Program: _ code:
Name of Project: code:
Source of Finance: code:
Bank Account Number:
Account YEAR-TO-DATE
Code Account Description Expenditure
Debit Credit
Preprinted Preprinted

Total (To Trial Balance)

8
Prepared by Name and Signature
1.4 Transfer Report
Transfer report delivers information of cash flow made between the accounting unit and
MOFED/State year-to-date and during the month. The transfer report consists of two parts:
Part 1 summarizes transfer account balances from the general Ledger.
Part 2 provides information on each monthly cash transfer between the accounting Unit
and Ministry of Finance and Economic Development.
Part 1
The amount from the Balance Column in the General Ledger Card is transcribed into the transfer
report - Part 1as indicated in figure 1.4. The grand totals from each Transfer report - Part 1 are
carried forward to the trial Balance.
Figure 1.4 Transfer Report - Part 1
Me/He 24 Month
Name of Public Body: code:
Name of Program: code:
Name of Sub Agency: code:

9
 Name of Sub Program: _ code:
Name of Project: code:
Bank Account Number:
Account YEAR-TO-DATE
Code Account Description Balance
Debit Credit
4001 Recurrent salary and allowances
4002 Recurrent operating expenditure
4003 Capital salary and allowances
4004 Capital expenditure
4005 Staff advances
4006 SSDP funds
4007 Grace period payables
4008 Between BI and/or Region
4009 Other cash transfers
4010 Within BI or MOPED
4051 Recurrent salary and allowances: non-cash
4052 Recurrent operating expenditure: non-cash
4053 Capital salary and allowances: non-cash
4054 Capital expenditure: non-cash
4055 Other non-cash transfers
Total (To Trial Balance)

Prepared by Name and Signature

Activity 3 based on the data given in Activity 1, you are required to prepare the Transfer Report
Solution
Transfer Report -
Part 1
Me/He 24 Month May
Name of Public Body: ECSC code: _319
Name of Program: code: 01
Name of Sub Agency: code: 07
Name of Sub Program: _ code: _00
Name of Project : code: _000
Bank Account Number: 10645839

10
 Account YEAR-TO-DATE
Code Account Description Balance
Debit Credit
4001 Recurrent salary and allowances 57550
4002 Recurrent operating expenditure 33450
4003 Capital salary and allowances
4004 Capital expenditure
4005 Staff advances 9600
4006 SSDP funds
4007 Grace period payables
4008 Between BI and/or Region
4009 Other cash transfers 2750
4010 Within BI or MOPED
4051 Recurrent salary and allowances: non-cash
4052 Recurrent operating expenditure: non-cash
4053 Capital salary and allowances: non-cash
4054 Capital expenditure: non-cash
4055 Other non-cash transfers 6750
Total (To Trial Balance) 2750 107350

Each cash transfer during the month between the accounting Unit and Ministry of Pinance and
Economic Development is listed individually in Part 2 of the Transfer Report. The information
required for Part 2 is transcribed from the following cash transfer account Ledger cards:
4001: recurrent salary and allowances
4002: Recurrent operating expenditure
4003: capital salary and allowances
4004: capital expenditure
4005: Staff advances
4006: SSDP funds
4007: Grace period payables
1.5. Receivables Report
The receivables report provides information on the year-to-date receivables owed to an
accounting unit. The purpose of the receivables Report is to facilitate consolidation of the actual
receivables owed to the PGE. The accountant prepares a receivables Report for each accounting
unit. The source document to prepare the receivables report is the general ledger. Each item of
receivable is identified by account code. The amount from the balance column in the general
ledger card is transcribed into the receivables report. The grand totals from each receivable
report are carried forward to the trial balance. Balances in the receivables report are normally
debits. One receivables report is prepared for each accounting unit (MOPED and DSA, Project
manual, January 2002).
Figure 1.6: Receivables Report
Me/He 25
Month
Name of Public Body: code:
Name of Program: code:
Name of Sub Agency: code:

11
 Name of Sub Program: _ code:
Name of Project : code:
Bank Account Number:
Account YEAR-TO-DATE
Code Account Description Receivables
Debit Credit
4201 Suspense
4202 Cash shortage
4203 Advance to staff
4204 Advance for SSDP
4205 Advance for staff from next year's budget
4206 Advance for recurrent expenditures from next year's budget
4207 Advance for capital expenditures from next year's budget
4208 Advance to regions
4209 Other advances to BI
4210 Other advances within government
4251 Advance to contractors
4252 Advance to consultants
4253 Advance to suppliers
4254 Other advances outside government
4271 Peasant associations
4272 Cooperatives
4273 Individuals and private organizations
4274 Others
Total (To Trial Balance)

Prepared by Name and Signature

Activity 4 Based on the data provided in Activity I, you are required to prepare receivable report.
Solution
Receivables Report
Me/He 25
Month May
Name of Public Body: ECSC code: _319
Name of Program: code: 01
Name of Sub Agency: code: 07
Name of Sub Program: _ code: 00
Name of Project : code: 000
Bank Account Number: 10645839

12
 Account YEAR-TO-
Code Account Description DATE
Receivables
Debit Credit
4201 Suspense
4202 Cash shortage
4203 Advance to staff 9600
4204 Advance for SSDP
4205 Advance for staff from next year's budget
4206 Advance for recurrent expenditures from next year's budget
4207 Advance for capital expenditures from next year's budget
4208 Advance to regions
4209 Other advances to BI
4210 Other advances within government
4251 Advance to contractors
4252 Advance to consultants
4253 Advance to suppliers
4254 Other advances outside government
4271 Peasant associations
4272 Cooperatives
4273 Individuals and private organizations
4274 Others
Total (To Trial Balance) 9600
Prepared by Name and Signature

1.6. Payables Report

The payables report provides information on the year-to-date payables owed by an accounting
unit. The purpose of the payables report is to facilitate consolidation of the actual payables owed
by the PGE or regional state. The accountant prepares a payables report for the accounting unit.
The source document to prepare the payables report is the general ledger. Each payable item is
identified by account code and the amount from the balance column in the general ledger card is
transcribed into the payables report. The grand totals from each payables report are carried
forward to the trial balance. Balances in the payables report are normally credits. One payable
report is prepared for each accounting unit (MOPED and DSA Project manual, December 2002).

Figure 1.7: Payables Report

Me/He 26 Month
Name of Public Body: Code:
Name of Program: Code:
Name of Sub Agency: Code:
Name of Sub Program: _ Code:
Name of Project: Code:
Bank Account Number:
YEAR-TO-
Account Account Description DATE
Code Payables
Debit Credit
5001 Grace period payables
5002 Sundry creditors
5003 Pension contribution payable
5004 Salary payable
13
5021 Due to staff
5022 Due to Ministry of Pinance and Economic Development for SSDP
5023 Due to Ministry of Pinance and Economic Development for staff
from next
5024 Due
year'sto Ministry of Pinance and Economic Development
budget
for recurrent
5025 Due to Ministry
expenditures fromofnext
Pinance and
year's Economic Development for capital
budget
expenditures
5026 Due
fromto regions
next year's budget
5027 Other payables to Ministry of Pinance and Economic Development
5028 Other payables within government
5051 Custom deposits
5052 Court deposits
5053 Hospital deposits
5054 Other deposits
5061 Retention on contract
Total (To Trial Balance)
Prepared by Name and Signature

14
 Activity 5 Based on the information given in Activity 1, prepare the Payables report.
Solution
Payables Report
Me/He 26 Month May
Name of Public Body: ECSC Code: _319
Name of Program: Code: 01
Name of Sub Agency: Code: _07
Name of Sub Program: _ Code: _00
Name of Project: Code: _000
Bank Account Number_ 10645839
YEAR-TO-
Account Account Description DATE Payables
Code
Debit Credit
5001 Grace period payables
5002 Sundry creditors
5003 Pension contribution payable
5004 Salary payable 19850
5021 Due to staff
5022 Due to Ministry of Pinance and Economic Development for SSDP
5023 Due to Ministry of Pinance and Economic Development for staff
from next
5024 Due
year'sto Ministry of Pinance and Economic Development
budget
for recurrent
5025 Due to Ministry
expenditures fromofnext
Pinance and
year's Economic Development for capital
budget
expenditures
5026 Due
fromto regions
next year's budget
5027 Other payables to Ministry of Pinance and Economic Development
5028 Other payables within government
5051 Custom deposits
5052 Court deposits
5053 Hospital deposits
5054 Other deposits
5061 Retention on contract
Total (To Trial Balance) 19850
Prepared by Name and Signature
1.7. Trial Balance
The trial balance is the summary of the net cumulative debit and credit balances contained in the
general ledger at the end of each month for each account code represented by a general ledger
card. The trial balance proves the arithmetical accuracy of the general ledger. The total amount
of the debit column must equal the total amount of the credit column in the trial balance. The
trial balance serves as a basis to produce financial statements. The accountant prepares the Trial
balance for each Accounting Unit (MOPED and DSA Project, December 2002).
According to MOPED and DSA Project also, the source documents to prepare the Trial Balance
are:
Revenue/Assistance/Loan Report,
Recurrent Expenditure Report,
15
 Capital Expenditure Report,
Transfer Report,
Receivables Report,
Payable Report, and
The General Ledger.

Please note that in profit-making organizations, trial balances are prepared directly form the
general ledger accounts and each account will be listed in the trial balance as long as it has a
balance. However, in PGE system of accounting, the trial balance is prepared from the reports
already produced for it facilitates the process and provide pertinent figures for the period end
reports. In addition to the reports mentioned above, some balance amounts are directly taken
from the general ledger accounts. The account codes that are taken from the general ledger
directly to the trial Balance are:
Letters of Credit - balances in each account should be credits.
Net Assets/Equity - balance should be credit.
Cash and Cash Equivalents - balances in each account should be debits.
Figure 1.8: Trail Balance
Me/He 27
Month
Name of Public Body: Code:
Name of Program: Code:
Name of Sub Agency: Code:
Name of Sub Program: _ Code:
Name of Project: Code:
Bank Account Number

Code Account Description Debit Credit

- Revenues/Assistance/Loan: (from Revenue/Assistance/Loan
- Report)
Expenditures:
- Recurrent expenditure (Total of Recurrent Expenditure
- Reports)
Capital expenditure (Total of Capital Expenditure Reports)
- Transfers: (from Transfer Report)
- Receivables: (from Receivables Report)
- Payables: (from Payables Report)
Letters of Credit: (by account code-from General Ledger)

5601 Net Assets/Equity (from General Ledger)

Cash and Cash Equivalents (by account code-from General

4101 Ledger)
Cash on hand
4102 Cash at bank in foreign currency
4103 Cash at bank
TOTAL

Prepared by Name & Sig. Checked by Name & Sig. Authorized by Name
& Sig.

16
Activity 6 Based on the data given in activity 1, prepare the monthly trial balance.
Solution
Trail Balance
Me/He 27
Month_ May
Name of Public Body: ECSC Code: 319
Name of Program: Code: 01
Name of Sub Agency: Code: 07
Name of Sub Program: _ Code: 00
Name of Project: Code: 000
Bank Account Number 10645839

17
 Code Account Description Debit Credit
Revenues/Assistance/Loan: (from Revenue/Assistance/Loan report 9000
Expenditures:
Recurrent expenditure (Total of Recurrent Expenditure Reports) 97900
Capital expenditure (Total of Capital Expenditure Reports)
Transfers: (from Transfer Report) 2750 107350
Receivables: (from Receivables Report) 9600
Payables: (from Payables Report) 19850
Letters of Credit: (by account code-from General Ledger)
5601 Net Assets/Equity (from General Ledger)
Cash and Cash Equivalents (by account code-from General ledger
4101 Cash on hand 22850
4102 Cash at bank in foreign currency
4103 Cash at bank 3100
TOTAL 136200 136200

Prepared by Name & Sig. Checked by Name & Sig.

Authorized by Name & Sig.

Case
Assume that you are a finance section head in a reporting entity. Your section has to submit its
monthly report to MOPED during the third week after the end of the month. On one hand, your
section did not finish recording transactions of Hamle to Nehassie 20. On the other hand, your
organization wants to get funds from MOPED for operating expenditures. Do you decide to
delay and complete the report or submit the report on the deadline based on what is recorded?

FINANCIAL REPORTS AND FINANCIAL

STATEMENTS
Learning Objectives:
Explain the minimum requirements for general purpose external financial reporting of state and
local governments and how they relate to comprehensive annual financial reports.
Explain the different objectives, measurement focus, and basis of accounting of the
government-wide financial statements and fund
financial statements of state and local governments.
Prepare the basic financial statements.
Differentiate the financial statements to be prepared at the federal and country wide level.
Identify the accounting standard used by FGE for establishing the basic
financial statement.
INTRODUCTION
The financial statements presented are intended to meet the needs of users who are
not in a position to demand reports tailored to meet their specific requirements. These users
include stakeholders such as members of the legislature, donors, lenders, tax payers and
employees.

The objective of the financial statements is to provide information about the financial position,
performance and cash flows that is useful in making and evaluating decisions about the sources,
allocation and uses of financial resources and about how the activities were financed. In addition, the
financial reporting also provides users with information about whether resources were used in
accordance with the approved budget.

18
Transparency in government begins with full and fair disclosure of financial information. The FGE
uses the International Public Sector Accounting Standards (IPSAS) issued by the Public Sector
Section of the International Federation of Accountants as a basis for establishing the financial
statements.

The FGE accounting system can produce the following set of financial statements:
A set of federal-level financial statements that includes:
Statement of Financial Position
Statement of Financial Performance
Statement of Changes in Net Assets/Equity
Cash Flow Statement
Accounting Policies and Notes to Financial Statements
Statement of Comparison of Budget and Actual Amounts – Domestic
Revenue
Statement of Comparison of Budget and Actual Amounts – External
Assistance
Statement of Comparison of Budget and Actual Amounts – Expenditure

Comparison of Original and Adjusted Budget and Actual Amounts

Statement of Expenditure by Functional Classification

A set of countrywide financial statements that includes:

Summary Statement of Domestic and External Revenues
Summary Statement of Expenditure
Summary Statement of Expenditure and its Statement.

In addition to the above financial statements, the accounting system also produces detailed
revenue and expenditure schedules that provide detailed information and analysis of the
summary countrywide financial statements.

The remainder of this chapter describes the format of each financial statement.

GOVERNMENT OF ETHIOPIA
Statement of Financial Position
As at 7 July 20X2

Ethiopian Birr '000

Notes 20X2 20Xl

ASSETS (CURRENT)
Cash and cash equivalents l 0 0
Receivables 2 0 0

Total Assets 0 0

LIABILITIES(CURRENT)

19
Current Liabilities – Payables 3 0 0

Total liabilities 0 0

Net Current
Assets/(Liabilities) 0 0

NET ASSETS/EQUITY
Accumulated surpluses/deficits 0 0

20
 GOVERNMENT OF
ETHIOPIA Statement of
Financial Performance
For the year ended 7 July 20X2
Ethiopian Birr '000
Notes 20X 20X1
OPERATING 2
ACTIVITIES
Operating Revenue 4 0
Non-tax revenues 5 00 0
Subsidies 6 0 0
Municipality revenues 7 0 0
Other revenue 8 0
Total operating revenue 0 0
0
Operating Expenses
Subsidies 0 0
Personnel services 9 0 0
Goods and services 10 0 0
Fixed assets and construction 11 0 0
Other expenses 12 0
Total operating expenses 0 0
0
Surplus/(deficit) from operating activities 0 0

NON OPERATING ACTIVITIES

External assistance 13 0 0
External loans 14 0 0
Capital revenue 15 0 0
Debt repayments – principal 16 (0) (0)
Finance costs 17 (0) (0)

Surplus/(deficit) from non operating 0

activities 0
Surplus/(deficit) for the year 0 0

21
 GOVERNMENT OF ETHIOPIA
Statement of Changes in Net Assets/Equity
For the year ended 7 July 20X2
Ethiopian Birr '000
Balance at 7 July 20X1 0
Changes in accounting
policy/Fundamental errors 0
Restated balance 0
Net surplus/(deficit) for the year 0
Balance as at 7 July 20X2 0

GOVERNMENT OF
ETHIOPIA
Cash Flow
Statement
For the year ended 7 July 20X2
Ethiopian Birr '000 20X2 20Xl
1 CASH FLOW FROM OPERATING ACTIVITIES
Tax revenues 0 0
Non tax revenues 0 0
Other income 0 0
Miscellaneous income 0 0
Municipality revenues 0 0
Regional subsidy 0 0
Total Receipts - A 0 0
Personnel services 0 0
Goods and services 0 0
Finance charges 0 0
Subsidies 0 0
Other expenses 0 0
Total Payments - B 0 0
Non Cash Movements
Increase/(Decrease) in payables 0 0
Increase/(Decrease) in receivables 0 0
Total Non Cash Movements - C 0 0

Net Cash Flow from Operating Activities 0 0

2 CASH FLOW FROM INVESTING ACTIVITIES

Sale of assets 0 0
Sale of equity 0 0
Repayment of borrowings to government 0 0
Privatization proceeds 0 0
Capital receipts from non government 0 0
Total Receipts (A) 0 0
Fixed Assets and Construction 0 0
Govt. lending or equity investments 0 0
Total Payments (B) 0 0

22
Net Cash Flow from Investing Activities 0 0

23
 3 CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from external assistance 0 0
Proceeds from external loans 0 0
Total Receipts (A) 0 0
Debt repayments – external Total Payments (B) 0 0

Net Cash Flow from Financing Activities 0

0

4 NET INCREASE/(DECREASE) IN CASH &CASH EQUIVALENTS 0

0

5 Cash and Cash Equivalents at Beginning of Year 0 0

6 Net Increase/(Decrease) in Cash Equivalents During the 0 0
Year
7 Cash and Cash Equivalents at End of Year 0 0

GOVERNMENT OF ETHIOPIA
Accounting Policies and Notes to Financial Statements

Notes to Financial Statements

Ethiopian Birr ‘000

1 Cash and Cash Equivalents 20X2 20X1

Domestic currency
Foreign currency
Budget support
Counterpart funds
SSDP
Cash in transit
Sinking fund
Others

Domestic currency refers to local currency held in a safe as well as in a bank account. Foreign
currency is cash held in a bank account denominated in foreign currency. Budget support
refers to cash from a foreign source held in a bank account available for unrestricted general
budgetary support. Counterpart funds refer to grants held in a bank account reserved for
specific program support.

2 Receivables
Advances
Prepayments Others

24
Advances represent amounts due from government entities and staff. Prepayments represent
amounts due from suppliers, contractors and consultants. Others represent amounts
due from peasant associations, cooperatives, individuals, private organizations and others.
GOVERNMENT OF ETHIOPIA Accounting Policies and
Notes to Financial Statements
Notes to Financial Statements
Ethiopian Birr ‘000

3 Payables 20X2 20X1

Accounts Payable
Payables within Government
Direct advances
Treasury bills
Deposits
Retentions

Accounts payables represent grace period payables, sundry creditors, pension contributions
payable, salary payable and other payroll deductions. Payables within government represent
amounts due to government entities and staff. Deposits represent customs, court, hospital
bid bond, VAT and other deposits.

4 Tax Revenues
Tax revenues are legally mandated payments to government. Tax revenues represent
taxes on income, profits and capital gains, value added tax and sales turnover tax on
domestically manufactured goods and services, excise tax and foreign trade taxes which
include excise tax, value added tax, customs and export duties. The breakdown of tax
revenues by revenue item is provided in the statement of comparison of budget and actual
amounts – domestic revenue.

5 Non Tax Revenues

Non-tax revenues represent administrative fees and charges, sales of goods and services and
miscellaneous revenues. The breakdown of non tax revenues by revenue item is provided
in the statement of comparison of budget and actual amounts – domestic revenue.
GOVERNMENT OF ETHIOPIA Accounting Policies and
Notes to Financial Statements

Notes to Financial Statements

6 Subsidies
Subsidy revenue represents treasury funds received by regions from the federal
government to execute their recurrent and capital budgets and subsidy expense

25
represents treasury funds transferred by the federal government to regions to execute
their recurrent and capital budgets.

7 Municipality Revenues
Municipality revenue represents different types of municipal taxes, municipal rents and service
charges and sale of goods and municipal services.

8 Other Revenues
Other revenue represents government investment income including dividend income,
residual surplus and capital charges. The breakdown of other revenues by revenue item is
provided in the statement of comparison of budget and actual amounts – domestic revenue.

9 Personnel Services
Personnel services represent government pension contributions made to pension funds and
salaries, wages, allowances/benefits paid to permanent, contracted, externally contracted and
casual staff. The breakdown of personnel services by expense item is provided in the statement
of comparison of budget and actual amounts – expenditure.

10 Goods and Services

Goods and services represent expenditure incurred on goods and supplies, traveling,
maintenance and repairs, training, stocks of emergency and strategic goods and
contracted services. The breakdown of goods and services by expense item is provided
in the statement of comparison of budget and actual amounts – expenditure.
GOVERNMENT OF ETHIOPIA
Accounting Policies and Notes to Financial Statements

Notes to Financial Statements

11 Fixed Assets and Construction

Fixed assets and construction represent expenditure incurred in the acquisition of fixed assets
and the pre-construction and construction of buildings and infrastructure. The
breakdown of fixed assets by expense item is provided in the statement of comparison of
budget and actual amounts – expenditure.
12 Other Expenses
Other expenses include contingency and miscellaneous payments, compensation to individuals
and institutions, government investments, grants to institutions, and contributions to
international organizations. The breakdown of other expenses by expense item is provided in
the statement of comparison of budget and actual amounts – expenditure.

13 External Assistance
External assistance represents the amounts contributed by donors as grants and are recognized
as revenue on receipt of funds. The breakdown of external assistance by donor is provided in
the statement of comparison of budget and actual amounts – external assistance.

14 External Loans
External loans represent amounts received from external lenders as loans during the fiscal year
and are recognized as revenue on receipt of funds directly or payments to suppliers on behalf
of the government. The breakdown of external loans by lenders is provided in the statement
of comparison of budget and actual amounts –external loans.

26
15 Capital Revenues
Capital revenue represents proceeds from the privatization of state owned
enterprises, sale of fixed assets, stocks and intangible assets and amounts received from non-
governmental sources for capital purposes. The breakdown of capital revenues by item of
revenue is provided in the statement of comparison of budget and actual amounts –
domestic revenue.

GOVERNMENT OF ETHIOPIA
Accounting Policies and Notes to Financial Statements

Notes to Financial Statements

Ethiopian Birr ‘000
16 Debt Repayments
Debt repayments to domestic and external lenders represent the principal amounts repaid
during the year and are recognized as expenditure. The breakdown of debt repayments by
internal and external debt is provided in the statement of comparison of budget and actual
amounts – expenditure.
17 Finance Costs
Finance costs represent payments of bank charges and interest on external and domestic debt.
18 Long Term Foreign Loans
20X2 20X1

27
At the beginning of the year 0 0
Additions 0 0
Amounts written off 0 0
Repayments 0 0
Exchange Differences 0 0
At the end of the year 0 0
The amounts falling due for repayment within the next 12 months amount to Birr
…..
Details of the lenders, date of obtaining loan, amount due in foreign currency and
the period of repayment are detailed below:

Name of Lender Date of loan Amount Due Period

GOVERNMENT OF ETHIOPIA
Accounting Policies and Notes to Financial Statements

Notes to Financial Statements

Ethiopian Birr ‘000
19 Long Term Domestic Loans
20X2 20X1

At the beginning of the year 0 0

Additions 0 0
Repayments 0 0
At the end of the year 0 0

Maturity Analysis
Due within 1 year 0 0
Due within 2 to 5 years 0 0
Due after more than 5 years 0 0

The loans represent long term bonds issued.

20 Comparison of Budget and Actual Amounts – Domestic Revenue

The causes for material differences between the actual amounts and the budget amounts
are detailed below by item of revenue:

21 Comparison of Budget and Actual Amounts – Expenditure

The causes for material differences between the actual amounts and the budget amounts
are detailed below by item of expenditure:

22 Contingent Liabilities
A list of contingent liabilities, explaining its type, nature and circumstances should be
provided together with a reliable estimate of the probable amount.

23 Other Notes
Any other notes and disclosures that MOPED may decide to include as part of the
financial statements.
28
 GOVERNMENT OF ETHIOPIA Accounting Policies and Notes to
Financial Statements
Accounting Policies

The principal accounting policies of the Government, which are set out below, have been applied
consistently throughout the period.

BASIS OF ACCOUNTING
The financial statements have been prepared on the historical cost basis using a modified cash basis of
accounting that recognizes the following non-cash transactions:
Revenue is recognized when:
Aid in kind is received.
Payroll is processed (income tax and employee fines)
Salary advance is made to an employee (interest on salary advances)
Withholding tax is deducted from the amount due to a supplier
Expenditure is recognized when:
Payroll is processed (salary and pension expenses)
Aid in kind is received
Goods are received or services are rendered
At the end of the year, a grace period payable is accounted for.
Intergovernmental transfers are recognized without actual cash movement
Amounts borrowed using treasury bills and direct advances from the
National Bank of Ethiopia are recognized as current liabilities

REVENUE
Revenues are recognized on receipt of amounts except as stated above.

FINANCE COSTS
Finance costs are recognized as an expense in the period in which they are paid.
GOVERNMENT OF ETHIOPIA Accounting Policies and Notes to
Financial Statements
Accounting Policies

TRANSLATION OF FOREIGN CURRENCIES

Transactions denominated in foreign currencies are translated into Ethiopian Birr at the rates of
exchange ruling at the date of the transaction.
Cash and bank balances that are denominated in foreign currencies are translated at the rates of
exchange ruling at the year end and the exchange gains/loss arising from such translation are
recognized as revenue/expenditure respectively.

CONSOLIDATION
The accounts of controlled entities are not consolidated- for example Ethiopian
Airlines and Ethiopian Telecommunications Corporation.

29
 GOVERNMENT OF
ETHIOPIA
Statement of Comparison of Budget and Actual Amounts - Domestic
Revenue
for the year ended 7 July 20X2
Ethiopian Birr '000
20X2 20Xl
Budget Actual Variance Budget Actual
OPERATING Variance
REVENUE Tax
revenues
Tax on income, profit and capital
gains Value Added Tax on goods &
services Excise Tax
Sales turnover tax on goods &
services
Stamp sales and duty
Customs Duty on imported goods
Excise Tax on imported goods
Value Added Tax on imported
goods
Export Duties
Timber Tax
Municipality Tax revenue
Total tax revenues Non-
tax revenues
Administrative fees and
charges
Sales of public goods and
services Miscellaneous revenue
Municipality revenues
Total non-tax revenues
Subsidies
External assistance
External loans
Total operating revenues
Other
revenues
Government investment income
Dividend
income

30
 Residual surplus
Interest income and capital
charges Total government
investment income Contribution
to pension funds Capital
revenue
Sale of properties, stock and intangible assets
Privatization proceeds
Capital transfers from non-governmental sources
Collection of principal from on-lending
Municipality capital and investment revenue
Total capital
revenues Total
other revenues
TOTAL
REVENUE

GOVERNMENT OF ETHIOPIA
Statement of Comparison of Budget and Actual Amounts - External Assistance
for the year ended 7 July 20X2
Ethiopian Birr '000
20X2 20Xl
Adjusted Adjusted
Budget Actual Variance Budget Actual Variance

External Assistance
List of donors
0 0 0 0 0 0

Total 0 0 0 0 0 0
GOVERNMENT OF ETHIOPIA
Statement of Comparison of Budget and Actual Amounts - External Loan
for the year ended 7 July 20X2
Ethiopian Birr '000
20X2 20Xl
Adjusted Adjusted
Budget Actual Variance Budget Actual Variance

External Loan
List of lenders
0 0 0 0 0 0

Total External Loan 0 0 0 0 0 0

31
 GOVERNMENT OF ETHIOPIA

Statement of Comparison of Budget and Actual Amounts - Expenditure

for the year ended 7 July 20X2

Ethiopian Birr '000

20X2 20Xl

Adjusted Adjusted

PERSONNEL SERVICES Budget Actual Difference Budget Actual Difference

Emoluments
Salaries to permanent staff 0 0 0 0 0 0

Salaries to military staff 0 0 0 0 0 0

Wages to contract staff 0 0 0 0 0 0

Wages to casual staff 0 0 0 0 0 0

Wages to external contract staff 0 0 0 0 0 0

Miscellaneous payments to staff 0 0 0 0 0 0

Total 0 0 0 0 0 0

Allowances/benefits
Allowances to permanent staff 0 0 0 0 0 0

Allowances to military staff 0 0 0 0 0 0

Allowances to contract staff 0 0 0 0 0 0

Allowances to external contract staff 0 0 0 0 0 0

Total 0 0 0 0 0 0

Pension contributions
Cont to permanent staff pensions 0 0 0 0 0 0

Cont to military staff pensions 0 0 0 0 0 0

Total 0 0 0 0 0 0

TOTAL PERSONNEL SERVICES 0 0 0 0 0 0

GOODS AND SERVICES

Goods and supplies

Uniforms, clothing, bedding 0 0 0 0 0 0

Office supplies 0 0 0 0 0 0

Printing 0 0 0 0 0 0

Medical supplies 0 0 0 0 0 0

Educational supplies 0 0 0 0 0 0

Food 0 0 0 0 0 0

32
Fuel and lubricants 0 0 0 0 0 0
Other material and supplies 0 0 0 0 0 0

Miscellaneous equipment 0 0 0 0 0 0

Agriculture, forestry & marine inputs 0 0 0 0 0 0

Veterinary supplies and drugs 0 0 0 0 0 0

Research and development supplies 0 0 0 0 0 0

Ammunition and ordinance 0 0 0 0 0 0

Total 0 0 0 0 0 0

Traveling & official entertainment

Per diem 0 0 0 0 0 0

Transport fees 0 0 0 0 0 0

Official entertainment 0 0 0 0 0 0

Total 0 0 0 0 0 0

Maintenance and repair services:

Vehicles and other transport 0 0 0 0 0 0

Aircraft and boats 0 0 0 0 0 0

Plant, machinery, and equipment 0 0 0 0 0 0

Buildings, furniture and fixtures 0 0 0 0 0 0

Infrastructure 0 0 0 0 0 0

Military equipment 0 0 0 0 0 0

Total 0 0 0 0 0 0

Contracted services
Contracted professional services 0 0 0 0 0 0

Rent 0 0 0 0 0 0

Advertising 0 0 0 0 0 0

Insurance 0 0 0 0 0 0

Freight 0 0 0 0 0 0

Fees and charges 0 0 0 0 0 0

Electricity charges 0 0 0 0 0 0

Telecommunication charges 0 0 0 0 0 0

Water and other utilities 0 0 0 0 0 0

Total contracted services 0 0 0 0 0 0

Training services
Local training 0 0 0 0 0 0

External training 0 0 0 0 0 0

Total training services 0 0 0 0 0 0

Emergency & strategic goods

Stocks of food 0 0 0 0 0 0

33
Stocks of fuel 0 0 0 0 0 0
Other stocks 0 0 0 0 0 0

Total stocks 0 0 0 0 0 0

TOTAL GOODS AND SERVICES 0 0 0 0 0 0

Fixed Assets And Construction

Purchase of Fixed Assets
Vehicles & other vehicular transport 0 0 0 0 0 0

Aircraft, boats, etc. 0 0 0 0 0 0

Plant, machinery and equipment 0 0 0 0 0 0

Buildings, furnishings and fixtures 0 0 0 0 0 0

Livestock and transport animals 0 0 0 0 0 0

Military equipment 0 0 0 0 0 0

Total 0 0 0 0 0 0
Construction

Pre-construction activities 0 0 0 0 0 0

Construction of buildings-residential 0 0 0 0 0 0

Const. of building-non-residential 0 0 0 0 0 0

Construction of infrastructure 0 0 0 0 0 0

Construction for military purposes 0 0 0 0 0 0

Total 0 0 0 0 0 0

Total Fixed Assets & Construction 0 0 0 0 0 0

SUBSIDIES 0 0 0 0 0 0

FINANCE COSTS
Interest & bank charges – ext. debt 0 0 0 0 0 0

Interest & bank charges – dom. debt 0 0 0 0 0 0

TOTAL 0 0 0 0 0 0

OTHER EXPENSES
Principal debt payments
Payment – principal of external debt 0 0 0 0 0 0

Payment - principal of domestic debt 0 0 0 0 0 0

Total 0 0 0 0 0 0

Pension payments
Pension payment to permanent staff 0 0 0 0 0 0

Pension payment to military staff 0 0 0 0 0 0

Total 0 0 0 0 0 0

Grants & Cont. to institutions 0 0 0 0 0 0

Government investment 0 0 0 0 0 0

Cont. to international organizations 0 0 0 0 0 0

34
Contingency 0 0 0 0 0 0
Comp. to individuals and institutions 0 0 0 0 0 0

Grants and gratuities to individuals 0 0 0 0 0 0

Contributions to sinking funds 0 0 0 0 0 0

Miscellaneous payments 0 0 0 0 0 0

Total Other Expenses 0 0 0 0 0 0

TOTAL EXPENSES 0 0 0 0 0 0

35
 GOVERNMENT OF
ETHIOPIA
Comparison of Original and Adjusted and Actual
Amounts
for the year ended 7 July
20X2
Ethiopian Birr '000
Origina Adjuste
Varianc Actual Variance
l d
e
6100 PERSONNEL SERVICES

6110 Emoluments

6120 Allowances/benefits

6130 Pension contribution

6200 GOODS AND SERVICES

6210 Goods and supplies

Traveling and official
6230
entertainment services
6240 Maintenance services

6250 Contracted services

6270 Training services

Stocks of emergency and
6280
strategic goods
FIXED ASSETS AND
6300 CONSTRUCTION
6310 Fixed assets

6320 Construction

6400 OTHER PAYMENTS

6410 Subsidies, investments and

payments
6000 TOTAL

36
 GOVERNMENT OF ETHIOPIA
Statement of Expenditure by Functional Classification
for the year ended 7 July 20X2

Ethiopian Birr '000

Administration & General Services Economic Services Social Services Others
Total
100 200 300 400
Code Category and Sub-Category
Adjusted Adjusted Adjusted Adjusted
Actual Variance Actual Variance Actual Variance Actual Variance
Budget Budget Budget Budget
Budget Actual Variance

6100 PERSONNEL SERVICES

6110 Emoluments

6120 Allowances/Benefits

6130 Pension Contributions

6200 GOODS AND SERVICES

6210-20 Goods and Supplies

6230 Travel & Entertainment

6240 Maintenance & Repair

6250 Contracted Services

6270 Training Services

Stocks of Emergency &

6280
Strategic Goods

37
 Administration & General Services Economic Services Social Services Others
Total
100 200 300 400
Code Category and Sub-Category

Adjusted Adjusted Adjusted Adjusted Budget Actual Variance

Actual Variance Actual Variance Actual Variance Actual Variance
Budget Budget Budget Budget

FIXED ASSETS &

6300 CONSTRUCTION

6310 Fixed Assets

6320 Construction

6400 OTHER PAYMENTS

6410 Subsidies, inv. & payments

TOTAL

38
 Summary Statement of Domestic and External Revenues
For the year ended 7 July 20X2

ITEM OF REVENUE

Ethiopian Birr ‘000

A. ORDINARY REVENUE
Direct Tax

Indirect Tax
Taxes on Foreign Trade
Government Investment Income
Other Revenue
Total Ordinary Revenue

B. EXTERNAL ASSISTANCE
Counter Part Fund Grants
Technical Assistance
Total External Assistance

C. CAPITAL REVENUE
Domestic Sources
Counter Part Fund Credit
External Loan
Total Capital Revenue

D. DOMESTIC BORROWING

GRAND TOTAL

39
 Summary Statement of Expenditure
For the year ended 7 July 20X2
Ethiopian Birr ‘000
Particulars Recurrent Expenditure Capital Expenditure Subsidies Total
Administrative & General Service: 100
series of State
Organs
Justice and Security
National Defense
General Services
Others:

Economic Services: 200 series

Agriculture & Rural Development
Water Resources
Trade and Industry
Mines and Energy
Transport and Communication
Construction
Others:

Social Services: 300 series

Education
Information and Communication
Culture and Sport
Health
Labor and Social Affairs
Prevention and Rehabilitation
Others:

Other Expenditures: 400 series

Transfers
Subsidies to regions
Debt
Contingencies and Bank Charges
Miscellaneous
Others:

Grand Total

40
 GOVERNMENT OF ETHIOPIA
Summary Statement of Expenditure and its Financing
For the year ended 7 July 20X2

Ethiopian Birr ‘000

1. EXPENDITURE

A. Recurrent Expenditure
Administrative and General Service
Economic Service
Social Service Other
Service
Total Recurrent Expenditure
B. Capital Expenditure
Economic Development
Social Development General
Development Other
Development
Total Capital Expenditure
C. Subsidy to Regions
Total Expenditure

2. FINANCING

A. Domestic Revenue: Tax

Revenue
Non Tax Revenue
Total Domestic Revenue
B. External Assistance:
Counter Part Fund Assistance
Technical Assistance
Total External Assistance
C. Borrowings:
External Loan & Credit
Counter Part Fund Credit
Project Loan
External Loan Total
Domestic Loan
Direct Advance N.B.E.
Treasury Bills
Deposit & Other Account Balances
Net Domestic Loan & Other Deposit Accounts
Grace Period Credits
Total Borrowing
Total Financing

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