Accounting for Revenue and Other Receipts • NU LAGUNA

Marina V. Justiniani, CPA, MBA

Accounting for Revenue and

Other Receipts
LEARNING OUTCOMES
5
LESSON OUTLINE LEARNING OUTCOMES

 Fundamental Principles for

Revenue Here’s what I will teach you in this course material:
1. State the sources of revenue of a government entity.
 Accounting Standards for
Revenue
2. Understand the recognition and measurement of revenue of Transfer Allocation
 Accrual of Revenue to the
types of
General Fund

 Recognition and Measurement RESOURCES NEEDED

of Revenue for Exchange
Transactions
For this lesson, you would need the following resources:
 Recognition and Measurement
of Revenue from Non-Exchange  Government Accounting by Angelito R. Punzalan
Transactions
 Wiley Not-for-Profit GAAP 2016: Interpretation and Application of
 Tax Revenues
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 Grant with Condition
 TABLE OF CONTENTS
Accounting for Revenue and Other Receipts • NU LAGUNA

Questions for Review and

Discussion

Accountant’s Word Hunt

Accounting for Revenue and

Other Receipts

Before you start, try answering the following questions. 19 Test Yourself

1. Differentiate revenue from revenue funds

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21 References

2. Enumerate the fundamental principles governing revenues accruing

to NGAs
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________________________________________________________

3. How are exchange and non-exchange transactions recognized and

Measured?
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________________________________________________________
________________________________________________________

4. What is a Dishonored Check?

________________________________________________________
________________________________________________________
________________________________________________________

5. How is Cash Shortage/Overage of Disbursing Officer accounted for

By NGAs?
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________________________________________________________
________________________________________________________

Sting

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 Accounting for Revenue and Other Receipts • NU LAGUNA

Accounting for
Revenue and Other
Receipts

The lesson provides the standards,

Policies, guidelines and procedures

In accounting for revenue and

Other receipts including those

Collections through authorized

Agent banks, remittance of

Collections to the National

Treasury through authorized

Government depository bank (AGDB)

And Deposits with the AGDB

In accordance with PPSAS 9

(Revenue from Exchange

Transactions) and PPSAS 23

Revenue from Non-exchange

Transactions)

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 Accounting for Revenue and Other Receipts • NU LAGUNA

Accounting for Revenue and Other Receipts

Hello Class! Let us talk about Accounting for Revenue and Other Receipts.

Section 44 of Book VI of the 1987 Administrative Code provides for the accrual of revenue collected by the

National Government to the unappropriated surplus of the general fund such that “unless otherwise

specifically provided by law, all income accruing to the departments, offices and agencies, by virtue of the

provisions of existing laws, orders and regulations shall be deposited in the National Treasury or in the duly

authorized depository bank of the government.”

Accounting standards, policies, guidelines and procedures for revenue and other receipts are in accordance

with PPSAS 9, Revenue from Exchange Transactions, and PPSAS 23, Revenue from Non-exchange

Transactions.

Now, what are the fundamental principles for Revenue.

All revenues accruing to the National Government Agencies shall be governed by the following principles:

 Revenues accruing to an entity by virtue of the provisions of existing law, orders and regulation shall be

deposited/remitted in the National Treasury or in any duly authorized government depository and shall

accrue to the General fund (GF) of the National Government.

 All moneys and property officially received by a public officer in any capacity or upon any occasion must

be accounted for as government funds and government property

 Amounts received in trust and from business-type activities of government may be separately recorded

and disbursed in accordance with such rules and regulations as may be determined by a Permanent

Committee composed of the Secretary of Finance as Chairman, and the Secretary of Budget and

Management and the Chairman, COA, as members.

 Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds or Funds other than the GF,

only when authorized by law as implemented by rules and regulations issued by the Permanent

Committee.

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 Accounting for Revenue and Other Receipts • NU LAGUNA

 No payment of any nature shall be received by a Collecting Officer (CO) without immediately issuing an

official receipt (OR) in acknowledgement thereof. Receipt may be in the form of postage, internal

revenue or documentary stamps and the like, officially numbered receipts, subject to proper custody,

accountability and audit.

 Where mechanical devices (e.g. electronic official receipt) are used to acknowledge cash receipts, the

COA may approve, upon receipt, exemption from the use of accountable forms.

 At no instance shall temporary receipts be issued to acknowledge the receipt of public funds.

 Pre-numbered ORs shall be issued in strict numerical sequence. All copies of each receipt shall be exact

copies or carbon reproduction in all respects of the original.

 An officer charged with the collection of revenue or the receiving of moneys payable to the government

shall accept payment for taxes, dues or other indebtedness to the government in the form of checks

issued in payment of government obligations, upon endorsement and identification of the payee or

endorsee. Checks drawn in favor of the government in payment of such indebtedness shall likewise be

accepted by the officer concerned. At no instance should money in the hands of the CO be utilized for

the purpose of cashing private checks.

 Under such rules and regulations as the COA and the Department of Finance (DOF) may prescribe, the

Treasurer of the Philippines and all AGDB shall acknowledge receipt of all funds received by them, the

acknowledgement bearing the date of actual remittance or deposit and indicating from whom and on

what account it was received

Let us talk about the Accounting Standards for Revenue

• According the PPSAS 9, Revenue from Exchange Transactions; and PPSAS 23, Revenue from Non-

Exchange Transactions, the following accounting standards shall apply for revenue and receipts of

government entities:

• Revenue includes only the gross inflows of economic benefits or service potential received and

receivable by the entity in its own accounts

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 Accounting for Revenue and Other Receipts • NU LAGUNA

• Receipts/collections shall refer to all cash actually received from all sources during a given accounting

period

• Fines shall include economic benefits or service potential received or receivable by a public sector

agency, as determined by a court or other law enforcement body, as a consequence of the breach of

laws or regulations. Fines and penalties, either on tax revenue or other specific income account, shall

be recognized as income of the year these were collected.

• Gifts and donations shall consist of voluntary transfers of assets including cash or other monetary

assets, goods in-kind and service in-kind that one agency makes to another, normally free from

stipulations.

• Transfers are inflow of future economic benefits or service potential from non-exchange transactions,

other than taxes

What is an accrual of Revenue to General Fund?

• All revenue (income) accruing to the departments, and agencies by virtue of the provisions of existing

laws, orders and regulations shall be deposited in the National Treasury (NT) or in the duly authorized

depository of the Government

• It shall accrue to the General Fund (GT) of the government provided that amounts received in trust and

from business-type activities of government may be separately recorded and disbursed in accordance

with such rules and regulations as may be determined by the Permanent Committee consisting of the

Secretary of Finance as Chairman, and the Secretary of Budget and the Chairman of COA as members.

At this point, let us talk about Special, Fiduciary and Trust Fund.

Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds (TF) or Funds other than the General

Fund, only when authorized by law and following such rules and regulations as may be issued by the

Permanent Committee.

What are the Sources of Revenue and Other Receipts?

• Revenue is the gross inflow of economic benefits or service potential during the reporting period when

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 Accounting for Revenue and Other Receipts • NU LAGUNA
those inflows result in an increase in net assets/ equity, other than increases relating to contributions

from owners.

• PPSAS 9 provides that revenues received by NGAs may arise from:

 Exchange Transaction – transactions in which one entity receives assets or services, or has

liabilities extinguished, and directly gives approximately equal value.

 Non-Exchange Transaction – transactions in which an entity either receives value from another

entity without directly giving approximately equal value in exchange or gives value to another

entity without directly receiving approximately equal value in exchange

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those

inflows result in an increase in net assets/ equity, other than increases relating to contributions from owners.

PPSAS 9 provides that revenues received by NGAs may arise from:

 Exchange Transaction – transactions in which one entity receives assets or services, or has

liabilities extinguished, and directly gives approximately equal value.

 Non-Exchange Transaction – transactions in which an entity either receives value from another

entity without directly giving approximately equal value in exchange or gives value to another

entity without directly receiving approximately equal value in exchange

How are Revenue from Exchange Transactions recognized?

Revenue shall be recognized when it is probable that future economic benefits or service potential will flow to

the entity and these benefits can be measured reliably.

• Sale of Goods

Revenue from sale of goods shall be recognized when all the following conditions have been satisfied

 The entity has transferred to the purchaser the significant risks and rewards of ownership of the

goods

 The entity retains neither continuing managerial involvement to the degree usually associated

with ownership nor effective control over the goods sold

 The amount of revenue can be measured reliably

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 Accounting for Revenue and Other Receipts • NU LAGUNA

 It is probable that the economic benefits or service potential associated with the transaction will

flow to the entity

 The costs incurred or to be incurred in respect of the transaction can be measured reliably

• Supply of Services

 Revenue from supply of services shall be recognized on a straight line basis over the specified

period of the services unless an alternative method better represents the stage of completion of

the transaction. Of revenue by reference to the stage of completion of a transaction is often

referred to as the Percentage of Completion method. Under this method, revenue is recognized

in the reporting periods in which the services are rendered.

 When the result of the transaction involving the rendering of services can be estimated reliably,

revenue associated with the transaction shall be recognized by reference to the stage of

completion of the transaction at the reporting date. The outcome of a transaction can be

estimated reliably when all the following conditions are met:

 Amount of revenue can be measured reliably

 It is probable that the economic benefits or service potential associated with the

transaction will flow to the entity

 The stage of completion of the transaction at the reporting date can be measured reliably

 The cost incurred for the transaction and the costs to complete the transaction can be

measured reliably

 When the result of the transaction involving rendering of services cannot be estimated reliably,

revenue should be recognized only to the extent of the expenses recognized that are

recoverable.

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 Accounting for Revenue and Other Receipts • NU LAGUNA

• Use by Others of Entity Assets

 Revenue arising from the use by others of entity assets yielding interest, royalties and dividends

or similar distributions shall be recognized when it is probable that the economic benefits or

service potential associated with the transaction will flow to the entity

 Interest

o It shall be recognized on a time proportion basis that takes into account the

effective yield on the asset.

o It includes the amount of amortization of any discount, premium of other

difference between the initial carrying amount of a debt security and its amount at

maturity.

 Royalties

o It shall be recognized as they are earned in accordance with the substance of the

relevant agreement.

 Dividends or similar distributions

o It shall be recognized when the shareholder’s or the entity’s right to receive

payment is established.

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 Accounting for Revenue and Other Receipts • NU LAGUNA

How do we measure Revenue for Exchange Transactions?

Please take note:

• When goods or services are exchanges or swapped for goods or services which are

of a similar nature and value, the exchange is not regarded as a transaction which

generates revenue.

• When goods are sold or services are rendered in exchange for dissimilar goods or

services, the exchange is regarded as a transaction which generates revenue.

• Revenue is measured at the fair value of the goods or services received, adjusted by

the amount of any cash or cash equivalents transferred

Now, what happens if Exchanges of Goods or Services for Similar/Dissimilar Good or

Services?

• When goods are sold or services are rendered in exchange of dissimilar goods or

services, the exchange is regarded as a transaction which generates revenue.

• The revenue is measured at the fair value of the goods or services received,

adjusted by the amount of any cash or cash equivalents transferred.

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 Accounting for Revenue and Other Receipts • NU LAGUNA

• When the fair value of the goods or services received cannot be measured reliably,

the revenue is measured at the fair value of the goods given up, adjusted by the

amount of any cash or cash equivalents transferred.

Now, let us talk about Impairment Losses and Allowances for Impairment Losses.

Impairment loss is when an uncertainty arises about the collectability of an amount

already included in revenue, the uncollectible amount, or the amount in respect of which

recovery has ceased to be probable. Entities shall evaluate the collectability of accounts

receivable on an ongoing basis based on historical bad debts, customer/recipient credit-

worthiness, current economic trend and changes in payment activity.

When is Disclosure necessary?

An entity shall disclose:

• The accounting policies adopted for the recognition of revenue, including the

methods adopted to determine the stage of completion of transactions involving

the rendering of services.

• The amount of each significant category of revenue recognized during the period,

including revenue arising from:

 Rendering of services

 Sale of goods

 Interest

 Royalties

 Dividends or similar distributions

 Amount of revenue arising from exchanges of goods or services included in

each significant category of revenue

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 Accounting for Revenue and Other Receipts • NU LAGUNA

Now, let us talk about Recognition and Measurement of Revenue from Non-Exchange

Transaction.

According to PPSAS 23, Revenue from NGAs from Non-exchange transactions are

derived mostly from taxes, gifts, goods in kind and fines and penalties.

• Gifts, Donations and Goods in-Kind

Voluntary transfers of assets, including cash or other monetary assets, goods in-

kind and services in-kind that one entity makes to another.

• Services in-kind

Services provided by individual to public sector agencies in a non-exchange

transaction

• Fines

Economic benefits or service potential received or receivable by NGAs from an

individual or other entity as determined by a court or other law enforcement body

as a consequence of the individual or other entity breaching the requirements of law

or regulations.

Most NGAs derive revenues from transactions where they receive resources and

provide no or nominal consideration directly in return.

 Tax revenue

 Tax revenue - individual and corporation

 Tax revenue – property

 Tax revenue – goods and services

 Tax revenue – others

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 Accounting for Revenue and Other Receipts • NU LAGUNA

 Fines and penalties

 Tax revenue

 Service income

 Business income

 Shares, Grants and Donations

 Share from national wealth

 Share from PAGCOR and PCSO

 Share from earnings of GOCCs

 Income from grants and donation in cash

 Income from grants and donation in kind

 Revenue from non-exchange transactions may arise when, in respect of an

inflow of resources from a non-exchange transaction, the entity satisfies a

present obligation recognized as a liability

 Trust liabilities

 Deferred credits

 Unearned revenue

What are the basis for the recognition of Revenue from Non-Exchange Transaction?

• Cash basis of accounting will be applied by all government agencies in the

recognition of revenue from non-exchange transaction until a reliable model

of measurement of this revenue is developed.

• Asset and the corresponding revenue or liability that arises from non-

exchange transaction shall be recognized when collected or when these are

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 Accounting for Revenue and Other Receipts • NU LAGUNA
measurable and legally collectible

 Taxation revenue shall be determined at gross amount and not to be

reduced from expenses paid through the tax system

 Gifts and donations, other than services in kind shall be recognized as

assets and revenue when it is probable that the future economic

benefits or service potential will flow to the entity and shall be

measured at fair value

 Goods in-kind received without conditions shall be recognized as

revenue immediately

 Donations in cash or in kind shall be recognized as revenue

What is the measurement of Revenue from Non-ExchangeTransactions?

• An entity will recognize an asset arising from a non-exchange transactions

when it gains control of that resource and satisfy the recognition criteria.

• Revenue from non-exchange transactions shall be measured at the amount

of the increase in net assets recognized by the entity.

Let us discuss Tax Revenue.

• Taxes are economic benefits or services potential compulsory paid or payable

to public sector agencies, in accordance with laws and or regulations,

established to provide revenue to the government

• Taxes do not include fines or other penalties imposed for breaches of the law.

• Categories of taxes:

 Income tax is the earning of assessable income during the taxation

period by the taxpayer

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 Accounting for Revenue and Other Receipts • NU LAGUNA

 Value added tax is the undertaking of taxable activity during the

taxation period by the taxpayer

 Goods and services tax is the purchase or sale of taxable good and

services during the taxation period

 Customs duty is the movement of dutiable goods or services across the

customs boundary

 Death duty is the death of a person owning taxable property

 Property tax are taxes assessed to real property

What is Grant with Condition?

• If conditions are attached to a grant, a liability is recognized, which is reduced

and revenue is recognized as the conditions are satisfied.

• As an entity satisfies a present obligation recognized as a liability in respect of

an inflow of resources from a non-exchange transaction recognized as an

asset, it shall reduce the carrying amount of the liability recognized and

recognized an amount of revenue equal to that reduction

What are Dishonored Checks?

• Check is dishonored either by non-payment or non-acceptance.

• Dishonor by non-payment occurs when the check is duly presented for

payment and payment is refused or presentment is excused but check is

overdue and unpaid

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 Accounting for Revenue and Other Receipts • NU LAGUNA

• Dishonor by non-acceptance occurs when the check is duly presented for

acceptance but acceptance is refused or cannot be obtained or presentment is

excused and the check is not accepted.

Do you understand, class?

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 Accounting for Revenue and Other Receipts • NU LAGUNA

Reference

Punzalan, A.. & Cardona, M. (2018). Government Accounting 2018 ed.

Ittelson, T. (2017). Nonprofit Accounting & Financial Statements: Overview for

Board, Management and Staff

Reck , Jacqueline & Wilson, Earl. (2015). Accounting for Governmental & Nonprofit
Entities (Irwin Accounting)

Copley, Paul. (2017). Essentials of Accounting for Governmental and Not-for-Profit

Organizations (Irwin Accounting)

Larkin, R. & Tommaso, Marie. (2016). Wiley Not-for-Profit GAAP 2016:

Interpretation and Application of Generally Accepted Accounting Principles

Freeman, R. & Shoulders, C. (2017). Governmental and Nonprofit Accounting (11th

Edition)

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