Analysis of Transactions

Chapter Three

Analysis of Transactions                      

3.1. Cash Transfers

Cash transfers are cash movements among government units.  Cash transfers may be made in the form of currency, checks or direct cash movement between bank accounts.

Cash Transfers: Between Bank Accounts at Public Bodies and MOFED

Cash is transferred from MOFED bank accounts to bank accounts of public Bodies, and cash is transferred from bank accounts of public Bodies to MOFED bank accounts.  These transfers are done in the form of Checks, and Direct bank transfers evidenced by bank advices.

Cash transfers from MOFED bank accounts to bank accounts of public Bodies are recorded:

• By MOFED, as a debit to the appropriate transfer code and a credit to 4105, and
• By the public Body, as debit cash at Bank 4103 and a credit to the appropriate transfer code.

Example: Assume a public Body receives from MOFED a transfer of Birr 100,000 for Capital expenditure and also further assume that you are an accountant in both the PB and MOFED

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Cash transfer to PB	--	4004	100,000			100,000

 

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Cash transfer from MOFED	-	4004		100,000	100,000

At MOFED, although a transfer authorization to one bank account may include funds for more than one BI, the entire transfer is one. Therefore, only one entry should be made for the total of the transfer in the Transaction Register maintained at MOFED. The BI code for the entry should be the BI code of the Reporting Entity.

If the bank charges a service charge for the transfer:

• The Service charge should be recorded as a debit to account code 6256.
• Cash at bank 4103 should be debited for the amount of cash actually received.
• The appropriate transfer account code should be credited for the gross amount of the transfer.

Example: MOFED transfers Birr 100,000 to a public body for capital expenditure. The bank deducts 2000 birr as a service charge; the public body receives Birr 98,000.

Transaction Register of MOFED:

No	Description	type of budget	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Cash transfer to PB		4004	100,000			100,000

 

Transaction Register of Public Body:

No	Description	type of budget	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Bank Service Charge	02	6256	2000
	Cash transfer from MOFED		4004		100,000	98,000

 

Cash Transfers: Between Bank Accounts at Public Bodies and MOFED: From Public Bodies to MOFED at federal level

Cash transfers from bank accounts of public Bodies to MOFED bank accounts are recorded:

• By MOFED, as a debit to Cash at Bank4105 and a credit to the appropriate transfer code, and
• By the Public Body, as a debit to the appropriate transfer code and a credit to Cash at Bank 4103.

 

Example: A Public Body collected revenue of Birr 60,000. The cash is transferred to MOFED.

Transaction Register of MOFED

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Cash transfer from PB	-	4009		60,000	60,000

 

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Cash transfer to MOFED	-	4009	60,000			60,000

Some public Bodies deposit cash directly into a MOFED bank account when revenue is collected.  If revenue is deposited directly to a MOFED bank account, the entry in the Transaction Register of the public Body is a debit to the appropriate transfer account code and a credit to the appropriate revenue account code.

Cash Transfers: Between MOFED safe and Public Bodies

According to MOFED and DSA Project manual, January 2002, the Treasury Department at MOFED maintains a safe. Public Bodies can withdraw a maximum of Birr 2,000 from the safe with appropriate approval. MOFED-CAD records the Cash payment Voucher as a transfer in the Federal Transaction Register. The public Body records the Cash payment Voucher as a transfer in its Transaction Register.

Example: A Public Body provides Ge/Be/We 11/2 to Treasury Department for payment of Birr 1,000 from the safe at MOFED.

Transaction Register of MOFED:  

No	Description	TB	Account Number	Others		Cash in Safe 4101
				Dr	Cr	Dr	Cr
1	Cash transfer	-	4002	1,000			1,000

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash in Safe 4101
				Dr	Cr	Dr	Cr
1	Cash transfer	-	4002		1,000	1,000

 

Cash Transfers: Between Public Bodies

Cash may be transferred from a bank account of one public body to a bank account of another public body. These transfers are done in the form of: Checks, and Direct bank transfers evidenced by bank advices. Cash transfers from a bank account of one public Body to a bank account of another public Body are recorded:

• By the public Body sending the cash, as a debit to transfer code 4008 and a credit to cash at Bank 4103,and
• By the public Body receiving the cash, as a debit Cash at Bank 4103 and a credit to transfer code 4008.

Example: Public Body #1 transfers Birr 90,000 to public Body #2.

Transaction Register of public Body #1:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Cash transfer to PB #2	-	4008	90,000			90,000

 

Transaction Register of public Body #2:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Cash transfer to PB #1	-	4008		90,000	90,000

 

Cash Transfers: Within Public Body

In the same Manual prepared by MOFED&DSDA Project, it is indicated that some public Bodies maintain branch bank accounts. The public Body may transfer cash from one bank account to another bank account of its branch. These transfers are done in form of: Checks, and Direct bank transfers evidenced by bank advices. Cash transfers within a public body from bank Account #1 to bank Account #2 are recorded:

• By the accounting unit for bank Account #1, as a debit to transfer code (transfer between financial bureau and wereda finance/ district finance/ office) 4011 and a credit to cash at Bank 4103, and
• By the accounting unit for bank account #2, as a debit cash at bank 4103 and a credit to transfer code 4011.

After both transactions are recorded in the consolidated general ledger of the public body, the net effect of the internal transfer is zero (the balance in transfer code 4011 is zero).

For control purposes, if the public body transfers to more than one branch bank account, a subsidiary ledger should be maintained by the main bank account. Each branch bank account that receives or sends a transfer using account code 4011 should have its own subsidiary ledger card under transfer code 4011. This will aid consolidation in the general ledger of the public body and improve cash control within the public Body.

Example: Bank Account #1 transfers Birr 80,000 to Bank Account #2

Transaction Register of Bank Account #1:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Cash transfer to BA #2	-	4011	80,000			80,000

 

Transaction Register of Bank Account #2:

No	Description	TB	Account Number	Other		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Cash transfer BA #1	-	4011		80,000	80,000

 

3.2 Non - Cash Transfers

Non-Cash transfers are used to record a transfer when cash does not actually move. The authorization for a non-cash transfer usually is a letter from MOFED.

Example: Assume Ministry of Health (MOH) requests MOFED to pay customs duty amounting to Birr 250,000 on its behalf to the customs Authority (CA) for motor vehicles from its capital expenditure budget and further assuming that you are the accountant in these institutions.

Solution:

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Transfer to MOH - Customs duty	-	4054	250,000
	Transfer from CA-Customs duty	-	4055		250,000

 

Transaction Register of Ministry of Health:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Purchase of motor vehicles	02	6311	250,000
	Transfer from MOFED-Customs duty	-	4054		250,000

 

Transaction Register of Customs Authority:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Transfer to MOFED	-	4055	250,000
	Duty on Motor vehicles	-	1301		250,000

 

3.3. Receipt of Revenue /Assistance/ Loan

Public Bodies are authorized to collect revenue on behalf of the FGE. In addition, Public Bodies may receive funds for assistance and loan directly from donors and lenders. Receipts are collected in the form of currency, checks and direct bank transfers. Receipts are recorded as a debit to cash at Bank 4103 and a credit to the appropriate revenue /assistance/ loan account code.

Example:Assume you are the accountant of Ministry of foreign affairs and that you collected birr 10,000 in fees for visas.

Transaction Register of Ministry of Foreign Affairs:

No	Description	TB	Account Number	Others		Cash at Bank 4103
				Dr	Cr	Dr	Cr
1	Revenue	-	1411		10,000	10,000

 

Transfer of collections Directly to MOFED

In some public bodies, revenue collectors make deposits directly to a MOFED bank account. It is important that the collector adequately identify the public body for which the deposit is made.

• When MOFED receives the bank advice, MOFED records a debit to cash in Bank 4105 and a credit to transfer account code 4009.
• When the public body receives the Receipt voucher from revenue collectors, the public body records a debit to transfer account code 4009 and a credit to the appropriate revenue account code.

Example:  MOFED receives a deposit from Internal Revenue for Birr 40,000. The deposit is from the collection of agricultural income tax.

Transaction Register of MOFED:

No	Description	TB		Account Number		Others		Cash at bank 4105
						Dr	Cr	Dr	Cr
1	Transfer from IR		-		4009		40,000	40,000

 

Transaction Register of Internal Revenue:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Agricultural Revenue		4009	40,000
	Transfer		1107		40,000

 

3.4. Cash Expenditures

Public Bodies are authorized to make cash expenditures from funds budgeted for that purpose. Cash expenditures are made using currency, checks and direct bank transfers.

Cash Expenditures: Payments to Regions/Transfer Recipients by MOFED

Payments by MOFED to regions and transfer recipients (Functional classification 4000 - 4099, are budgeted expenditures of the federal government. When MOFED makes these payments, MOFED records the expenditure in the federal Transaction Register.

Example:Assume a subsidy payment of Birr 300,000 is made to a region by MOFED where you are an accountant.

Transaction Register of MOFED

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Region subsidy		6411	300,000			300,000

 

Cash Expenditures: Check Payments by Accountants

Only accountants are allowed to make payments using checks.

Example: Assume that an accountant pays by check an amount of Birr 50,000 for office supplies.

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Office supplies paid in cash		6212	50,000			50,000

 

Cash Expenditures: Cash payment By MOFED on Behalf of Public Bodies

MOFED can make cash payments on behalf of a public body. The transaction begins with a letter from the public Body to MOFED requesting that the payment be made on its behalf. Cash payments made by MOFED on behalf of Public Bodies are recorded:

• By MOFED, as a debit to the appropriate transfer code and a credit to Cash at Bank 4105, and
• By the public Body, as a debit to the appropriate expenditure code and a credit to the appropriate transfer code.

Example: The Ministry of Health (MOH) requests MOFED to pay for a motor vehicle on its behalf amounting to Birr 280,000 from its capital expenditure budget.

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Transfer to MOH	-	4004	280,000			280,000

Transaction Register of Ministry of Health:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Purchase of motor vehicles	02	6311	280,000
	Transfer from MOFED	-	4004		280,000

 

Cash Expenditures: Letter of Credit

A Public Body may need to open a Letter of Credit as part of an international purchase agreement. Opening a letter of credit means putting cash in a restricted bank account dedicated to payment of the purchase price when appropriate conditions are met. There are two processes for opening a letter of credit:

• If the letter of credit is for Birr 50,000 or less, the public body can open the letter of credit.
• If the letter of credit is for more than Birr 50,000, the public body must request that MOFED open the letter of credit.

Cash Expenditures: Letter of Credit: Opened by Public Body

When a public Body opens a Letter of Credit, cash is paid, using a Bank payment Voucher, from the bank account of the public Body to a restricted bank account at the national bank of Ethiopia. In the transaction register for the public body's bank account, expenditure is recorded. The public body uses another transaction register for the restricted bank account. The public body must combine the monthly report of the restricted account with the monthly report of the regular bank account for reporting to MOFED.

Example: The ministry of Health (MOH) establishes a restricted bank account to open a letter of credit for the purchase of medical supplies valued at birr 30,000.

Transaction Register - Regular Bank Account of Ministry of Health:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Purchase of medical supplies	02	6214	30,000			30,000

 

Transaction Register - Restricted Bank Account of Ministry of Health:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Letter of credit #xxxx	-	5500		30,000	30,000

 

Cash Expenditures: Letter of Credit: Opened by MOFED on behalf of Public Body

A Public Body requests that MOFED open a letter of credit on its behalf.

MOFED: Transfers cash to restricted bank account at national bank of Ethiopia on behalf of the public body, Records a cash transfer to the public body, and Notifies the public body of the transaction.

The Public Body: Records the cash transfer as expenditure in the transaction Register for the public Body's bank account, and Records the Letter of Credit in another Transaction Register for the restricted bank account.

Example: The Ministry of Health (MOH) requests MOFED to open a letter of credit on its behalf amounting to Birr 700,000 for motor vehicles from its capital expenditure budget.

Transaction Register:

No	Description	TB	Account Number	Other		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Transfer to MOH	-	4054	700,000			700,000

 

Transaction Register bank account MOH:

No	Description	TB	Account Number	Other		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Purchase of Motor vehicle	02	6311	700,000			700,000
2	Transfer from MOFED	-	4054		700,000

Transaction Register - Restricted Bank Account of Ministry of Health:

No	Description	TB	Account Number	Other		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Letter of Credit #xxxx	-	5531		700,000	700,000

Cash Expenditures: Cash Payment by Public Body to Region

Occasionally, public Bodies make cash payments to regions.Some of the funds are intended for sector bureaus in the regions. The sector line ministry acts as a treasury department by distributing the cash to the region sector bureaus directly.

All payments to the regions from the federal level are budgeted as part of the region's subsidy. When a public body pays cash to regions, the payment is part of the regions subsidy.  The public body should record the payment as a subsidy payment.

Example: The ministry of Health (MOH) sends Birr 53,000 to a region as part of a sector development plan.

Transaction Register - Ministry of Health:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Region Subsidy	-	6411	53,000			53,000

 

Cash Expenditures: Cash Payment Requiring Withholding of Tax

The tax authority requires that a tax must be paid on specified purchases over a certain amount. The purchaser collects the tax as a withholding from the purchase price. The threshold amount and the tax rate may vary each year. The tax is paid to the appropriate authority, federal or regional government, depending on the location of the supplier.

The supplier can reclaim the withholding tax. The tax authority creates a special tax receipt that should be issued to the supplier when the tax is withheld.  This receipt is not an accounting document and should not be referenced in any accounting record. If a regional tax authority has not issued a special tax receipt, the federal special tax receipt should be used .The withholding tax does not reduce the cost of the goods to the public body. The withholding tax is a reduction to the payment made to the supplier. The payment is made to the appropriated government instead. When a purchase is made that requires the withholding of tax, a bank payment voucher is prepared that indicates, in the space provided for accounting use only.

The expenditure account code with a debit for the full purchase price. If the tax is federal, withholding tax revenue code 1103 or 1104 (depending of whether the supplier is an individual or a corporation) with a credit for the amount of the tax. The only exception is if the payment is made with retained revenue. If retained revenue is the source of funds for the payment, payable account code 5028 is credited for the amount of the tax.If the tax is regional, payable account code 5026 with a credit for the amount of the tax.Cash at bank 4,103 with a credit for the actual amount paid to the supplier.

 

Cash Expenditures: Cash Payment Requiring Withholding of Tax: Federal Tax

When federal tax is withheld from a purchase, the tax is recorded as revenue immediately    subsequently; an amount of cash equal to the tax is transferred to MOFED.

Example: A public body buys office supplies from a corporation for Birr 200,000 from its recurrent expenditure budget - Birr 198,000 relates to the cost of the office supplies and Birr 2,000 is the withholding tax.

Transaction #1: Payment effected to supplier

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Office supplies	01	6212	200,000
	Withholding tax revenue		1104		2,000		198,000

Transaction #2: Transfer to MOFED

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
2	Transfer to MOFED		4009	2,000			2,000

 

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Transfer to MOFED		4009		2,000	2,000

 

Cash Expenditures: Cash Payment Requiring Withholding of Tax: Regional Tax

When regional tax is withheld from a purchase, the tax is recorded as a payable to the region. Subsequently, an amount of cash equal to the tax is transferred to MOFED. MOFED pays the tax amount to the region. A subsidiary ledger should be maintained for payable to region account code 5026 if tax is collected for more than one region. Each region should be a separate account in the subsidiary ledger.

Example: A public body buys office supplies for Birr 200,000 from its recurrent expenditure budget - Birr 198,000 relates to the cost of the office supplies and Birr 2,000 is the regional withholding tax.

Transaction #1: Payment effected to supplier

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Office Supplies	01	6212	200,000
	Tax payable to Region		5026		2,000		198,000

Transaction #2: Transfer to MOFED

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
2	Payable to MOFED		5026	2,000			2,000

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Tax payable to region		5026		2,000	2,000

 

Transaction #3: MOFED pays tax to region

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
2	Payable to region		5026	2,000			2,000

 

Cash Expenditures: Construction Projects

The long-term construction projects involve complicated financial arrangements. Several accounting entries are necessary over the life of the project. In general, when a construction contract is signed, there are several steps in the payment process. At each stem, an accounting entry is required. The general steps are:

• Payment of an advance: Usually the contract calls for an advance payment to the contractor.  The advance payment is proportionately deducted from future payments to the contractor.
• Progress payments based on payment certificates: Usually the contract calls for partial payment of the total contract price as the construction reaches agreed-upon percentages of completion. A payment certificate is evidence that the agreed-upon completion percentage is reached.
• Payment of the retention: Usually   a percentage of the payment is retained and not paid until final acceptance of the completed construction.

Example: Assume the following:

A contract is signed to construct a building for 2,000,000 Birr. Terms of contract are:

Initial advance of 20% = 400,000 Birr

Advance adjusted proportionately with each payment certificate approval.

Retention of 10% withheld from each payment certificate & paid after final approval.

Steps in payment are:

Payment of 20% advance.

Payment certificate when 40% complete.

Payment certificate when 80% complete.

Payment certificate when 100% complete.

Transaction #1: payment of 20% advance:

Accountant prepares a check for 400,000 Birr.

Accountant prepares payment Voucher for 400,000 Birr:

Debit to 4251 & Credit to 4103

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Advance to contractor		4251	400,000			400,000

Transaction #2: payment certificate when 40% complete.

Accountant Prepares a check for 560,000 Birr as follows:

800,000 payment certificate request

160,000 adjustment to advance

80,000 retention.

Accountant prepares payment Voucher as follows:

Debit to 6323 for 800,000

Credit to 4251 for 160,000

Credit to 5061 for 80,000

Credit to 4103 for 560,000

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
2	Construction - Building	02	6323	800,000
	Advance to contractor		4251		160,000
	Retention on contract		5061		80,000		560,000

Transaction #3: payment certificate when 80% complete.

Accountant Preparesa check for 560,000 Birr as follows:

800,000 payment certificate request

160,000 adjustment to advance

80,000 retention

Accountant prepares payment voucher as follows:

Debit to 6323 for 800,000

Credit to 4251 for 160,000

Credit to 5061 for 80,000

Credit to 4103 for 560,000

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
4	Construction - Building	02	6323	800,000
	Advance to contractor		4251		160,000
	Retention on Contract		5061		80,000		560,000

 

Transaction #4: payment certificate when 100% complete.

Accountant prepares check for 280,000 Birr as follows:

400,000 payment certificate request

80,000 adjustments to advance

40,000 retention

Accountant prepares payment Voucher as follows:

Debit to 6323 for 400,000

Credit to 4251 for 80,000

Credit to 5061 for 40,000

Credit to 4103 for 280,000

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
4	Construction - Building	02	6323	400,000
	Advance to contractor		4251		80,000
	Retention on Contract		5061		40,000		280,000

Transaction #5: Payment of retention after final approval of project:

Accountant prepares a check for 200,000 Birr.

Accountant prepares payment voucher for 200,000 Birr:

Debit to 5061 & Credit to 4103

Transaction Register of public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
5	Retention on contract		5061	200,000			200,000

 

3.5. Salary

Public Bodies pay salaries to employees every month. This section describes the accounting for:

Payment of salary

Unpaid salary

Unearned salary

Payment of Salary

The salary payment transaction is complex. The public body must record the gross salary amount and government's portion of pension as expenditure to maintain budget control, but only the net salary amount is transferred to, and paid by the public body.

After the salary request is approved, MOFED transfers the net salary amount to the public body and the total pension amount, employee and government contribution, to the pension Authority. Although cash for pension is transferred directly to the pension authority, MOFED records the cash transfer as if the cash was transferred to the public body. At MOFED, two transfer entries to the public body are recorded in the transaction register:

• A debit to transfer coder 4001 and a credit to cash at bank 4105 for the net salary amount.
• A debit to transfer coder 4001 and a credit to cash at bank 4105 for the total pension amount sent to the pension Authority.

Each transfer amount is reported to the public Body separately on Ge/Be/We 12/1 with Model 33. When the public Body receives Ge/Be/We 12/1, the public Body prepares:

• A receipt voucher for the total amount of cash received. The entry is a debit to cash at bank 4103, a debit to pension payable account code 5003 for the amount of cash paid to the pension Authority and a credit to transfer code 4001.
• A journal voucher to record salary and pension expense. The entry is a debit to salary expense code 6111 (6112 for military) for the gross salary amount, a debit to pension expense code 6131 (6132 for military) for the government’s portion of the pension contribution, a credit to salary payable code 5004 for the net salary amount, a credit to pension payable code 5003 for the amount of each paid to the pension Authority, a credit to income tax code 1101 for tax withheld from salary, and a credit to any other withholding amounts.

Example:Assume the Ministry of Agriculture (MOA) requests salary for the month of July 2001 with the following details and also assume that you are the accountant in MOA and MOFED.

Gross salary                             40,000            

Deduction: salary advance 1,200

Pension expense - 6%             2,400             

Penalty for absenteeism   500

Employee pension - 4%          1,600             

Net Salary payable 32,700

Income tax                    4,000

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Transfer for MOFED		4001	32,700			32,700
2	Transfer to PB		4001	4,000			4,000

Transaction Register of MOA:

No	Description	TB	Account Number	Others		Cash at  bank 4103
				Dr	Cr	Dr	Cr
1	Transfer to PB		4001		36,700
	Pension payable		5003	4,000		32,700
2	Salary Expense	01	6111	40,000
	Pension Expense	01	6131	2,400
	Salary payable		5004		32,700
	Income Tax		1101		4,000
	Staff Advance		4203		1,200
	Fines		1485		500
	Pension Payable		5003		4,000

 

Unpaid Salary

Net salary amount is recorded as salary payable when salary expense is recorded (see above). When salary is paid, salary payable is debited for the amount paid. Any unpaid salary is the amount remaining in the salary payable account code 5004 after salary is paid. When unpaid salary is paid, the entry is a debit the salary payable code 5004 and a credit to cash. After salary is paid, a subsidiary ledger for salary payable account should be maintained. Each unpaid employee should be an account in the subsidiary ledger.

Unearned Salary

Occasionally, salary is requested and received, but the employee is not entitled to the entire salary amount received. For some reason, the employee quits working for the public Body during the month. When this happens, the salary entry explained above must be reversed for that employee, and the pension transfer must be corrected. In addition, MOFED must be notified so that the pension transfer and subsequent months salary can be adjusted.

Example: Suppose an employee in the Ministry of Agriculture worked only half of July instead of the whole month. This is discovered after the salary expense entry in the example above. The amounts of overpayment are:

Gross Salary                          1000          Income tax             70

Pension expense - 6%            60              Salary Payable       890

Employee pension - 4%          40

Transaction #1: Reverse salary expense

Transaction Register of MOA:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Salary Expense	01	6111		1000
	Pension Expense	01	6131		60
	Salary Payable		5004	890
	Income Tax		1101	70
	Pension Payable		5003	100

Transaction #2: Adjust Pension transfer        

Transaction Register of MOA:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
2	Transfer - Salary		4001	100
	Pension payable		5003		100

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Advance to pension		4210	100
2	Transfer - Salary		4001		100

 

Transaction #3: Next month's salary transfer

The Ministry of Agriculture (MOA) requests salary for the month of August 2001 with the following details:

Gross salary                 38,000

         Income tax                                   3,800

        Pension expense - 6%                    2,280  

        Deduction: salary advance              1,200

       Employee pension - 4%                   1,520

       Net Salary payable                          31,480

 

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Transfer to PB		4001	31,480			31,480
2	Transfer to PB		4001	3,800
	Advance to Pension		4210		100		3,700

 

Transaction Register of MOA:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Transfer to PB		4001		35,280
	Pension payable		5003	3,800		31,480
2	Salary Expense	01	6111	38,000
	Pension Expense	01	6131	2280
	Salary payable		5004		31,480
	Income Tax		1101		3,800
	Staff Advance		4203		1200
	Pension Payable		5003		3,800

 

3.6. Receivables and Payables

A receivable is an amount owed to a public Body that does not have terms of repayment detailed in a signed agreement. Receivables usually are created when:

• Cash is transferred but must be returned unless certain conditions are met.
• Advances are given with the understanding that the amount must be repaid or otherwise accounted for, or goods or services must be delivered.

A payable is amount owed by a public body that is due within one year. Payables usually are created when:

• Cash is received but must be returned unless certain conditions are met.
• Goods or services are delivered but payment is not yet made.

Receivables and Payables: With MOFED

In some situations, MOFED advances cash to public Bodies. MOFED records the advance as a receivable, and the public Body records the advance as a payable. Cash movements between MOFED and a public Body are recorded as a receivable and a payable, rather than a transfer, if the funds were not requested by Ge/Be/We 11/xx. Advances must be repaid to MOFED or otherwise accounted for.

Example   Prior to receipt of its budget notification, a public Body requests funds in June to pay recurrent expenditures. MOFED sends Birr 7,000

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Advance for Recurrent		4206	7,000			7,000

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Due to MOFED		5024		7,000	7,000

When the public Body receives its budget notification, a Ge/Be/We 11/2 is sent to MOFED for Birr 14,000. This requests includes the 7,000 Birr received as an advance. MOFED approves the request, reduces the cash transfer by 7,000 Birr, and transfers Birr 7,000 in cash.

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Advance Recurrent		4206		7,000
	Transfer - Recurrent		4002	14,000			7,000

 

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Due to MOFED		5024	7,000
	Transfer - Recurrent		4002		14,000	7,000

Receivables and Payables: with Employees

Three situations are described here:

• Long - term salary advances.
• Amounts due from employees as reimbursement for use of government property.
• Handling of funds held by a public body on behalf of an employee

Receivables and payables: with Employees: Long - Term Salary Advance

An employee can receive a long-term advance on salary (longer than one month) under appropriate conditions. When a long-term salary advance is processed, interest is charged and withheld from the advance.  The public body is responsible for repayment of salary advances to its employees.

Example: A long -term salary advance of Birr 2,000 is requested and approved. MOFED transfers the net amount to the public body after deducting the applicable interest on the advance amounting to Birr 200.

Transaction #1: cash transfer from MOFED

Transaction Register of MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Transfer		4005	1,800			1,800

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Transfer		4005		1,800	1,800

Transaction #2: Payment of Advance

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Staff Advance		4203	2,000
	Interest		1465		200		1,800

Receivables and Payables: With Employees: Reimbursed Payments

In certain circumstances, employees make personal use of government property. When this occurs, the public body must charge the employee and collect payment.

Example: A Public body receives a telephone bill for Birr 300. Included in the bill are personal telephones calls made by an employee.

Treatment #1: The Public body knows, at the time the telephone bill is paid, that the amount of the personal telephone calls totals Birr 100.

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
When the telephone bill is paid:
1	Telephone Expense	01	6258	200
	Staff Advance		4203	100			300
When employee pays:
2	Staff Advance		4203		100	100

Treatment #2: The public body does not know, at the time the telephone bill is paid, the amount of the personal telephone calls.

Transaction Register of Public Body:

No		Description	TB	Account Number	Others		Cash at bank 4103
					Dr	Cr	Dr	Cr
When the telephone bill is paid:
1	Telephone Expense		01	6258	300			300
When employee pays:
2	Telephone Expense		01	6258		100	100

Receivables and Payables: With Employees: Funds Held on Employee's Behalf

In certain circumstances, funds are received by a public body and are intended for the use of an employee. These funds are not budgeted by the FGE. The public body is simply a conduit used for assigning the funds from a donor to an employee. The public body should:

• Only handle funds that are used by the employee to further the objectives of the public body, and
• Never give the employee access to other funds held in the same bank account (do not allow the employee access to checks).

Movements of funds held by public bodies on behalf of an employee are not recorded as revenue or expenditure for the government. The funds are due to the employee while in the custody of the public body.

Example: A donor deposits Birr 3,000 in the bank account of a public body to support the research of an employee.

Transaction #1:Funds are deposited

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Due to staff		5021		3,000	3,000

Transaction #2:  The employee receives 550 Birr from the fund

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
2	Due to staff		5021	550			550

Receivables and Payables: With Employees: Employee Transferred with Salary Advance

Employees may be transferred from one public body to another; the transferred employee may have a long-term salary advance with an outstanding balance.  The balance for the employee in the advance account must be transferred with the employee from the accounting records of the former employer to the records of the new employer. The document is a letter of transfer that details the balance in the employee’s advance account. Each public body prepares a journal voucher based on the letter.

Example: An employee is transferred from public Body #1 to public Body #2. The employee has a long-term advance with an outstanding balance of Birr 6,000.

Transaction Register of Public Body #1:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
	Net Asset/Equity		5601	6,000
	Advance to Staff		4203		6,000

Transaction Register of Public Body #2:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
	Advance to Staff		4203	6000
	Net Asset/Equity		5601		6,000

Receivables and Payables: With Suppliers

In the process of procurement, the payment of cash and the receipt of goods and services do not occur simultaneously. When there is a timing difference, a receivable or a payable is created.

Receivables and Payables: With Suppliers: Receivables from Suppliers

Receivables are created when a supplier is paid for goods or services prior to their delivery. In this case, the supplier owes to the public body: Goods and services equal to the cash provided, or Return of the cash.

Example: A public Body pays an advance of Birr 500 to a supplier for procurement of office supplies. The supplier delivers the office supplies after 30 days and the actual invoice amounts to Birr 2,500.

Transaction #1: payment of advance.

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Advance to Supplier	-	4253	500			500

Transaction #2: Delivery of supplies.

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Office Supplies	01	6212	2,500
	Advance to Supplier	-	4253		500		2,000

Receivables and Payables: With Suppliers: Payables to suppliers

Payables are created when a supplier delivers goods or services prior to receiving payment.

In this case, the public body owes to the supplier: Payment for the cost of the goods and services, or Return of the goods.

Example: A public body receives office supplies amounting to Birr 2,500 on credit from a supplier. Payment is made after 30 days.

Transaction #1: Receipt of office supplies

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Office Supplies	01	6212	2,500
	Sundry creditors		5002		2,500

Transaction #2: Payment is made.

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Sundry Creditors	-	5002	2,500			2,500

Receivables and Payables: With Suppliers: Grace Period Payables

The first 30 days of the fiscal year are called the grace period.  The financial Law permits public Bodies to expend funds from their prior year's recurrent and capital budgets during the grace period for goods and services delivered before the end of the fiscal year. Amounts due to suppliers on the last day of the fiscal year, that are paid during the grace period from the prior year's budget, are called grace period payables (account code 5001). Transfers of funds from MOFED to public Bodies, that are used to pay grace period payables, are given account code 4007.

Example: In the first 30 days of the fiscal year, a public body pays Birr 12,000 for office supplies that were recorded as grace period payables from the prior year's capital expenditure.

Transaction #1: Provision for grace period payables last year.

Last Year's Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4105
				Dr	Cr	Dr	Cr
1	Office supplies	02	6212	12,000
	Grace period payables		5001		12,000

Transaction #2: Transfer of funds for grace period payables this year.

This year's Transaction Register MOFED:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Transfer - GPP	-	4007	12,000			12,000

This year's Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Transfer - GPP	-	4007		12,000	12,000

Transaction #3: Payment of grace period payables this year.

This year's Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Grace period payables		5001	12,000			12,000

Receivables and Payables: with Regions

Occasionally, public Bodies make cash payments to regions. Payments to the regions from the federal level are budgeted as part of the region's subsidy. The public Body should record the payment as a subsidy payment. A rare exception occurs when the funds are part of the approved budget for the public Body and in this rare case, the item of expenditure is part of the approved budget for the public body, the region is simply action as a purchasing agent for the ministry. The responsibility for the budgeted expenditure cash remains with the public body, although the expenditure is executed in the regional since a settling of the funds is expected, the transaction is recorded as a receivable By MOE at Federal level.

Example: The Ministry of Education (MOE) sends Birr 55,000 to Amhara Regional Education Bureau (AREB). The Amhara Regional Education Bureau returns invoices for the book totaling Birr 47,000 and cash totaling Birr 8,000 to the Ministry of Education.

Transaction #1: Cash is sent to AREB

Transaction Register MoE:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Advance to region	-	4208	55,000			55,000

Transaction #2: Cash and invoices are received from AREB.

Transaction Register of MOE:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Books	02	6215	47,000
	Advance to region		4208		55,000	8,000

Receivable and Payables: Deposits

Some public bodies collect and return deposits. Deposits are not budgeted. The receipt and return of deposits may be documented using special forms (Models 85 and 86 or Models 185 and 186). Deposits may be kept in the safe, in the main bank account of the public body, or in a separate bank account.

A deposit is a payable for a public body. A public body must return the deposit upon demand of the depositor. A public body should not spend deposit funds. When the deposit is returned, the payable is cancelled.

Receivable and Payables: Deposits: Receipt and Return of Deposit

Example: A public body collects a deposit of Birr 40,000 as bid security. The bid is unsuccessful and the deposit is returned at a later date.

Transaction #1: Receipt of Deposit.

Transaction Register of Public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Bid security Deposit	-	5054		40,000	40,000

Transaction #2: Refund of Deposit.

Transaction Register of Public Body:

No	Description	TB	Account Number	Other		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Bid Security Deposit	-	5054	40,000			40,000

Receivables and payables: Deposits: Deposits kept in separate Bank Account

If a bank account is maintained for deposits only, there is no need to keep a transaction register for the bank account. A detailed record of each deposit must be maintained, but the form of the record can be cashbook with subsidiary records for each deposit.

Monthly, the cash balance in the cashbook must be reconciled with the bank account's bank statement and with the detailed subsidiary records. After reconciliation, the corrected deposit amount must equal the cash balance in bank. This amount should be entered in the transaction register of the public body as follows:

• The deposit account code should be debited and cash in bank 4103 credited for the current balance in the deposit account. After this entry, the balance in the deposit account is zero.
• Cash in bank 4103 should be debited and the deposit account code should be credited for the corrected deposit amount at the end of the current month.

These should be the only accounting entries in the public body's transaction register that involves the deposit account.  No subsidiary ledger is necessary; the detailed subsidiary records for the cashbook services as the subsidiary ledger.

Example: The balance per the General Ledger in deposit account code 5051 is Birr 400,000.  The deposit bank account is reconciled to the detailed subsidiary records and the corrected balance is Birr 600,000

Transaction #1: Set deposit account balance to zero.

Transaction Register of Customs:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Customs Deposit	-	5051	400,000			400,000

Transaction #2: Record corrected deposit.

Transaction Register of the public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Customs Deposit	-	5051		600,000	600,000

 

3.7 Aid in Kind

Aid in kind is goods or services (such as technical assistance) provided to a public body by donors. Aid in kind is received when goods are received or services are rendered, and no payment is expected. Aid in kind represents two transactions simultaneously: the receipt of assistance and the expenditure of assistance. Aid in kind should be budgeted and recorded as both revenue and expenditure. The expenditure should be recorded in the subsidiary ledger for the budgeted project, using the 4-digit source of funding code assigned to the project.

Example: Assume aid in kind is received by a public body in which you are working as an accountant in the form of a motor vehicle with a cost of Birr 200,000 from USAID under the capital expenditure budget for project code 2356.

Transaction Register of the public Body:

No	Description	TB	Account Number	Others		Cash at bank 4103
				Dr	Cr	Dr	Cr
1	Motor vehicles	02	6311	200,000
	Assistance		2084		200,000

All aid in kind entries are recorded in local currency only.

 

3.8 Financial Document Transmittal Voucher: Me/He

Me/He is the document prepared as evidence for the transfer of financial documents, such as expenditure vouchers, between responsible persons in the accounting system.The purpose of the Financial Document Transmittal Voucher is to record the transfer of financial documents from one responsible party to another.

Preparation and Source Documents: Whoever is receiving financial documents prepares the Financial Document Transmittal voucher.The format of the Financial Document Transmittal voucher is shown in Figure 3.1