Chapter 1 INTRODUCTION

1 1 Chapter 1 INTRODUCTION Recent developments brought about by the Philippine Public Financial Management Reforms and significant changes in the field of accounting prompted the harmonization of the existing accounting standards with the international accounting standards. This Commission revised the New Government Accounting System (NGAS) Manual prescribed under Commission on Audit (COA) Circular No. 2002-002 dated June 18, 2002 to make it responsive to dynamic changes and modern technology.

2 Sec. 1. Legal Basis. The Government Accounting Manual (GAM) is prescribed by COA pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines which provides that: The Commission on Audit shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties".

3 (Underscoring supplied) Sec. 2. Coverage. This Manual presents the basic accounting policies and principles in accordance with the Philippine Public Sector Accounting Standards (PPSAS) adopted thru COA Resolution No. 2014-003 dated January 24, 2014 and other pertinent laws, rules and regulations. It includes the Revised Chart of Accounts (RCA) prescribed under COA Circular No. 2013-002 dated January 30, 2013, as amended; the accounting procedures, books, registries, records, forms, reports, and financial statements; and illustrative accounting entries.

4 It shall be used by all National Government Agencies (NGAs) in the: a. preparation of the general purpose financial statements in accordance with the PPSAS and other financial reports as may be required by laws, rules and regulations; and b. reporting of budget, revenue and expenditure in accordance with laws, rules and regulations. Sec. 3. Objective of the Manual. The Manual aims to update the following: a. standards, policies, guidelines and procedures in accounting for government funds and property; b.

5 Coding structure and accounts; and c. accounting books, registries, records, forms, reports and financial statements. 2 Chapter 2 GENERAL PROVISIONS, BASIC STANDARDS AND POLICIES Sec. 1. Scope. This Chapter covers the general provisions from existing laws, rules and regulations; and the basic standards/fundamental accounting principles for financial reporting by national government agencies. Sec. 2. Definition of Terms. For the purpose of this Manual, the terms used as stated below shall be construed to mean as follows: a.

6 Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid). Therefore, the transactions and events are recognized in the accounting records and recognized in the financial statements of the periods to which they relate. The elements recognized under accrual accounting are assets, liabilities, net assets/equity, revenue, and expenses. b. 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.

7 C. Contributions from owners means future economic benefits or service potential that have been contributed to the entity by parties external to the entity, other than those that result in liabilities of the entity, that establish a financial interest in the net assets/equity of the entity, which: 1. conveys entitlement both to (i) distributions of future economic benefits or service potential by the entity during its life, such distributions being at the discretion of the owners or their representatives; and to (ii) distributions of any excess of assets over liabilities in the event of the entity being wound up; and/or 2.

8 Can be sold, exchanged, transferred, or redeemed. d. Distributions to owners means future economic benefits or service potential distributed by the entity to all or some of its owners, either as a return on investment or as a return of investment. e. Entity refers to a government agency, department or operating/field unit. It may be referred to in this GAM as an agency. f. Expenses are decreases in economic benefits or service potential during the reporting period in the form of outflows or consumption of assets or incurrence of liabilities that result in decreases in net assets/equity, other than those relating to distributions to owners.

9 G. Government Accounting encompasses the processes of analyzing, recording, classifying, summarizing and communicating all transactions involving the receipt and disposition of government funds and property, and interpreting the results thereof. (Sec. 109, Presidential Decree ( ) No. 1445) h. Government Budget is the financial plan of a government for a given period, usually for a fiscal year, which shows what its resources are, and how they will be generated 3 and used over the fiscal period.

10 The budget is the government's key instrument for promoting its socio-economic objectives. The government budget also refers to the income, expenditures and sources of borrowings of the National Government (NG) that are used to achieve national objectives, strategies and programs. i. Liabilities are firm 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. j. Net assets/equity is the residual interest in the assets of the entity after deducting all its liabilities.