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Public Health Threats. Lessons Learned. Recent Reports. Supplemental Material. Full Report. Additional Data. View Decision. Previously Identified Actions. Related Pages. Associated Agencies. Tough Choices and Opportunities Ahead. Americas Fiscal Future Key Areas. Retirement Security Key Areas. The modified cash basis of accounting in FGE means that cash basis applies except for recognition of the following transactions:.
The modified cash basis of accounting is consistent with the budgeting process and produces information useful for comparing budgeted and actual revenue and expenditure. The modified cash basis accounting system requires the same temporary accounts as the cash basis of accounting plus the following permanent accounts: cash and cash equivalents, receivables and payables.
The FGE accounting system employs a combination of temporary and permanent accounts. All account balances at the end of the year may not have a zero balance. So, a process is necessary that distinguishes temporary accounts and sets them to zero.
The process of setting the balance in temporary accounts to zero is called closing the accounts, and the process is performed by a closing entry.
The closing entry is an accounting activity that takes place at the end of each budget year. All assets and liabilities are not recognized in the modified cash basis accounting system. Only those receivables and payables included in the chart of accounts are included in the system. The modified cash basis accounting system produces financial information that is reported in a Statement of Changes in Cash Position and a Statement of Budgeted versus Actual Expenditure.
Asset and liability accounts other than cash, receivables, payables, and letters of credit are included in the chart of accounts to allow institutions that have the capacity to maintain accounting records of all assets and liabilities.
These other assets and liabilities are recorded using the cost method. The cost method values assets at their original cost and liabilities at the amount still due. Every transaction that is recorded by accounting has two aspects: effort and reward, source and use, cash inflow and expenditure.
The purpose can be, for example, expenditure, revenue deposit, or transfer. The FGE accounting system uses double-entry bookkeeping. Double-entry bookkeeping means that both aspects of each transaction are recorded in the accounting records with at least one debit and one credit so that the total amount of debits and the total amount of credits are equal to each other.
Double-entry bookkeeping requires an understanding of some additional basic accounting concepts and terms. The most basic are the terms debit and credit. Debit literally means left and credit literally means right. In a double-entry system, each debit to cash is matched by a credit to another account of an equal amount, and each credit to cash is matched by a debit to another account of an equal amount. Because each transaction is entered in the accounting records as debits and credits of equal amounts, the total debits in all account balances always equals the total credits in all account balances.
For FGE modified cash basis of accounting, the basic accounting equation always applies. In a double-entry bookkeeping system, the book of original entry is the register. A register is a chronological listing of transactions and serves as the book of original entry into the accounting system.
Information regarding transactions is taken from various documents invoices, receiving reports, etc. The transactions in the register are in chronological order. Each transaction entered on the register in the double-entry system affects at least two accounts.
One is a debit and the other is a credit, but both accounts are affected by the same amount. Therefore, for each transaction that is recorded in the double-entry register, the amount recorded as a debit equals the amount recorded as a credit. The total of debits recorded in the register will always equal the total of all credit in the register.
In the double-entry system, a ledger card is created and kept for all accounts. All transactions entered in the register must be transferred to ledger cards. The process of transferring transactions information from the register to the ledger cards is called posting. In the double-entry system, a ledger card is created and maintained for each account. Because each transaction is entered on the register as a debit to one account and a credit to another account, each transaction is posted to at least two ledger cards.
The set of all ledger cards is called a general ledger. Two postings are made for each transaction in the general ledger of equal amounts in different accounts, but one is entered as a debit and one as a credit. Therefore, the total debit amount on all ledger cards must equal the total credit amount on all ledger cards. The general ledger contains a ledger card for each account.
The ledger card contains the running balance in that account. If postings to the ledger cards from the register are up-to-date, monthly reports are easily prepared by taking the balance from each account's ledger card. Mistakes are easily identified if the total debt balances on all ledger cards do not equal the total credit balance on all ledger cards. If a general ledger is kept, a set of self-balancing accounts total debits equals total credits is maintained and a report of financial information is available.
Financial reports can be prepared from general ledgers. Some accounts in a general ledger do not provide sufficient detailed information for control purposes. The account "Advances to Employees" is an example. The account in the general ledger maintains the total balance in the account, but identifying each individual and the amount each owes is important. A control account is an account in a general ledger that maintains the total balance of all related accounts in a subsidiary ledger.
For each control account, a subsidiary ledger is kept. A subsidiary ledger is a ledger separate from the general ledger that contains a group of related accounts. The control account is part of a general ledger. The subsidiary ledger accounts provide details about the balance in the control account. Any account in the general ledger that requires more detail than simply the amount in the account becomes a control account with a subsidiary ledger. An example of a subsidiary ledger is presented here.
Suppose advances are provided to three employees. The account code in the general ledger for Advances to staff is A subsidiary ledger for account code is created where each advance is assigned an account code as follows:.
The specific advance provided, for example, to Kidane for example, is maintained in account code in the subsidiary ledger. The total of all advances is the total of all account balances in the subsidiary ledger and is the balance recorded in control account code in the general ledger.
It provides the financial administration issues and a general description of the roles and responsibilities of each unit within the assumed administrative structure for Public Bodies without Branch. To describe the FGE accounting system, its operations, and roles and duties within the system, the structure of financial administration and authority in the federal and regional governments must be understood to the extent that it impacts the accounting system.
Although the structure of financial administration is not standard across all units in the Regional and Federal governments, a general pattern exists. Throughout this unit the structure of financial administration under MOFED is assumed, because the structures differ at Regions due to decentralization.
The specific Federal and Regional government administrative authorities and the required organizational structure in public bodies are illustrated in the following Figure 2.
MOFED administers the financial system for the federal government and has the highest level of administrative authority. MOFED consists of a:. Central Accounts Department that receives monthly reports and compiles financial statements for the federal government. This is description of their roles and responsibilities within the accounting system.
Budgetary Institutions are defined as those institutions that are fully or partially financed by Government. The budget process assumes the appropriation of budgets. The appropriated budget is broken down by:. The federal government's portion of the appropriated budget is assigned to projects and sub-agencies within PBs and broken down by sources of funding domestic, assistance and loan.
This is called the approved budget. The approved and appropriated budget is published in the Negarit Gazeta. A PB's entire approved budget is assigned to projects and sub-agencies under its immediate administrative control. The budget of a PB is the total budget of its projects and sub-agencies. A project or sub-agency may allocate any portion of its approved budget to sub-projects or sub-sub-agencies.
The budget of a sub-project or sub-sub-agency is called an allocated budget. A sub-project or sub-sub-agency for which a budget is allocated is always at a different location from the project or sub-agency.
Projects, sub-agencies, sub-projects, and sub-sub-agencies are defined and coded in the chart of accounts. Any entity that receives an approved or allocated budget from a PB's approved budget is called a Budgetary Institution BI. Figure 2. There are exceptions to these generalities, but the majority of government is organized in this manner. The focus of budgetary control is on the BI.
PB's budgetary compliance can be computed by consolidating reports from all BIs included in its approved budget. For cash management, another entity is created: the Bank Account BA. The BA is not coded in the chart of accounts and does not receive a budget. However, it is important for cash Management and control. An accounting unit is the unit that initially captures and records transactions into the accounting system.
One general ledger is maintained for the BA. The only records maintained for each BI are accounts in subsidiary ledgers for items of expenditure. Monthly, the subsidiary ledger information is used to prepare an expenditure report for each BI.
These reports are consolidated with information from the general ledger into a monthly report for the BA. The balances of cash in safe and cash in bank are maintained in ledger cards of general ledger for the BA.
Although the accounting unit prepares monthly reports, every accounting unit may not send monthly reports directly to MOFED. The reporting entity may be the accounting unit or a higher level of authority perhaps a PB. Therefore, the reporting entity is not, necessarily, an accounting unit. In the FGE accounting system of cash control, the cashier's function and the accountant's function are distinct.
Cash consists of currency and checks. The cashier's function is to maintain and control cash in the safe. The accountant's function is to maintain and control cash at the bank. Only the cashier can receive currency and checks and make disbursements in currency. Daily, the cashier should count cash on hand and reconcile ending cash on hand to the cash book.
The cash in safe is controlled by an impress system. When cash is received as per the budget or other sources, the cashier will:. In the imprest system, a balance is established for cash in safe. The accountant issues this amount of cash to the cashier using a check. When cash is disbursed to establish the Imprest Fund, the cashier will issue a receipt voucher.
If the amount of cash in safe is to be replenished, the cashier will surrender all payment vouchers to the accountant. The accountant will replenish the cash in safe by issuing a check to the cashier for the total amount of the payment vouchers that are surrendered. The replenishment should return the balance of cash in safe to the established level.
The accountant's responsibility for cash is to maintain a record of the total cash position of the entity, including cash at the bank and cash in the safe. The accountant records cash movements that flow through the cashier and cash movements that flow directly through the bank. Direct cash movements through the bank normally include bank transfers and charges, checks written, and any other transactions that do not require cash handling by the cashier. When a PB has more than one cashier, one cashier is designated as the main cashier.
The other cashiers are designated as assistant cashiers. Each PB is responsible for organizing assistant and main cashiers. However, some general principles apply. Budget is the most important tool for the government to manage the public resources of the nation economy. It serves as an instrument to allocate the scarce resources among the different computing unlimited needs of the society. It is a document Containing planned program which planned ahead to reach objectives and targets.
A budget may be stated in terms of quantity, money or both and is prepared for definite time period. A budget is a time bounded financial program systematically worked out and ready for execution in the ensuing fiscal year.
It is comprehensive plan of action, which brings together in one consolidated statement of all financial requirements of the government. The budget goes into operation only after it is approved by the parliament. Thus budget is an annual statement of receipts and payments of a government. The structure of government budget constitutes the formats in which the budget data are organized and classified for different purposes.
The government budget in Ethiopia is classified into: - 1. Expenditure budget. External assistance — include cash grants from multilateral and bilateral donors for different structural adjust programs; and technical assistance in cash and material form. Capital revenue: - these could be from domestic sales of movable properties and collection of loans , external loan from multilateral and bilateral creditor mostly for capital projects.
Government expenditures for administration and developmental activities are handled through the expenditure budget. These expenditures are categorized into:. Recurrent expenditure:- is structured by implementing agencies public bodies under four functional categories.
Capital budget expenditure: - is usually made on acquisition and improvement in to fixed asset and consultant services. It is grouped under three headings;. Economic development includes: - production activities in the agricultural and industrial sector, economic infrastructure in mining, commerce and communication. Budgeting from the initial stage of forecasting the annual revenues and expenditures, to the final stages of approval of the annual budget by the council of people representatives, passes through a sequential and an interactive process.
The budgetary process of FGE involves the following steps:. Budget request — is prepared by public bodies by depending on the budget ceiling to fit budget request to mofed.
Budget hearing and defense:- spending public bodies defend their budget submission in a formal hearing with the mofed. The hearing focuses on policies, programs and cost issues, when necessary it might involve discussion down to line of items. At this stage the two budgets recurrent and capital will be consolidated and MOFED will prepare a brief analysis of the total budget. First reviewed by ministers and vice ministers in an economic affairs and then presented to the prime minister along with brief.
The prime minister may or may not make amendments and then will be sent to the council of ministers for discussion. MOFED defend the budget in the council, the council of ministers may make some adjustments. Once approved by the council of ministers, the prime minister will present both budget to HPR. Spending public bodies will then formally be notified of their approved budget by line of items from MOFED for recurrent and capital budgets, respectively.
MOFED will notify spending public bodies. Supplementary budget: - in the course of budget year, supplementary additional budget will be proclaimed when necessary. Following almost same process as the initial budget preparation.
Likewise budget reallocation will be made mainly based on performance. It is quite difficult to present the budget process at the regional level in the way in the discussed for federal budget.
At present the budget process followed by regional is not uniform. The process is more or less a mirror image of the federal budget process. While the regional planning and economic development bureau RPEDB is responsible for the capital budget. One significant deviation is the regional budget process starts at the woreda level and goes up to zone and regional level. At a national level, Council of People's Representatives approve budget and the total budget is published in Negarit Gazet both for capital and recurrent budgets.
Budget supplement: A budget supplement is an additional appropriated budget. The supplementary amount increases the approved budget. An addition to one budget item and a corresponding reduction to the budget of another item of expenditure: There are two processes for accomplishing this transfer: budget transfers and vehement changes. The revised budget is the benchmark for budget control, as an item of expenditure must not exceed its revised budget. Treasury funds are the primary source of domestic expenditures for most BIs.
When this happens, a non-cash transfer is recorded and considered as a payment received by the BI to meet budgeted expenditure. As indicated in Manual 3 Volume I accounting for modified cash basis transactions which is prepared by MOFED and DSA Project manual, January, , a Public Body also receives cash for budgeted expenditure in a variety of other ways depending on the source as follows:.
Retained revenue: Retained revenue is revenue earned and collected directly by the BI that it is allowed to keep and expend for its own purposes.
Assistance: various donors using one of three channels provide Assistance. Channel 2: Some donors provide assistance directly to the BI. These funds are requested and distributed from the donor to the BI in a manner prescribed by the donor. Channel 3: Some donors provide assistance without cash movement. The donor maintains control over these funds. When a budgeted expenditure is incurred, the donor pays the invoice directly to the provider on behalf of the BI.
Channel 3 funds are not requested or received. Loan: Donors provide loan funds using Channel 1 or 2 as described for assistance. Aid in kind: Any goods received by a PB as assistance or loans are also considered as payments received by a BI to meet budgeted expenditure. Budget control is achieved through a combination of commitmen t accounting and expenditure approvals at the Budget Section.
Each of these processes is described below. A commitment is a way of marking part of the budget that has not yet been spent but that is obligated for a specified expenditure. After the budget has been approved, the BI may enter into contracts or issue purchase orders. These obligations to spend money are treated as commitments; that is, before the good or service is ordered and before the payment is actually made, the amount of the purchase order is subtracted from the BI's approved budget.
A commitment is a tool that prevents overspending by identifying amounts committed to pay for items that have been requested but not yet ordered and to determine the budget that is available uncommitted for expenditure MOFED and DSA Project manual, January, If the uncommitted balance is reduced to zero or if the budget is not available to meet planned expenditure, no further spending will be approved. Commitments are a budgetary control device. A BI has an approved budget for Birr , for stationery.
The Procurement Section approves a purchase order for Birr , for purchase of stationery. The purchase order of Birr , represents a commitment although it has not been paid. The remaining budget available for expenditure after incorporating the commitment on stationery is Birr , Further, assume that the procurement section approves another purchase order for Birr , for purchase of stationery from another supplier on the same day.
The purchase order of Birr , represents another commitment. However, as the remaining budget available for expenditure on stationery is only Birr ,, the Budget section will not approve the expenditure as the Budget section has already recorded a commitment for Birr , from the previous purchase order.
The Budget section records the commitment and signs the source document as evidence of recording the commitment in the budget ledger card and confirming that budget is available for spending. In the same manual, it is indicated that the evidence of a commitment is either one or combination of the following forms:. Occasionally, a commitment may be cancelled or revised. In such cases, the Accounts Section must inform the Budget section of the changed to ensure that the budget ledger card is updated to amend the commitment and the uncommitted balance.
If the Budget section is not informed about a cancelled or revised commitment, the balance available in the budget will not get updated. Assume the preceding example, and Procurement Section cancelled the purchase order for Birr , for purchase of stationery a week later. The purchase order will be marked "void" to indicate that it is cancelled. The cancelled purchase order is returned to the Budget Section to ensure that the commitment is cancelled in the budget ledger card and the remaining budget available for expenditure uncommitted balance is updated to Birr , in the budget ledger card.
If the cancelled purchase order is not taken to the Budget Section through an oversight, the commitment would not get cancelled and the remaining budget available for expenditure uncommitted balance would incorrectly remain as Birr , instead of Birr , As an additional control measure, when expenditures are to be incurred by a BI, all payment vouchers are verified by the Budget Section prior to approval for payment by the Accounts Section.
The Budget Section approves all expenditures to verify that expenditure remains within the budget. If the commitment is already recorded, the Budget Section verifies the recording of the commitment and signs the payment voucher. If the commitment is not already recorded, the Budget Section records the commitment and signs the payment voucher.
The signature on the commitment line of payment voucher by the Budget Section indicates that the budget for the item of expenditure has been recorded as a commitment and that there is an available budget to meet the expenditure MOFED and DSA Project manual, January, The purpose of the budget ledger card is to maintain a continuous and updated record for each budgeted item of expenditure by BI and source of finance with respect to:.
The Budget Section maintains a budget ledger card for each individual item of budgeted expenditure by BI and source of finance.
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