Ethiopian Government Accounting

Wolkite University
College of Business and Economics

Department of Accounting and Finance
Continuing and Distance Education

Ethiopian Government Accounting and Financial Management
Module
Prepared By; Kirubel Asegdew

Lakech Estifanos
Editor; Mitiku Melese
August, 2017
Wolkite, Ethiopia
EGAFM Module
Contents:
Introduction
Chapter One: Introduction to Federal Government Accounting System
Chapter Two: General and Subsidiary Ledgers
Chapter Three: Recording Common Transactions of FGE
Chapter Four: Monthly Reports
Chapter Five: Financial Reports and Financial Statements
Chapter Six: FGE Financial Management
Introduction
The module is organized into six chapters. The first chapter introduction to Federal
Government Accounting System and reforms. The second chapter presents General and
Subsidiary Ledgers. This chapters describes the types of general and subsidiary ledgers
used by Ethiopian government. This chapter presents complete Description of Ledgers
and how the ledgers are structured as general and subsidiary ledgers and the
organization of ledgers into broad categories. The third chapter illustrates Recording
Common Transactions of FGE. The fourth chapter discusses the preparation of monthly
reports. Fifth chapter discusses the Financial Reports and Financial Statements. And the
last chapter elaborates the FGE Financial Management system.
After you complete this unit successfully, you should be able to:
 Identify the appropriate source documents for each type of transaction;
 Describe the organization of ledger in FGE accounting system
 Analyze the information required and record transaction.
 Explain the activities that are being undertaken in the Finance Section at the
end of the budget year.
 Prepare the monthly reports and financial system and
 Explain the objective and functions of FGE Financial Management system.
SALARY BIS
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Ethiopian Government Accounting and Financial Management Module
Contents
Acronyms ........................................................................................................................ iv
1.0 Aims and Objective ................................................................................................ 1
1.1 Introduction ............................................................................................................ 1
1.2 Historical Overview of Ethiopian Government Accounting System ..................... 1
1.3 FGE Chart of Accounts .......................................................................................... 5
1.4 FGE Budget process ............................................................................................... 5
1.5. Fundamentals of FGE Program Budget................................................................. 8
1.6 Overview of IFMIS and IBEX ............................................................................... 9
1.6.1 What are the Benefits of IFMIS? ..................................................................... 9
1.6.2 Integrated Budget and Expenditure System (IBEX) ....................................... 9
1.7 Budget Ledger Card.............................................................................................. 10
1.8 Basis of Accounting ............................................................................................. 11
1.9 Legal Framework of FGE Financial Administration ............................................ 13
1.10 Summary ...................................................................................................... 19
Chapter Two: General and Subsidiary Ledgers ................................................................ 2
1.0 Aims and Objectives .......................................................................................... 2
1.1 Introduction ............................................................................................................ 2
1.2 Description of Ledgers ........................................................................................... 2
1.3 Structure and Organization of Ledgers ................................................................... 5
1.4 Recording Entries in Ledgers ................................................................................. 8
Field .............................................................................................................................. 9
Field ............................................................................................................................ 11
1.5 Summary............................................................................................................... 15
Chapter 3: Recording Common Transactions of FGE.................................................... 19
3.0 Aims and Objectives ............................................................................................. 19
3.1 Introduction .......................................................................................................... 20
3..2 Cash Transfers ..................................................................................................... 20
3.3 Non-Cash Transfers .............................................................................................. 26
3.4 Revenue/Assistance/Loan ..................................................................................... 26
3.5 Operating Expenditures ........................................................................................ 28
3.6 Salary Expenditure ............................................................................................... 33
3.7 Suspense Payments ............................................................................................... 35
3.8 Receivables and Payables ..................................................................................... 36
3.9 Specific Purpose Grants ....................................................................................... 40
3.10 Closing Entry ...................................................................................................... 42
3.11 Beginning of Year Procedures ............................................................................ 47
3.12 Summary............................................................................................................. 50
Chapter Four: Monthly Reports...................................................................................... 55
4.0 Aims and Objectives ............................................................................................. 55
4.1 Introduction .......................................................................................................... 55
4.2 Revenue/Assistance/Loan Report ......................................................................... 56
4.3 Recurrent Expenditure Report .............................................................................. 59
4.4 Capital Expenditure Report .................................................................................. 61
4.5 Transfer Report ..................................................................................................... 62
4.6. Receivables Report .............................................................................................. 66
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4.7. Payables Report ................................................................................................... 68
4.8. Trial Balance........................................................................................................ 71
4.9 Summary............................................................................................................... 73
Chapter Five: Financial Reports and Financial statements ............................................ 77
5.1 Introduction .......................................................................................................... 77
5.1 Statements of budgeted revenue and expenditure ................................................ 78
5.2 Statement of changes in cash position .................................................................. 80
5.3 Balance sheet ........................................................................................................ 80
5.4 Summary............................................................................................................... 80
Chapter Six: Public Financial Management ................................................................... 83
6.1 Introduction .......................................................................................................... 83
6.2 Public Financial Management .............................................................................. 83
6.3 Public Financial Management Reform ................................................................. 84
6.4 Federal Audit in Ethiopia ..................................................................................... 87
6.5 Summary............................................................................................................... 89
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Acronyms
BA Bank Account
BI Budgetary Institution
CAD Central accounts department
CPR Council of people's representatives
DSA Decentralization support activity project
EC Ethiopian Calendar
FGE Federal Government of Ethiopia
MOFED Ministry of finance and economic development
PB Public body
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Chapter One: Introduction
Contents
1.0 Aims and Objectives
1.1 Introduction
1.2 Historical overview of Ethiopian Government Accounting System.
1.3 FGE Chart of accounts
1.4 FGE Budget Process
1.5 Fundamentals of FGE program budget
1.6 Overview of IBEX and IFMIS
1.7 Budget ledger card
1.8 Basis of accounting
1.9 Legal Framework of FGE Financial Administration
1.10 Summary
1.0 Aims and Objective
At the end of this Chapter you are expected to
 Describe Historical overview of Ethiopian Government Accounting System
 Identify the FGE Chart of accounts
 Define Basis of accounting
 Describe the Legal Framework of FGE Financial Administration
 Identify the purposes Budget ledger card
1.1 Introduction
Dear students this Chapter is designed to introduce you with the history of Historical
overview of Ethiopian Government Accounting System. It also introduces the meaning
of FGE Chart of accounts and used to describe the Basis of accounting and the types of
Basis of accounting. The chapter also gives overview on the IBEX and IFMIS system.
1.2 Historical Overview of Ethiopian Government Accounting System
The Federal Government of Ethiopia accounting system used up to GC 2002 was in

service for more than half a century. Government decided to reform the accounting
processes to achieve the following set of objectives:
1. Simplify the accounting system by changing it from the single-entry bookkeeping
system to the double entry bookkeeping system,
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2. Expand the current accounting system by changing the basis of accounting from
cash basis to a modified cash basis of accounting.
3. Improve cash and financial management practices by rationalizing the number of
bank accounts and minimizing the amount of idle funds.
4. Improve budget control by introducing procedures to record and monitor
commitments against the available budget prior to the approving expenditure.
5. Produce accurate, timely and complete information and improve the quality of
information provided to Government and its development partners.
6. Enhance transparency by implementing a system that is understandable to key
stakeholders and the automation of the accounting system.
Accounting Cycle
The diagram below provides an overview of the accounting cycle used at the federal and
regional levels.
Source Documents
Payment Vouchers Receipt Vouchers Journal Vouchers
Book of Original Entry Transaction Register
General Ledger Budget Ledger/ Expenditure Subsidiary Ledger

Ledgers
Revenue Report
Transfer Report Trial Balance Expenditure Reports
Receivable Report
Payable Report
Monthly Reports
Post Closing Trial balance
Summary Income and Expenditure Statements

Detailed Income and Expenditure Statements Financial Statements
Cash Flow Statement
Balance Sheet
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The above diagram clearly indicates that in addition to the accounting process, the
source documents to capture and approve accounting data, the registers to record
accounting data, the ledgers to analyze accounting data and the reports produced by the
accounting system are the same at the federal and regional levels. The accounting
system is designed to have the capability to record, analyze and report expenditures and
revenues for all types of donor funds and other special funds that are included in the
government budget.
Single Pool and Single Treasury System at Zones and Weredas
The region is organized into different tiers of governments that include jurisdiction
zones and weredas. One feature of the single treasury system is the single pool system.
The single pool system means that at all zones and weredas the accounting staff is
located only one single location - the Finance Office. The accounting staff located at
the Finance Office maintains budget control, disburses payments, collects revenue and
maintains the books of accounts and produces reports on behalf of all the sector offices
at the zone or wereda. However, all expenditures are authorized by individual sector
offices but disbursed, accounted and reported on behalf of the sector office by the single
pool of accountants located at the Finance Office.
The benefits of the single pool system are as follows:
 Cost savings in terms of the number of accountants required to operate the
accounting system
 Cost savings in terms of office space and infrastructure
 The work is organized to match zone/wereda capacity in terms of availability of
qualified staff and continuous on-the-job training and therefore promotes
sustainability
 Sector Offices can better focus on their objectives and mission.
 Training is more effective and efficient in terms of quality and sustainability
because it is directed at fewer number of locations
 Implementation support is directed at fewer locations and therefore more effective
and efficient in terms of sustainability
 Reporting is more timely because reports are produced at fewer locations
 Risk of failure of new system is minimized because the accounting system operates
at fewer locations
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The single treasury system means that each zone and wereda finance office maintains a
single bank account to execute its capital and recurrent budget where the source of
financing is treasury. The benefits of the single treasury system are as follows:
 Improved cash management within the region by reduction of bank accounts

 Improved control over bank accounts by reducing the operational time and effort
required to manage excessive bank accounts
 Reduction in costs of idle funds, borrowings and bank charges.
Zero Balance System at Federal Level

In 2004, the following key changes were made to the disbursements process:
 Zero balance drawing limit accounts were introduced at the National Bank of
Ethiopia for Public Bodies located in Addis Ababa.
 The responsibility for processing payroll, salary loans and remitting pension
contributions to the pension authority was transferred to public bodies.
MOFED effects the following types of disbursements:
 To public bodies in Addis Ababa using zero balance drawing limits
 To public bodies located outside Addis Ababa using bank transfers
 To transfer recipients using bank transfers
 Disbursement to regions using transfers and overdraft limits for capital
subsidies
 Debt repayment - domestic and external debt - principal and interest
repayments using bank transfers
 Contingency and miscellaneous payments using bank transfers
Activity 1
1. What is the single pool system?
2. list at least 3 benefits of the single pool system
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1.3 FGE Chart of Accounts
A chart of accounts is a system of coding used by a financial management system to

identify and classify financial transactions and events. The summary of the account
codes for the chart of accounts is as follows:
 Codes starting from 1000-1799 are reserved for domestic revenue
 Codes starting from 2000-2999 are reserved for external assistance
 Codes starting from 3000-3999 are reserved for external loans
 Codes starting from 4000 up to 4099 are reserved for transfers.
 Codes starting from 4100 up to 4999 are reserved for assets.
 Codes starting from 5000 up to 5599 are reserved for liabilities.
 Codes starting from 5600 up to 5699 are reserved for net assets/equity.
 Codes starting from 6000 up to 6999 are reserved for expenditure
Revenue, expenditure and transfers are temporary accounts that begin each year with a
zero balance. Assets and liabilities are permanent accounts whose balance at the end of
a year becomes the balance in the account at the beginning of the next year.
Activity 2
1. what is chart of account
1.4 FGE Budget process
The budget process at the federal level follows sequential and iterative steps. These
steps can be explained with the help of the following figure. Let us briefly explain these
steps one by one here under.
Preparation of Revenue forecast & Allocate federal

macroeconomic & expenditure budget & regional
3yrs fiscal frame ceiling expenditures
Budget review by Budget call Allocation of

MoF & MoED &ceiling recurrent &
capital budgets
Budget haring and Review and Submit to council

defense recommendation of ministers
Allotment of
Notification & Submit to council
budget
publication of of people’s 5
budget
Ethiopian Government Accounting and Financial Management Module representatives
Step 1: Preparation of Macro-economic and fiscal framework
The macro-economic and fiscal framework determines the overall level of government
expenditures based on policies related to the role of government in the economy. For the
Federal government, the framework is a three-year forecast and will be updated each
year.
Step II Determination of Federal Government Expenditure and subsidy to
Regional Governments
After the revenue and expenditure of the government are estimated through the fiscal
framework, the shares of Federal Government Expenditures and subsidies to Regional
governments is decided. It is known that, following the decentralization policy,
Regional governments took grants from the Federal government in the form of subsidy.
Step III Allocation of Federal Expenditure between Recurrent and Capital Budget
The practice in the allocation of recurrent and capital budget is to consider the latter as a
residual. That is, first the amount of budget necessary to cover such recurrent
expenditures like pensions, debt servicing, wages and non-wage operating costs will be
determined. The balance will then be allotted to capital expenditures.
Step IV Budget call and ceiling Notification

This includes two items.
1. Recurrent budget; MoF will release the budget ceiling to the line ministries in a
budget call. The budget call provides each ministry such information as the
macro-economic environment, an aggregate recurrent budget ceiling, and
priorities to budget.
2. Capital Budget; MoeED issues detailed capital budget preparation guidelines to
spending public bodies along with the ceilings provided to each line institution.
MoED will set the ceiling for each sector.
Step V Budget Review by MoF and MoED

1. Recurrent Budget; Prior to formal budget hearing, spending public bodies will
submit their budget proposals to the MoF Budget Department. In consolation
with spending public bodies, MOF will prepare an issue paper on major issues at
each head level in the proposed budget.
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2. Capital Budget: The sector departments of MoED review the capital budget
requests from different public bodies. At this stage, projects will be screened.
Step VI: Budget Hearing and Defense
1. Recurrent Budget: Spending public bodies defend their budget submission in a
formal hearing with the MoF. The issue paper will be the basis of the hearing.
The hearing focuses on policies, programs and cost issues, when necessary it
might involve discussion down to line item. Spending public bodies could also
challenge the ceiling.
2. Capital Budget: Spending public bodies will be called to defend their projects to
a budget hearing convened by the Prime Minster office which will be chaired by
the Prime Minster or the Deputy Prime Minister of the their economic advisers.
Step VII: Review and Recommendation:
1. Recurrent budget: After the hearing is over, the budget committee of the MoF
will review the discussion and make a recommendation. If there is and increase
(over ceiling) this will go to the PMO for approval.
2. Capital budget: After the hearing and defense with the PMO and MoED, sector
departments of MoED will give a final recommendation to the development
finance and budget department of MoED.
Step VIII: Submission to the council of Ministers-for approval
At this stage the two budgets (recurrent and capital) will be consolidated, and MoF will
prepare a brief analysis of the total budget.
1. Recurrent budget: The recommended budget will be submitted to the deputy
Prime Minster for economic affairs. This will first be reviewed by ministers and
vise ministers in economic affairs, and then presented to the Prime Minster
along with a brief.
2. Capital Budget: A brief analysis of the capital budget will be prepared by
MoED on the final recommended budget and, along with the consolidated
capital budget, will be submitted to the council of ministers.
Step IX: submission to the council of peoples’ Representatives
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Once approved by the council of ministers, the Prime Minster will Present both the
recurrent and capital budget to the council of people’s representatives. The budget will
then be debated based on the recommendation of the budget of the committee.
Step X: Notification and Publication
The approved budget will then get the legal status through the publication in the
‘Negaret Gazeta’ spending public bodies will then formally be notified of their
approved budget by line items from MoF and MoED for recurrent and capital budgets,
respectively. The final stage of the budgetary process is to request spending public
bodies to prepare adjusted work plan and cash flow for the approved budget. The
adjusted work plan and cash flow will be verified by MoF for the recurrent budget-and
by MoED for the capital budget and then will be sent to the treasury Department of
MoF.
Step XI: Supplementary Budget
In the course of the budget year supplementary (additional) budget will be proclaimed
when necessary, following almost the same process as the initial budget preparation.
Activity 3
1. List the steps that used to process budget at the federal level.
1.5. Fundamentals of FGE Program Budget
The name ‘program budget’ is derived from the simple fact that the planning process is
organized by program rather than by department of fiscal input or output. At present, no
standard definition of program budgeting exists. Program budgeting is generally
described as a planning-oriented procedure. Its chief goal, according to Schick, is to
rationalize policy-making by providing (a) data on the costs and benefits of alternative
ways of attaining proposed public objectives and (b) output measurements to facilitate
the effective attainment of chosen objectives.
Program budgeting has passed through several distinct evolutionary periods. The first
was the developmental period, which was borne out of the need for a national budget.
As difficult as it may be to believe, the budget practices of federal institutions were such
that it was virtually impossible for any appropriating body or the public to know where
its money was going. The budgeting practice of lumping expenditures had been
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consistent with the planned purpose of the appropriation. Budgeting procedures
basically consisted of revising estimates.
1.6 Overview of IFMIS and IBEX
The introduction of Integrated Financial Management Systems (IFMIS) has become a

core component of financial reforms to promote efficiency, security of data
management and comprehensive financial reporting.
IFMIS provide an integrated computerized financial package to enhance the
effectiveness and transparency of public resource management by computerizing the
budget management and accounting system for a government. It consists of several core
sub-systems which plan, process and report on the use of public resources. The scope
and functionality of IFMIS can vary across countries, but sub-systems normally include
accounting, budgeting, cash management, debt management and related core treasury
systems. In addition to these core subsystems, some countries have chosen to expand
their IFMIS with noncore sub-systems such as tax administration, procurement
management, asset management, human resource and pay roll systems, pension and
social security systems and other possible areas seen as supporting the core modules.
1.6.1 What are the Benefits of IFMIS?
There are a number of ways in which IFMIS can improve public finance management,
but generally IFMIS seek to enhance confidence and credibility of the budget through
greater comprehensiveness and transparency of information.
They seek to improve budget planning and execution by providing timely and accurate
data for budget management and decision making. IFMIS allow a more standardized
and realistic budget formulation across government, while promoting better control over
budget execution through the full integration of budget execution data. They also allow
for the decentralization of financial functions and processes under the overall control of
the Ministry of Finance, force financial discipline, decrease operating costs by reducing
administrative tasks and civil servants’ workload.
1.6.2 Integrated Budget and Expenditure System (IBEX)
The Integrated Budget and Expenditure System (IBEX) is a financial information
system that has been designed and developed to automate and support public finance in
Ethiopia. It is comprised of different modules including a Budget, Accounts, Budget
Adjustment, Budget Control, Accounts Consolidation and Administration Module.
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The Accounts Module manages the tracking of revenues and expenditures for budgetary
institutions. More specifically, the Accounts Module records the financial transactions
of budgetary institutions, captures the aggregated monthly accounting reports and
provides accounting reports in the form of ledgers, financial statements, management
reports and transaction listings. The functionality of the Accounts Module mirrors that
of the procedural manuals.
This manual describes the Accounts Module’s functionality but does not provide a
detailed explanation of the accounting procedures involved.
The Accounts Module User Manual contains sections about:
• Launching the Module
• User and Administrator Functions
• Managing Financial Transactions and Monthly Reports
• Generating Reports
• Appendix with Settings and Tips.
Activity 4
1. Describe the need for developing Integrated Budget and Expenditure System
1.7 Budget Ledger Card
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:
- Approved budget. - Amount remaining to be requested.
- Additions/reductions to the approved budget. - Commitments.
- Balance in the revised budget that is not committed. - Revised budget.
- Payments received for budgeted expenditure.
Completion
The budget ledger card is divided into two parts:
 The top of the card contains information to identify the
o BI,
o Type of budget, and
o Item of expenditure.
o Source of Finance
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 The table on the card contains detailed information about each budget
transaction.
1.8 Basis of Accounting
A transaction is an economic event that affects the financial position of the government.
The basis of accounting is the basic set of principles and rules employed by the
accounting system to determine when and how to record transactions.
The cash basis of accounting is a basis of accounting that recognizes transactions and
other events when cash is received or paid. The FGE accounting system employs a
modified cash basis of accounting.
The modified cash basis of accounting in FGE means that cash basis applies except for
recognition of the following transactions:
 Revenue is recognized when aid in kind is received.
 Interest on salary advances is recognized as revenue when the salary advance is
made.
 Expenditure is recognized:
o When payroll is processed.
o At the end of the year when a grace period payable is recognized.
o When goods are received or services are rendered if payment for the goods or
services was rendered in advance.
 Intergovernmental transfers are recognized in the absence of actual cash movement.
 Transactions resulting from salary withholdings are recognized in the absence of
actual cash movement.
 Amounts due on treasury bills and direct advances to Government from the National
Bank of Ethiopia are recognized as current liabilities
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, payables and net asset/equity.
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 major considerations identified for determining items to include and exclude in the
modified cash basis system is the availability, complexity, practicality and efficiency
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with which information can be obtained to include other categories of assets and
liabilities within the accounting system and the need to keep the basis of accounting
consistent with the Government’s budgeting system.
Bookkeeping Method
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.
The advantages of double-entry bookkeeping are numerous, including:
 All aspects of the transaction are properly recorded in accounts.
 The accounts are self-controlling because the total of all debits must equal the total
of all credits; therefore, many errors are easily detected and corrected.
 Modified cash basis of accounting can be introduced.
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.
By convention, the rules shown in Table 1.1 are true for each account category used in
modified cash basis of accounting:
Table 1.1 Accounting Rules for Debits and Credits
Account Category Used Normal Increase Decrease

for Modified Cash Basis Balance Recorded as Recorded as
Revenue Credit Credit Debit
Expenditure Debit Debit Credit
Cash and cash equivalents Debit Debit Credit
Receivables Debit Debit Credit
Payables Credit Credit Debit
Transfers Debit or Credit depending on transfer type
Net assets/equity Credit Credit Debit
In a double-entry system, each debit is matched by a credit of an equal amount, and

each credit is matched by a debit of an equal amount.
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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 the FGE modified cash basis of accounting, this means that
the equation in Table 2.2 is always true:
Activity 5
1. Discus the advantages of double-entry bookkeeping.
FGE Basic Accounting Equation

Assets = Liabilities + Net Assets/Equity
Cash & Cash Equivalents + Receivables = Payables + Net Assets/Equity
1.9 Legal Framework of FGE Financial Administration
The accounting system begins with the recording of the approved budget in budget
ledger cards. To understand the accounting system, the structure of financial
administration and authority of government must be understood to the extent that it
impacts the system. Although the structure of financial administration is not standard
across all units in government, a general pattern exists.
This chapter presents an overview of the financial administration system and a general
description of the roles and responsibilities within the assumed administrative structure
at the federal government. The financial administration structure is as follows:
o Ministry of Finance and Economic Development (MOFED)
o Central Accounts Department (CAD)
o Bureau of Finance and Economic Development (BOFED)
o Department of Finance and Economic Development (DOFED)
o Office of Finance and Economic Development (OFED)
o Public Body (PB)/Region Sector Bureau (RSB)
o Budgetary Institution (BI)
o Accounting Unit
o Reporting Unit
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o Cashier and Accountant
The functions described for the various institutions relate only to the accounting system
and does not include other functions, such as, planning and budgeting.
Ministry of Finance and Economic Development (MOFED)
MOFED administers the financial system for the federal government and has the highest
level of administrative authority. MOFED consists of a:
 Budget Department that prepares, consolidates and notifies the approved federal
budgets and administers the budget.
 Central Accounts Department that records transactions that are authorized and
executed at MOFED and other implementing agencies, receives monthly reports
from Public Bodies and compiles nation wide financial statements as well as for the
federal government. In addition, CAD produces daily, monthly and quarterly reports
on revenues, disbursements, borrowings and overall cash position of the government
and maintains records for all channels and special funds.
 Treasury Department that receives cash flow requests from Public Bodies and sets
drawing limits at the National Bank of Ethiopia and authorizes the disbursement of
cash from central treasury and special donor funds to transfer recipients, public
bodies outside Addis Ababa and regions.
 Credit Administration Department that manages the federal government’s external
and domestic borrowings and provides on-lending to public enterprises.
Central Accounts Department (CAD)
The Central Accounts Department performs several functions. The major functions are:
 Maintains a current record of the adjusted budget for all Public Bodies based on
the notified budget
 Entering daily transactions in the FGE general ledger from NBE bank advices
and Treasury Department transfer authorizations;
 Preparing daily, monthly and quarterly reports on revenues, disbursements,
borrowings and overall cash position of the government and undertakes bank
reconciliations and maintaining records for all channels and special funds.
 Requests Public Bodies to submit monthly/annual reports regarding loan
disbursements from external lenders;
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 Receiving monthly reports for all Channels and special funds from Public
Bodies and BOFEDs, then preparing and sending reports to donors and liaison
with auditors;
 Verifying and entering monthly reports from Public Bodies in IBEX;
 Compares budget versus actual expenditures and obtains justification for over
expenditures.
 Preparing the FGE annual financial statements and submitting them to the
federal Office of Auditor General;
 Consolidating annual reports from Regions with the FGE audited annual
financial statements; and
 Generally overseeing the accounting function at all Public Bodies and solving
any problems that occur in the accounting system and provides technical
support.
Activity 6
1. List the departments that include under MOFED
2. Describe the responsibility of Treasury Department
Public Body (PB)

Public Bodies are the next level of financial administrative authority in the federal
government after MOFED. Public Bodies are the institutions that are entitled to request
and receive a budget. A public body is defined as follows: it is an institution that has a
legal mandate, receives a partial or complete budget directly from the respective finance
and planning bodies, submits its final accounts directly to MOFED, and is on the
approved list of public bodies issued by the Office of the Prime Minister.
Each PB is assumed to have the following financial administration:
 Head of the PB.
 Head of Finance Department who oversees:
 Accounts Section with Accountants and Cashiers
 Budget Section.
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The figure shows the assumed financial administrative structure.
Head of Public Body
Head of Finance
Budget Section
Account Section
Senior Accountant Disbursements Budget Preparation Budget Control
Disbursement Accountant
Main Cashier
General Fund Special Fund
Accountant Accountant
Assistant Cashier
Budgetary Institution (BI)

For purposes of this manual, the budget process begins with the appropriated budget.
The appropriated budget is the budget approved by the Council of People’s
Representatives (CPR). The appropriated budget is broken down by:
 Recurrent and capital expenditure for the federal government, and
 Subsidy for each regional government.
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 (treasury, external
assistance and external loan). This is called the approved budget. The approved budget
is published in the Negarit Gazeta with the appropriated budget.
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.
Projects and sub-agencies are defined and coded in the chart of accounts. Any unit that
receives an approved budget from a PB's approved budget is called a Budgetary
Institution (BI).
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Accounting Unit
For cash management, another unit is created: the bank account (BA). The BA does not
receive a budget. However, it is important for cash management and control. The FGE
accounting system includes the BA in the accounting structure.
A PB may administer many BIs and BAs, or a PB may have only one BI and one BA. Each BA is managed by a chief accountant or
accountant and:
 May have many cashiers or have its own cashier or share a cashier with other
BAs, or have no cashier associated with it (like foreign currency bank accounts).
 Handles cash flows for one or more than one BI, from one or more source of
finance, and for more than one type of budget (capital/recurrent).
An accounting unit is the unit that captures and records transactions into the accounting
system. The accounting unit:
- Processes transactions. - Maintains a general ledger.
- Maintains registers. - Prepares monthly reports.
- Maintains subsidiary ledgers for:
o Asset accounts.
o Liability accounts.
One set of general ledger is maintained for the BA, including a ledger card for each item
of expenditure. These reports are consolidated with information from the general ledger
into a monthly report for the BA.
Reporting Unit
A reporting unit is the unit that sends monthly reports to MOFED. Although the
accounting unit prepares monthly reports, every accounting unit may not send monthly
reports directly to MOFED. The reporting unit may be:
 The accounting unit, or
 A higher level of authority (perhaps a PB or a pool).
Cashier and Accountant
In the accounting system of cash control, the cashier’s and the accountant’s functions
are distinct. 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 and cash in safe. Only
the cashier can receive currency and checks (including check payment orders) and make
17
disbursements in currency. Daily, the cashier should count cash on hand and reconcile
ending cash on hand to the cashbook.
The cash in safe for operating expenditure is controlled by an impress system. In the
impress system, a balance is established for cash in safe for the Public Body. The
accountant issues this amount of cash to the cashier using a check. If the amount of
cash in safe is to be replenished, the cashier will provide 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 provided. The
replenishment returns the balance of cash in safe to the established level.
When cash is received from other sources, the cashier will:
 Segregate the cash received from cash available to disburse for salary and petty
cash,
 Deposit the cash received intact in the bank as soon as practical, usually daily,
and
 Surrender copies of all cash receipts and a copy of the bank deposit slip to the
accountant.
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.
18
1.10 Summary
The Federal Government of Ethiopia accounting system used up to GC 2002 was in

service for more than half a century. Government decided to reform the accounting
processes to achieve the following set of objectives: Simplify the accounting system by
changing it from the single entry bookkeeping system to the double entry bookkeeping
system, Expand the current accounting system by changing the basis of accounting
from cash basis to a modified cash basis of accounting and Improve cash and financial
management practices by rationalizing the number of bank accounts and minimizing the
amount of idle funds ect… The single pool system means that at all zones and weredas
the accounting staff is located only one single location - the Finance Office and this
system has different benefit.
A chart of accounts is a system of coding used by a financial management system to
identify and classify financial transactions and events. The summary of the account
codes for the chart of accounts. The budget process at the federal level follows
sequential and iterative steps. These steps can be explained with the help of the
following figure. The name ‘program budget’ is derived from the simple fact that the
planning process is organized by program rather than by department of fiscal input or
output. At present, no standard definition of program budgeting exists. Program
budgeting is generally described as a planning-oriented procedure.
Chapter End Exercise
Multiple Choice Questions

Choose the best answer and circle the letter of your choice. Compare your answers with
answers given at the end of the module.
1. What information does the budget classification provide for accounting purpose?
a. Financial administration structure required.
b. Types of budget.
c. Source of funding.
d. A and C
e. All of the above
19
2. Public Bodies have the discretion to:
a. Use all revenue they generated for contingency.
b. Code their programs and projects in consultation with MOFED.
c. Uniquely design and implement their own financial administration
structure.
d. Assign account numbers for their expenditure items.
e. All of the above.
3. Which of the following is true about a public body coded as 236?
a. The first digit “2” tells you that the type of budget appropriated to
this PB is a capital budget.
b. The first digit (2) indicates that the functional classification of this
PB is Economic.
c. The second digit (3) represents the level of government to which the
budget applies is social sector.
d. The third digit (6) shows that this PB is classified in Administrative
and General sub-functional budget category.
e. B and C.
4. Which of the following generates Capital revenue for government?
a. Government revenue from sales of land to investors.
b. Government sales of used goods including cars.
c. Privatization proceeds from the sale of government equity in public
enterprises.
d. Sales of durable goods acquired for military purposes.
e. None of the above.
5.Identify the temporary account from account codes listed below.
a. 4104
b. 6441 d. 5524
c. 5601 e. 5021
6.Which of the following is false about the chart of accounts?
a. The ordering within assets in the chart of accounts represents the
relative ease with which each could be converted into cash.
b. The ordering within liabilities in the chart of accounts represents the
timing of repayment.
c. The ordering within assets in the chart of accounts represents the
liquidity of assets.
d. The chart of accounts is designed to distinguish assets and liabilities
that are the result of modified cash-basis accounting from those that
are the result of the cost method of accounting.
20
7.Which of the following is classified under cash and cash equivalent category of
accounts?
a. Cash on hand.
b. All demand deposits in local and foreign currency accounts.
c. All demand deposits in restricted and unrestricted accounts.
d. Investments that are readily convertible to known amounts of cash
and which are subject to insignificant risk of change in value.
8.Which particular activities in the system better serve to accountability
achievement?
a. Employing a general ledger system to produce reports.
b. Employing a modified cash-basis of accounting when accounting for
transactions.
c. Applying double entry bookkeeping techniques in the accounting
system.
d. Accounting for commitments in the system.
9.Which of the following is true about basis of accounting in FGE accounting
system?
a. All revenues are recognized when cash is received.
b. All expenditures are recognized when cash is paid.
c. Expenditures could be recognized when incurred and their payments
arranged in grace periods.
d. All expenditures are recognized when incurred.
e. Expenditure for letter of credit is recognized when items purchased
overseas are received.
10. Among the following one is not a practical procedure in the system to enhance
the control over cash. Which one?
a. Using pre-numbered source documents in the system.
b. Clearly defined assignment of responsibility between cashier and
accountant.
c. Applying the imprest system to control cash in safe.
d. Using a bank account system.
21
References
Ainsworth, P, et al. (1997). Introduction to Accounting: An integrated Approach
McGraw - Hill: Boston.
Fees Warren. Accounting principles. 14th-17th ed.*
Fees Warren. Accounting principles. 10th-13th ed. South Western publishing
company*
FGE Accountings System - Manual 3, Accounting for Modified cash basis transactions,
Volume II, DSA project and MOFED, January, 2002 Addis Ababa, Ethiopia
Volume I, DSA project and MOFED, December, 2002 Addis Ababa, Ethiopia.
FGE Accounting System - Manual 3, FGE Chart of Accounts - Volume II, DSA project
and MOFED, January, 2002 Addis Ababa, Ethiopia.
and MOFED, December, 2002 Addis Ababa, Ethiopia.
FGE Accounting System - Manual 3, Cases and Analysis of transactions - Volume II
DSA project and MOFED, January 2002, Addis Ababa, Ethiopia.
Jay M.Smith Jr. and K. Fred Skousen. (1987). International Accounting South Western
publishing Co: USA.
Mehari Haile. (1991). Simplified Bookkeeping and Accounting Kuraz Agency: Addis
Ababa.
Swanson, Boynton, et al, (1977). Century 21Accounting: 2nd edition; South Western
publishing Company: Cincinnati.
Swan son Ross and Hason. (1983). Century 21st Accounting. Western Publishing. Walter B.
Meigs. (1984). Accounting, the basis for Business Decisions. 6th Ed. McGraw-Hill:
International Book Company.**
Weygandt, Kieso, Kell.(1993). Accounting Principles, 3rd ed. John Wiley & Sons, Inc.:
New York.
Weygandt, Kieso, Kimmel.(1999). Accounting Principles, 5th ed. John Wiley & Sons,
Inc.: New York
N.B. * No date of publication
**No place of publication
1
Chapter Two: General and Subsidiary Ledgers
Contents
1.1 Introduction
1.2 Description of ledger
1.3 Structure and organization of ledgers
1.4 Recording entry in the ledger
1.5 Summery
At the end of this Chapter you are expected to

 Define ledger
 Identify the structure and organization of ledger
 Describe how to Recording entry in the ledger
1.1 Introduction
Dear students this Chapter is designed to introduce you with the general overview of ledger.
It also introduces and identifies the structure and organization of ledger further-more the
chapter also gives detail overview on the how to Recording entry in the ledger.
1.2 Description of Ledgers
A ledger is the entire group of accounts maintained by an accounting unit. The ledger
summarizes transactions by accounts. The effect of any one transaction is lost in the ledger,
but the total effect of all transactions on account balances is captured. The ledgers
summarize the transaction information from registers in the form of accounts that facilitate
reporting of financial results. Transactions are recorded in the register, but reports are
produced from the ledgers.
Two types of ledgers are maintained in the government accounting system: General Ledgers
and Subsidiary Ledgers.
General Ledger
A Ledger Card is maintained for every account code recorded in the Register. Every amount
that is entered either as a debit or credit on the Register is also entered to the corresponding
debit or credit column of the appropriate Ledger Card. The aggregate of all such Ledger
Cards is the General Ledger.
2
The General Ledger is a set of self-balancing Ledger Cards because at all times the total
debits and the total credits recorded in the General Ledger is equal.
Purpose
The General Ledger is maintained to classify information recorded in the Register by

respective account codes. All transaction amounts recorded in the Register are entered on
Ledger Cards in the General Ledger. The balances for all individual accounts are maintained
in the General Ledger.
The General Ledger:
 Simplifies and improves the report generation process, and

 Serves as a basis to prove that the net cumulative debit and credit balances of all
accounts are equal.
Maintenance
The accountant maintains a General Ledger for each Register. Where more than one BI
shares the same bank account, the accounting unit maintains one Transaction Register and
one General Ledger for the bank account.
Subsidiary Ledgers
A control account is an account in the General Ledger that maintains the total balance of all
related accounts in a Subsidiary Ledger. A Subsidiary Ledger is a ledger that is separate
from the General Ledger and contains transaction details of each control account in the
General Ledger. Any account in the General Ledger that requires more detail than simply the
total account balance becomes a control account with a Subsidiary Ledger.
A Ledger Card is maintained for every control account in the General Ledger. Every amount
that is entered either as a debit or credit on a control account’s Ledger Card in the General
Ledger is also entered to the corresponding debit or credit column in the Subsidiary Ledger
Card.
At all times, the net cumulative balance of debits and credits recorded in the Subsidiary
Ledger is equal to the respective net cumulative balance of debits and credits of the
corresponding control account in the General Ledger.
3
A Subsidiary Ledger is not a set of self-balancing accounts; all debits in a Subsidiary Ledger
are not equal to all credits in the Subsidiary Ledger. A Subsidiary Ledger’s total debits and
credits equal the balance in the corresponding control account in the General Ledger.
Purpose
The purpose of control accounts and subsidiary ledger accounts is to facilitate the report
generation process, minimize the size of the General Ledger, and maintain sufficiently
detailed records of account balances to assist proper financial management.
For example, total of advances to staff is a control account in the General Ledger, but the
amount owed by each staff member is a subsidiary ledger account in the Subsidiary Ledger.
Total of advances to staff is a control account in the General Ledger. Reporting requirements
require disclosure of the total amount of the advances to staff (rather than the amount owed
by each staff member). Also, it is likely that the number of staff members who owe advances
is significant, and it may be cumbersome to maintain the amounts owed by each staff member
in the General Ledger. The accounting unit maintains a record of the amount owed by each
staff member in a Subsidiary Ledger in order to monitor repayment of the amounts owed
from each staff member.
However, a Subsidiary Ledger is not maintained for all accounts in the General Ledger.
Subsidiary Ledgers are only maintained for accounts within the General Ledger that requires
more detail than simply the total account balance.
Maintenance
The accountant maintains a set of Subsidiary Ledger Cards for each control account in the
General Ledger.
Each transaction recorded in a Transaction Register is posted to the related General Ledger.
The General Ledger is organized in sequence of the account codes as follows:
 Revenue – 1000 series
 Assistance – 2000 series
 Loan accounts – 3000 series
 Transfer accounts – 4000 to 4099 series
 Asset accounts – 4100 series
4
 Liability accounts – 5000 to 5499 series
 Net Asset/Equity account - 5601
 Expenditure accounts –6000 series
Activity 1
1. What is ledger
1.3 Structure and Organization of Ledgers
Structure
Two criteria that define whether or not an account code is a control account with a related
Subsidiary Ledger are monthly reporting requirements and management and control of the
account balance
Recurrent and Capital Expenditure

An accounting unit is required to report recurrent and capital expenditures at the level of each
BI managed by it.
Expenditure control accounts are maintained in the General Ledger for each item of
expenditure and type of budget. The control accounts keep the General Ledger in balance
and provide a control over the accuracy of the recording in the associated Subsidiary Ledgers.
The control accounts provide information on total expenditures by item of expenditure and
type of budget for the accounting unit.
In order to track and report expenditure at the level of each BI managed by the accounting
unit, a Subsidiary Ledger is maintained for each expenditure control account by BI.
Accounts in the Subsidiary Ledger provide information on total expenditures by type of
budget and item of expenditure for each BI managed by the accounting unit.
To summarize, a Subsidiary Ledger is maintained for expenditure as described in Table 2.1.
Table 2.1
Subsidiary Ledgers for Expenditure Control Accounts
Source of Sub Items
5
Funding Ledger
Treasury Yes By BI for each item of expenditure/type of
budget
Loans Yes By BI for each item of expenditure
Assistance Yes By BI for each item of expenditure/type of
budget
Revenue
An accounting unit is required to report revenue at the level of the accounting unit and not at
the level of each BI managed by it.
In order to record and report actual revenue at the level of the accounting unit, an account is
maintained in the General Ledger for each item of revenue by account code. The General
Ledger provides information on total revenues by item of revenue for the accounting unit as a
whole. Since there is no revenue reporting requirement at the level of each BI, a Subsidiary
Ledger is not maintained for items of revenue. To summarize, a Subsidiary Ledger is not
maintained for revenue.
Other Accounts
Other categories of accounts maintained in the General Ledger at the reporting unit level
include:
 Transfers
 Cash and Cash Equivalents
 Receivables
 Payables
 Net Assets/Equity
An accounting unit is required to report on accounts in these categories at the level of the
accounting unit only and not at the level of each BI managed by it.
However, some of these account categories contain control accounts with Subsidiary
Ledgers. The purpose of these Subsidiary Ledgers is to maintain sufficiently detailed
information in the accounts for control and management.
Transfers
6
Transfers accounts typically are not control accounts and have no related Subsidiary Ledgers.
Cash and Cash Equivalents

Cash and Cash Equivalents accounts typically are not control accounts and have no related
Subsidiary Ledgers. If the accounting unit controls more than one safe, a Subsidiary Ledger
is needed for each safe under the general ledger control account for Cash in Safe.
Receivables and Payables

Receivables and payables typically are control accounts with related Subsidiary Ledgers.
Accounts in the Subsidiary Ledgers identify individual items under the control account.
Net Assets/Equity
Net Assets/Equity account is not a control account and has no related Subsidiary Ledger.
To summarize, a Subsidiary Ledger is maintained as described in the Table 2.2.
Subsidiary Ledgers for Other Accounts

Codes Sub. Items
Ledger
Cash at Bank No Not applicable
Cash in Safe Yes By safe, if accounting unit controls more than one
safe
Transfers No Not applicable
Receivables Yes By individual item
Payables Yes By individual item
Net No Not applicable
Assets/Equity
Organization
The General Ledger is organized into seven broad categories comprising:
 Revenue, Assistance or Loan accounts in sequence of the account codes
 Expenditure accounts in sequence of the account codes
 Transfer accounts in sequence of the account codes
7
 Asset accounts in sequence of the account codes
 Liability accounts in sequence of the account codes
 Net Asset/Equity account
The Subsidiary Ledger is organized by the related control account maintained in the General
Ledger.
Activity 2
1. List the accounts maintained in the General Ledger at the reporting unit level
1.4 Recording Entries in Ledgers
Recording Transactions into the Ledger Card of the General Ledger
Each transaction recorded in a Register is also recorded in the related General Ledger. Each
transaction is recorded in at least two separate ledger cards because at least two accounts are
affected by each transaction. Each account is recorded on its appropriate Ledger Card in the
General Ledger immediately after it is recorded in the Register. The only source document to
the General Ledger is the Register.
The Ledger Card has two parts:
 Top of the form contains information that identifies:
 The General Ledger to which the card belongs, and
 The specific account code and type of budget recorded on the card.
 A table that contains information from the Transaction Register for computing the
balance for the account code/type of budget.
Table 2.3 identifies the fields in the Ledger Card of the General Ledger and provides a
description for each.
Fields in Ledger Card of the General Ledger
8
Field Description
Top of Form:
Left-Side
Public Body & Code Name and code of Public Body to identify
Accounting Unit
Program & Code Name and code of Program if needed to identify
Accounting Unit
Sub Agency & Code Name and code of Sub Agency if needed to identify
Accounting Unit
Sub Program & Code Name and code of Sub Program if needed to identify
Accounting Unit
Project & Code Name and code of Project if needed to identify
Accounting Unit
Source & Code Source code (1800 is Treasury; 1900 is Retained
Revenue; revenue code for donor (2001-2099) or
lender (3001-3099).
Bank Account No. Number of the bank account to identify Accounting
Unit
Right-Side
Page Serially numbered for each account code/type of
budget to identify unique Ledger Card page
Type of Budget 1 for Recurrent; 2 for Capital to identify Ledger Card
Account Code Indicate appropriate account code to identify Ledger
Card
Description Not used for General Ledger purposes
Table:
Date Date entered in Ledger Card
Reference from Register Required information to identify the Register source:
Month, Page, Item no., and Date of the transaction
Description A brief description of the transaction, if necessary
Debit/Credit Amount from the appropriate column of Register
Balance Net debit/credit balance of all entries from the
Debit/Credit column after each transaction
9
All information on the left side at the top of the Ledger Card is not needed for all General
Ledger Cards. The information provided on the left side must be sufficient to uniquely
identify the General Ledger from all other General Ledgers. The detail of information
required will vary.
The information on the right side at the top of the Ledger Card is required to uniquely
identify the Ledger Card in the General Ledger, except that the space for description is not
necessary for a Ledger Card in the General Ledger.
In the table on the Ledger Card in the General Ledger,
 Date is the date that the entry is made in the Ledger Card, not the date of the
transaction.
 Reference from Register contains sufficient information to uniquely identify the

Register source of the entry.
 Description is optional. If additional information about the transaction is desired, it

should be written in this column.
 Debit and Credit contains the amount from the Register for the transaction. Every
amount that is entered as a debit (or credit) on the Register is entered in a
corresponding debit (or credit) column of a Ledger Card in the General Ledger.
 Balance is the net cumulative balance of the account. After every transaction is
recorded in the debit or credit column of the Ledger Card in the General Ledger, the
net cumulative balance of the account is derived by adding or subtracting the amount
of the current transaction from the previous net cumulative debit or credit balance.
The purpose of the monthly net cumulative debit and credit balances is to record the
net balance in the monthly reports and Trial Balance.
Recording Transactions into the Foreign Currency Cash Account Ledger Card
The cash account ledger card for Account Code 4102 "Cash at Bank in Foreign Currency"
requires a special format. Only this account code, maintains a balance in Birr and in foreign
currency denomination. The same information is recorded in the Foreign Currency
Transaction Register.
10
The Foreign Currency Cash Account Ledger Card is identical to any other Ledger Card,
except that the amount of each transaction recorded from the Foreign Currency Transaction
Register is recorded on the card twice: once in Birr and once in foreign currency. In addition,
the net cumulative balance of the account is kept in both currencies.
Recording Transactions into the Ledger Card of the Subsidiary Ledger
A Ledger Card in the Subsidiary Ledger is maintained only for control accounts in the
General Ledger. Transactions are recorded on the appropriate Ledger Cards in the Subsidiary
Ledger from the Register immediately after they are recorded in the Ledger Cards in the
General Ledger. The only source document for the Subsidiary Ledger is the Register.
The format of a Ledger Card in the Subsidiary Ledger is the same as the format of the Ledger
Card in the General Ledger. Ledger Cards are printed in two colors. One color of cards
should be used for General Ledger accounts only, while the other should be used for all
Subsidiary Ledger accounts. When the Ledger Card is used in a Subsidiary Ledger, the fields
are used as described in Table 2.4.
Table 2.4
Fields in Ledger Card of the Subsidiary Ledger
Field Description
Top of Form:
Left-Side
Public Body & Code Name and code of Public Body
Program & Code Name and code of Program if needed
Sub Agency & Code Name and code of Sub Agency if needed
Sub Program & Code Name and code of Sub Program
Project & Code Name and code of Project
Source & Code Source code (1800 is Treasury; 1900 is Retained
Revenue; revenue code for donor (2001-2099) or
lender (3001-3099).
Bank Account No. Number of the bank account
Right-Side
Page Serially numbered for each account code/type of
budget to identify unique Ledger Card page
11
Type of Budget 1 for Recurrent; 2 for Capital to identify Ledger Card
Account Code Indicate appropriate account code to identify the
control account in the General Ledger
Description Identification of the individual item in the Subsidiary
Ledger if the item is not a BI
Table:
Date Date entered in Ledger Card
Reference from Register Required information to identify the Register source:
Month, Page, Item no., and Date of the transaction
Description A brief description of the transaction, if necessary
Debit/Credit Amount from the appropriate column of Register
Balance Net debit/credit balance of all entries from the
Debit/Credit column after each transaction
All information on the left side at the top of the Ledger Card is not needed for all Subsidiary
Ledger Cards. The information provided on the left side must be sufficient to uniquely
identify the related General Ledger. If the Subsidiary Ledger consists of BIs, sufficient
information to uniquely identify the BI is necessary. The detail of information required will
vary.
The information on the right side at the top of the Ledger Card is required is uniquely identify
the control account in the General Ledger, except the description. If the Subsidiary Ledger
consists of individual item (such as individual staff for advances or individual letters of
credit), sufficient description is necessary to uniquely identify the individual account in the
Subsidiary Ledger.
In the table on the Ledger Card in the Subsidiary Ledger,
 Date is the date that the entry is made in the Ledger Card, not the date of the
transaction.
 Reference from Register contains sufficient information to uniquely identify the

Register source of the entry.
 Description is optional. If additional information about the transaction is desired, it

should be written in this column.
12
 Debit and Credit contains the amount from the Register for a transaction that belongs
in the Subsidiary Ledger. Every debit and credit entered on a Ledger Card in the
General Ledger from the Register should not be recorded in a Ledger Card in a
Subsidiary Ledger. Only control accounts in the General Ledger have corresponding
Subsidiary Ledgers. Every amount that is entered as a debit (or credit) on the Ledger
Card of a control account in the General Ledger from the Register is entered in a
corresponding debit (or credit) column of a Ledger Card in the Subsidiary Ledger.
 Balance is the net cumulative balance of the account. After every transaction is
recorded in the debit or credit column of the Ledger Card in the Subsidiary Ledger,
the net cumulative balance of the account is derived by adding or subtracting the
amount of the current transaction from the previous net cumulative debit or credit
balance. All debits on all Ledger Cards in a Subsidiary Ledger are not equal to all
credits in the Subsidiary Ledger. A Subsidiary Ledger’s total debits and credits equal
the balance in the corresponding control account in the General Ledger.
The net debit and credit cumulative balances on all Ledger Cards in a Subsidiary Ledger
should be totaled on a monthly basis and compared to the balance on the control account’s
Ledger Card in the General ledger. The purpose is to verify the accuracy of the total net
balance in the Subsidiary Ledger with net balance in the control account in the General ledger
and to produce accurate monthly reports for expenditure.
General Ledger Routines at the Month End
The General Ledger must balance at the end of each month. The total cumulative balances of
all debits and credits on all Ledger Cards in the General Ledger must be equal.
Verification of Errors
Where the net cumulative debits and credits recorded on all Ledger Cards in the General
Ledger are not equal, an error exists. The following types of errors should be verified to
balance the General Ledger:
 An incorrect amount is transcribed into the Ledger Card from the Register.
 An amount is incorrectly posted into the credit column of a Ledger Card in the
General ledger instead of into the debit column, and vice versa.
13
 Only one side (either debit or credit) of a transaction is posted into the General ledger
and the other portion (either debit or credit) of the transaction is not posted into the
General ledger.
 An arithmetical error has occurred in the computation of the net debit or credit
balance of a Ledger Card in the General ledger
 Permanent account balances are not carried forward correctly from the previous year.
General Ledger routine at the Year End
In addition to the monthly routines, at the end of each year, a transfer of the debit or credit
balances to the Net Assets/Equity account is required to close the temporary accounts in the
General Ledger. The temporary accounts are accounts in the following account categories:
 Revenue, Assistance and Loan items comprising account codes 1000 to 3999.
 Expenditure items comprising account codes 6000 to 6999.
 Transfers comprising account codes 4000 to 4099.
The closing entry is the last entry made at the end of the fiscal year after all other transactions
are captured. The closing entry ensures that temporary accounts start each fiscal year with a
zero balance. The General Ledger begins a new fiscal year with carry forward balances in the
permanent accounts from the previous year.
Subsidiary Ledger Routines at the Month End
At the end of each month, the net cumulative debit or credit balance for each Ledger Card in
the Subsidiary Ledger should be calculated. The total net cumulative debit or credit balance
for all Ledger Cards in the Subsidiary Ledger must be equal to net cumulative debit or credit
balance on the respective control account’s Ledger Card in the General ledger.
Verification of Errors
Where total net cumulative debits or credits balance for all Ledger Cards in the Subsidiary
Ledger is not equal to the net cumulative debit or credit balance on the respective control
account’s Ledger Card in the General ledger, an error exists. The following types of errors
should be verified to balance the Subsidiary and General Ledgers:
 An incorrect amount is transcribed into the ledger from the Register.
14
 An amount is incorrectly posted into the credit column of a Ledger Card in the
Subsidiary ledger instead of into the debit column, and vice versa.
 An arithmetical error has occurred in the computation of the net debit or credit
balance of a Ledger Card in the Subsidiary ledger
 Permanent account balances are not carried forward correctly from the previous year.
Subsidiary Ledger Routines at the Year End
At the end of each year, the temporary accounts in the General Ledger are closed to the Net
Assets/Equity account as described above.
Any Subsidiary Ledger corresponding to a temporary account in the General Ledger also is
considered closed. A new Subsidiary Ledger is started each year for each temporary control
account. All accounts in the new Subsidiary Ledger begin the year with a zero balance.
Accounts in other account categories are permanent accounts and are not closed each year.
These permanent accounts carry their previous year’s balance forward to the next fiscal year.
Any Subsidiary Ledgers corresponding to permanent accounts in the General Ledger also
carry forward to the next year.
1.5 Summary
A ledger is the entire group of accounts maintained by an accounting unit. The ledger
summarizes transactions by accounts. The effect of any one transaction is lost in the ledger,
but the total effect of all transactions on account balances is captured. Two types of ledgers
are maintained in the government accounting system: General Ledgers and Subsidiary
Ledgers.
Chapter End Questions

Multiple-choice questions
Instruction: Choose the best answer and circle the letter of your choice. Then check your
answers against the answers given. You need to go back and read on topics if your answers
are wrong.
1. The source documents for entries in the ledger is:
a. receipt vouchers
b. payment voucher
c. journal voucher
d. transaction register
e. accountant
2. Which of the following is true about general ledger and controlling account?
a. all controlling account are general ledger
15
b. all general ledger are controlling account
c. controlling accounts do not provide information for preparation of reports
d. all general ledger are sources of information to complete reports
e. A and D
3. The purpose of control accounts and subsidiary ledger accounts is:
a. to facilitate the report generation process
b. minimizes the size of the General Ledger
c. maintain sufficiently detailed records regarding account balances
d. to assist proper financial management.
e. All of the above
4. A Subsidiary Ledger is not maintained for all accounts in the General Ledger. Subsidiary
Ledgers are only maintained for accounts:
a. within the General Ledger that requires more detail than simply the total
account balance.
b. Selected by the management
c. Selected by the accountant
d. B and A
e. All of the above
5. Two criteria define whether an account code is a control account with a related Subsidiary
Ledger. These are:
a. Monthly reporting requirements
b. Indicated in the chart of accounts
c. Management and control of the account balance
d. A and C
e. None of the above
6. The controlling account maintained for expenditure items helps:
a. To keep the General Ledger in balance and provide a control over the accuracy of
the recording in the associated Subsidiary Ledgers.
b. to provide information on total expenditures by item of expenditure
c. to provide information on total expenditures by type of budget for the accounting
unit.
d. All of the above
7. Accounts in the Subsidiary Ledger provide information on:

a. total expenditures by type of budget managed by the accounting unit
b. item of expenditure for each BI managed by the accounting unit
c. A and B
d. all of the above
8. Revenue is required to be reported at the level of:
a. Public body
b. Budgetary institution
c. Reporting Entity
d. Accounting unit
9. A Subsidiary Ledger is not maintained for items of revenue, because:
a. there is no need of management control on revenue
b. there is no reporting requirement at the level of each BI
c. revenue is not budgeted
d. revenue is not recognized at the BI level
16
e. all of the above
10. Some of the account categories may contain control accounts with Subsidiary Ledgers to
maintain sufficiently detailed information in the accounts for control and management.
Which one?
a. Cash and cash equivalents
b. Transfers
c. Revenue
d. Equity
e. All of the above
11. Some of the account categories do not contain control accounts with Subsidiary Ledgers.
Which one?
a. Receivables
b. Payables
c. Letter of Credit
d. Transfers
12. The format of a Ledger Card in the subsidiary Ledger is the same as the format of the
Ledger Card in the General ledger. What is the mechanism in the system to easily
differentiate them physically?
a. ledger card size
b. ledger card thickness
c. ledger card titles
d. ledger card colors
e. none of the above
13. Where total net cumulative debit or credit balance for all Ledger Cards in the subsidiary
Ledger is not equal to the net cumulative debit or credit balance on the respective control
account's Ledger Card in the General ledger, an error exists. Which one is the possible
error?
a. Different amounts are transcribed to the general and subsidiary ledger
b. Entry is posted to the wrong side on the subsidiary ledger or controlling account
c. Arithmetic error in computing the account balance in controlling account
d. All of the above
17
References
Fees Warren. Accounting principles. 14th-17th ed.*
Fees Warren. Accounting principles. 10th-13th ed. South Western publishing
company*
publishing Co: USA.
Ababa.
Swanson, Boynton, et al, (1977). Century 21Accounting: 2nd edition; South Western
publishing Company: Cincinnati.
Swan son Ross and Hason. (1983). Century 21st Accounting. Western Publishing. Walter B.
Meigs. (1984). Accounting, the basis for Business Decisions. 6th Ed. McGraw-Hill:
International Book Company.**
Weygandt, Kieso, Kell.(1993). Accounting Principles, 3rd ed. John Wiley & Sons, Inc.:
New York.
Weygandt, Kieso, Kimmel.(1999). Accounting Principles, 5th ed. John Wiley & Sons,
Inc.: New York
N.B. * No date of publication
**No place of publication
18
Chapter 3: Recording Common Transactions of FGE
Contents:

3.1 Introduction
3.2 Cash Transfer
3.3 Non-cash transfer
3.4 Revenue/ Assist/ Loan
3.5 Operating Expenditure
3.6 salary
3.7 suspense payment
3.8 Receivables and Payables
3.9 Specific Purpose Grant
3.10 Closing Entry
3.11 Beginning of year procedure
3.12 Summary
After completing this chapter, you are expected to:

 Demonstrate the entry for cash movement
 Make the necessary entry for non-cash transactions.
 Journalize the entries related to Revenue/Assistance/Loan
 Record transactions related to operating expenditures
 Make the necessary entry for payroll related transaction
 Demonstrate the entry and rules of suspense payment
 Journalize the entries related to receivables and payables
 Record transactions related to Specific Purpose Grant
 Understand the procedures in closing year end books
 Prepare the necessary entry and procedures for opening a new period
19
3.1 Introduction
Dear learner, the purpose of this chapter is to demonstrate how to make entries using the FGE
chart of accounts as debits and credits into the Transaction Register, illustrating the
procedures for closing entries and beginning period preparation.
3..2 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.
When cash is transferred from a public Body or from MOFED, a payment voucher is
prepared as the source document for entry in the transaction Register. When Ge/Be/We 12/1
is received from MOFED, a Receipt Voucher is the source document. The Receipt Voucher
should be prepared when Ge/Be/We 12/1 is received; when the bank advice is received, it
should be attached with the Receipt Voucher and the Ge/Be/We 12/1. Until the bank advice is
received, this will be a reconciling item for the bank reconciliation. Ge /Be/We 12/1 is a
document used by MOFED to order banks. Cash transfers between bank accounts at public
Bodies and MOFED are reported monthly, in the month they occurred on Me/He/ 24 part 1
and 2. MOFED maintains a subsidiary ledger for each transfer account code. The subsidiary
ledger accounts are established for each public Body. Subsidiary ledgers aid consolidation in
the general ledger of MOFED and improve cash control.
Cash Transfers: Between bank accounts at public Bodies and MOFED: From MOFED to
public Bodies
In the FGE accounting 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
20
By the public Body, as debit cash at Bank 4103 and a credit to the appropriate transfer
code.
Activity 1: Recording Cash Transfers from MOFED to PB
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
Instruction: You are required to show how this transaction could be recorded on MOFED and
PB's transaction register.
Answer:
Transaction Register of MOFED:
No Description TB Account Number Others Cash at bank

4105
Dr Cr Dr Cr
1 Cash transfer to -- 4004 100,000 100,000
PB
Transaction Register of Public Body:
No Description TB Account Number Others Cash at bank 4103

Dr Cr Dr Cr
1 Cash transfer from - 4004 100,000 100,000
MOFED
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.
21
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.
No Description type of Account Others Cash at bank

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

of Number 4103
budget
Dr Cr Dr Cr
1 Bank Service 02 6256 2000
Charge
Cash transfer from 4004 100,000 98,000
MOFED
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 Others Cash at bank

Number 4105
Dr Cr Dr Cr
1 Cash transfer from PB - 4009 60,000 60,000
22
Number 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. Cash from the safe should be requested using Ge/Be/We 11/-
when cash is paid from the safe, a cash payment Voucher is prepared for payment to the
appropriate BI. 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.
No Description TB Account Others Cash in Safe 4101

Number
Dr Cr Dr Cr
1 Cash transfer - 4002 1,000 1,000
Transaction Register of public Body:
No Description TB Account Others Cash in Safe 4101

Number
Dr Cr Dr Cr
1 Cash transfer - 4002 1,000 1,000
Cash Transfers: Between Public Bodies
23
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.
When cash is transferred out of a public body's bank account, a payment voucher is prepared
as the source document for entry in the transaction register. When transfer is received in
cash, a receipt voucher is the source document.
Cash transfers between Public Bodies are reported monthly, in the month that they occur, on
Me/He 24 part 1.
Cash transfers from a bank account of one public Body to a bank account of another public
Body are recorded: 1) By the public Body sending the cash, as a debit to transfer code 4008
and a credit to cash at Bank 4103, and 2) 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:

Number 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 Others Cash at bank 4103

Number
Dr Cr Dr Cr
1 Cash transfer to PB #1 - 4008 90,000 90,000
Cash Transfers: Within Public Body
In case the public Bodies maintain branch bank accounts they may transfer cash from one
bank account to another bank account of its branch.
The branch bank account may be treated as an Accounting Unit or as a Safe.
24
If the branch bank account is treated as a safe, a cashbook is maintained for each bank
account. If the branch bank account is treated as an Accounting Unit,
A transaction register is maintained for each bank account, and the public body
maintains a consolidated general ledger for all transactions recorded in a transaction
registers. The consolidated general ledger is the source document for monthly reports to
MOFED.
When cash is transferred from a bank account, a payment voucher is prepared as the source
document for entry in the transaction register of that bank account. When cash is received by
transfer into a bank account, a receipt voucher is the source document for entry in the
transaction register of that bank account.
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:

Number 4103
Dr Cr Dr Cr
1 Cash transfer to BA #2 - 4011 80,000 80,000
25
Transaction Register of Bank Account #2:
No Description TB Account Other Cash at bank 4103

Number
Dr Cr Dr Cr
1 Cash transfer BA #1 - 4011 80,000 80,000
Activity 1: Recording cash receipts
Assume that MOA (Ministry of Agricultures) collects Birr 250 from Ato Kebede as a fine in cash and
assume that you are the accountant in the college. How are you going to record on the receipt voucher
of the college?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________
3.3 Non-Cash Transfers
Non-cash transfers are used to record a transfer when cash does not actually move. Non-cash
transfers include payments made by MOFED on account of Public Bodies, adjustments for
opening stock of supplies, opening cash in safe and opening balance of receivables.
Example: The Ministry of Health (MOH) requests MOFED to pay customs duty amounting
to Birr 150,000 on its behalf to the Customs Authority (CA) for motor vehicles from its
capital expenditure budget
Transaction Register of Ministry of Health:
Account Cash at Bank

Ref Description TB Number Others 4103
Dr Cr Dr Cr
JV Purchase of motor 02 6311 150,000
vehicles
Customs duty - - 4054 150,000
MOFED–
3.4 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. Account
26
codes for Domestic Revenue are 1000-1999, External Assistance are 2000-2999 and for
External Loan 3000-3999.
Domestic Revenue
The source document for collection of revenue is a Receipt Voucher.
Example: The Ministry of Foreign Affairs collects Birr 50,000 in fees for visas.
Transaction Register of Ministry of Foreign Affairs:
Ref Description TB Account Number Others Cash at Bank 4103

Dr Cr Dr Cr
RV Revenue - 1411 50,00 50,000
0
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: Aid in kind is received by a Public Body in the form of a motor vehicle with a cost
of Birr 150,000 from USAID under the capital expenditure budget.
Transaction Register of the Public Body:
Cash at Bank
Ref Description TB Account Number Others 4103
Dr Cr Dr Cr
JV Motor vehicles 02 6311 150,0
00
Assistance 2284 150,00
0
27
Aid in Cash
Aid in cash can be made by donors. Aid in cash is recognized if a cash or check deposited or
transfer made by the donors. If aid in cash was not budgeted, a budget supplement should be
requested and approved.
Accountants should receive a copy of deposit slip or credit advice or receipt voucher. Aid in
cash represents two transactions simultaneously: the receipt of assistance and cash.
Example: Cash in kind is received from Japan Government of Birr 150,000 by check for
school construction under the capital expenditure budget.
Transaction Register of Public Body
Account Cash at
Ref Description TB Number Others Bank4103
Dr Cr Dr Cr
BPV Assistance 2 2287 150,000 150,000
3.5 Operating Expenditures
Public Bodies are authorized to make cash expenditures from funds budgeted for that
purpose. Expenditures from the recurrent budget and capital budget are reported monthly on
separate monthly reports. The Public Body should maintain a subsidiary ledger for each
expenditure account code if the Public Body handles more than Budgetary Institution. Each
Budgetary Institution should be an account in the subsidiary ledger.
Operational Expense without Withholding Tax
Example: An accountant pays by check an amount of Birr 1,500 for office supplies.

Dr Cr Dr Cr
BPV Office supplies paid in 6212 1,500 1,500
cash
28
Operational Expense 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 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 is 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 appropriate government instead. When a purchase is made that requires the withholding
of tax, a Bank Payment Voucher is prepared that indicates:
 The expenditure account code with a debit for the full purchase price.
 The tax deducted is payable account code 5006 to federal or region tax authority for
the amount of the tax. The region or federal tax authority will record the withholding
tax as revenue code 1103 or 1104 (depending of whether the supplier is an individual
or a corporation) when they receive the cash from the public body.
 Cash at Bank 4103 with a credit for the actual amount paid to the supplier.
Operational Expense Requiring Withholding of Tax
Example: A Public Body buys office supplies from a corporation for Birr 100,000 from its
recurrent expenditure budget – Birr 98,000 relates to the cost of the office supplies and Birr
2,000 is the withholding tax. The supplier is federal tax payer.
Transaction #1: Payment effected to supplier
29

Dr Cr Dr Cr
BPV Office Supplies 01 6212 100,00
0
Withholding tax 5006 2,00 98,000
payable 0
Letters 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 bank account dedicated to
payment of the purchase price when appropriate conditions are met. When a Public Body
opens a Letter of Credit, cash is paid from the Zero bank account of the Public Body to a
bank account at the CBE. The amount of the letter of credit represents a receivable – advance
from the supplier.
Example: The Ministry of Health (MOH) opens a letter of credit for the purchase of medical
supplies valued at birr 45,000.
Transaction Register of Ministry of Health: On opening letter of credit
Account
Ref Description TB Number Others Cash at Bank 4103
Dr Cr Dr Cr
BPV Letter of Credit 4251 45,000 45,000
Construction Projects
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 step, an accounting
entry is required. The general steps are:
 Payment of an advance. Usually the contract calls for an advance payment to the
contractor that is proportionately deducted from future payments to the contractor.
30
 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.
 Deduction of withholding tax on the works completed
Transaction #1: Payment of 20% advance:
Accountant prepares a check for 200,000 birr.
Account
Dr Cr Dr Cr
BPV Advance to 4251 200,00 200,000
contractor 0
Transaction # 2: Payment certificate when 40% complete.
Accountant prepares a check for 272,000 birr as follows:

Dr Cr Dr Cr
BPV Construction – 02 6323 400,00
Building 0
Advance to 4251 80,00
contractor 0
Retention on 5061 40,00
contract 0
W/holding tax 5006 8,000 272,000
payable
Transaction #3: Payment of retention after final approval of project:
31
Dr Cr Dr Cr
Retention on 100,00
BPV contract 5061 0 100,000
Transaction #4: Payment of withholding tax to Inland Revenue Authority.
Account
Dr Cr Dr Cr
BPV Settlement of W/H 5006 20,000 20,000
tax
Note:
The retention withheld from the contractor is paid at the end of the project life – usually after
a few years. The cash withheld on account of retention is transferred to MOFED and is not
kept with the Public Body. Prior to repayment of the retention the amount of retention should
be proclaimed in the budget to allow MOFED to approve transfer of the retention amount to
the Public Body. The Budget Department at MOFED should review the process of how such
amounts should be budgeted and proclaimed to allow for disbursement to the Public Body.
Activity 2: Recording cash payments
Assume that MOA pays cash of Birr 3000 to Ato Tewodros for instructor’s part time work
and assume that you are the accountant of the college. How can you record this transaction on
a cash payment voucher of the college?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
Activity 3: Recording Opertating expenditure
Assume that MOA Purchased supply with a value of 150,000 including WHT.
32
__________________________________________________________________________________
__________________________________________________________________________________
_________________________________________________________________________________.
3.6 Salary Expenditure
The Public Body must record the gross salary amount and government’s portion of pension as
expenditure to maintain budget control. The Public Body is paid the total amount including
the pension contributions - employee and government but excluding the amount deducted for
income tax.
MOFED will record in its Transaction Register a debit to transfer code 4017 and a credit to
Cash at Bank 4105 on receipt of debit advice. The Public Body will prepare a Receipt
Voucher for the total amount of cash utilized upon the receipt of credit advice. The entry is a
debit to Cash at Bank 4103, and a credit to transfer code 4017.
Example: A BI requests salary with the following details:
Gross salary 20,000 Deduction: salary advance 600

Pension expense – 6% 1,200 Fine 250
Employee pension - 4% 800 Net Salary Payable 16,350
Income tax 2,000
Transaction Register of PB

Dr Cr Dr Cr
JV Salary Expense 1 6111 20,000
Pension Expense 1 6131 1,200
Salary Payable 5004 16,35
0
Income Tax 1101 2,000
Staff Advance 4203/XX 600
Fine 1489 250
Pension Payable 5003 2,000
Withdrawal of Cash from Bank to Pay Salary
33
Account Cash in Safe

Ref Description TB Number 4101 Cash at Bank 4103
Dr Cr Dr Cr
BPV Cash transfer for 16,350 16,350
salary
The Cashier records Birr 16,350 as a receipt in the cashbook
Payment of Pension by PB
Account
Dr Cr Dr Cr
BPV Pension 5003 2,000 2,000
Authority
Record Debit Advice for Transfer at MOFED
Transaction Register of MOFED
Account
Dr Cr Dr Cr
BPV Transfer to PB 4017 18,350 18,350
Record Credit Advice for Transfer at PB
Account
Dr Cr Dr Cr
Transfer from
BPV MOFED 4017 18,350 18,350
Settlement of Salary
34
Employees sign Model 33 to evidence receipt of salary from the Cashier. After salary period
is over, the Model 33 is used to prepare one CPV for the total salary paid.
Account
Ref Description TB Number Others Cash in Safe 4101
Dr Cr Dr Cr
CPV Salary Payable 5004 15,350 15,350
The Cashier records the CPV for Birr 15,350 in the Cashbook. Birr 1,000 remains unpaid.
3.7 Suspense Payments
Suspense Payment Vouchers (SPV) is treated as cash in safe. However, where the SPV
remains unsettled beyond the prescribed period it is treated as receivables. In such cases, the
Cashier passes the SPV to the Accountant who prepares a CPV to debit receivables and credit
cash in safe. The Accountant attaches the SPV to the CPV as supporting document to
evidence that the employee received the cash.
Transaction 1: A SPV for Birr 500 for per diem is outstanding beyond the prescribed period.
Account
Dr Cr Dr Cr
Staff
CPV Receivable 4211 500 500
The Cashier records the CPV in the cashbook as a payment.
The employee may later settle the outstanding amount on per diem as follows:
Alternative 1: Settled for Birr 500.
Account
Dr Cr Dr Cr
JV Per Diem 1 6231 500
Staff Receivable 4211 500
Alternative 2: Settled for Birr 400 and Birr 100 is returned in cash to safe.
Account
Dr Cr Dr Cr
JV Per Diem 1 6231 400
Staff 4211 400
Receivable
35
RV Cash refund 100
Staff 4211 100
Receivable
Alternative 3: Settled for Birr 600 and Birr 100 is paid in cash to the employee
Account
Dr Cr Dr Cr
CPV Per Diem 1 6231 600
Staff Receivable 4211 500 100
Note: The amount written on the top half of the Cash Payment Voucher in “words”
and “figures” as cash paid out will be only Birr 100
Activity 4: recording payroll
A BI requests salary with the following details:
Gross salary 550,000 Deduction: salary advance 6,000

Pension expense – 7% 35,000 Fine 25,000
Employee pension - 5% 25,000 Income tax 32,000
Make the necessary entry
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
3.8 Receivables and Payables
A receivable is an amount owed to a Public Body that fall due within one year. A payable is
amount owed by a Public Body that is due within one year.
With MOFED
In very rare situations, MOFED advances cash to Public Bodies. These advances are not
budgeted and are deducted from the budget of the Public Body in the next fiscal year.
To/From Suppliers
Receivables from Suppliers
36
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 1,000 to a supplier for procurement of
office supplies. The supplier delivers the office supplies after 30 days and the actual invoice
amounts to Birr 2,000.
Transaction Register of Public Body: Payment of advance.
Account
Dr Cr Dr Cr
BPV Advance to - 4253 1,000 1,000
Supplier
Transaction Register of Public Body: Delivery of supplies.

Dr Cr Dr Cr
BPV Office Supplies 01 6212 2,000
Advance to - 4253 1,000 1,000
Supplier
Payables to Suppliers – During the Fiscal Year
Payables are created when a supplier delivers goods or services prior to receiving payment
during the fiscal year (July to June). 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 2,000 on credit from a
supplier. Payment is made after 30 days.
Transaction Register of Public Body: Receipt of office supplies.

Dr Cr Dr Cr
JV Office Supplies 01 6212 2,000
Sundry 5002 2,000
creditors
Transaction Register of Public Body: Payment is made.
37
Account
Dr Cr Dr Cr
BPV Sundry Creditors 5002 2,000 2,000
Grace Period Payables – At the end of the Fiscal Year
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 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 is 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 4007/4017. Grace period payables are recorded as expenditure in the prior
fiscal year, although transfer and payment are recorded in the next fiscal year.
Example: In the first 30 days of the fiscal year, a Public Body pays Birr 5,000 for office
supplies that were recorded as grace period payables from the prior year’s capital expenditure
budget.
Transaction # 1: Provision for grace period payables last year.
Last Year's Transaction Register of Public Body:

Dr Cr Dr Cr
JV Office Supplies 2 6212 5,000
Grace period
payables 5001 5,000
Transaction # 2:Ppayment and Transfer of funds for grace period payables this year.
This Year's Transaction Register of Public Body:
Account
Dr Cr Dr Cr
Grace period
BPV payables 5001 5,000 5,000
This Year's Transaction Register of MOFED:
38
Dr Cr Dr Cr
Transfer –
BPV GPP 4017 5,000 5,000
This Year's Transaction Register of Public Body:
Account
Dr Cr Dr Cr
RV Transfer – GPP 4017 5,000 5,000
Deposits
Some Public Bodies collect and return deposits. Deposits are not budgeted.
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.
Receipt and Return of Deposit
Example: A Public Body collects a deposit of Birr 10,000 as bid security. The bid is
unsuccessful and the deposit is returned at a later date.
Transaction # 1: Receipt of Deposit.
Account
Dr Cr Dr Cr
Bid Security
RV Deposit 5054 10,000 10,000
Transaction # 2: Refund of Deposit.
Account
Dr Cr Dr Cr
BPV Bid Security 5054 10,000 10,000
39
Deposit
Monthly, the cash balance in the cashbook must be reconciled with the bank account's bank
statement and with the detailed subsidiary records.
Value Added Tax
Some public bodies provide services and sell goods as part of their regular activities and are
registered as value added tax payers and collect value added tax on behalf of Inland Revenue
Authority and transfer the collected tax periodically to the tax authority.
The Value Added Tax does not reduce the sales price of the service or goods. When a sales is
made 15% value added tax will levied on the full sales price and a total sum of cash will be
collected using Receipt voucher.
Transaction # 1 Ethiopian Radio and Television Agency collects cash from sales of press
revenue of birr 11,500 of which birr 1,500 is VAT.
Transaction Register of Ethiopian Radio and Television Agency:
Account
Dr Cr Dr Cr
RV Press Revenue - 1431 10,000
Vat payable 5059 1,500 11,500
Transaction # 2 Transfer to VAT collection to Federal Inland Revenue Authority

Dr Cr Dr Cr
Transfer to
BPV IRA 5059 1,500 1,500
3.9 Specific Purpose Grants
Specific purpose grants are grants that are used for predefined purposes, such as, Food
Security, Productive Safety Nets, PSCAP, etc. The example below relates to food security.
Budgeting
40
The Federal budget should include a payment to the Specific Purpose Grant. Expenditure
from the Food Security Fund is budgeted in one expenditure code. However, the payments
are authorized and disbursed by Treasury to various regions. Therefore, each Specific
Purpose Grant must have its own Transfer Recipient code (410-429) and the budget should
use expenditure code 6412 for all Specific Purpose Grants. The funds should be budgeted as
part of the capital budget with a unique 4-digit project code.
For example, 10,000,000 Birr is budgeted to the Food Security Fund as part of the capital
budget. Food Security Fund is assigned Transfer Recipient code 426. The funds are
budgeted as project 9999 to expenditure code 6412.
Payment by MOFED into the Specific Purpose Grant per budget

The funds are never actually paid into a separate fund. The budget is an amount that can be
directed by the Specific Purpose Grant to be paid out of Treasury to others. Therefore, there
is no Specific Purpose Grant receipt or revenue account at the Federal level.
Payment by MOFED out of the Specific Purpose Grant
When directed, Treasury sends cash out to Regions as Specific Purpose Grants. At Central
Accounting Department, the expenditure is recorded as:
Debit to 6412
Credit to 4105
The expenditure is assigned to the Transfer Recipient code for the Specific Purpose Grant and
charged against their budget. A subsidiary ledger is kept for each region.
For example, 2,000,000 Birr is sent to Tigray region for Food Security.
Account
Description TB Number Others Cash at Bank 4105
Dr Cr Dr Cr
Payment to Tigray - Food - 6412 2,000,00 2,000,000
Security 0
The payment is charged against the budget of Food Security, code 426, out of the project
code 9999. A subsidiary ledger is kept for Tigray.
41
Activity 5: recording grace period payable
MOA purchased office supplies of 25,000 considering a grace period payable.
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
Activity 6: recording grace period payable
The grace period cash is received and paid for supplier.
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
3.10 Closing Entry
Special routines are required at the end of the fiscal year to maintain general and subsidiary
ledgers.
Closing an account means setting all temporary account balances to zero by transferring these
balances to the Net Asset/Equity account. Temporary accounts are:
 Revenue/Assistance/Loan accounts (codes 1000 – 3999)
 Expenditure account codes (codes 6000 – 6999)
 Transfer account codes (codes 4000 – 4099)
Permanent account balances are not closed but carried forward to the next fiscal year.
Permanent accounts are:
 All asset accounts, such as cash in safe, bank balance, receivables, etc
 All liability accounts, such as payables, deposits, etc
 Net asset/equity account
The following procedures are carried out prior to closure of accounts:
Step 1: Generate the Sene Monthly Reports
Reconcile cash balance
o Count cash in safe

o Transfer all suspense payment vouchers from the cashier to the accountant
o Convert all suspense payment vouchers to receivables
 Reconcile the bank balance
o Obtain the bank statement as at 30 Sene
o Update the bank balance by passing entries for interest, bank charges, credit and
debit advises in the General Ledger
o Reconcile the bank balance per statement to the balance per general ledger
42
 Reconcile transfers
o Obtain transfer details from source/destination reporting units
o Compare details with General Ledger
o Make necessary adjustments using journal vouchers
o Communicate balances to source/destination reporting units
o Ensure transfer account balances agree to balances per source/destination
reporting units.
 Accrue for grace period payables (payments from prior year’s budget):
o Identify amounts paid for in the month of Hamle (during the grace period) for
goods/services received/rendered in the month of Sene
o Use journal vouchers to accrue for these.
 Reconcile receivables and payables general ledger balances to subsidiary ledger
o For each general ledger account that has subsidiary ledgers, obtain the total of all
the subsidiary ledger accounts
o Ensure that the total of the subsidiary ledger balances is equal to the general
ledger balance and there are no differences
o If there is a difference, review the subsidiary ledger accounts and the general
ledger account for omissions and errors
o If the error/omission is in the general ledger, make a correction entry
o If the error/omission is in the subsidiary ledger, make adjustments directly in the
subsidiary ledger
 Reconcile intra-governmental receivables and payables balances:
o The amount receivable/payable in the books of the reporting unit should be equal
to the amount shown as payable/receivable in the books of the related reporting
unit.
o Obtain the balance per the other reporting unit
o Compare the balance with General Ledger
o Make necessary adjustments using journal vouchers
o Communicate balance to the reporting unit and ensure it makes necessary
adjustments so that balances agree.
 Verify existence of irregular balances by generating an exceptional report detailing
any:
o Debit balances in revenue accounts
o Credit balances in expenditure accounts
43
o Credit cash in hand and cash at bank balances
o Credit receivables balances
o Debit payables balances
o Balances on fixed assets and stock accounts
 Rectify balances at each step by passing correction entries
 Prepare the Sene monthly report
 Verify the Sene monthly report by reviewing each report for reasonableness and there
is no cause for any investigation/follow up actions.
Step 2: Prepare Budget vs Expenditure
 Verify that the budgetary institution exists by agreeing the BI code to the budget
notification
 Ensure the amount of the approved budget is accurate by agreeing the amount to the
budget notification
 Verify that all budget transfers have been recorded by comparing records with the file
of Be/Ma 1s.
 Verify and resolve any unbalanced budget transfers.
 Record any omitted budget transfers
 Verify that all budget supplements have been recorded by comparing records with the
file of Me/Be/Ma 6s and Ke/Be/Ma 6s.
 Record any omitted budget supplements
 Prepare the budget vs. expenditure report
 Review the report for reasonableness
 Review the report for over expenditures and investigate and resolve over
expenditures.
 Make adjustments to expenditure if there has been an error in posting to wrong
expenditure account resulting in an over expenditure.
Step 3: Closing Entry
1. After the June monthly report for the fiscal year is accepted by BOFED, prepare a JV
using the June Trial Balance:
Debit: Revenue/assistance/loan
Credit: Expenditure
44
Debit: Transfers– using the credit amount in the Trial Balance (if any)
Credit: Transfers– using the debit amount in the Trial Balance (if any)
Debit/Credit: Net Asset/Equity account as debit or credit to make the entry balance.
2. Record the above JV into the TR and only post the amount for Net Asset/Equity to the
General Ledger. The other entries for revenue/assistance/loan, expenditures and
transfers should not be posted to the General Ledger for manual users.
3 Prepare the post closing Trial Balance with the following accounts:
Cash in Safe XXXX

Cash at Bank XXXX
Receivables XXXX
Payables XXXX
Net assets/equity (Debit or Credit Balance, as the case may be)
4 Carry forward balances in all permanent accounts to the next fiscal year by using new
general ledger cards. The beginning balance (equal to last year's ending balance) is
recorded on the new ledger card.
5 A new transaction register is opened every new fiscal year.
Example
A PB prepares its final Trial Balance for the fiscal year that is accepted by MOFED. The
final Trial Balance shows:
Account Code Account Description Debit Credit

4101 Cash in Safe 5,000
4103 Cash at Bank 100,000
-- Transfers 450,000 3,000,000
-- Receivables 50,000
-- Payables 10,000
-- Revenue/Assistance/Loan: 200,509
-- Expenditure 2,607,974
5601 Net Assets/Equity 2,465
Total 3,212,974 3,212,974
Step 1: Prepare closing entry using a JV as follows:
45
Description Code Amount
Dr Cr
Revenue/Assist./Loan --- 200,509
Transfer --- 3,000,000 450,000
Expenditure --- 2,607,974
Net Assets/Equity 5601 142,535
Total 3,200,509 3,200,509
Step 2: Record the JV into the TR
Step 3: Post the amount for Net Asset/Equity from the TR to account code 5601 ledger
card only in the General Ledger.
Step 4: Prepare the post closing trial balance as follows:
Account Code Account Description Debit Credit

4101 Cash in Safe 5,000
4103 Bank Balance 100,000
-- Receivables 50,000
-- Payables 10,000
5601 Net Assets/Equity 145,000
Total 1,55,000 1,55,000
Step 5: Carry forward balances in all the permanent accounts to the next fiscal year
by using new general ledger cards.
Activity 7: closing entry
1 What are the major procedures involved in preparing a sene 30 report?

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
________________________________________________________________________.
2 Which temporary accounts are closed and to what account?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
________________________________________________________________________.
46
3.11 Beginning of Year Procedures
Procedures at MOFED
Special procedures are required at MOFED before the accounting for a new fiscal year can
begin. These special procedures include updating for changes to the IBEX for:
1. Budget identification codes for all Public Bodies and all Reporting Entities.
2. Changes to the Chart of Accounts
3. Annual appropriated budget.
Procedures for all Budget Institutions
Each year must begin with a zero balance in all general and subsidiary ledger cards for :
 Revenue/lccc codes 6000 – 6999.
Balances in all other account codes carry forward from the end of one fiscal year to the
beginning of the next fiscal year. However, keeping the same ledger card may be awkward,
since the number of cards becomes bulky. The Public Body should begin a new fiscal year
by preparing new general ledger cards for all accounts that have carry forward balances. A
set of general and subsidiary ledger cards and sets of budget ledger cards should be prepared
at the beginning of each fiscal year as follows:
Step 1 Balances in all permanent accounts should be carried forward to the next fiscal year
by using new general ledger cards. Last year's cards should not be continued to be
used in the following year. The beginning balance (equal to last year's ending
balance) should be recorded on the new ledger card.
Step 2 Expenditure ledger cards for each sub agency using the approved budget
Step 3 Open new general ledger cards and subsidiary ledger cards (as required) for the
following types of account codes as and when they occur during the fiscal year
a. Revenue/Assistance/Loan account codes 1000 – 3999

b. Transfer account codes 4000 – 4099
c. Expenditure ledger cards for each sub agency 6000- 6999
Step 4: Budget ledger cards are valid only for the budget year to which they relate. When
Budget Notification is received, budget ledger cards should be prepared for each item
47
of expenditure for each Budgetary Institution. The prior year's budget ledger cards
should be filed.
During the course of the year open new general ledger cards and subsidiary ledger cards (as
required) for the other new permanent account codes (that do not have an opening balance
from the previous fiscal year) as and when they occur during the fiscal year
Opening balances
After the last day of the fiscal year, the cash and stock balances at Public Bodies are sealed
until Inspectors can verify the balances. MOFED applies the cash and stock balances against
the future requests.
Opening Cash Balances
The ending balance in cash in safe and cash in bank at a Public Body must be transferred to
MOFED at the end of the fiscal year. However, the Public Body needs cash transferred to it
for the new fiscal year. Rather than moving cash back and forth, the transfers are handled as
non-cash transfers. MOFED deducts the opening balance of cash in safe and cash in bank
from the amount of budgeted cash to be transferred to the Public Body. At the same time, a
recording is made as if the ending cash balance was transferred back to MOFED.
Example: A Public Body requests Birr 100,000 from MOFED. MOFED transfers Birr 90,000
because the Public Body has Birr 10,000 as opening balances.
Account
No Description TB Number Others Cash at Bank 4105
Dr Cr Dr Cr
1 Cash transfer - 4002 90,000
Non-cash - 4052 10,000
transfer
Non-cash - 4055 10,000 90,000
transfer
Account
No Description TB Number Others Cash at Bank 4103
Dr Cr Dr Cr
1 Non-cash - 4055 10,000
48
transfer
Non-cash - 4052 10,000
transfer
Cash transfer 4002 90,000 90,000
Opening Balances of Supplies
The ending balance in stock at a Public Body is charged as reduction to the next year's
budget. The reduction is treated as a non-cash transfer and as a reduction to the amount of
cash that can be requested and committed for a particular budgeted item. Entries are made on
the budget ledger card for the stock item. The value of stock remaining at year-end, as stated
on Ge/Be/We 11/2 or Ge/Be/We 11/3, should be recorded in the "payment received" column
of the budget ledger card even though no payment was received from Treasury Department.
The amount of the ending stock also should be recorded in the Transaction Register at
MOFED as a debit to non-cash transfer for recurrent expenditure account code 4052 and a
credit to other non-cash transfers account code 4055. In its Transaction Register, the Public
Body records a debit to other non-cash transfers account code 4055 and a credit to non-cash
transfer for recurrent expenditure account code 4052.
Example: Inspectors report Birr 45,000 in stock remaining at a Public Body at the end of the
year. A Public Body requests Birr 100,000 from MOFED. MOFED transfers Birr 55,000
because the Public Body has Birr 45,000 as opening stock balance.
Account
Dr Cr Dr Cr
BA Cash transfer - 4017 55,00 55,000
0
JV Non-cash - 4052 45,00
transfer 0
Non-cash - 4055 45,000
transfer
49

Dr Cr Dr Cr
JV Non-cash transfer - 4055 45,00
0
Non-cash transfer - 4052 45,000
BPV Cash transfer 4017 55,000 55,000
3.12 Summary
Transactions recorded in Transaction Register are classified into eight groups. All cash
receipt transactions are captured on Receipt Voucher. Cash could be received in one of the
four modes of collection: Cash is received in the form of currency, and checks. Cash is
deposited in the bank and evidenced by a bank deposit slip and Cash is transferred to a bank
account and evidenced by a bank advice.
Payment voucher is the source document for all cash payment transactions. A cash payment
transaction arises when actual cash is paid in the form of currency, checks and by transfer
from a bank account and evidenced by a bank advice.
Non-cash transactions are transactions without cash movement. The source document to
capture non-cash transactions is a Journal Voucher. Information from source documents is
entered into the Transaction Register to summarize the essential information in the source
documents for entry into the General Ledger. The accountant in an accounting unit maintains
a Transaction Register for the bank account. The purpose of maintaining a Transaction
Register for each bank account is to ensure that report is generated for each bank account.
The remaining transactions are organized as receivables and payables, operational

expenditure, salary, suspense payments and special grant funds, which all have a direct
relation to cash payment transactions. Revenue assist and loan have covered transaction in
kind and cash received from different stakeholders. At last closing entry and beginning period
balances are discussed.
50
Self-assessment questions
Part one: Choose the best answer for the following questions and circle the letter of
your choice.
1. What is the source document for cash you pay in check for telephone bills?
a. Check.
b. Telephone bills or cash receipts of Telecommunication Corporation.
c. Payment voucher.
d. Receipt voucher
e. Journal voucher
2. Office supplies of some amount are purchased on credit and recorded as payables.
What document do you need to capture the transaction in the accounting system?
a. Journal voucher.
b. Check stub and Invoice attached as evidence of submission of the items at
store.
c. Journal voucher and payment voucher.
d. Receipt voucher or payment voucher.
3. The accounting unit in which you are working had written a letter to its bank ordering
transfer of Birr 10,000 to bank account of creditor in Nazareth Branch. What source
document do you need to capture a transaction at the time you issued an order to your
bank?
a. Bank advice.
b. The letter issued to order the bank.
c. Receipt that you will get from the recipient upon arrival of the money.
d. Payment voucher.
e. Journal voucher.
4. The accounting unit in which you are working had written a letter to its bank ordering
transfer of Br. 10,000 to bank account of creditor in Nazareth branch. What source
document do you need to capture this transaction at the time a debit advice is received
from the bank?
a. Bank advice.
b. The letter issued to order the bank.
c. Receipt that you will get from the recipient upon arrival of the money.
51
d. No need of recording at the time the bank confirmation
e. Journal voucher.
5. The cashier for the accounting unit where you are the accountant brought a bank
statement for the month attached with bank advice to you. The bank advice indicated
all information including name of the person who made the transfer to your bank
account. You know that this transaction needs to be recorded. However, what source
document is appropriate to do so?
a. The bank statement collected from the bank.
b. The bank advice you have received & the receipt voucher.
c. Ask the person who transferred the money for more written documents.
d. Get cash payment voucher from the person who made the transfer.
e. a & b
6. Authorization of transactions:
a. Involves getting permission to proceed creation of a transaction from the
appropriate authority
b. Includes approval of budget availability for a transaction from budget
section.
c. Support authorities by providing up to date decision support information to
achieve budget control.
d. Is part of the financial administration system, which is a stage of screening
information before taking as an input into an accounting system.
7. 6271 (Local training) ------------ 20,000
5002 (sundry creditors) 20,000
What source document do you use for this transaction?
a. Journal voucher
b. Receipt voucher
c. Payment voucher
d. Check
e. Commitment (related documents).
8) Under the debit/credit rules for recording bank transactions the ‘’Cash in Bank
( 4103)’’ is credited;
a. If cash is paid
b. If cash is received
52
c. If non- cash is decreased
d. If non cash is increased
e. All are correct
9) The other column in the ‘Transaction Register’ is used to record accounts involved in
one or more of the following transactions.
a) Aid in kind
b) Grace period in payables
c) letter of credit transactions
d) Receivables and payables transactions
e) All of the above
Part Two: Workout Question
Instruction: Pass journal entries to record construction project activities based on the
following assumptions on public body's transaction register. Assume a contract is signed to
construct a building for 500,000 birr. Terms of contract are initial advance of 20%, advance
adjusted proportionately with each payment certificate approval, retention of 10% with held
from each payment certificate and paid after final approval
Steps in payments are:

A) Payment of 20% advance
B) Payment certificate when 40% complete
C) Payment certificate when 80% complete
D) Payment certificate when 100% complete
E) Payment of retention after final approval
Therefore, you are required to pass journal entries for steps A – E
References
Ainsworth, p, et al. (1997). Introduction to Accounting. As integrated Approach
McGraw-Hill: Boston.
Fees Warren. Accounting principles. 14th - 17th ed. Southwestern publishing company
FGE Accountings system - Manual 3, Accounting for Modified cash basis transaction -
53
FGE Accountings System - Manual 3, Accounting for Modified cash basis transactions
Volume I, DSA project and MOFED, December, 2002 Addis Ababa,
Ethiopia.
FGE Accounting System - Manual 3, FGE Char of Accounts - Volume II, DSA project
Jay M.Smith Jr.and K.Fred Skousen. (1987). International Accounting South Western
Publishing Co: USA.
Mehari Haile. (1991). Simplified Book keeping and Accounting Kuraz Agency:
Addis Ababa.
Swaanson, Boynton, etal, (1977). Century 21 Accounting. 2nd ed.
South Western Publishing Company: Cincinnati.
Swan son Ross and Hason. (1983). Century 21st Accounting. Western Publishing.
Walter B. Meigs. (1984). Accounting, the basis for business decisions. 6th ed. McGraw-
Hill: International Book Company.
Weygandt, Kieso, Kell. (1993). Accounting principles, 3rd ed. John Wiley & Sons, Inc:
New York
Weygandt, Kieso, Kimmel. (1999). Accounting principles, 5th ed. John Wile & Sons,
Inc.: New York
54
Chapter Four: Monthly Reports
Content
4.1 Introduction
4.2 Revenue/Assistance/Loan Report
4.3 Recurrent Expenditure Report
4.4 Capital Expenditure Report
4.5 Transfer Report
4.6 Receivables Report
4.7 Payables Report
4.8 Trial Balance
4.9 Submitting Monthly Reports to Ministry of Finance and Economic Development
4.10 Summary
After studying this unit, you should be able to:

 Prepare Revenue /Assistance/ Loan report;
 Prepare recurrent expenditure report;
 Prepare capital expenditure report;
 Prepare transfer report;
 Prepare receivables report;
 Prepare payables report; and
 Organize necessary data to complete the monthly reports from documents made
available.
4.1 Introduction
The purpose of this unit is to describe the monthly reports submitted by a reporting entity to
ministry of finance and Economic development. The reports are highly interrelated. The first
section of this unit deals with Revenue /Assistance/ Loan report which is prepared to provide
information on the year to date revenues of an accounting unit from each source of finance. It
also helps to facilitate consolidation of the actual revenues, assistance and loan collected by
the FGE and to facilitate comparison of budgeted revenues to actual revenues by account
category. The second and third section of this unit deals with Recurrent Expenditure Report,
Capital Expenditure Report respectively and these reports provide information on the year -
55
to - date expenditures of each BI managed by an accounting unit. Its function is to facilitate
consolidation of the actual expenditures made by the FGE and to facilitate comparison of
budgeted expenditure to actual expenditure.
The fourth section of this unit will describe about Transfer Report whose function is to serve
as a control tool to verify case transfers between MOFED and an accounting unit and vice
versa. The fifth section of this unit deals with Receivables Report, which provides
information on the year - to_ date receivables owed to an accounting unit. This report helps to
facilitate consolidations of the actual receivables owed to the FGE.
The sixth section of this unit will present about the Payables Report. The payables report
provides information on the year-to-date payables owed by an accounting unit. This report
facilitates consolidation of the actual payables owed by the FGE. The total of all the
revenue/Assistance/loan reports, recurrent and capital expenditure reports, receivables and
payables reports will be carried forward to the trial balance.
The seventh section of this unit is about a trial balance, which is the summary of the net
cumulative year -to - date debit, and credit balances contained in the general ledger at the end
of each month for each account code represented by a general ledger card. It proves the
arithmetical accuracy of the general ledger. The total amount of debit column must be equal
with the total amount of the credit column in the trial balance. The trial balance serves as a
basis to produce financial statements. Finally, the last section of this unit is about submitting
monthly reports to MOFED. This is about the importance of submitting monthly reports on a
timely basis to MOFED by a reporting entity so that Ministry of Finance and Economic
Development consolidates the reports for each account in to a FGE financial statement. The
consolidation is done by central accounts department at MOFED.
4.2 Revenue/Assistance/Loan Report
According to MOFED and DSA Project manual, December 2002, the only monthly reports
verified by Ministry of Finance and Economic Development is the transfer report and the
Trial Balance. The transfer Report is verified by Ministry of Finance and Economic
Development to ensure that all disbursements to an accounting Unit by Ministry of Finance
and Economic Development and all disbursements from an Accounting Unit to Ministry of
Finance and Economic Development are accounted for within the accounting system to
enhance control over cash transfers.
56
The Trial Balance is verified by Ministry of Finance and Economic Development to ensure
that the total debits and credits are equal and that general Ledgers are balanced. Also,
Ministry of Finance and Economic Development verify the cash balance for the domestic
source of finance from the trial Balance to enhance cash management practices at federal
level.
All other monthly reports that are submitted to Ministry of Finance and Economic
Development serve as input documents to consolidate reports and produce financial
statements at the Federal Level. The Inspection Department and the Office of The Auditor
General verify these reports. All monthly reports are prepared in two copies. The original
copy is sent to Ministry of Finance and Economic Development and the second copy is
retained as a permanent record at the reporting entity. The Revenue/Assistance/Loan Report
provides information on the year-to-date revenues of an accounting unit from each source of
finance. The purpose of the revenue/Assistance/Loan Report is to facilitate consolidation of
the actual revenues, assistance and loan collected by the FGE and Regional State to facilitate
comparison of budgeted revenues to actual revenues by account category (MOFED and DSA
Project manual, January, 2002).
The Accountant prepares a revenue/Assistance/Loan report for the Accounting Unit. The
source document to prepare the revenue/Assistance/Loan report is the general Ledger. Each
item of revenue, assistance or loan is identified by account code. The amount from the
balance column in the general ledger card is transcribed into the revenue/assistance/Loan
Report. The grand totals from each revenue/Assistance/Loan report are carried forward to the
trial Balance. Balances in the Revenue/Assistance/Loan Report are normally credits. Each
accounting Unit prepares one revenue/assistance/Loan Report as indicated in figure 1.1
below.
Figure 1.1: Revenue/Assistance/Loan report
Me/He 21
Month__________
Name of Public Body:________________________ code: _______
Name of Program:___________________________ code: _______
Name of Sub Agency:________________________ code: _______
Name of Sub Program: ________________________code: _______
Name of Project: _____________________________code: _______
Bank Account Number:_______________________
57
Account YEAR-TO-DATE
Code Account description Revenue
Debit Credit
1101 Tax on wages and salaries
1465 Interest on loans to government employees
1485 Other miscellaneous revenue
Total (To Trial Balance)
Prepared by Name and Signature
(Source: MOFED AND DSA Project manual, December 2002)
Activity 1: preparing revenue/assistance/Loan Report
This activity is meant to enable you to prepare Revenue/Assistance/Loan Report.
You are provided with the following general ledger balances as at May 31, 2004. Further,
assume also that you are the accountant of the entity.
Account General Ledger

Code Debit Credit
1101 6750
1415 750
1429 1000
1485 500
4001 57550
4002 33450
4005 9600
4009 2750
4055 6750
4101 22850
4103 3100
4203 9600
5004 19850
611 67500
6131 4050
6213 7000
6217 15000
6241 1950
58
6257 1200
6258 600
6259 600
Required: Based on the above data, you are required to prepare the monthly reports for the
month of May, 2004 except capital expenditure and transfer report part II. Begin with the
preparation of revenue/assistance/loan report for activity1.
Feedback:
Revenue/Assistance/Loan report
Me/He 21
Month __May ________
Name of Public Body:___ ECSC________________ code: __319_____
Name of Program:___________________________ code: ____01___
Name of Sub Agency:________________________ code: ___07____
Name of Sub Program: ________________________code: __00_____
Name of Project: _____________________________code: _000______
Bank Account Number:___10645839____________________
Code Account description Revenue
Debit Credit
1101 Tax on wages and salaries 6750
1415 Court fees 750
1429 Other fees and charges 1000
1465 Interest on loans to government employees
1485 Other miscellaneous revenue 500
Total (To Trial Balance) 9000
4.3 Recurrent Expenditure Report
The recurrent expenditure report provides information on the year-to-date recurrent

expenditures of each budgetary Institution managed by an accounting Unit. The purpose of
the recurrent expenditure report is to facilitate consolidation of the actual recurrent
expenditures made by the FGE and regional state to facilitate comparison of budgeted
expenditure to actual expenditure. The Accountant prepares the recurrent expenditure report
for each BI. The source document to prepare the recurrent expenditure report is the subsidiary
ledger. The balance of each subsidiary ledger card is transcribed to the appropriate account
code or in the recurrent expenditure report. Balances in the recurrent expenditure Report are
normally debits. Each accounting unit prepares a recurrent expenditure Report for each BI
59
that it manages (MOFED and DSA Project manual, December 2002). The format of the
report is indicated below.
Figure 1.2: Recurrent Expenditure Report

Me/He 22
Month___________
Name of Sub Program:________________________code: _______
Name of Project:_____________________________code: _______
Source of Finance:____________________________ code: _______
Bank Account Number:___ ____________________
Account Code YEAR-TO-DATE

Account Description Expenditure
Debit Credit
Preprinted Preprinted
(Source: MOFED and DSA Project, December 2002)
Activity 2: preparing Recurrent Expenditure Report.
The purpose of this activity is to give you a high light on the fields in the recurrent
expenditure report.
Based on the data given on Activity 1, prepare the Recurrent Expenditure report
___________________________________________________________________________
____________________________________________________________________
Feedback:
60
Recurrent Expenditure Report
Me/He 22
Month___May________
Name of Public Body:____ECSC____________________ code: __319_____
Name of Program:___________________________ code: __01_____
Name of Sub Agency:________________________ code: __07_____
Name of Sub Program:________________________code: __00_____
Name of Project:_____________________________code: __000_____
Source of Finance:____________________________ code: _1800______
Code Account Description Expenditure
Debit Credit
6111 Salary to permanent staff 67500
6131 Gov’t contribution to perm. Staff-pension 4050
6241 Maintenance and repair of vehicles 1950
6257 Electricity charges 1200
6213 Printing 7000
6258 Telecommunication charges 600
6259 Water and other utilities 600
6217 Fuel and lubricants 15000
Prepared by Name an Signature
4.4 Capital Expenditure Report
In Manual 3 volume I, Accounting for modified cash basis transactions, which is prepared by
MOFED &DSA Project, in December 2002, the Capital expenditure Report, provides
information on the year-to-date capital expenditures of each BI managed by an Accounting
Unit. The purpose of the capital expenditure report is to facilitate consolidation of the actual
capital expenditures made by the FGE and state governments and to facilitate comparison of
budgeted expenditure to actual expenditure. The Accountant prepares the capital expenditure
Report for each BI. The source document to prepare the Capital expenditure Report is the
subsidiary Ledger. The amount from the balance column in each subsidiary Ledger card is
transcribed to the appropriate account code in the recurrent expenditure Report. Balances in
the Capital Expenditure Report are normally debits, which are similar to the capital
expenditure. Each Accounting Unit prepares a capital expenditure Report for each BI that it
manages. The format of the report is indicated below.
Figure 1.3: Capital Expenditure Report
61
Me/He 23
Month___________
Name of Project: _____________________________code: _______
Source of Finance:____________________________ code: _______
Code Account Description Expenditure
Debit Credit
Preprinted Preprinted
(Source: MOFED and DSA Project manual, December 2002)
4.5 Transfer Report
Transfer report delivers information of cash flow made between the accounting unit and
MOFED/State year-to-date and during the month. The transfer report consists of two parts:
Part 1 summarizes transfer account balances from the general Ledger.
Part 2 provides information on each monthly cash transfer between the accounting Unit
and Ministry of Finance and Economic Development.
The purpose of the transfer report is to serve as a control tool to verify cash transfers between
Ministry of Finance and Economic Development and an accounting Unit and vice versa. The
Accountant prepares a transfer Report for each accounting Unit. The source documents to
prepare the Transfer Report are the General Ledger Cards. Balances in the Transfer Report
are debits or credits depending on the nature of the transfer account. One Transfer report is
prepared for each Accounting Unit (MOFED AND DSA Project, December, 2002)
Part 1
62
The amount from the Balance Column in the General Ledger Card is transcribed into the
transfer report - Part 1as indicated in figure 1.4. The grand totals from each Transfer report -
Part 1 are carried forward to the trial Balance.
Figure 1.4 Transfer Report - Part 1
Me/He 24 Month__________
Name of Project :_____________________________code: _______
Code Account Description Balance
Debit Credit
4001 Recurrent salary and allowances
4002 Recurrent operating expenditure
4003 Capital salary and allowances
4004 Capital expenditure
4005 Staff advances
4006 SSDP funds
4007 Grace period payables
4008 Between BI and/or Region
4009 Other cash transfers
4010 Within BI or MOFED
4051 Recurrent salary and allowances: non-cash
4052 Recurrent operating expenditure: non-cash
4053 Capital salary and allowances: non-cash
4054 Capital expenditure: non-cash
4055 Other non-cash transfers

(Source: MOFED AND DSA project, December 2002)
Activity 3: Preparing Transfer Report Part I.
The purpose of this activity is to enable you to prepare the Transfer Report Part I.
Based on the data given in Activity 1, you are required to prepare the Transfer Report Part I.
___________________________________________________________________________
___________________________________________________________________________
_________________________________________________________________________
63
Feedback:
Transfer Report - Part 1
Me/He 24 Month___May_______
Name of Public Body:____ECSC________________ code: _319______
Name of Program:___________________________ code: ___01____
Name of Sub Program: ________________________code: _00______
Name of Project :_____________________________code: _000______
Code Account Description Balance
Debit Credit
4001 Recurrent salary and allowances 57550
4002 Recurrent operating expenditure 33450
4003 Capital salary and allowances
4004 Capital expenditure
4005 Staff advances 9600
4006 SSDP funds
4008 Between BI and/or Region
4009 Other cash transfers 2750
4010 Within BI or MOFED
4051 Recurrent salary and allowances: non-cash
4052 Recurrent operating expenditure: non-cash
4053 Capital salary and allowances: non-cash
4054 Capital expenditure: non-cash
4055 Other non-cash transfers 6750
Total (To Trial Balance) 2750 107350
Part 2
Each cash transfer during the month between the accounting Unit and Ministry of Finance
and Economic Development is listed individually in Part 2 of the Transfer Report. The
information required for Part 2 is transcribed from the following cash transfer account Ledger
cards:
4001: recurrent salary and allowances

4002: Recurrent operating expenditure
4003: capital salary and allowances
4004: capital expenditure
4005: Staff advances
64
4006: SSDP funds
4007: Grace period payables
Any other transfer code used during the month to transfer Funds to /from MOFED
Columns are identified by account code. The date and amount of each transaction recorded
in the account code's Ledger card during the month are transcribed in the corresponding sub-
column of the Transfer report. Each transaction is recorded in a separate row. Transfers
received from Ministry of Finance and Economic Development are credits. Transfers of cash
to Ministry of Finance and Economic Development are debits. Debit and credit sub-columns
are totaled and the total is recorded in the total row (MOFED and DSA Project, January
2002).
The difference between the totals in the debit and credit sub-columns for each account code is
calculated. If the total of debits is greater than the total of credits, the difference is recorded
in debit sub-column of the Net activity row. If the total of credits is greater than the total of
debits, the difference is recorded in credit sub-column of the Net activity row. The balance
from the account code's Ledger Card at the beginning of the month is recorded in the
beginning of month (BOM Balance) row. The amount in the Net Activity row is combined
with the amount in the BOM Balance row and recorded in the end of month (EOM Balance)
row. The EOM Balance must equal the balance in the account code's Ledger Card at the end
of the month, which equals the balance recorded for the account code in Part 1 of the Transfer
Report (MOFED and DSA Project manual, January 2002).
Transfer Report - Part 2 is shown in Figure 1.5
Figure 1.5: Transfer Report - Part 2
Me/He 24
4001 4002 4003 4004

D De Cre Dat De Cre Da De Cre Da De Cred
at bit dit e bit dit te bit dit te bit it
e
Total
65
Net
activity
BOM
Balance
EOM
Balance
Figure 1.5 (Continued)
4005 4006 4007

Da De Cre Dat De Cre Da De Cre Da De Cred
te bit dit e bit dit te bit dit te bit it
Total
Net
activity
BOM
Balance
EOM
Balance
(Source: MOFED AND DSA Project, January 2002)
4.6. Receivables Report
The receivables report provides information on the year-to-date receivables owed to an

accounting unit. The purpose of the receivables Report is to facilitate consolidation of the
actual receivables owed to the FGE. The accountant prepares a receivables Report for each
accounting unit. The source document to prepare the receivables report is the general ledger.
Each item of receivable is identified by account code. The amount from the balance column
in the general ledger card is transcribed into the receivables report. The grand totals from
each receivable report are carried forward to the trial balance. Balances in the receivables
report are normally debits. One receivables report is prepared for each accounting unit
(MOFED and DSA, Project manual, January 2002).
Figure 1.6 Receivables Report
66
Figure 1.6: Receivables Report
Me/He 25
Month__________
Name of Project :_____________________________code: _______
Code Account Description Receivables
Debit Credit
4201 Suspense
4202 Cash shortage
4203 Advance to staff
4204 Advance for SSDP
4205 Advance for staff from next year's budget
4206 Advance for recurrent expenditures from next year's budget
4207 Advance for capital expenditures from next year's budget
4208 Advance to regions
4209 Other advances to BI
4210 Other advances within government
4251 Advance to contractors
4252 Advance to consultants
4253 Advance to suppliers
4254 Other advances outside government
4271 Peasant associations
4272 Cooperatives
4273 Individuals and private organizations
4274 Others
(Source: MOFED and DSA Project Manual, January 2002)
Activity 4: Preparing Receivable Report.
The objective of this activity is to help you to prepare receivable Report.
Based on the data provided in Activity I, you are required to prepare receivable report.
___________________________________________________________________________
___________________________________________________________________________
67
___________________________________________________________________________
____________________________________________________________________
Feedback:
Receivables Report
Me/He 25
Month__May________
Name of Public Body: _________ECSC_____________ code: _319______
Name of Program:___________________________ code: ____01___
Name of Sub Program: ________________________code: __00_____
Name of Project :_____________________________code: __000_____
Code Account Description Receivables
Debit Credit
4201 Suspense
4202 Cash shortage
4203 Advance to staff 9600
4204 Advance for SSDP
4205 Advance for staff from next year's budget
4206 Advance for recurrent expenditures from next year's budget
4207 Advance for capital expenditures from next year's budget
4208 Advance to regions
4209 Other advances to BI
4210 Other advances within government
4251 Advance to contractors
4252 Advance to consultants
4253 Advance to suppliers
4254 Other advances outside government
4271 Peasant associations
4272 Cooperatives
4273 Individuals and private organizations
4274 Others
4.7. Payables Report
The payables report provides information on the year-to-date payables owed by an

accounting unit. The purpose of the payables report is to facilitate consolidation of the actual
payables owed by the FGE or regional state. The accountant prepares a payable report for the
accounting unit. The source document to prepare the payables report is the general ledger.
Each payable item is identified by account code and the amount from the balance column in
68
the general ledger card is transcribed into the payables report. The grand totals from each
payables report are carried forward to the trial balance. Balances in the payables report are
normally credits. One payable report is prepared for each accounting unit (MOFED and DSA
Project manual, December 2002).
Figure 1.7: Payables Report

Me/He 26 Month___________
Name of Public Body: ____________________ Code: _____
Name of Program: _______________________ Code: _____
Name of Sub Agency: ____________________ Code: _____
Name of Sub Program: ___________________ Code: _____
Name of Project: _______________________ Code: _____
Bank Account Number:___________________
YEAR-TO-
Account Account Description DATE Payables
Code
Debit Credit
5002 Sundry creditors
5003 Pension contribution payable
5004 Salary payable
5021 Due to staff
5022 Due to Ministry of Finance and Economic Development for SSDP
5023 Due to Ministry of Finance and Economic Development for staff
from next year’s budget
5024 Due to Ministry of Finance and Economic Development for
recurrent expenditures from next year’s budget
5025 Due to Ministry of Finance and Economic Development for capital
expenditures from next year’s budget
5026 Due to regions
5027 Other payables to Ministry of Finance and Economic Development
5028 Other payables within government
5051 Custom deposits
5052 Court deposits
5053 Hospital deposits
5054 Other deposits
5061 Retention on contract
(Source: MOFED and DSA Project, December 2002)
Activity 5: Preparing Payables Report
69
The activity is prepared to help you prepare the Payables Report.
Based on the information given in Activity 1, you are required to prepare the Payables report.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
____________
Feedback:
Payables Report
Me/He 26
Month__May_________
Name of Public Body: ______ECSC_________Code: _319____
Name of Program: _______________________ Code: __01___
Name of Sub Agency: ____________________ Code: _07____
Name of Sub Program: ___________________ Code: _00____
Name of Project: _______________________ Code: _000____
Bank Account Number_____10645839_____
YEAR-TO-
Account Account Description DATE Payables
Code
Debit Credit
5002 Sundry creditors
5003 Pension contribution payable
5004 Salary payable 19850
5021 Due to staff
5022 Due to Ministry of Finance and Economic Development for SSDP
5023 Due to Ministry of Finance and Economic Development for staff
from next year’s budget
5024 Due to Ministry of Finance and Economic Development for
recurrent expenditures from next year’s budget
5025 Due to Ministry of Finance and Economic Development for capital
expenditures from next year’s budget
5026 Due to regions
5027 Other payables to Ministry of Finance and Economic Development
5028 Other payables within government
5051 Custom deposits
5052 Court deposits
5053 Hospital deposits
5054 Other deposits
5061 Retention on contract
70
4.8. Trial Balance
The trial balance is the summary of the net cumulative debit and credit balances contained in
the general ledger at the end of each month for each account code represented by a general
ledger card. The trial balance proves the arithmetical accuracy of the general ledger. The
total amount of the debit column must equal the total amount of the credit column in the trial
balance. The trial balance serves as a basis to produce financial statements. The accountant
prepares the Trial balance for each Accounting Unit (MOFED and DSA Project, December
2002).
According to MOFED and DSA Project also, the source documents to prepare the Trial
Balance are:
Revenue/Assistance/Loan Report,
Recurrent Expenditure Report,
Capital Expenditure Report,
Transfer Report,
Receivables Report,
Payable Report, and
The General Ledger.
Please note that in profit-making organizations, trial balances are prepared directly form the
general ledger accounts and each account will be listed in the trial balance as long as it has a
balance. However, in FGE system of accounting, the trial balance is prepared from the
reports already produced for it facilitates the process and provide pertinent figures for the
period end reports. In addition to the reports mentioned above, some balance amounts are
directly taken from the general ledger accounts. The account codes that are taken from the
general ledger directly to the trial Balance are:
Letters of Credit - balances in each account should be credits.

Net Assets/Equity - balance should be credit.
Cash and Cash Equivalents - balances in each account should be debits.
Figure 1.8: Trail Balance
Me/He 27
Month________
Name of Public Body: ____________________ Code: ______
Name of Program: _______________________ Code: _____
71
Name of Sub Agency: ____________________ Code: _____
Name of Sub Program: ___________________ Code: _____
Name of Project: ________________________ Code: _____
Bank Account Number ___________________
Code Account Description Debit Credit

- Revenues/Assistance/Loan: (from Revenue/Assistance/Loan
Report)
- Expenditures:
- Recurrent expenditure (Total of Recurrent Expenditure Reports)
- Capital expenditure (Total of Capital Expenditure Reports)
- Transfers: (from Transfer Report)
- Receivables: (from Receivables Report)
- Payables: (from Payables Report)
Letters of Credit: (by account code-from General Ledger)
5601 Net Assets/Equity (from General Ledger)
Cash and Cash Equivalents (by account code-from General

Ledger)
4101 Cash on hand
4102 Cash at bank in foreign currency
4103 Cash at bank
TOTAL
Prepared by Name & Sig. Checked by Name & Sig. Authorized by Name & Sig.
(Source: MOFED and DSA ProjectDecember, 2002)
Activity 6: Preparing Monthly Trial Balance.
The intent of this activity is to make you familiar with the preparation of the monthly trial
balance.
Based on the data given in activity 1, you are required to prepare the monthly trial balance.
___________________________________________________________________________
___________________________________________________________________________
________
Feedback:
Trail Balance
Me/He 27
72
Month_ May_______
Name of Public Body: ____ECSC___________Code: __319____
Name of Program: _______________________ Code: ___01__
Name of Sub Agency: ____________________ Code: __07___
Name of Sub Program: ___________________ Code: ___00__
Name of Project: ________________________ Code: __000___
Bank Account Number __10645839_________________
Code Account Description Debit Credit
Revenues/Assistance/Loan: (from Revenue/Assistance/Loan report 9000
Expenditures:
Recurrent expenditure (Total of Recurrent Expenditure Reports) 97900
Capital expenditure (Total of Capital Expenditure Reports)
Transfers: (from Transfer Report) 2750 107350
Receivables: (from Receivables Report) 9600
Payables: (from Payables Report) 19850
Letters of Credit: (by account code-from General Ledger)
5601 Net Assets/Equity (from General Ledger)
Cash and Cash Equivalents (by account code-from General ledger
4101 Cash on hand 22850
4102 Cash at bank in foreign currency
4103 Cash at bank 3100
TOTAL 136200 136200
Prepared by Name & Sig. Checked by Name & Sig. Authorized by Name & Sig.
4.9 Summary
Each reporting entity submits seven reports monthly to MOFED. The only monthly reports
verified by Ministry of Finance and Economic Development are the transfer report and the
Trial Balance. Ministry of Finance and Economic Development verify the cash balance for
the domestic source of finance from the trial balance to enhance cash management practices.
All monthly reports are prepared in two copies.
The purpose of the revenue/assistance/loan report is to facilitate consolidation of the actual

revenues, assistance and loan collected by the FGE. The source document to prepare the
revenue/assistance/loan report is the general ledger.
The purpose of the recurrent expenditure report is to facilitate consolidation of the actual
recurrent expenditures made by the FGE and to facilitate comparison of budgeted expenditure
to actual expenditure. Each accounting unit prepares a capital expenditure report for each BI
that it manages.
73
The transfer report consists of two parts - Part 1 and Part 2. Part 1 summarizes transfer
account balances from the general ledger and Part 2 provides information on each monthly
cash transfer between the accounting unit and Ministry of Finance and Economic
Development. The accountant prepares a receivable report for each accounting unit.
The Trial Balance proves the arithmetical accuracy of the general ledger. The total amount
of the debit column must equal the total amount of the credit column in the trial balance. The
Trial balance serves as a basis to produce financial statements.
At a minimum, all transfers should be recorded in the proper month. The transaction register
is closed on the last day of each month. Transactions that occur during the month, but are not
recorded in the transaction register, are recorded in the next month’s transaction register.
PART I. Fill in the blank spaces with the appropriate words (terms).
1. is verified by MOFED to ensure that the total debits and credits are equal
and that general ledgers are balanced and also enhance domestic source of finance cash
management.
2. The revenue /assistance / Loan report provides information on __________seven use of

an accounting unit from each source of finance.
3. The is the source document to prepare the revenue / Assistance /roan report
in FGE accounting system.
4. Balance in Expenditure report is normally .
5. The source document to prepare expenditure is the ledger.
6. Part _ of the transfer report cash transfer between the accounting unit and MOFED
and part _____of the transfer report summarizes transfer account balances from the
general ledger respectively.
7. The source documents to prepare the trial balance are:
Part II: Multiple choice questions
74
1. Choose the correct statement in relation the ‘Transfer Report.’
A. It’s purpose is to serve as a control tool to verify cash transfers between

MOFED and an Accounting unit.
B. The accountant prepares a transfer report for each accounting unit.
C. The source documents to prepare the Transfer Report are the General Ledger
Cards.
D. It’s purpose is to service as a control to verify cash transfers between an
Accounting unit and MOFED.
E. All of the above.
2. One of the following is not true about the receivables report
a) The receivables report provides information on the year to date

receivables owed to an accounting unit.
b) The purpose of the receivables report is to facilitate consolidation of the
actual receivables owed to the FGE.
c) The sourced document to prepare the receivables report is the subsidiary ledger.
d) Balances in the receivables report are normally debits
e) Each accounting unit should prepare one receivable report
3) Which of the following statements is not appropriate regarding a trial balance in respect of
monthly reports and analysis of transactions?
a) The trial balance is the summary of the net cumulative debit balances
b) The trial balance proves the arithmetical accuracy of the general ledger.
c) The trial balance serves as a basis to produce financial statements.
d) The total amount of the debit column must equal the total amount of the credit
column in trial balance.
e) None of the above
75
References
Ethiopia.
Publishing Co: USA.
Addis Ababa.
New York
Inc.: New York
76
Chapter Five: Financial Reports and Financial statements
Contents:
5.1 Introduction
5.2 Statements of budgeted revenue and expenditure
5.3 Statement of changes in cash position
5.4 The balance sheet
5.5 Summary

 Define the types of financial statements
 Prepare Statements of budgeted revenue and expenditure

 Prepare Statement of changes in cash position
 Prepare The balance sheet
5.1 Introduction
The system primary purpose of a governmental accounting is to provide information.

Information in the form of financial report is produced to assist management within
government make decisions. Management decisions that are aided by financial reports
include:
 Assessment of fiscal responsibility

 Assessment of goal achievement and
 Evaluation of future needs.
Information in the form of financial statement is produced for external purpose to hold
government accountable for stewardship over public resources and evaluate consequences of
government decisions. The major external users of financial statements are legislatives,
donors, lenders and the public. Transparency in government begins with full and fair
disclosure of financial information.
The FGE accounting system produces one financial report on budgeted revenue and
expenditure annually.
77
In the future, two financial statements for external users will be developed as the accounting
system develops: a statement of changes in cash position and balance sheet. The preparation
of statement of changes in cash position and balance sheet, including Notes to the financial
statement, is a goal. The goal and the process for achieving the goal also are described in this
unit.
5.1 Statements of budgeted revenue and expenditure
One set financial reports is produced and published by FGE. MOFED compiles a Budgetary
Revenue and expenditure report annually.
The report contains:
 Three summary reports as follows

o Summary of revenue and external funds.
This report summarizes budgeted revenue in three categories by use and
source of financing as follows:
 Ordinary revenue. This is a summary of budgeted domestic revenue
collected for recurrent expenditure categorized by type of tax or
income.
 External assistance. This is a summary of budgeted revenue from
external assistance provided for recurrent expenditure categorized by
grants and technical assistance.
 Capital revenue. This is summary of budgeted revenue provided for
capital expenditure categorized by domestic source, external loans
managed by counterpart fund and other external loans.
o Summary of budgetary expenditure. This report summarizes total budgeted
recurrent and capital expenditure by sector and total subsidy to regions.
o Government expenditure and its financing. This report summarizes the uses
and sources of budgeted funds as follows:
 Budgeted expenditure from the summary of budgetary expenditure by
category (recurrent, capital and subsidy to regions) and, within
category, by broad sector category.
 Financing from
78
- The summary of revenue and external funds by category (domestic.
external assistance and borrowing) and, within category, by source
category.
- Domestic loans that are unbudgeted that state the net amount
during the year of:
Direct advances from the national bank of Ethiopia
Treasury bill, and
Change in cash balance
 Three detail schedules to support each summary as follows
o Revenue schedule. This schedule supports the summary of revenue and
external funds. Budgeted revenue is listed by revenue account code with
details of original budget, actual revenue and the difference.
o Ordinary expenditure schedule. This schedule supports the summary budgeted
expenditure. Budgeted recurrent expenditure for each budgetary institution
and region is listed by expenditure account code with details of original
budget, revised budget, actual expenditure and the difference.
o Capital expenditure schedule – all sources. This schedule supports the
summary of budgetary expenditure. budgeted capital expenditures are listed by
budgetary institution with details of original budget, revised budget, actual
expenditure and the difference.
 Three appendices that provide detail of capital expenditure by source of financing as

follows
o Capital expenditure. Appendix I Domestic. This schedule supports the capital
expenditure schedule. Budgeted capital expenditure from domestic funds
listed by budgetary institution with details of original budget, revised budget,
actual expenditure and the difference.
o Capital expenditure. Appendix II Foreign loans. This schedule supports the
capital expenditure schedule. Budgeted capital expenditure from external
loans is listed by budgetary institution with details of original budget, revised
budget, actual expenditure and the difference.
o Capital expenditure. Appendix III External Assistance. This schedule supports
the capital expenditure schedule. Budgeted capital expenditure from external
79
is assistance listed by budgetary institution with details of original budget,
revised budget, actual expenditure and the difference.
5.2 Statement of changes in cash position
A statement of changes in cash position is the basic financial statement for modified cash
basis accounting system. It is the financial statement most appropriate for the modified cash
basis accounting used in the FGE accounting system.
When the international federation of
5.3 Balance sheet
Balance sheet shows the government’s assets and liabilities. When combined with the
statement of changes in cash positions, this information presents a comprehensive
understanding of governments financial position. A balance sheet includes notes that explain
the amount and categories on the face of the statement without accompanying notes, a
balance sheet can be misleading.
5.4 Summary
One set financial reports is produced and published by FGE. MOFED compiles a Budgetary
Revenue and expenditure report annually. The report contains, three summary reports
(Summary of revenue and external funds, Summary of budgetary expenditure and
Government expenditure and its financing), three detail schedules to support each summary
(Revenue schedule, Ordinary expenditure schedule and Capital expenditure schedule) and
three appendices that provide detail of capital expenditure by source of financing (capital
expenditure Appendix I Domestic, capital expenditure Appendix II Foreign loans and capital
expenditure. Appendix III External Assistance)
Part I. True or false questions
Instruction: Say true if the statement is true and say false, if the statement is
not true.
1. When cash is transferred from a public body or from MOFED, a payment voucher is
80
prepared as the source document for entry in the transaction register.
2. Transfers of cash could not be made from a bank account of one public body to a bank
account of another body in the form of checks and direct bank transfers evidenced by
bank advices.
3. Non - cash transfers are used to record a transfer when cash actually moves.
4. When a payment is made from bank for a given item of expenditure, cash expenditures
are recorded as a debit to the appropriate expenditure account code and a credit to
cash at bank.
5. Deposits are part of the public body's budget, and hence, could be utilized.
Part II. Multiple choice questions
1) The input document to record a receipt of cash from the Accountant in the petty cash
Book is the,
a) Bank payment voucher d) General ledger

b) Cash payment voucher e) A and B only
c) Transaction register
2) Choose the correct answer about the input document used to record a payment of cash by
the cashier in the petty cash book.
a. General ledger d. Check

b. Subsidiary ledger e. Bank payment voucher
c. Cash payment voucher
References
81
Ethiopia.
Publishing Co: USA.
Addis Ababa.
New York
Inc.: New York
82
Chapter Six: Public Financial Management
Contents:
6.1 Introduction
6.2 Public Financial Management
6.3 Public Financial Management Reform
6.4 Federal Audit in Ethiopia
6.5 Summary

 Define Public Financial Management
 Identify the major financial reforms in the public sector
 Explain the Federal Audit in Ethiopia and major procedures involved
6.1 Introduction
Dear students this Chapter is designed to introduce you with the concept public financial
management. In addition, the discussions will provide vivid image on the necessity and major
improvements of the public financial sector reform. The last section will provide the
historical development and function of federal audit.
6.2 Public Financial Management
Public Financial Management underlies all government activity. It encompasses the

mobilization of revenue; the allocation of these funds to various activities; expenditure; and
accounting for spent funds. Although the PFM discipline may be new to some readers, most
will have encountered many of the concepts and processes in the course of their professional
lives. Public servants will have participated in the steps of the budget cycle when they
budgeted for a program, raised a purchase order, reviewed an expenditure report or prepared
documents for external audit scrutiny. Readers who have not worked for a public institution
may notice that PFM has much in common with ‘private’ financial management. Many of the
principles of budgeting, expenditure and reporting also hold true for firms and private
organizations.
83
Many PFM topics are highly specialized and have their cadre of experts—on issues such as
financial management information systems, payroll reform or procurement for public works,
for example. But whether one is engaged in the gritty details of cash advance procedures or
works on public policy at a broad level, it remains valuable to consider the PFM system as a
whole. It is important to understand how various functions fit into a broader system of rules
and regulations that govern the management of public resources, and what these functions are
ultimately intended to achieve.
Activity 1: public financial management
Discuss in detail the definition of public financial management in Ethiopian

context.____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
________________________________________________________________________.
6.3 Public Financial Management Reform
Successful public sector reform is rare in Africa. Over twelve years, Ethiopia transformed its
public financial management to international standards and now has the third best system in
Africa that is managing the largest aid flows to the continent.
The financial reform succeeded because it was embedded in a government led Political and
administrative reform—decentralization. The reforms were driven by a domestic political
imperative not a foreign technical agenda, and rapid results were needed in public financial
management to keep up with the accelerating pace of decentralization. Rapid results required
improving the existing financial system rather than changing it with advanced financial
techniques of ‘international best practice.’
One could not find a more challenging environment than Ethiopia in 1996 in which to reform
public financial management (PFM). The four horsemen of the disaster were permanently
stabled in country. The country had been devastated by a seventeen-year civil war and the
revolutionary party that assumed power was an ethnic minority with tenuous control over a
vast country. The bureaucracy was demoralized and many skilled professionals had fled the
country. Foreign aid rushed in to support the new regime, which produced an inchoate and
crowded aid agenda that further burdened a weak administrative system barely coping with
84
daily operations. The government’s strategy of ethnic decentralization to regions
implemented shortly after the change of power stretched further an already strained
administration. Less than two years into the start of the reform, the horsemen of war, famine,
pestilence and death arrived in even greater force.
Offsetting these odds was the fundamental discipline of Ethiopian society, which carried over
into the operations of government—prudent, indeed tightfisted, management of public
resources. It was upon the rock of fiscal discipline and an ethos of self-help that this reform
was built and why it worked.
Successful budget reform must first establish control before moving to the successive stages
of management and planning. The discipline of Ethiopian society and its government meant
that a financial system was in place before the reform began which provided reasonably
effective control. The control was not efficient however, as the country faced a backlog of six
to seven years in its accounts, and the existing financial system was not up to supporting the
government’s ambitious policy of decentralization.
Public sector reform involves four processes: recognize, improve, change, and sustain. The
imperative of rapidly decentralizing financial management to tiers of government with
limited capacity meant that the existing system, though limited, was operationally familiar to
staffs and could with improvement, be rapidly decentralized. Sustaining the reform was
essential which the project promoted by strengthening human capacity through training and
developing an infrastructure for in-service training.
Basic Objectives of Accounts Reform in Ethiopia
Government need to reform the accounting processes for the following set of objectives:
• Simplify the accounting system by changing it to the double entry bookkeeping system
• Improve information to stakeholders by revising the chart of accounts and enhancing the
reports generated by the system
• Expand the accounting system by changing the basis of accounting from cash to a modified
cash basis of accounting.
•Improve internal controls.
• Improve cash and financial management practices
85
• Improve budget control by introducing procedures to monitor commitments against the
available budget.
• Produce accurate, timely and complete information and improve the quality of information
provided to Government and its development partners.
• Use improved automated systems to process transaction and produce financial and
management reports
• Enhance transparency by implementing a system that is understandable to key stakeholders
• Improve service delivery in terms of costs, efficiency and effectiveness
• Compliance with international standards
• Empower accounts staff by aligning their professional development to match their academic
qualification
Need for Revision are:
1. The disbursement system was modified to introduce the zero balance drawing limit
accounts at the National Bank of Ethiopia.
2. The responsibility for processing monthly payroll, salary loans and remitting pension
contributions to the pension authority was transferred to public bodies.
3. A revolving fund has been established by MOFED to fund staff loans.
4. Accounts data was initially processed using manual systems and are currently being
processed using automated systems at federal public bodies
5. New types of transactions were introduced such as accounting for value added tax,
withholding tax, letters of credit, cost sharing, staff loans, etc.
6. The chart of accounts was revised to accommodate additional account codes
Activity 2: Public Financial Management Reform
1. List out the major reforms in Public Financial Management of Ethiopia.

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________.
2. Discuss the needs for account reform in Ethiopia. -

________________________________________________________________________
________________________________________________________________________
86
________________________________________________________________________
______________________________________________.
6.4 Federal Audit in Ethiopia
The main objectives of government auditing are to express opinion on financial statements
and related issues of legality, regularity and fraud as well as examining whether government
institutions are operating economically, efficiently and effectively. To achieve these
objectives every country establishes a supreme audit institution (SAI) whose independence is
protected by law.
Features of independence includes, the legal terms and conditions for appointing and
removing the head of the SAI, reporting freedom, operational and remuneration
independence as well as unlimited access to relevant information.
The existence of independent SAI can enable informed policy analysis, confident and
credible decision making in the process of national economic management. Quite apart from
serving as the basis for policy analysis and decision making, audit also ensures proper
accountability and enhances democracy in the execution of responsibilities conferred at
different levels of the decision-making process.
Accountability is the obligation to answer for responsibility entrusted. It is also a relationship

based on the obligation to demonstrate and to be responsible for performance in light of
agreed expectations. To ensure accountability in government, the relation among the three
branches of a government (i.e. the legislative, the executive and the judiciary) needs
management in terms of control and power sharing.
The legislative approves various budgets. The approved plans and budget is implemented by
the executive body. In order to know whether the approved budget and other planned issues
are properly implemented or not, the legislative needs accurate information. To obtain this
information forming an independent Supreme Audit Institution is very important.
Accordingly, the Ethiopian SAI has been established to discharge the above mentioned
responsibilities though it passed through a lot of ups and downs.
Establishment & Evolution
87
The history of Ethiopia’s supreme audit institution (SAI) is related to the 1931 constitution,
which stated the importance of the proper collection of the government revenue and the
necessity of setting procedures to control expenditures.
However, the constitution failed to stipulate the need for government auditing and
establishing a SAI. But latter, proclamation No. 69 of 1944 established the first legal audit
institution called Audit Commission.
Under this proclamation, the commission was responsible for the audit of the accounts of the
Ministry of Finance, whereas the financial transactions of other ministries were inspected and
controlled by the Ministry of Finance itself.
The Comptroller and Auditor General who headed the commission were reporting directly to
the prime Minster. The main functions of the commission were:
 Verification of revenue collection through its inspectors.

 Ensuring appropriate implementations of laws regulations and guidance.
 Identification and detection of irregularities and fraud.
 Initiating legal proceedings against those who were involved in fraudulent activities
and irregularities.
 Submitting reports on its findings with recommendations.
Though the proclamation established sort of the first government audit institution, the
commission was not independent of the ministry as far as its professional freedom is
concerned. Besides, its audit coverage is limited to only to certain government departments.
However, these short comings were resolved after two years through the amended
proclamation No. 79 of 1946. The amended proclamation centralized the audit of all
government accounts under one audit department called the Audit and Control Department,
under the leadership of the Comptroller and Auditor General reporting to the Prime Minster.
Although the power and duties of the commission were substantially increased the
commissioner still lacked independence from the executive as he was reporting to the prime
minister. The Audit and Control Department continued to operate until it was amalgamated
with the Ministry of Finance’s control department without any legislative provision in 1952.
This was a major setback in the process of developing an independent national audit
institution. But after three years, the revised constitution of 1955 established a relatively
independent audit institution.
88
Articles 120 and 121 of the revised constitution of 1955 established a separate and
independent audit entity accountable to the emperor and to parliament. These articles
required the auditor general to report regularly to the emperor and parliament on the financial
operations of the government. The articles also empowered the auditor general to access all
books and records pertaining to government accounts. However, the constitution did not
stipulate the detailed functions and reporting requirements of the Office of the Auditor
General until Decree No. 32 of 1958 which articulated the functions of the office including
reporting responsibility.
Later, an amended legislation was issued as proclamation 179/1961. The new proclamation,
in addition to defining powers and duties, it laid down the conditions regarding the
appointment and independence of the auditor general as well as the reporting procedures. The
provisions of this legislation were a mile stone as the office of auditor general has acquired a
higher degree of independence to carry out regularity audits; but the proclamation lacked a
mandate for expanding the scope of the office’s audit to carry out performance or value for
money audits. Accordingly, the office has to wait until proclamation No. 164/1979.
Proclamation N0.164/1979 increased the traditional power and duties of the Office of Auditor
General considerably by empowering the office to conduct efficiency effectiveness
(performance) audits.
However, the proclamation failed to incorporate the reporting and remuneration aspects of
independence which are part and parcel of the basic necessities for effective operation of a
SAI.
6.5 Summary
Public Financial Management underlies all government activity. It encompasses the

mobilization of revenue; the allocation of these funds to various activities; expenditure; and
accounting for spent funds.
Ethiopia transformed its public financial management to international standards and now has
the third best system in Africa that is managing the largest aid flows to the continent.
The main objectives of government auditing are to express opinion on financial statements
and related issues of legality, regularity and fraud as well as examining whether government
institutions are operating economically, efficiently and effectively.
89
Part I: Multiple choice
1. Public Financial Management encompasses all of the following Except?

A. Mobilization of revenue.
B. Allocation of mobilized funds to various activities
C. expenditure
D. Accounting for spent funds.
E. All of the Above F. None of the Above.
2. Which One of the following are the Basic Objectives of Accounts Reform in Ethiopia?
A. Improve service delivery in terms of costs, efficiency and effectiveness.
B. violations of international standards.
C. Improve cash and financial management practices.
D. Improve internal controls.
E. All of the above.
Part Two: - True or False (0.5 Mark Each)
1. One of the main objectives of government auditing is to examining whether government
institutions are operating economically, efficiently and effectively.
2. The financial reform succeeded because it was embedded in a government led Political
and administrative reform—centralization.
References
publishing Co: USA.
90
Ababa.
91
Answer keys to Chapter End Questions
Chapter 1
1.e 5.b 9.c
2. b 6.e 10.c
3. b 7.e
4. c 8.a
Chapter Two
1. d 6. d 11. d
2. e 7. e 12. d
3. e 8. d 13. d
4. a 9. b
5. d 10. a
chapter Three
Part One: Multiple choice
1. c 4. d 7. a
2. c 5. e 8. d
3. d 6. e 9. e
Part Two: Work Out questions
Transaction #1: payment of 20% advance
4251 ……………..100,000
4103 ……………………… 100,000
Transaction #2: Payment certificate when 40% complete
6323 …………….. 200,000
4251 …………. ……………40,000
5061 ………………………. 20,000
4103 ………………………140,000
6323 …………….. 200,000
4251 …………. ……………40,000
5061 ………………………. 20,000
4103 ………………………140,000
6323 …………….. 100,000
92
4251 …………. ……………20,000
5061 ………………………. 10,000
4103 ……………………… 70,000
Transaction #5: Payment of retention after final approval of the project.
5061 ………… 50,000
4103 …………………50,000
chapter Four
Part I: Fill in the blank spaces
1.Trial balance
2. Year - to - date
3. General Ledger
4. Debit
5. Subsidiary ledger
6. Part two and part one respectively
7. - Revenue /assistance/ loan report
- Recurrent expenditure report
- Capital Expenditure report
- Transfer report
- Receivables report
- Payables report
- The General ledger
Part II: Multiple Choice Questions
1.e 2.c 3.e
Chapter Five
Part one: True of False questions
1. True 3 False 5. False
2. False 4. True
Part Two: Multiple Choice Questions
1. a 2. c
Chapter six
Part Two: Multiple Choice Questions
1. f 2. b
Part one: True of False questions
1. True 2. False
93
Wolkite University
College of Business and Economics
Department of Accounting and Finance
Continuing and Distance Education
Ethiopian Government Accounting and Financial Management
Module
Individual Assignment Maximum Mark Allotted: 30%
Name: ________________________________
ID No: ________________________________
Signature: _____________________________
Part One: - Workout Question

The Following Economic Events are occurred in Ministry of Defense (MoD) on the Month
November, 2008 E.C.
1. MoFED transferred Cash to Ministry of Defense amounting 400,000.

2. Petty cash fund is established by 50,000.
3. Paid employee per diem of Birr 12,000 by cashier.
4. MOD signed an agreement to build military camp with a contract price of 10,000,000
5. Ministry of Defense(MOD) raised revenue amounting 12,000,000.
6. 35% the hospital construction is completed.
7. Office equipment costing 5000 and cash of 20,000 is given as assist from foreign
government.
8. 100% the military camp construction is completed.
9. The budgetary institute requests salary with the following details:
Gross salary 1,250,000
Pension expense – 7% 315,000 Fine 25,000
Employee pension - 5% 225,000 Income tax 32,000
10. Cash is paid for salary related payables.
Required: Make the necessary entry related with MOD
a) Make the necessary entry related with MoFED (1.5 mark each)
b) Prepare the trial balance MOD(1 mark)
c) Make the necessary closing entry(2 mark)
d) Assuming end of period inventory count shows unused supply of 12,000, make a
beginning year recording if MoFED transferred 120,000 cash and 50,000 cash for
supplies. (2 mark)
Part Two: - Discussion Question

1. Discuss five types of revenues by FGE? (2 Mark)
2. Explain the main procedures which are carried out prior to closure of accounts? (3 Mark)
3. What are the Country wide Financial Statements which are Produce in FGE? (2 Mark)
4. Discuss at least three common type of payables in the Government Organizations? (3 Mark)
94

Ethiopian Government Accounting

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Wolkite University

College of Business and Economics

Continuing and Distance Education

Prepared By; Kirubel Asegdew

Editor; Mitiku Melese

1.2 Historical Overview of Ethiopian Government Accounting System

The Federal Government of Ethiopia accounting system used up to GC 2002 was in

Payment Vouchers Receipt Vouchers Journal Vouchers

Book of Original Entry Transaction Register

General Ledger Budget Ledger/ Expenditure Subsidiary Ledger

Post Closing Trial balance

Summary Income and Expenditure Statements

 Improved cash management within the region by reduction of bank accounts

Zero Balance System at Federal Level

2. list at least 3 benefits of the single pool system

A chart of accounts is a system of coding used by a financial management system to

1.4 FGE Budget process

Preparation of Revenue forecast & Allocate federal

Budget review by Budget call Allocation of

Budget haring and Review and Submit to council

Step IV Budget call and ceiling Notification

Step V Budget Review by MoF and MoED

Step IX: submission to the council of peoples’ Representatives

1.5. Fundamentals of FGE Program Budget

The introduction of Integrated Financial Management Systems (IFMIS) has become a

1.7 Budget Ledger Card

The FGE accounting system uses double-entry bookkeeping. Double-entry

Account Category Used Normal Increase Decrease

In a double-entry system, each debit is matched by a credit of an equal amount, and

FGE Basic Accounting Equation

Cash & Cash Equivalents + Receivables = Payables + Net Assets/Equity

1.9 Legal Framework of FGE Financial Administration

1. List the departments that include under MOFED

2. Describe the responsibility of Treasury Department

Public Body (PB)

Head of Public Body

Senior Accountant Disbursements Budget Preparation Budget Control

Budgetary Institution (BI)

Cashier and Accountant

The Federal Government of Ethiopia accounting system used up to GC 2002 was in

Chapter End Exercise

Multiple Choice Questions

1.0 Aims and Objectives

At the end of this Chapter you are expected to

The General Ledger is maintained to classify information recorded in the Register by

 Simplifies and improves the report generation process, and

1.3 Structure and Organization of Ledgers

Recurrent and Capital Expenditure

To summarize, a Subsidiary Ledger is maintained for expenditure as described in Table 2.1.

Cash and Cash Equivalents

Receivables and Payables

To summarize, a Subsidiary Ledger is maintained as described in the Table 2.2.

Subsidiary Ledgers for Other Accounts

The General Ledger is organized into seven broad categories comprising:

 Revenue, Assistance or Loan accounts in sequence of the account codes

 Expenditure accounts in sequence of the account codes

 Transfer accounts in sequence of the account codes

 Liability accounts in sequence of the account codes

 Net Asset/Equity account

1.4 Recording Entries in Ledgers

Recording Transactions into the Ledger Card of the General Ledger

The Ledger Card has two parts: