TOPIC 4: REVENUES AND OTHER

RECEIPTS
Government Accounting & Accounting for Non-Profit Organization
By: Zeus Vernon B. Millan
LEARNING OBJECTIVES
¡ State the sources of revenue of a government entity.
¡ State the recognition and measurement of revenue.
Revenue
REVENUE
¡ It is the gross inflow of economic benefits or service potential during the reporting
period when those inflows result in an increase in equity, other than increases
relating to contributions from owners.
¡ It includes only those that are received or receivable by the entity in its own account.
¡ Receipts refer to actual cash collections from all sources during a period.
Fundamental Principles for Revenue
FUNDAMENTAL PRINCIPLES FOR REVENUE
a. All revenues of an entity shall be remitted to the National Treasury and included in
the General Fund of the National Government, unless another law specifically allows
otherwise.
b. All moneys and property received by a public officer, acting in any capacity or upon
any occasion, shall be accounted for as government funds and government property,
unless another law specifically states otherwise.
c. Amounts received in trust and from business-type activities of the government may
be separately recorded and disbursed in accordance with relevant rules.
d. Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds, or Funds
other than the General Fund only when authorized by law.
e. A collecting officer shall immediately issue an official receipt (OR) upon collecting a
payment of any nature
FUNDAMENTAL PRINCIPLES OF REVENUE
f. Where mechanical devices (e.g. electronic official receipt) are used to acknowledge
cash receipts, the COA may approve, upon request, the exemption from the use of
accountable forms.
g. Temporary receipts shall never be used to acknowledge the receipt of public funds.
h. Pre-numbered official receipts (ORs) shall be issued in strict numerical sequence.
Duplicate copies shall be the exact copies of the original.
i. A collecting officer shall accept payments to the government in the form checks,
upon proper endorsement and identification of the payee or endorsee. The
collecting officer shall not use government funds to encash private checks.
j. Receipts of government funds shall be acknowledged in accordance with the law-
indicating the date of receipt, from whom and on what account the fund was
received.
Types of Funds
TYPES OF FUNDS
¡ General Fund
¡ Special Fund
¡ Trust Fund (Fiduciary Fund)
¡ Revenue Fund
¡ Depository Fund
¡ Special Account in the General Fund (SAGF)
¡ Special Purpose Fund (SPF)
GENERAL FUND
¡ A fund which is available for any purpose other than those which other funds have
been designated to.
SPECIAL FUND
¡ A fund designated for special purposes, usually sourced from specific revenues
that are earmarked for that purpose.
TRUST FUND (FIDUCIARY FUND)
¡ Fund held by a government agency or public officer acting as trustee, agent, or
administrator for the fulfillment of a condition.
REVENUE FUND
¡ Comprises all funds derived from the income of any government agency and
available for appropriation or expenditure in accordance with the law.
DEPOSITORY FUND
¡ Fund held in an authorized depository bank over which the recipient agency
retains control for the lawful purposes for which the fund was received.
SPECIAL ACCOUNT IN THE GENERAL FUND (SAGF)
¡ Established to facilitate the funding of priority activities of the government.
¡ The SAGF is sourced from specific fees, grants and donations, and other sources
identified under the law.
¡ The following are relevant legal provisions regarding the SAGF:
a. All income and collections for Special and Fiduciary Funds shall be remitted to the
Treasury and treated as SAGF.
b. The SAGF shall be considered as being automatically appropriated for purposes
authorized by law, except when the General Appropriations Act (GAA) provides
otherwise.
c. SAGF shall be released to government agencies subject to the approval of the
President.
SPECIAL PURPOSE FUND (SPF)
¡ Are funds that the President allocates for special programs and projects.
¡ Unlike other funds, SPFs are not under the accountability of any particular
government agency/office or unit.
¡ It is an appropriation in the General Appropriations Act (GAA) set aside for specific
purposes but not assigned to a particular agency at the time of budgeting.
RELEVANT PROVISION OF LAW
¡ All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.
Sources of Funds
SOURCES OF FUNDS
a. Exchange transactions (reciprocal transfers)
b. Non-exchange transactions (non-reciprocal transfers)
EXCHANGE TRANSACTIONS (RECIPROCAL TRANSFERS)
¡ Are transactions in which one entity receives assets or services, or has liabilities
extinguished, and directly gives approximately equal value to another entity in
exchange.
¡ Examples: sale of goods and rendering of services.
NON-EXCHANGE TRANSACTIONS (NON-RECIPROCAL
TRANSFERS)
¡ Are 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.
¡ Examples: tax revenue, fines and penalties and donations.
¡ When the consideration transferred does not approximate the fair value of the
resources received, the entity determines whether the transaction includes a
combination of exchange and non-exchange transactions. Each component shall be
recognized separately.
¡ If it is not immediately clear whether a transaction is an exchange or non-exchange
transaction, the substance of the transaction shall be examined to determine its
type. For example, the sale of goods is normally an exchange transaction. However, if the
transaction price is subsidized, the transaction falls within the definition of a non-
exchange transaction.
¡ The receipt of trade discounts, quantity discounts, or other reductions in price does
not necessarily mean that the transaction is a non-exchange transaction.
Exchange Transactions
SOURCES OF FUNDS
1. Sale of goods or provisions of services to third parties or other government
entities.
2. Use by other entity if assets yielding interest, royalties and dividends or similar
distributions.
SALE OF GOODS OR PROVISIONS OF SERVICES TO
THIRD PARTIES OR OTHER GOVERNMENT ENTITIES
a. Service Income - Permit Fees, Registration Fees, Franchising Fees, Licensing Fees,
Legal Fees, Passport and Visa Fees, Processing Fees, and the like.
b. Business Income - School Fees, Examination Fees, Rent/Lease Income,
Communication Network Fee, Income from Hostels/Dormitories, Sales Revenue,
Hospital Fees, Share in the Profit of Joint Venture, and the like.
USE BY OTHER ENTITY IF ASSETS YIELDING INTEREST,
ROYALTIES AND DIVIDENDS OR SIMILAR DISTRIBUTIONS
a. Interest income - charges for the use of cash or cash equivalents, or amounts
due to the entity;
b. Royalties - fees paid for the use of the entity's assets such as trademarks, patents,
software, and copyrights; and
c. Dividends - share of the National Government from the earnings of its
capital/equity investments in Government-Owned or Controlled Corporations
(GOCCs) and other entities.
RECOGNITION OF REVENUE FROM EXCHANGE
TRANSACTIONS
Sale of Goods
Revenue from the sale of goods shall be recognized when all of the following
conditions are satisfied:
i. Significant risks and rewards of ownership of the goods are transferred to the
buyer;
ii. The entity does not retain continuing managerial involvement or effective control
over the goods sold;
iii. It is probable that economic benefits will flow to the entity;
iv. Revenue can be measured reliably; and
v. Costs relating to the transaction can be measured reliably.
RECOGNITION OF REVENUE FROM EXCHANGE
TRANSACTIONS
Rendering of Services
¡ Revenue from the supply of services is recognized on a straight line basis over
the period the services are rendered.
¡ However, revenue is recognized by reference to the stage of completion (e.g,
percentage of completion method) if the outcome of the transaction can be
estimated reliably, such as when all of the following conditions are satisfied:
i. The stage of completion of the transaction at the reporting date can be
measured reliably;
ii. It is probable that economic benefits will flow to the entity;
iii. Revenue can be measured reliably; and
iv. Costs relating to the transaction can be measured reliably.
RECOGNITION OF REVENUE FROM EXCHANGE
TRANSACTIONS
Rendering of Services
¡ For practical purposes, when services are performed by an indeterminate number
of acts over a specified time frame, revenue is recognized on a straight line basis
over the specified time frame unless there is evidence that some other method
better represents the stage of completion.
¡ When the outcome of the transaction involving the rendering of services cannot be
estimated reliably, revenue is recognized only to the extent of the expenses
recognized that are recoverable.
RECOGNITION OF REVENUE FROM EXCHANGE
TRANSACTIONS
Interest, Royalties and Dividends
a. Interest is recognized on a time proportion basis that takes into account the
effective yield on the asset;
b. Royalties are recognized as they are earned in accordance with the substance of
the relevant agreement; and
c. Dividends are recognized when the entity's right to receive payment is established.
RECOGNITION OF REVENUE FROM EXCHANGE
TRANSACTIONS
¡ A government entity normally recognizes revenue from service income when the
services are rendered, except when this is not practicable, in which case, revenue
is recognized when fees are collected.
¡ Similarly, revenue from business income (except sale of goods) is recognized
when fees are billed, or if not practicable, when fees are collected.
MEASUREMENT OF REVENUE FROM EXCHANGE
TRANSACTIONS
¡ Measured at the fair value of the consideration received or receivable. Any
trade discounts and volume rebates shall be taken into account.
MEASUREMENT OF REVENUE FROM EXCHANGE
TRANSACTIONS
¡ When cash flows are deferred, the fair value of the consideration may be less than
its nominal amount. In this case, the fair value of the consideration receivable is
determined by discounting all future cash flows using an imputed rate of interest.
The difference between the fair value and the nominal amount of the consideration
is recognized as interest revenue.
¡ When the consideration is received in advance, it is initially recognized as a liability
and subsequently recognized as revenue only when the revenue recognition criteria
are met.
EXCHANGES OF GOODS OR SERVICES
Exchanges of goods or services with:
a. Similar nature and value do not give rise to revenue.
b. Dissimilar nature and value give rise to revenue measured using the following order
of priority:
i. Fair value of the goods or services received, adjusted by the amount of any
cash transferred.
ii. Fair value of the goods or services given up, adjusted by the amount of any cash
transferred.
Non-Exchange Transactions
SOURCES OF FUNDS
¡ Taxes - are compulsory payments intended to provide revenue to the government.
Taxes do not include fines and penalties.
¡ Fines and penalties - are monetary sanctions received as a consequence of
breach of laws.
¡ Gifts, Donations and Goods/Services In-kind - are voluntary transfers of assets
and services that one entity makes to another, normally free from stipulations.
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
¡ Revenue from non-exchange transactions are recognized on a cash basis until a
reliable measurement model is developed.
¡ Accordingly, the asset and revenue or liability arising from a non-exchange
transaction are recognized when collected or when these are measurable
and legally collectible.
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Tax revenue
¡ Tax revenue is recognized at a gross amount and not reduced for expenses paid
through the tax system.
¡ Expenses paid through the tax system are those expenses which should be paid
irrespective of whether the taxpayer pays taxes, or uses a particular mechanism to pay
taxes.
¡ Tax revenue shall not be grossed up for the amount of tax expenditures.
¡ Tax expenditures are preferential provisions of the tax law that provide certain taxpayers
with concessions that are not available to others. Tax expenditures are foregone revenue,
not expenses.
¡ Tax expenditure is a revenue the government chooses not to collect to achieve a public
policy goal.
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Tax revenue
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Transfers
¡ Transfers are inflows of future economic benefits or service potential from non-
exchange transactions, other than taxes.
¡ Transfers include fines, gifts, donations and goods and services in-kind, debt
forgiveness, bequests, and grants. All of these transactions transfer resources
without approximate equal value in exchange and are not taxes but some are with
conditions.
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Fines and Penalties
¡ Fines and penalties are recognized as income in the year they are collected.
¡ However, fines are recognized as revenue when the receivable meets the
recognition criteria for asset and are measured at the best estimate of inflow of
resources to the entity.
¡ An entity collecting fines in the capacity of an agent shall not treat those fines as
revenue.
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Gifts, Donations and Goods In-Kind
¡ Gifts, donations and goods in-kind are recognized as revenue when it is probable
that future economic benefits or service potential will flow to the entity.
¡ Those that are received without conditions are recognized immediately as revenue.
¡ Those with conditions are initially recognized as liability and recognized as revenue
only when the conditions are satisfied.
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Services In-Kind
¡ Services In-kind are not recognized as revenue due to the uncertainties affecting
the entity's ability to control those services and measure them at fair value.
¡ Examples of services in-kind include technical assistance from foreign bodies,
community services rendered by persons convicted of offenses, volunteer services,
and the like.
¡ Services in-kind received may be disclosed in the notes.
MEASUREMENT OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS
Assets, liabilities and revenue arising from a non-exchange transaction are measured as
follows:
a. Assets - at the acquisition-date fair value.
b. Liabilities - at present value, when the effect of time value of money is material.
c. Revenue - at the amount of increase in net assets. If the non-exchange transaction
is initially recognized as a liability, the subsequent reduction in that liability (e.g.,
because the condition is satisfied) is recognized as revenue.
Debt Forgiveness, Bequests, Grant
with Condition, Pledges,
Concessionary Loans, Impairment,
and Other Receipts
DEBT FORGIVENESS
¡ When a lender cancels the debt of a government entity, the debtor recognizes
revenue equal to the carrying amount of the debt forgiven.
¡ However, when a controlling entity cancels the debt of a wholly owned controlled
entity, the cancelled debt is treated as contribution from owners and not
revenue.
BEQUESTS
¡ Are transfers made according to the provisions of a deceased person's will.
¡ A bequest that satisfies the recognition criteria for asset is recognized as revenue,
measured at the fair value of the resources received or receivable.
GRANT WITH CONDITION
¡ An asset received under a grant with condition is initially recognized as liability and
recognized as revenue only when the condition is satisfied.
ILLUSTRATION
ILLUSTRATION
ILLUSTRATION
ILLUSTRATION
PLEDGES
¡ Pledges are unenforceable undertakings to transfer assets to the recipient entity.
¡ Pledges are not recognized as revenue because they do not meet the
recognition criteria for asset, i.e., at present, the entity has not yet obtained control
over the item pledged.
¡ If the pledged item is subsequently transferred to the recipient entity, it is
recognized as a gift or donation.
¡ Pledges may warrant disclosure as contingent assets.
CONCESSIONARY LOANS
¡ Are loans received by an entity at below market terms/more favorable loan terms,
usually to support development projects.
¡ The entity considers whether the difference between the transaction price (loan
proceeds) and the fair value of the loan on initial recognition is a non-exchange
transaction. If it is so, the difference is recognized as revenue, except if a present
obligation exists, in which case the difference is recognized as a liability and
recognized as revenue only when the obligation is satisfied.
IMPAIRMENT LOSSES AND ALLOWANCE FOR
IMPAIRMENT LOSSES
¡ When an amount already recognized as revenue becomes uncollectible, it is
recognized as expense (impairment loss) rather than as an adjustment to the
revenue originally recognized.
¡ Entities shall evaluate the collectability of accounts receivable on an ongoing basis
based on historical bad debts, customer/recipient credit-worthiness, current
economic trends and changes in 'payment activity.
¡ An allowance is provided for known and estimated bad debts.
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
a. Receipt of subsidy from the National Government (i.e., disbursement authority),
such as receipt of:
i. Notice of Cash Allocation (NCA)
ii. Tax Remittance Advice
iii. Non-Cash Availment Authority
iv. Cash Disbursement Ceiling
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
b. Receipt of subsidy or assistance from other government agencies, including LGUs
and GOCCs. The Collecting Officer shall issue an official receipt (OR) upon
receipt of any of these subsidies/[Link] journal entries are as follows:
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
c. Receipt of excess cash advance granted to officers and employees (e.g., receipt of
excess cash advance for travel).
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
d. Receipt of refund of overpayment of expenses.
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
e. Receipt of performance bond or security deposit. A performance bond is a
security deposit required from a contractor or supplier to guaranty the full and
faithful performance of a contract. It may be in the form of cash or certified check.
The journal entries are as follows:
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
f. Collections made on behalf of another entity.
¡ The collecting entity records the collection as a credit to the "Due to NGAs"
account.
¡ Upon receipt of remittance, the recipient entity records the collection as a credit
to the "Trust Liabilities" account.
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
g. Intra-agency and inter-agency fund transfers
OTHER RECEIPTS
Other receipts include, but not limited to, the following:
g. Intra-agency and inter-agency fund transfers