GOVERNMENT ACCOUNTING QUIZ 1

1. The Commission on Audit (COA) is conducting a post-audit of a government hospital's financial statements.
The COA findings revealed that while the hospital generated income from its pharmacy operations, there were
unliquidated cash advances and undocumented procurement transactions. The hospital accountant insists
that since the entity operates similarly to a private business, standard business accounting rules should apply.
As a state auditor, how should you evaluate this assertion?
A.​ The hospital accountant is correct; since the government hospital earns income, it should be treated as
a business entity and apply commercial accounting standards exclusively.
B.​ The accountant is partly correct; government hospitals may apply commercial accounting, but only for
segments that generate income.
C.​ The accountant is mistaken; unlike business accounting, government accounting gives more emphasis
to the sources and authorized uses of public funds and the stewardship role of public officials.
D.​ The accountant is correct only if the hospital is classified as a government-owned and controlled
corporation (GOCC).
E.​ The accountant's reasoning is valid only if the agency is under fiscal autonomy and allowed to adopt
private accounting rules.

Explanation:​
Even if a government agency earns income (like a hospital’s pharmacy), it is still subject to government
accounting rules unless it is a fully corporatized GOCC. Government accounting focuses on accountability,
compliance with appropriation laws, and public stewardship, not profit.

2. The Department of Budget and Management (DBM) is presenting the National Expenditure Program (NEP)
to Congress. During the budget hearing, a legislator inquires how the government plans to finance a significant
increase in infrastructure spending under the proposed budget. The DBM Secretary explains that while loans
and grants may supplement the budget, the bulk of government financing will come from internally generated
funds. Which of the following best explains the primary source of these internally generated funds?
A.​ Borrowings from domestic and international financial institutions.
B.​ Dividends from government-owned and controlled corporations (GOCCs).
C.​ User charges, fees, and other service incomes collected by government agencies.
D.​ Taxes imposed by law on individuals, corporations, and transactions.
E.​ Official development assistance (ODA) from foreign donor countries.
Explanation:
Taxes are the primary source of revenue for the government. Other sources like user fees or dividends help,
but taxes make up the largest portion of the General Fund, which supports most expenditures, including
infrastructure.

3. During a training for newly appointed government accountants, one participant raised a concern about
applying International Financial Reporting Standards (IFRS) to the financial statements of a national
government agency. He argued that since both public and private entities deal with assets, liabilities, income,
and expenses, their financial reporting should be based on the same set of principles. As the resource speaker
from the Commission on Audit (COA), how should you respond?
A.​ Agree with the participant, as IFRS is universally applied regardless of sector to promote comparability.
B.​ Agree partially; IFRS is adopted wholesale for both public and private sectors under Philippine public
sector accounting.
C.​ Disagree; government entities follow a distinct framework focusing on budget accountability and
stewardship, which differs significantly from profit-oriented reporting in business entities.
 D.​ Disagree; government entities do not prepare financial statements and are not subject to any
accounting principles.
E.​ Agree, but only GOCCs are exempted from applying government accounting principles.
Explanation:
NGAs follow the Philippine Public Sector Accounting Standards (PPSAS), which prioritize the use and
stewardship of public funds, unlike IFRS which focuses on profit measurement and shareholder reporting.
While similar in some technical aspects, the objectives are fundamentally different.
4. A public sector audit trainee questioned the validity of the Government Accounting Manual (GAM) for
National Government Agencies (NGAS), asserting that since it was not enacted by Congress, it lacks the force
of law. He insists that only statutes can prescribe accounting standards for government. As a senior auditor,
how should you respond to clarify the authority behind the GAM?
A.​ The trainee is correct; COA can only recommend, but not enforce, accounting rules unless Congress
enacts them.
B.​ The GAM has no legal basis because administrative manuals cannot bind NGAS without legislative
enactment.
C.​ The GAM is jointly issued by COA and DBM to ensure budget and accounting consistency, so it is
binding only when ratified by Congress.
D.​ The GAM applies only to GOCCs and not to NGAS, so legislative approval is necessary for it to bind
national agencies.
E.​ The trainee is mistaken; under the 1987 Constitution, the COA has exclusive authority to promulgate
accounting rules and regulations for government agencies, including the GAM.
Explanation:
Article IX-D, Section 2 of the 1987 Constitution gives COA the sole authority to define and prescribe
accounting rules for government. Therefore, the GAM is legally binding on all national government agencies,
even without a separate law from Congress.

5. The Regional Director of a national government agency was puzzled as to why their accounting division was
maintaining multiple sets of books for the same agency. Upon inquiry, the Chief Accountant explained that they
were following COA-prescribed fund cluster accounting, in which the General Fund, Trust Fund, and Special
Accounts are recorded and reported separately. Which of the following best explains the rationale behind this
practice?
A.​ Government entities must apply commercial accounting practices to all funds for consistency with
private sector standards.
B.​ The law prohibits the commingling of public and private funds, thus requiring separate books for each
government employee's transactions.
C.​ COA requires separate accounting per fund cluster to promote transparency, proper fund monitoring,
and accountability in the use of specific appropriations and donations.
D.​ Fund cluster accounting is only followed by government-owned and controlled corporations (GOCCS)
that operate with proprietary functions.
E.​ Fund cluster accounting is a legacy practice with no legal basis under the current GAM for NGAS.

Explanation:​
Fund cluster accounting is essential to prevent mixing different funding sources (like regular budget, trust
receipts, donations). Each fund has distinct legal and accounting implications, so they must be tracked
separately per GAM to ensure proper use.
6. A regional government office temporarily holds computer equipment transferred from another agency
pending final approval of a Memorandum of Agreement. The equipment is in their possession and currently
being used, but no formal transfer of ownership or accountability has been executed. During the year-end
financial reporting, the accountant proposes to recognize the equipment as an asset of the receiving agency
since it is already in use. As the supervising auditor, what is the most appropriate advice?
A.​ Approve the recognition since the asset is already in use and will likely remain with the agency.
B.​ Disallow recognition because the agency does not yet legally own the equipment.
C.​ Disallow recognition because the equipment was not acquired through purchase or donation.
D.​ Disallow recognition because control has not been established through a binding agreement or past
event transferring accountability.
E.​ Approve the recognition provided the cost of the equipment is reasonably estimated and service
potential is evident.

Explanation:​
In government accounting, control and accountability must be legally or contractually transferred before an
asset is recognized. Even if the equipment is in use, without a signed MOA or receipt, there is no legal basis to
claim ownership or recognize the asset.

❌ Why other choices are wrong:

●​ “Approve the recognition since the asset is already in use…”: Usage alone is insufficient — recognition
requires legal control, not just physical possession.
●​ “Disallow recognition because the agency does not yet legally own the equipment”: While close, the
better technical reason is the lack of control/accountability, which is the actual recognition criteria per
PPSAS.
●​ “Disallow because it wasn’t acquired through purchase or donation”: This is too restrictive. Transfer
from another agency is a legitimate acquisition method.
●​ “Approve the recognition if cost is reasonably estimated…”: Again, it overlooks that ownership or
control hasn't legally passed, even if value can be estimated.

7. A government agency owns a parcel of land and a building previously used as a training center. Due to
frequent flooding and structural damage, the property is no longer usable and has significantly declined in
value. Although no final decision has been made on its disposal, the agency accountant recommends
recognizing an impairment loss in the financial statements to reflect the reduced value. Which principle under
government accounting justifies this proposed adjustment?
A.​ Accrual basis - revenues and expenses must be matched in the period they are earned or incurred.
B.​ Prudence - potential losses should be recognized early to avoid overstating assets or income.
C.​ Consistency - similar transactions must be treated uniformly from period to period.
D.​ Reliability - only verifiable transactions with legal documentation may be recognized.
E.​ Historical cost - assets should always be recorded at their original acquisition cost regardless of
impairment.

Explanation:​
The prudence principle in public sector accounting ensures assets are not overstated. Since the property is
damaged and may no longer be usable, recognizing an impairment loss now is a cautious and appropriate
accounting treatment.

❌ Why other choices are wrong:

 ●​ Accrual basis: This relates to timing of income and expenses, not valuation or asset impairment.​

●​ Consistency: This relates to treating similar items the same way over time, not valuation or loss
recognition.​

●​ Reliability: Reliability means info is verifiable and faithfully represented, but doesn't mandate loss
recognition.​

●​ Historical cost: This is the initial basis for recording, but PPSAS allows impairment adjustments when
service potential is reduced.

8. Mr. C, a disbursing officer of a government agency, was entrusted with P500,000 in government funds for the
payment of project-related expenses. While transporting the funds to a remote project site, the vehicle he was
riding in was swept away by a flash flood caused by a typhoon, resulting in the total loss of the cash. Mr. C
believes the event qualifies as a force majeure and thus exempts him from liability. What must Mr. C do to
avoid the presumption of negligence and be relieved from accountability?
A.​ Notify the COA and the agency head within 30 days from the occurrence of the loss, and submit
evidence proving that the loss was due to force majeure.
B.​ Submit a notarized affidavit of loss and wait for COA's automatic clearance.
C.​ Request his head of agency to issue a certification of good faith and due diligence.
D.​ File a motion for judicial relief with the Sandiganbayan within 60 days.
E.​ Return the lost amount within 90 days to avoid administrative sanctions.

Explanation:​
Per COA Circular 2012-001, accountable officers must notify COA within 30 days and submit a Sworn
Statement of Loss and supporting evidence (e.g., police reports, weather alerts). COA determines if the loss is
excusable under force majeure.

❌ Why other choices are wrong:

●​ Submit affidavit and wait: Just submitting an affidavit is not enough. COA doesn’t automatically clear
accountability.
●​ Certification of good faith: This is not a substitute for the formal loss documentation and COA’s
evaluation.
●​ File in Sandiganbayan: That’s for criminal/civil cases, not administrative accountability for fund loss.
●​ Return the money within 90 days: That’s only if COA finds the loss inexcusable. This does not avoid
liability initially.

9. Mr. A, a government disbursing officer, was instructed by Mr. B, a high-ranking elected official, to release #1
million in public funds for the purchase of a luxury car to be given as a birthday gift to Mr. B's daughter. The
instruction was verbal but made in the presence of several staff members. Mr. A is aware that such use of
government funds is not covered by any lawful appropriation or public purpose. What is the most appropriate
action for Mr. A to take?
A.​ Obey the instruction out of respect for Mr. B's political authority but secure a written request to
document the transaction.
B.​ Delay the release of funds and consult the agency's legal division for further clarification.
C.​ Release the funds only after securing a written confirmation from Mr. B, to shift liability in case of audit.
D.​ Refuse the release of funds and formally notify Mr. B in writing that the instruction is illegal and
 violative of government accounting and audit laws.
E.​ Submit the transaction to COA post-audit, and justify it later under discretionary or representation
expenses.

Explanation:​
Public funds must be used only for lawful, appropriated purposes. Mr. A, as an accountable officer, has a duty
to prevent illegal disbursements, even if instructed by a superior. Formal written refusal protects both the
agency and himself.

❌ Why other choices are wrong:

●​ Obey with documentation: Still illegal. Documenting it doesn’t make the transaction lawful.
●​ Delay and consult legal: Delaying is too passive. As the disbursing officer, he is duty-bound to refuse
clearly illegal orders.
●​ Release with confirmation: Same as above — confirmation doesn’t change the nature of the
transaction.
●​ Post-audit justification: COA will still flag this as illegal use of public funds. Post-audit review doesn't
excuse wrongdoing.

10. A CPA reviewing the financial statements of a national government agency noticed a section comparing
the approved budget with actual expenditures. Curious, she asked the agency accountant why such
information was included, noting that this would be unnecessary in private sector financial reports. Which of
the following best explains this unique feature of government financial reporting?
A.​ It ensures compliance with tax obligations under the Local Government Code.
B.​ It supports management's assessment of profit generation and investor returns.
C.​ It satisfies creditors' demands for debt service projections.
D.​ It reflects a distinct accountability requirement in government accounting-to present budget
information in the financial statements for transparency and control.
E.​ It follows the principle of materiality common to all financial reports.

Explanation:​
Unlike the private sector, government entities are accountable to the public for how the budget was spent.
PPSAS and GAM require budget vs. actual comparisons to support transparency, performance monitoring,
and legal compliance.

❌ Why other choices are wrong:

●​ Tax obligations: Not the purpose of this disclosure.
●​ Profit/investor returns: Government agencies are not profit-oriented, and have no shareholders.
●​ Debt service: Budget comparisons are about execution, not debt planning.
●​ Materiality: While materiality is a general principle, it doesn’t explain the requirement for budget
disclosure.

11. A government agency has been preparing its annual budget by simply taking the previous year's
appropriated amounts and applying a uniform 10% increase across all line items to account for inflation and
expected cost increases. The budget officer defends the practice, citing its efficiency and ease of use,
especially under time constraints. What type of budgeting approach is the agency employing?

A.​ Performance-based budgeting

 B.​ Zero-based budgeting
C.​ Line-item budgeting
D.​ Incremental budgeting
E.​ Program budgeting

Explanation: This approach builds on the prior year’s budget by adjusting for inflation or other known changes.
It’s simple but often criticized for failing to review actual needs.

❌ Why others are wrong:

●​ Performance-based budgeting: Focuses on outputs/results, not previous budgets.
●​ Zero-based budgeting: Starts from zero and justifies all expenses annually.
●​ Line-item budgeting: Lists items in categories but doesn't imply incremental increases.
●​ Program budgeting: Groups expenses by programs/goals, not by past allocations

12. A newly appointed director of a regional government office is preparing for the agency's annual
performance review. She is informed that her office is considered a "cost center" and that her performance will
be evaluated primarily on how well she managed the agency's expenditures. The director asks how much
control she truly has over the office's total expenses. Which of the following best reflects the principles of
government cost center management in this context?
A.​ She will be held accountable for all agency expenditures since all costs are controllable at the regional
level.
B.​ She will be evaluated based only on the agency's ability to increase revenues and surplus funds.
C.​ She will be assessed based on how well she manages controllable costs under her authority, even if
many costs are set at higher levels of management.
D.​ Her performance will be judged based on the agency's ability to produce goods at market rates.
E.​ She will be evaluated using private-sector profitability metrics like net income and return on investment.

Explanation: In responsibility accounting, managers are accountable only for costs they can influence, not for
centrally imposed or non-controllable costs.

❌ Why others are wrong:

●​ All agency expenditures: Unrealistic — she can’t control everything.
●​ Revenues and surpluses: Cost centers focus on expenditures, not revenues
●​ Produce goods at market rates: Not applicable to government service delivery.
●​ Net income/ROI: Private-sector metrics — not used in government cost centers.

13. During a COA audit of a government hospital, the Chief of the Laboratory Department explained that while
he oversees the use of supplies and scheduling of personnel, the depreciation cost of lab equipment was
charged to his unit even though he had no role in its acquisition or pricing. In the context of responsibility
accounting, how should the auditor classify the depreciation expense charged to the Laboratory Department?
A.​ A controllable cost
B.​ A non-controllable cost
C.​ A fixed cost
D.​ A variable cost
E.​ A discretionary cost
Explanation: The lab head didn’t decide to acquire or price the equipment. Depreciation is allocated, not
controllable by him.

❌ Why others are wrong:

●​ Controllable cost: Not within his decision-making power.
●​ Fixed cost: While depreciation is fixed in nature, the classification here is about control, not behavior.
●​ Variable cost: Depreciation doesn’t vary with usage.
●​ Discretionary cost: Refers to costs like training or marketing — not systematic expenses like
depreciation.

14. A government agency has just submitted its proposed budget for the next fiscal year. The agency head is
scheduled to attend a series of meetings to justify and defend the proposed allocations for each program. A
budget officer from the Department of Budget and Management (DBM) explains that this step is crucial before
the DBM can finalize and submit the national budget to the President. At what stage of the national budgeting
process is the agency currently involved?
A.​ Budget authorization stage
B.​ Budget accountability stage
C.​ Budget preparation stage
D.​ Budget execution stage
E.​ Appropriation stage

Explanation: This is part of the agency proposal and review before submission to the President and then
Congress.

❌ Why others are wrong:

●​ Budget authorization: Happens when Congress enacts the GAA.
●​ Budget accountability: Happens after execution, during performance evaluation.
●​ Budget execution: After the GAA is passed.
●​ Appropriation: A law enacted by Congress, not the agency's internal proposal.

15. After the Department of Budget and Management (DBM) consolidated the budget proposals from various
agencies, the President reviewed and approved the draft budget. The DBM then submitted a package of
documents to Congress for deliberation. A first-time legislator asked what the components of the "President's
Budget" are and how it differs from earlier submissions. Which of the following is correct regarding the
"President's Budget" as submitted to Congress?
A.​ It consists solely of the General Appropriations Bill (GAB), which becomes law once Congress approves
it.
B.​ It includes only the President's Budget Message and NEP, excluding any financial source data.
C.​ It contains only high-level estimates and is not intended for line-by-line congressional scrutiny.
D.​ It is the final and legally binding national budget once submitted to Congress.
E.​ It consists of the President's Budget Message, the NEP, the BESF, and supporting explanatory
documents for legislative deliberation.

Explanation: These are required by the Constitution and budget laws to allow detailed review and transparency
during congressional deliberation.
❌ Why others are wrong:
●​ Only the GAB: GAB is included, but not the only component.
●​ Excludes financial sources: BESF contains financial sources.
●​ Not intended for line-by-line scrutiny: Congress does scrutinize at that level.
●​ Final and legally binding: It’s a proposal, not law yet.

16. A student observes congressional proceedings during the national budget season. She notes that while the
House of Representatives has started its deliberations on the President's Budget, the Senate has also begun its
own hearings even though it has not yet received the final General Appropriations Bill (GAB) from the House.
What stage in the national budget process is being described?
A.​ This describes the budget authorization phase.
B.​ This describes the budget execution phase
C.​ This is part of the budget preparation phase.
D.​ This is the final stage of budget accountability.
E.​ This describes a post-enactment audit stage.

Explanation: Authorization occurs when Congress debates and eventually passes the GAA. Both chambers
may hold hearings independently.

❌ Why others are wrong:

●​ Execution: Happens after GAA is passed.
●​ Preparation: Happens before the President submits the budget.
●​ Accountability: Comes after spending.
●​ Post-enactment audit: Comes after the budget has been spent.

17. Congress failed to pass the new General Appropriations Bill (GAB) before the start of the fiscal year. As a
result, the government operated under the same budget as the previous year. The President later enacted the
new GAA after exercising his line-item veto power on certain provisions. Which of the following statements
correctly reflects the legal principles governing this situation?
A.​ The President must approve the entire budget without alteration once passed by Congress.
B.​ The President may veto the entire GAA only, not individual items.
C.​ In case of delay in the enactment of the new budget, the previous year's GAA is automatically reenacted
until a new one is passed.
D.​ The budget cannot be implemented until Congress enacts a supplemental appropriations act.
E.​ The President may only implement the NEP without congressional approval in case of reenactment.

Explanation: The automatic reenactment rule ensures government operations continue despite delays, except
for one-time appropriations.

❌ Why others are wrong:

●​ President must approve entire budget: He can exercise line-item veto.
●​ Only veto entire GAA: Line-item veto is allowed under the Constitution.
●​ Supplemental act required: Not true; reenactment fills the gap.
●​ NEP without approval: NEP is just a proposal — not a budget law.
18. During mid-year budget execution, the Office of the President identified significant savings from its travel
funds and proposed to use the amount to increase the confidential and intelligence fund allocation of the
office. An officer raised concern that such transfer may violate constitutional rules on appropriation. Which of
the following correctly states the constitutional rule on transfer of appropriations?
A.​ The President may transfer funds from one agency to another to respond to emerging priorities.
B.​ No law shall ever authorize any form of transfer of appropriations under the General Appropriations Act.
C.​ The President and other specified officials may only be authorized by law to augment specific items in
their own offices from savings within the same office.
D.​ The President may realign savings from any agency for any purpose so long as it is within the Executive
Branch.
E.​ The DBM Secretary is the only official authorized to augment appropriations when savings exist.

Explanation: Per Section 25(5), Article VI of the 1987 Constitution, augmentation is only allowed within the
same office and only if authorized by law.

❌ Why others are wrong:

●​ Transfer between agencies: Not allowed.
●​ No transfer at all: Some transfer is allowed within limits.
●​ Realign within the Executive freely: Not allowed without legal basis.
●​ Only DBM Secretary can augment: DBM helps implement, but doesn’t have sole authority.

19. A government agency entered into a multi-million peso consulting contract without first securing an
allotment from the DBM. Upon audit, the agency claimed the expenditure was justified because the project was
included in the General Appropriations Act (GAA) and was necessary for national development. Which is
correct?
A.​ An inclusion in the GAA automatically grants the agency the authority to obligate funds.
B.​ Contracts must first be approved by Congress.
C.​ The agency may obligate funds even without an allotment, provided the DBM confirms the expenditure.
D.​ The agency committed an illegal act by incurring obligations without first receiving an allotment from
the DBM.
E.​ The obligation is valid if the head of the agency certified the necessity of the contract.

Explanation: Obligations must be supported by an allotment, even if the project is in the GAA. The GAA alone
doesn’t permit obligation without a corresponding release.

❌ Why others are wrong:

●​ Inclusion in GAA is enough: No — requires NCA/SARO from DBM.
●​ Congress must approve contracts: Not true; DBM and agency coordinate contracts.
●​ DBM confirmation suffices after: Must be approved before obligation.
●​ Agency head certification is enough: No legal basis for that alone.

20. A government agency received funds for a disaster relief operation from the Calamity Fund, which is listed
under Special Purpose Funds. However, before incurring any obligation, the agency is informed that certain
documents and clearances must first be submitted to the DBM for approval. Which of the following budget
release documents is required in this situation?
 A.​ General Appropriations Act Release Document (GAARD)
B.​ General Allotment Release Order (GARO)
C.​ Notice of Cash Allocation (NCA)
D.​ Special Allotment Release Order (SARO)
E.​ Cash Disbursement Ceiling (CDC)

Explanation: For Special Purpose Funds, DBM issues a SARO to authorize obligation. The GAA doesn’t
automatically authorize spending these.

❌ Why others are wrong:

●​ GAARD: Confirms release of agency-specific items, not SPF.
●​ GARO: Used in older budgeting — replaced in current systems.
●​ NCA: Authorizes cash disbursement, not obligation.
●​ CDC: Controls cash spending, not budget allotment.

21. A CPA transitioning from the private sector to a government agency noticed that while the fundamental
accounting cycle-such as journalizing and posting-is familiar, there are additional documents and steps in the
government setting, such as budget registries and accountability reports. Which of the following best explains
the key distinction between government and business accounting processes?\
A.​ Government accounting skips the classification process since expenditures are always predetermined.
B.​ Government accounting does not require summarizing transactions into financial reports.
C.​ Government accounting focuses on profit generation and efficiency, unlike business accounting.
D.​ Government accounting follows the same recording principles but integrates budgetary controls and
compliance reporting,
E.​ Government accounting excludes interpreting results due to its non-commercial nature.

Explanation: While the core accounting cycle is similar (journalizing, posting, etc.), government accounting
includes additional elements like budget registries, compliance reports, and stewardship focus due to the
public nature of funds.

❌ Why others are wrong:

●​ Classification skipped: Not true; classification is critical in government accounting (e.g., PS, MOOE,
CO).
●​ No summarizing: Government agencies do summarize for FS and accountability reports.
●​ Profit generation focus: Government accounting emphasizes public accountability, not profit.
●​ Excludes interpreting results: Interpretation is key for transparency and performance evaluation.

22. During a year-end internal audit of a government agency, a new auditor noticed that while the accounting
unit maintained ledgers and journals, a separate division-the budget office-maintained records that tracked
appropriations, allotments, and obligations. The auditor mistakenly attempted to reconcile budget utilization
using the general ledger alone. Which of the following best explains the proper distinction between accounting
records and budget records in government financial management?
A.​ The agency's journals and ledgers are used solely for budget tracking, while the registries serve as
duplicate accounting books.
B.​ The registries maintained by the accounting unit are the only official source of financial accountability.
C.​ Journals and ledgers are accounting records maintained by the accounting unit, while registries are
 budget records maintained by the budget division to monitor appropriations and disbursements.
D.​ Both accounting and budget records are maintained exclusively by the DBM, not the agency.
E.​ There is no distinction; all financial records in government must be consolidated under one department.

Explanation: Budget and accounting are parallel systems: registries (like RAOD, RANCA) track budget
utilization, while ledgers and journals track actual financial transactions.

❌ Why others are wrong:

●​ Journals for budget only: Incorrect — they’re for accounting.
●​ Registries are sole source: Both systems are necessary and complementary.
●​ Only DBM maintains: Agencies maintain their own books and registries.
●​ No distinction: There is a clear functional separation between the two.​

23. A government accountant is reviewing the Registry of Allotments, Obligations, and Disbursements (RAOD)
for a public university. The disbursement records show expenses for salaries, utility bills, foreign exchange
losses, and the purchase of laboratory equipment. The accountant reminds the bookkeeper that proper
classification of expenses is essential for compliance with budget laws and reporting. Which of the following
correctly pairs each expenditure with its corresponding classification by object?

A.​ Salaries - MOOE; Utilities - CO; Bank charges - PS; Equipment - FE

B.​ Salaries - PS; Utilities - MOOE; Bank charges - FE; Equipment - CO
C.​ Salaries - FE; Utilities - PS; Bank charges - MOOE; Equipment - PS
D.​ Salaries - CO; Utilities - CO; Bank charges - MOOE; Equipment - MOOE
E.​ Salaries - PS; Utilities - PS; Equipment - FE; Bank charges - CO

Explanation:

●​ PS (Personal Services): Salaries

●​ MOOE (Maintenance & Other Operating Expenses): Utilities
●​ FE (Financial Expenses): Bank charges (like foreign exchange losses)
●​ CO (Capital Outlay): Purchase of equipment

❌ Why others are wrong:

●​ All other options misplace at least one item — e.g., salaries as MOOE or CO, which is incorrect.

24. A project management office of a government agency is planning to obligate funds for the procurement of
supplies. The administrative officer prepares an Obligation Request and Status (ORS) and attaches the
disbursement voucher and the approved purchase request. During review, the COA auditor asks which officials
are required to sign the ORS to validate the obligation. Who among the following must certify the necessity and
legality of the obligation and confirm the availability of the allotment, respectively?
A.​ Head of DBM and Chief Accountant
B.​ Head of COA and Procurement Officer
C.​ Head of the Requesting Office and Head of the Budget Division
D.​ DBM Regional Director and Auditor-in-Charge
E.​ Budget Officer and Supply Officer
Explanation:

●​ The Head of the Requesting Office certifies the necessity and legality.
●​ The Budget Officer confirms availability of allotment.

❌ Why others are wrong:

●​ COA/DBM officials: Not directly involved in internal obligation certification.
●​ Procurement/Supply officer: Handles sourcing, not legal/allotment confirmation.
●​ Auditor-in-Charge: Reviews after-the-fact, not during obligation.

25. A government agency obligated funds for the procurement of office furniture but later realized that the
amount recorded in the Registry of Allotments, Obligations, and Disbursements (RAOD) was overstated due to
a clerical error in the ORS. The agency intends to reduce the obligation in the registry but seeks guidance on
the correct document to use and whether it affects the accounting records. What is the correct document to be
used for this purpose, and when will the accounting entries be recorded?

A.​ Disbursement Voucher; immediately upon approval of the procurement request.

B.​ Purchase Order; once the funds are allotted.
C.​ Notice of Obligation Request and Status Adjustment (NORSA); accounting entries are recorded after
delivery or service is rendered.
D.​ Journal Voucher; immediately after ORS is prepared.
E.​ Budget Execution Document; upon issuance of a SARO.

Explanation:

●​ NORSA is the proper document to adjust obligations in registries.

●​ Accounting entries follow actual delivery or service, per accrual basis.

❌ Why others are wrong:

●​ DV/Purchase Order: Used for payment/procurement, not corrections.
●​ Journal Voucher: Used for adjusting entries in the accounting books, not registries.
●​ BED: Budget Execution Document — used for planning, not adjustments.

26. A national government agency received a Notice of Cash Allocation (NCA) from the DBM to cover the
disbursement of funds for its operational expenses. The budget officer updates the Registry of Allotments and
Notice of Cash Allocation (RANCA) accordingly. The accountant, upon receipt of the NCA, proceeds to record it
in the agency's books. Which of the following best describes the effect of receiving the NCA and the
corresponding accounting treatment?
A.​ No accounting entry is made until actual disbursement occurs, as NCA is a non-accountable
transaction.
B.​ The NCA is posted only in the budget registry (RANCA) and does not affect financial statements.
C.​ A journal entry is made to recognize an increase in cash and increase in revenue since it affects
financial statement elements.
D.​ The receipt of the NCA only results in a memo entry, not a journal entry, because it does not involve
cash inflow.
E.​ The NCA is treated as a liability to DBM and recorded under unearned revenue.
Explanation:

●​ An NCA authorizes cash disbursement via MDS but does not involve physical cash. Therefore, only a
memo entry is made.

❌ Why others are wrong:

●​ No entry at all: There is a memo entry.
●​ Posted in financials: Not until actual disbursement.
●​ Increase in cash/revenue: NCA ≠ revenue or immediate cash.
●​ Treated as liability/unearned revenue: Misclassification — it’s an authorization, not a financial
obligation.

27. A newly assigned collecting officer in a government agency mistakenly issued an Official Receipt (OR) upon
receipt of a Notice of Cash Allocation (NCA) from the DBM. The agency accountant corrected the error,
explaining that NCA receipts are not considered actual collections and are not recorded in the Cash Receipts
Journal. Which of the following statements best explains the correct handling of NCAS under government
accounting rules?
A.​ The issuance of an OR is proper because the NCA is a fund inflow similar to other collections.
B.​ The NCA should be recorded in the Cash Receipts Journal and posted to the cash account.
C.​ The NCA is considered a revenue collection and must be documented with an OR to comply with audit
trail requirements.
D.​ The NCA is not an actual collection and should not be received; it is recorded in the General Journal
only.
E.​ The NCA must be recognized as a liability until fully liquidated by the agency.

Explanation:

●​ NCAs are authority to disburse, not collections. Issuing an OR is incorrect — it's not income or received
funds.

❌ Why others are wrong:

●​ Proper to issue OR: No — only for actual collections.
●​ Record in CRJ: CRJ is only for real cash receipts.
●​ Revenue collection: NCA is not a revenue.
●​ Recognized as liability: Not a liability, just an authorization.

28. A national government agency withheld taxes from supplier payments and recorded the obligation to remit
the taxes to the Bureau of Internal Revenue (BIR). However, no physical cash was transferred to the BIR.
Instead, the agency used a Tax Remittance Advice (TRA) to settle the amount and continued using the
equivalent funds for its operations. A new accountant asked how this should be treated in the books. Which of
the following correctly describes the purpose and effect of the TRA?
A.​ The TRA authorizes the agency to delay payment of taxes to the BIR until actual cash is available.
B.​ The TRA represents actual remittance of tax in cash to the BIR and should be reflected as a cash
outflow.
C.​ The TRA is a constructive remittance and receipt of taxes that does not involve actual cash transfer but
is recorded similarly to a subsidy from the national government.
D.​ The TRA is only recorded in the BIR's books and has no accounting effect on the government agency.
 E.​ The TRA is recorded only in the RANCA registry and does not affect the agency's general journal.

Explanation:

●​ TRA settles tax obligations without cash movement. It’s a book entry, treated like a subsidy from NG to
cover taxes.

❌ Why others are wrong:

●​ Delays payment: TRA settles, not delays.
●​ Actual cash: No physical cash changes hands.
●​ Only in BIR’s books: TRA affects both agency and BIR records.
●​ Only in RANCA: Incorrect — it affects journals and ledgers too.

29. A state university collected P1.2 million in laboratory fees and planned to use the amount to upgrade its
facilities. However, during a COA audit, the auditor flagged the use of collections without prior remittance to
the National Treasury. The university's finance officer argued that they collected the amount directly and
believed they could immediately use it for operations. Is the finance officer correct?
A.​ Yes, all collections can be retained by the collecting agency as long as it is for public service use.
B.​ Yes, collections must be automatically recorded as income of the agency.
C.​ No, all collections must be remitted to the National Treasury unless a special law allows retention or
use by the collecting agency.
D.​ Yes, only local government units are required to remit collections to the National Treasury.
E.​ No, only State universities are required to remit collections to the National Treasury if their income is
internally generated.

Explanation:

●​ By default, all income must be remitted. Only when there is a legal basis (like Income Retention
Authority) can it be used directly.

❌ Why others are wrong:

●​ Always retain for public use: Needs legal authority.
●​ Automatically income: Needs proper recognition and remittance.
●​ Only LGUs remit: NGAs also remit.
●​ Only SUCs remit if internal: SUCs still follow national rules unless exempted.

30. A government agency is finalizing payments for goods delivered in the current year, even though the
obligations were incurred from prior year appropriations. To efficiently manage its available cash under the
Notice of Cash Allocation (NCA), the agency opts to apply unutilized balances from its current year NCA under
the Regular MDS Account. What policy allows this application of current year NCA to cover prior year
obligations, provided that the agency's current operating requirements have been met?

A.​ Cash Disbursement Ceiling Policy

B.​ Forward Obligational Authority
C.​ Common Fund System Policy
D.​ Modified Disbursement Scheme Policy
E.​ Budget Realignment Authority
Explanation:

●​ Under the Common Fund System, unutilized current NCAs can be used for valid prior year obligations,
if current requirements are met.

❌ Why others are wrong:

●​ CDC Policy: Regulates disbursement ceilings, not NCA reallocation.
●​ Forward Obligational Authority: Relates to obligation authority, not NCA usage.
●​ MDS Scheme: Refers to disbursement process, not fund application.
●​ Budget Realignment: Relates to realigning within programs, not using NCAs across years.

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