Trial Balance, Financial

Reports and Statements

 Trial Balance
• A listing of general ledger accounts with their
corresponding debit and credit balances.
• The accounts are listed in the order they
appear in the Revised Chart of Accounts .
 Adjusting Journal Entries
• Made at the end of the period to allocate
revenue and expenses to the period in which
they actually occurred.
 Two Main Types of AJEs

1. Accrued Items

2. Deferred Items
 Accrued Items
1. Asset or Revenue Adjustments

Illustration:
The interest receivable account of Agency ABC for the interest
already earned but not yet collected nor billed as of the end of the
year amounts to P2,000.00.

Account Title Account Debit Credit

Code
Interest Receivable 10301050 P 2,000
Interest Income 40202210 2,000
2. Liability/Expense Adjustments

Illustration:
As of year-end, Agency ABC has not yet paid salaries and wages of
P25,000.00, which covers the period December 16-31 of the current
year.

Account Title Account Debit Credit

Code
Salaries and Wages Regular 50101010 P 2,000
Due to Officers and 20101020 2,000
Employees
 Deferred Items
1. Asset or Revenue Adjustments

Illustration:
Agency ABC has prepaid expenses in the amount of P20,00.00
portion of which were utilized or consumed in the amount of
P5,000.00.

Account Title Account Code Debit Credit

Rent/Lease Expense 50299050 P 5,000

Prepaid Rent 19902020 5,000

2. Liability/Expense Adjustments

Illustration:
The agency collected an amount of P15,000.00 for the rent of its
facility and originally recorded it as deferred credit to income. At
the end of the fiscal year, only P3, 000 was earned.

Account Title Account Debit Credit

Code
Other Deferred Credits 20501990 P 3,000

Rent/Lease Income 40202050 3,000

 Other Adjustments
Reversion of Unused Notice of Cash Allocation

Account Title Account Debit Credit

Code
Subsidy from National Government 40301010 xxx
Cash-Modified Disbursement System 10104040 xxx
(MDS), Regular
 Unused NCA which were Deposited
with National Treasury

Account Title Account Debit Credit

Code
Cash- Treasury/Agency Deposit, Trust 10104030 xxx

Cash-MDS, Trust 10104060 xxx

 Petty Cash Adjustments
Account Title Account Debit Credit
Code
Expenses xxx xxx

Petty Cash Fund 10101020 xxx

Account Title Account Debit Credit

Code
Expenses xxx xxx
Cash in Bank-Local Currency, 10102020 xxx
Current
Adjustment for Unreleased Commercial
Checks

Account Title Account Debit Credit

Code
Cash in Bank, Local Currency, Current 10102020 xxx

Accounts Payable 20101010 xxx

 Allowance for Impairment losses of
Asset Accounts

Illustration:
Per aging the accounts, the required allowance is P20,000.00;
while the other beginning balance of the allowance for
impairment loss is P15,000.00. No other transactions transpired.

Account Title Account Debit Credit

Code
Impairment Loss- Loans and 50503020 xxx
Receivables
Allowance for Impairment- 10301011 xxx
AR
 Depreciation Expenses
Illustration:
The accounting records of Agency ABC show the following depreciable assets, with 5%
salvage value, using the straight line method.

Assets Cost Useful Life

Buildings P 50,000,000.00 50
Machinery 150,000.00 5
Office Equipment 100,000.00 5

Account Title Account Debit Credit

Code
Dep’n Exp.- Bldg. and Other 50501040 950,000.00
Structures
Accum. Dep’n- Building and 10604011 950,000.00
Other Structures
 Account Title Account Debit Credit
Code
Dep’n Exp.- Machinery and 50501050 P 28,500.00
Equipment
Accum. Dep’n- Machinery 10605011 28,500.00

Account Title Account Debit Credit

Code
Dep’n Exp.- Machinery and 50501050 P 19,000.00
Equipment
Accum. Dep’n- Office 10605021 19,000.00
Equipment
 Pre-Closing Trial Balance
The pre-Closing Trial Balance shall be prepared
after posting the Adjusting Journal Entries in the
General Journal and the same to the General
Ledger.
It should be supported with the schedule of
Subsidiary Ledger balances of the controlling
accounts.
Example
 Closing Journal Entries
Entries which close out the balances of all
nominal/temporary and intermediate accounts at
the end of the year.

For the purpose of preparing the FS for the first, second

and third quarters, the closing entries shall be prepared,
but shall not be recorded in the book of accounts.
Example
 Post-Closing Trial Balance
• The Post-Closing Trial Balance shall be
prepared at the end of the year after preparing
and posting the closing JE in the GJ and
posting to the GL
Example
 Purpose of Financial Statements
• To provide information about the financial
position, financial performance, and cash
flows of an entity that is useful to a wide range
of users in making and evaluating decisions
about the allocation of resources.
Purpose of Financial Statements
• To provide information useful in predicting the
level of resources required for continued
operations, the resources that may be
generated by continued operations, and the
associated risks and uncertainties.
Responsibility for Financial Statements

• For individual entity/department FSs – head of

the entity/ department COF or RO or OU or
his/her authorized representatives jointly with
the head of the finance/accounting division
• For department/entity FSs as a single entity –
the head of the entity/department COf jointly
with the head of the finance unit
Statement of Management Responsibility
for Financial Statements
• Serve as the covering letter in transmitting the
agency’s financial statements to the
Commission on Audit, Department of Budget
and Management, other oversight agencies and
other parties
Example
Components of General Purpose Financial
Statements
• It shall be identified clearly, and distinguished from
other information in the same published document.
• In addition:
– Name of the reporting entity
– Individual/Group of entity
– Reporting date
– Name of fund cluster
– Reporting currency
– Level of rounding used
Components of General Purpose Financial
Statements
• A complete set of FS to be submitted shall
include:
– Statement of Financial Position
– Statement of Financial Performance
– Statement of Changes in Equity
– Statement of Cash Flows
– Statement of Comparison Budget and Actual
Amounts
– Notes to the Financial Statements
 Qualitative Characteristics of Financial
Reporting
• An entity shall present information including
accounting policies in a manner that meets the
following qualitative characteristics
enumerated in PPSAS 1:
– Understandability
– Relevance
– Materiality
– Timeliness
– Reliability
Qualitative Characteristics of Financial
Reporting
– Faithful Representation
– Substance over form
– Neutrality
– Prudence
– Completeness
– Comparability
 Financial Reporting System for the
National Government
• The financial reporting system of the Philippine
government consists of accounting system on
accrual basis and budget reporting system on
budget basis under the statutory responsibility
of NGAs, BTr, DBM, and the COA, as follows:
– Maintains complete set of accounting books
– Accounts for the cash
– Maintains budget registries
– COA through the GAS
 Fair Presentation and Compliance with
PPSAS
• Fair representation requires the faithful
representation of the effects of transactions,
other events, and conditions.
• Requires an entity:
– Select and apply accounting policies in PPSAS 3
– Present Information
– Provide additional disclosures
 Departure from PPSAS
• The entity may depart from that requirement if
the relevant regulatory framework allows, or
otherwise does not prohibit, such a departure
 Going Concern
• FS shall be prepared on a going concern basis
unless there is an intention to liquidate the
entity or to cease operating, or if there is no
realistic alternative but to do so
 Consistency of Presentation
• Presentation of items in the FS shall be
retained from one period to the next unless:
– It is apparent
– A PPSAS requires a change in presentation
 Materiality
• If a line item is not material, it is aggregated
with other items either on the face of FSs or in
the Notes to the FSs
 Offsetting
• Offsetting in the Statement of Financial
Performance or the Statement of Financial
Position, except when offsetting reflects the
substance of the transaction or other events
 Reporting Period
• Shall be presented at least annually
• In exceptional circumstances an entity may be
required to, or decide to, change its reporting
date in order to align the reporting cycle more
closely with the budgeting cycle
 Statement of Financial Position
• Also referred to as Balance Sheet
• Shall be presented in:
– Condensed Statement of Financial Position
– Detailed Statement of Financial Position
• Present Current and Non-current assets
• Present Current and Non-current liabilities
Example
Example
 Statement of Financial Performance

• Also referred to as Income Statement

• Shall present, either on the face of the
Statement of Financial Performance or the
Notes
• All items of revenue and expense recognized
in a period shall be included in surplus or
deficit unless a PPSAS requires otherwise
 Statement of Financial Performance

• Circumstances may exist when particular

items may be excluded from surplus or deficit
for the current period, as follow:
– Correction of prior period errors
– Effects of changes in accounting policies
– Gains or Losses on re-measuring available-for-sale
financial assets.
Example
Example
 Statements of Changes in Net
Assets/Equity
I. Surplus or deficit for the period
II. Each item of revenue and expense for the period that, as
required by other Standards, is recognized directly in net
assets/equity, and the total of these items.
III. Total revenue and expense for the period
IV. The effects of changes in accounting policies and
corrections of errors for each component of net asset/equity
disclosed
V . The balance of accumulated surpluses or deficits at the
beginning of the period and at the reporting date, and the
changes during the period
Example
 Statement of Comparison of Budget and
Actual Amount

I. The original and final budget amounts

II. The actual amounts on a comparable basis;

III. By way of note disclosure, an explanation of

the material difference
Example
 Reconcile Differences
I. Basis Difference

II. Timing Difference

III. Entity Difference

 Statement of Cash Flows
I. Operating Activities
II. Financing Activities
III. Investing Activities
 Operating Activities
Cash flows from operating activities are
primarily derived from the principal cash-
generating activities of the entity.
Two Methods for Reporting Cash Flows

I. Direct Method – shows each major class of gross cash

receipts and gross cash payments
II. Indirect Method- adjusts the accrual based surplus
or deficit for the effects of non-cash transactions
A. Cash Inflows
a. Cash receipt of assistance and subsidy from other
NGAs, LGUs and GOCCs
b. Receipt of NCA
c. Collection of income and revenues

B. Cash Outflows
a. Year-end closing of remittances/deposits to National
Treasury;
b. Cash payments of expenses including replenishment of
PCF
c. Cash payments to suppliers for goods and services
 Investing Activities
Involves the acquisition and disposal of non-
current assets and other investments not included
in cash equivalent.
A. Cash Inflows
a. Cash receipts from sales/disposal of PPE, intangibles,
investment property and other long term-assets
b. Cash receipts from sales of stocks, bonds, interests in
joint ventures and other investments
c. Proceeds from matured/return of investments

B. Cash Outflows
a. Cash payments to acquire PPE, intangibles and other
long-term assets
b. Cash payments to acquire equity or debt instruments of
other entities and interests in joint ventures
c. Cash advances and loans made to other parties
 Financing Activities
Activities concerning build up of equity capital
or borrowings of the entity.
 Cash flows from financing activities:

 Cash proceeds from issuing debentures, loans,

notes, bonds, mortgages and other short or
long-term borrowings
 Cash repayments of amounts borrowed
Cash payments by a lessee for the reduction of
the outstanding liability relating to a finance
lease
Reporting Cash Flows on a Net Basis
 For items in which the turnover is quick, the amounts are
large and the maturities are short
 For items which reflect the activities of the other party
rather than those of the entity
 For the acceptance and repayment of deposits with a fixed
maturity date
 Placement of deposits with and withdrawal of deposits from
other financial institutions
 Cash advance and loans made to customers and the
repayment of those advance and loans
Example
Example
Example
 Notes to Financial Statements
Provide additional information and help clarify
the items presented in the financial statements.
 The notes shall:
a. Present information about the basis of
preparation of the financial statements
b. Provide additional information that is not
presented on the face of the financial
statements
c. Disclose the information required by IPSASs
that is not presented on the face of the
financial statements
 Additional Information Required by
PPSAS
1. Disclosure that the budgeted amounts have not been exceeded
or if it has then the details thereof
2. Nature and extent of prior period errors (PPSAS 3)
3. Events after the reporting date that have a material effect on
the financial statements (PPSAS 14)
4. Contingent liabilities (PPSAS 19) and unrecognized
contractual commitments
5. Related party disclosure (PPSAS 20)
6. Non-financial disclosures (PPSAS 15)
Example
Example
Example
Example
Example
 Events After the Reporting Date

Events that occur between the reporting date and the

date when the financial statements are authorized for
issue

A. Adjusting events
B. Non-adjusting events
 Adjusting events
Examples:

1. The settlement after the reporting date of a court case that confirms
that the entity had a present obligation at the reporting date

2. The determination after the reporting date of the cost of assets

purchased, or the proceeds from assets sold, before the reporting date

3. The discovery of fraud or errors that show that the financial

statements were incorrect
 Non-adjusting Events After the Reporting
Date

Examples:
1. Where an entity has adopted a policy of regularly revaluing property
to fair value, a decline in the fair value of property between the
reporting date and the date when the financial statements are
authorized for issue.

2. Where an entity charged with operating particular community service

program decides after the reporting date, but before the financial
statements are authorized for issue, to provide/distribute additional
benefits directly or indirectly to participants in those programs.
Disclosures of Events After the Reporting
Date

1. Disclose the date when the financial

statements were authorized for issue and
who gave that authorization
2. About conditions that existed at the reporting
date
3. Non-adjusting event considered to be
material
 Changes in Accounting Policies
Accounting policies are specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial
statements.

1. Change from one basis of accounting to another basis of

accounting
2. Change in the accounting treatment, recognition or
measurement of a transaction, event or condition within a
basis of accounting
 Disclosures for Changes in Accounting
Policy
a. Title of the Standard
b. When applicable, that the change is made in accordance with its
transitional provisions
c. Nature of the change in accounting policy
d. A description of the transitional provisions, if applicable
e. Transitional provisions that might have an effect on future periods
f. Amount of the adjustment for each financial statement line item
affected
g. Amount of the adjustment relating to periods before those
presented
 Change in Accounting Estimates
Due to uncertainties inherent in delivering services,
conducting trading or other activities, many items
in financial statements cannot be measured with
precision, thus it is allowed to be estimated without
undermining their reliability.
 Disclosures for Changes in Accounting
Estimates
1. The nature and amount of a change
2. If the amount of the effect in the future is not
disclosed because it is impracticable
 Errors
They can arise in respect of the recognition,
measurement, presentation, or disclosure of
elements of financial statements.
 Two Types of Errors
1. Current Period Errors

2. Prior Period Errors

Disclosure of Prior Period Errors
1. Nature of the prior period error
2. For each prior period presented, the amount
of the correction for each financial statements
line item affected
3. The amount of the correction at the beginning
of the earliest prior period presented
 Illustration:
Entity XYZ discovered in 2016 that the revenue
from its bulk sales to be recognized in 2015 has
been inadvertently omitted in the amount of
P 3,500,000.00.

The entity’s Statement of Financial Performance

and Statement of Changes in Net Assets/Equity
before adjustment of the error for 2015 and 2016
are as follows.
 Account Title Account Debit Credit
Code
Accounts Receivable 10301010 P 3,500,000.00

Accumulated 30101010 P 3,500,000.00

Surplus/(Deficit)
 Other Reports
1. Pre-Closing Trial Balances
2. Post-Closing Trial Balances
3. Other Schedules
 Regional Breakdown of Income
 Regional Breakdown of Expenses
 Deadlines on Submission of Reports

Entity/Office Statement/Report Deadline Submit to

A. Provincial Offices and Operating Units

Monthly Trial Balances and Ten days after the Auditor, Regional
Supporting end of the month Accountant
Schedules

Quarterly TBs, FSs, SSs Ten days after the Auditor, Regional
end of the quarter Accountant

Year-end TBs, FSs, SSs On or before Auditor, Regional

January 20 of the Accountant
following year
B. Regional/Braches Offices
Monthly TBs and SSs Ten days after the Regional Auditor,
end of the month Central Office
Chief Accountant
Quarterly TB, FS, SSs Ten days after the Regional Auditor,
end of the quarter Central Office
Chief Accountant

Year-end TB,FS,SSs On or before Regional Auditor,

(combined RO and January 31 of the Central Office
OUs) following year Chief Accountant
 C. Central/Head/Main Offices
Monthly TBs and SSs Ten days after the Auditor, DBM,
end of the month Management

Quarterly TB, FS, SSs Ten days after the Auditor, DBM,
end of the quarter Management

Year-end TB,FS,SSs February 14 of the COA Auditor, DBM,

(combined RO and following year COA-GAS
OUs)