Table of Contents

CHEPTER ONE.......................................................................................................................................... 2
1 INTRODACTION................................................................................................................................. 2
1.1. Historical overview of Ethiopian Government Accounting System...........................................2
CHAPTER TWO:....................................................................................................................................... 9
General and Subsidiary Ledgers...........................................................................................................9
2.1 Description of Ledgers............................................................................................................... 9
2.2. Structure of Financial Administration within a Public Body..........................................................9
2.2.1 Structures and Organization of Ledgers................................................................................10
2.3 Recording Entries in Ledgers........................................................................................................11
CHAPTER THREE................................................................................................................................... 15
3.Recording common transactions of FGE.........................................................................................15
3.1 Cash Transfers: Between Bank Accounts at Public Bodies and MOFED.......................................15
3.1.1. Cash Transfers: Between bank accounts at public Bodies and MOFED:...............................16
3.2. Cash Expenditures.......................................................................................................................21
Chapter FOUR........................................................................................................................................ 32
4 Financial Reports and Financial statements....................................................................................32
4.1 Statements of budgeted revenue and expenditure................................................................32
4.2 Statement of changes in cash position........................................................................................34
REFRENSE............................................................................................................................................... 35

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 CHEPTER ONE
1 INTRODACTION
1.1. Historical overview of Ethiopian Government Accounting System
• The Federal government of Ethiopia (FGE) accounting system used in 1994 EC has been in
service for more than a century. The system has been revised at various times and the
revisions through time house brought major changes in recording, summarizing and
reporting of the government financial information.

• The federal government decided that there was a need to revise the current accounting
process as an integral part of the civil service Reform. The civil service Task force, formed
in the prime minister’s office, began the revision process. Further study and
implementation responsibilities were given to the accounts Reform Team established by
the ministry of finance and Economic Development (MOFED)

• The overall strategy of the civil service Reform for accounts is to mode from strictly cash
controls to on emphasis on management and accountability, The FGE accounting system
described in this module is now the FGE accounting system.

1.2 Goals achieved by FGE Accounting System

As stated in the first volume of FGE Accounting system, Manual 3, The FGE accounting
system achieves three goals: budget control, cash control, and accountability.
Budget control
• The ability of the accounting system to report expenditure consistent with budgetary
principled and

Cash control
• Maintaining the balance of cash at bank and cash in safe in a general budget.

• Clarifying the responsibilities and duties of the cashier and the accountant for cash at
bank and cash in safe. The cashier handles cash in safe, while the accountant is assigned
overall responsibility for cash in safe and specific responsibility for the checkbook and
cash at bank.

Accountability

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 • Imploying a general ledger system. Each accounting unit maintains a general ledger for
each source of funding, so each unit maintains a balanced and continuous record of its
responsibilities and performance. A set of financial reports can be produced from any
single general ledger or from any combination of general ledgers.

Chart of Temporary Accounts

The Budget Reform Team under the Expenditure Management and Control Sub-Program of the
Civil Service Reform designed codes in the chart of accounts for detailed coding of:
• Items of domestic revenue, external assistance and external loans using code
numbers 1000 through 3,999, and
• Transfers using code numbers 4000 through 4099.
• Items of expenditure using code numbers 6,000 through 6,999.
The chart of accounts for these classifications is presented in Annex 2 at the end of this module.
Chart of Permanent Accounts
The Accounts Reform Team under the Expenditure Management and control Sub-Program of
the Civil Service Reform designed codes for detailed coding of:
• Assets using code numbers 4100 through 4999.
• Liabilities using code numbers 5000 through 5499.
• Letters of Credit using code numbers 5500 through 5599.
• Net Assets/Equity using code numbers 5600 through 5699.
Budgetary Institution (BI)
Budgetary Institutions are defined as those institutions that are fully or partially financed by
Government. The budget process assumes the appropriation of budgets. The appropriated
budget is 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
1.3 Public Bodies with Branch Bank Accounts
Some PB s establishes operations or branches in more than one location, and opens a bank
account at each branch. These branch bank accounts do not receive or send transfers directly
to
MOFED.
The public Body uses Branch bank accounts for operations within the Public Body. They are
blocked at the end of the year. Some public Bodies maintain other types of bank accounts for
special purposes, such as deposits. These are not blocked at the end of the year and are not
considered branch bank accounts.

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The accounting unit of the PB's main bank account consolidates the monthly report from the
branch bank account with the monthly report of the main bank account. The consolidated
monthly report is sent to MOFED. This process is shown in Figure 2.3.

Figure 1.3
Branch Bank Account Treated as Accounting Unit
 This is an Accounting Unit
• A general ledger is maintained
• Subsidiary ledgers are maintained for each BI using this account
• Transfers are recorded for funds sent to other bank accounts
• A subsidiary ledger is maintained for the transfer account
 Monthly reports are received from other bank accounts
 Monthly reports are combined into one monthly report for MOFED

Cash is transferred Monthly report is sent

Branch Bank Account

 This is an Accounting Unit
 A general ledger is maintained
 Subsidiary ledgers are maintained for each BI using this account
 Transfers are recorded for funds received from PB bank account
 Monthly report is prepared sent to main bank accounts accounting unit

Branch Bank Account treated as a Safe

If the branch bank account is treated as a safe:
• A cash book is maintained for the branch bank account, and
• Receipt and payment vouchers are given to the main bank account's
accounting unit.
The accounting unit of the PB's main bank account does the following:
• Cash movements between the main bank account of the PB and the
branch bank account are recorded as advances, and
• Receipt and payment vouchers received from the branch bank account
are recorded in general and subsidiary ledgers.

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 The Process is shown in Figure 2.4 below.
Figure 2.4: Branch Bank Account Treated as Safe

PB Main Bank Account

 This is an Accounting Unit
 A General Ledger is maintained
 Subsidiary Ledgers are maintained for all BI under this PB

Cash is Sent Vouchers are sent

Branch Bank Account

 A Cashbook is maintained
 Receipt and payment vouchers are sent to the main bank
account's
BAU
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
The budget ledger card is divided into two parts:
A. The top of the card contains information to identify the
• BI,
• Type of budget, and
• Item of expenditure.
• The table on the card contains detailed information about each budget transaction.

1.5. Purpose of Each Field in the Budget Card

Upper part of the Budget Ledger Card
Name of Public body and Public Body code: the field is to identify the PB to which the budgeted
expenditure is related.
Name of Program and program Code: the field is to identify the Program to which the budgeted
expenditure is related.
Name of sub agency & Sub Agency Code: the field is to identify the BI to which the budgeted
expenditure is related.
Name of Sub Program and Sub Program Code: the field is to identify the Sub Program to which
the budgeted expenditure is related.

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Name of Project & Project code: the field is to identify the BI to which the budgeted
expenditure is related. Source of Finance & code: the field is to identify the source of funding
that is recorded on the ledger card.
Page Number: the field identifies the page number of the budget ledger card.
Type of Budget and Code: the field is to identify whether the item of expenditure is a part of
the recurrent or capital expenditure budget.
Item of Expenditure & Code: the field is to identify and describe the item of expenditure by its
budget code.
Lower Part of the Budget Ledger Card
Number, Date, Description & Reference Number: the purpose of these fields is to respectively
identify:
• The sequential number of the transaction.
• The date of the transaction.
• A brief narrative of the description of the transaction.
• The reference number of the source document to the transaction.
Approved Budget: the field identifies the amount of the original approved budget for the item
of expenditure.
Additions/Reductions to approved Budget: the fields are used to track changes to the approved
budget and provide information to compute the revised budget.
Revised Budget: the field contains the approved budget adjusted for any additions or
reductions. The revised budget is key for budget control. An item of expenditure must not
exceed its revised budget.
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.
Although organization’s earnings and related operating activities are continuous, they are
reported at specific intervals (i.e. an accounting period or budget year) in order to provide
useful information for decision-making on a timely basis. Some activities may begin and end
during the accounting period, while others may require two or more accounting periods for
completion. Budget year for FGE is from Hamle 1 to Sene 30.
The modified cash basis of accounting is consistent with the budgeting process and produces
information useful for comparing budgeted and actual revenue and expenditure. The modified
cash basis accounting system requires the same temporary accounts as the cash basis of
accounting plus the following permanent accounts: cash and cash equivalents, receivables and
payables.

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The FGE accounting system employs a combination of temporary and permanent accounts. All
account balances at the end of the year may not have a zero balance. So, a process is necessary
that distinguishes temporary accounts and sets them to zero. The process of setting the balance
.

Legal financial administration:

The financial administration in FGE mainly involves Ministry of Finance and Economic
Development (MOFED) and Regional Finance and planning offices and a Public Body. The
specific Federal and Regional government administrative authorities and the required
organizational structure in public bodies are illustrated in the following

Figure 2.1

Structure of Financial Administration in the Budget Process

Ministry of Finance and Economic Development

Public Body

Budgetary Institution:
Project or Sub-Agency
and within the Public Body

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 The following are responsibilities of MOFED, Budgetary Institutions, Accounting unit,
Reporting Entity, Cashier and Accountantin the financial administration in the Budget process

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 and distributes notification of approved federal
budgets and administers the budget.
• Central Accounts Department that receives monthly repots and compiles financial
statements for the federal government.
• Central Treasury Department that receives and distributes cash from central
treasury.
• Credit and Investment Department that manages the federal government's
investments and debt.
This is not a complete description of MOFED or its departments. This is description of their roles
and responsibilities within the accounting system.

CHAPTER TWO:
General and Subsidiary Ledgers
2.1 Description of Ledgers

A ledger is the entire group of accounts maintained by an accounting unit. The ledger
summarizes transactions by accounts. 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 FGE accounting system:

General Ledgers and Subsidiary

General Ledger: A ledger card is maintained for every account code recorded in the register.
Every amount that is entered as either 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. 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 are
equal. The general ledger is maintained to classify information reported in the Register by
respective account codes. All transaction amounts recorded in the Register are entered on
ledger cards in the general ledger.

Subsidiary Ledger: The accountant maintains a general ledger for each register. Where more
than one BI shares the same bank account, the accounting unit maintains one Register and one
general ledger for the bank account. A system of control accounts in the general ledger and
supporting subsidiary ledgers is used to maintain sufficient account balance detailed to
facilitate management reporting requirements. A control account is an account in the general
ledger that maintains the total balance of all related accounts in a subsidiary ledger.
A ledger card is maintained for every control account code recorded in the general ledger.
Either every amount that is entered as a debit or credit on a control account's ledger card in the

8
 general ledger is also entered to the corresponding debit or, credit column in the subsidiary
ledger card.
The aggregate of all subsidiary ledger cards for a single control account is the subsidiary ledge
2.2. Structure of Financial Administration within a Public Body
For example, expenditure account code 6111 salary expense has a ledger card in the general
ledger that contains all salary expenses recorded in the transaction register .A set of subsidiary
cards, one for each BI, also is maintained for expenditure account code 6111.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 (MOFFED and DSA Project manual, December,2002).

A subsidiary ledger is not a set of self-balancing accounts. Not all debits in a subsidiary ledger
are 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 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 regarding
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 because the reporting requirements require only the total amount of the
advances to staff (rather than the amount owed by each staff member). In addition, 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
2.2.1 Structures and Organization of Ledgers
This section presents the structure of ledgers, which is presented to discuss about recurrent
Expenditure, revenue, and other accounts, transfers, cash and cash equivalents, receivables,
payables, and letters of credit. In this section, organization of ledgers in FGE accounting system
will also be discussed. Structure is about the relationship that exists between general and
subsidiary ledger and organization is about the systematic grouping in general ledger. You will
study this issue in the next presentations.

Structure of Ledgers

This section describes when an account in the general ledger is treated as a control account.
Two criteria define whether an account code is a control account with a related subsidiary
ledger:
• Monthly reporting requirements
• 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 account contains information whose detail
is shown in the subsidiary ledger. In order to also track and report actual expenditure at the
level of each BI managed by the accounting unit, a subsidiary ledger is maintained for each

9
 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 (MOFED and DSA Project manual, December, 2002).

Revenue
An accounting unit is required to report revenue at the level of the accounting unit and not 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 should be 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 reporting requirement at the
level of each BI, a subsidiary ledger is not maintained for items of revenue (MOFED and DSA
Project manual, December, 2002).

2.3 Recording Entries in Ledgers

In this section, you will study the formats of ledgers. The type of information that each entry in
the ledger requires from a transaction register is also the focus of your study in the section. Try
to get the ledger formats from government institutions found in your area and ask people
working in finance section to get clear and practical experience in addition to your reading.
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 two separate ledger cards because 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.

Figure 3.1: Ledger Card

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

ME/HE/17 MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT
LEDGER CARD
Public body ______________________ Code _______ page _______
Program _____________________Code _____
Sub Agency _______________________ Code _____ Type of Budget _____________
Sub-program ______________________ Code _____
Project _____________________ Code _____ account Code______________
Source of Finance __________________Code _____
Bank Account No.___________________ Description ______________

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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.

• The table contains information from the transaction register for computing the balance
for the account code/type of budget.

Not all information on the left side at the top of the ledger card is 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 from all general ledgers except that the space for description is not necessary for a
ledger card in the general ledger.

According to MOFED&DSA Project, the table on the ledger card in the general ledger contains
the following features:

• Date is the date that the entry is made in the ledger card, not the date of the
transaction.

• Reference from registrar contains sufficient information to uniquely identify the Register
source of the entry.

• Description is option. If additional information about the transaction is desired, it should

be written here.

• 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 appropriately 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. This account code, and 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.
The foreign currency cash account ledger card is shown in figure 3.2. 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

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 twice: once in Birr and once in foreign currency. In addition, the net cumulative balance of the
account is kept in both currencies.
Figure 3.2: Foreign Currency Cash Account Ledger Card
ME/HE/18
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHOPIA
MINISTRY OF FINANCE & ECOMOCIS DEVELOPMENT
Foreign Currency Cash Account Ledger Card
Page ____
Public Body __________ Code_______
Bank Account No._________ Code ______ Account Code 4102
Donor/lender _____________ Code _____________

Month end activities related to General and subsidiary ledgers

The general ledger account balances must be determined at the end of each month. The total
cumulative balance of all debit and credits on all ledger cards in the general ledger must be in
balance. Where the net cumulative debits and credits recorded on all ledger cards in the
General ledger are imbalance, an error exists. The following types of errors should be verified
to balance the general ledger (MOFED and DSA Project manual, December, 2002).
• 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.
• 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 he transaction is not posted into the
general ledger.
• An arithmetic 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. 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

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 in the general ledger. 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 (MOFED and DSA Project, December, 2002).
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.
• An amount 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 accounts balances are not carried forward correctly form the previous year.

Year-end activities related to General and subsidiary ledgers

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 each new fiscal year with carry forward balances in the
permanent accounts from the previous year (MOFED and DSA Project manual, December,
2002).

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CHAPTER THREE
3.Recording common transactions of FGE
b. Cash withdrawn from bank to safe
c. Cash deposited in to bank from the safe
d. Cash transfer
e. Non-Cash transfers
f. Salary
g. Withholding tax
h. Grease period payables
i. Payable
j. Deposits
k. Receivables
l. Aid-in-Kind
m. Cash and check receipts by cashier
n. Cash imprest payments to cashier by accountant
o. Cash payments by cashier
p. Cash payments by accountant
Recording foreign currency transaction

. 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
in the form of currency are described in section 12 of this unit. Other cash transfers are
described hereunder in the sub-topics such as: cash transfers between bank accounts at public
bodies and MOFED, cash transfers between bank accounts at public bodies and MOFED, cash
transfers between public bodies, cash transfers within a public body,
3.1 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

14
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 (MOFED and DSA Project manual, December, 2002).
3.1.1. Cash Transfers: Between bank accounts at public Bodies and MOFED:
From MOFED to public Bodies
According to MOFED AND DSA Project December 2002, Cash transfers from MOFED bank
accounts to bank accounts of public Bodies are recorded:
By MOFED, as a debit to the appropriate transfer code and a credit to 4105, and
By the public Body, as debit cash at Bank 4103 and a credit to the appropriate transfer
code.
At MOFED, although a transfer authorization to one bank account may include funds for more
than one BI, the entire transfer is one. Therefore, only one entry should be made for the total
of the transfer in the Transaction Register maintained at MOFED. The BI code for the entry
should be the BI code of the Reporting Entity.
If the bank charges a service charge for the transfer:
• The Service charge should be recorded as a debit to account code 6256.
• Cash at bank 4103 should be debited for the amount of cash actually received.
• The appropriate transfer account code should be credited for the gross amount of the
transfer.
Example: MOFED transfers Birr 100,000 to a public body for capital expenditure. The bank
deducts 2000 birr as a service charge; the public body receives Birr 98,000.

15
 MOFED 0

3.1.2. 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.

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 (MOFED and DSA Project manual, December,
2002).
3.1.4. 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.

16
 No Description TB Account Others Cash in Safe
Number 4101
Dr Cr Dr Cr
1 Cash transfer - 4002 1,000 1,000
3.1.3. Cash Transfers: Between Public Bodies
Transaction Register of MOFED:
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. According to MOFED and DSA Project manual, December 2002, Cash
transfers from a bank account of one public Body to a bank account of another public Body are
recorded: By the public Body sending the cash, as a debit to transfer code 4008 and a credit to
cash at Bank 4103,andnBy the public Body receiving the cash, as a debit Cash at Bank 4103 and
a credit to transfer code 4008.
Example: Public Body #1 transfers Birr 90,000 to public Body #2.
Transaction Register of public Body #1:

No Description TB Account Others Cash at bank

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
Number 4103
Dr Cr Dr Cr

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1 Cash transfer to PB #1-No 4008transfer
90,000BA90,000
2.2 Non 1- Cash
Cash Description
Transfers #1 TB
- Account
Number
4011 Dr Other
80,000
Cr 80,000
Cash
Dr 4a

3.1.5. Cash Transfers: Within Public Body

In the same Manual prepared by MOFED&DSDA Project, it is indicated that some public Bodies
maintain branch bank accounts. The public Body may transfer cash from one bank account to
another bank account of its branch. These transfers are done in form of:
Checks, and
Direct bank transfers evidenced by bank advices.
The branch bank account may be treated as an Accounting Unit or as a Safe.
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, andBy the accounting unit for bank account #2,
as a debit cash at bank 4103 and a credit to transfer code 4011.
Example: Bank Account #1 transfers Birr 80,000 to Bank Account #2 Transaction
Register of Bank Account #1:

No Description TB Account Others Cash at bank

Number 4103
Dr Cr Dr Cr
1 Cash transfer to BA #2 - 4011 80,000 80,000
Transaction Register of Bank Account #2:

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

18
 Dr Cr Dr Cr
1 Agricultural Revenue 4009 40,000
Transfer 1107 40,000
non-cash transfers is a Journal Voucher; Non-cash transfers are reported monthly on Me/He/24
part 1 (MOFED and DSA Project manual, December 2002). Receipt of Revenue
/Assistance/ Loan
Public Bodies are authorized to collect revenue on behalf of the FGE. In addition, Public Bodies
may receive funds for assistance and loan directly from donors and lenders. Receipts are
collected in the form of currency, checks and direct bank transfers, Receipts of revenue in the
form of currency are described in Section 12 of this unit. All other cash receipts are described
here. Direct deposits by collectors to MOFED will also be discussed under this topic. The source
document for collection of revenue is a receipt voucher. Revenue /assistance/ loan receipts are
reported monthly on Me/He 21. Revenue /assistance/ loan account codes are found in the
budget reform design manual. These codes are subject to change each year. Receipts are
recorded as a debit to cash at Bank 4103 and a credit to the appropriate revenue /assistance/
loan account code ( MOFED and DSA Project manual, January, 2002).
Example: MOFED receives a deposit from Internal Revenue for Birr 40,000. The deposit is from

No Description TB Account Others Cash at bank

Number 4105
Dr Cr Dr Cr
1 Transfer from IR - 4009 40,000 40,000
Transaction
the collectionRegister of Internal
of agricultural Revenue:
income tax.
No Description TB Account Others Cash at bank
Transaction Register of MOFED:
Number 4103
3.2. Cash Expenditures
Public Bodies are authorized to make cash expenditures from funds budgeted for that purpose.
Cash expenditures are made using currency, checks and direct bank transfers. Cash
expenditures made for different units for different purpose are discussed below. .
The source document for cash expenditures made using other than currency is a Bank payment
voucher. Expenditures from the recurrent budget are reported monthly on Me/He22, and from
the capital budget on Me/He 23, expenditure account codes are found in the chart of accounts.
These codes are Subject to change each year. Cash expenditures are recorded as a debit to the
appropriate expenditure account code and a credit to cash at bank 4103.The public body
should maintain a subsidiary ledger for each expenditure account code if the public body
handles more than one budgetary institution. Each budgetary institution should have an

19
 account in the
subsidiary ledger (MOFED and DSA Project manual, December 2002).
Cash Expenditures: Payments to Regions/Transfer Recipients by MOFED

Payments by MOFED to regions and transfer recipients (Functional classification 4000 - 4099,
are budgeted expenditures of the federal government. When MOFED makes these payments,
MOFED records the expenditure in the federal Transaction Register.
3.2.1. Cash Expenditures: Check Payments by Accountants
Only accountants are allowed to make payments using checks.
Example: Assume that an accountant pays by check an amount of Birr 50,000 for office
supplies.
Transaction Register of Public Body:

No Description TB Account Others Cash at bank

Number 4103
Dr Cr Dr Cr
1 Office supplies paid in 6212 50,000 50,000
cash

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

MOFED can make cash payments on behalf of a public body. The transaction begins with a
letter from the public Body to MOFED requesting that the payment be made on its behalf. If
MOFED approves the payment, the cash is paid by MOFED, the public body is notified of the
payment by model 35, and the public body records the expenditure. The source document for
the transaction is a payment voucher at MOFED and a journal voucher at the public body.
Expenditures from the recurrent budget are reported monthly on Me/He 22, and from the
capital budget on Me/He 23 . Expenditure account codes are found in the budget reform design
manual. These codes are

20
subject to change each year. Cash payments are recorded as a debit to the appropriate
expenditure account code and a credit to cash at Bank 4103 (MOFED and DSA Project manual,
December 2002).
Cash payments made by MOFED on behalf of Public Bodies are recorded: by MOFED, as a debit
to the appropriate transfer code and a credit to Cash at Bank 4105, and by the public Body, as a
debit to the appropriate expenditure code and a credit to the appropriate transfer code.
Example: The Ministry of Health (MOH) requests MOFED to pay for a motor vehicle on its
behalf amounting to Birr 280,000 from its capital expenditure budget.

Transaction Register of MOFED:

No Description TB Account Others Cash at bank
Number 4103
No Description TB Account Others Cash at bank
Number Dr Cr Dr4105 Cr
1 Purchase of motor vehicles 02 6311 280,00
Dr Cr Dr Cr
0
1 Transfer to MOH - 4004 280,000 280,00
Transfer from MOFED - 4004 280,00 0
0
Transaction Register of Ministry of Health:
Cash Expenditures: Letter of Credit
A Public Body may need to open a Letter of Credit as part of an international purchase
agreement. Opening a letter of credit means putting cash in a restricted bank account
dedicated to payment of the purchase price when appropriate conditions are met. According to
MOFED and DSA Project, there are two processes for opening a letter of credit:
If the letter of credit is for Birr 50,000 or less, the public body can open the letter of credit.
If the letter of credit is for more than Birr 50,000, the public body must request that MOFED
open the letter of credit.
3.2.2. Cash Expenditures: Letter of Credit: Opened by Public Body
When a public Body opens a Letter of Credit, cash is paid, using a Bank payment Voucher, from
the bank account of the public Body to a restricted bank account at the national bank of

21
Ethiopia. In the transaction register for the public body's bank account, expenditure is recorded.

Transaction Register - Restricted Bank Account of Ministry of Health:

No Description TB Account Others Cash at bank
The public body uses another transaction register
Number for the restricted bank account.
4103
The public body must combine the monthly report of the restricted account with the monthly
Dr Cr Dr Cr
report of the regular bank account for reporting to MOFED.
1 Letter of credit #xxxx - 5500 30,000 30,000
Example: The ministry of Health (MOH) establishes a restricted bank account to open a letter of
credit for the purchase of medical supplies valued at birr 30,000.
Transaction
3.2.3. Cash Register - Regular Bank
Expenditures: Account
Letter of of Ministry
Credit: of Health:
Opened by MOFED on behalf of
Public
No BodyDescription TB Account Others Cash at bank
A Public Body requests that MOFED open a letter of credit on its behalf. MOFED:
Number Transfers cash
4103
to restricted bank account at national bank of Ethiopia on behalf of the public body, Records a
Dr Cr Dr Cr
cash transfer to the public body, and
1 Purchase of medical supplies 02 6214 30,000 30,000
Notifies the public body of the transaction.
The Public Body: Records the cash transfer as expenditure in the transaction Register for the
public Body's bank account, and Records the Letter of Credit in another Transaction Register
for the restricted bank account.
The public Body must combine the monthly report of the restricted account with the monthly
report of the regular bank account for reporting to MOFED.
Example: The Ministry of Health (MOH) requests MOFED to open a letter of credit on its behalf
amounting to Birr 700,000 for motor vehicles from its capital expenditure budget.
Transaction Register:

No Description TB Account Other Cash at bank

Number 4105
Dr Cr Dr Cr
1 Transfer to MOH - 4054 700,00 700,00
0 0

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Occasionally, public Bodies make cash payments to regions. Usually s sector line ministry
receives funds from a donor through channel 2. Some of the funds are intended for sector
bureaus in the regions. The sector line ministry acts as a treasury department by distributing
the cash to the region sector bureaus directly.
All payments to the regions from the federal level are budgeted as part of the region's subsidy
(a rare exception is discussed in section 6d below). When a public body pays cash to regions,
the payment is part of the regions subsidy. The public body should record the payment as a
subsidy payment.
Example: The ministry of Health (MOH) sends Birr 53,000 to a region as part of a sector
development plan.

Transaction Register - Ministry of Health:

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

Cash Expenditures: Cash Payment Requiring Withholding of Tax

The tax authority requires that a tax must be paid on specified purchases over a certain
amount. The purchaser collects the tax as a withholding from the purchase price. The threshold
amount and the tax rate may vary each year. The tax is paid to the appropriate authority,
federal or regional government, depending on the location of the supplier.
The supplier can reclaim the withholding tax. The tax authority creates a special tax receipt that
should be issued to the supplier when the tax is withheld. This receipt is not an accounting
document and should not be referenced in any accounting record. If a regional tax authority

23
has not issued a special tax receipt, the federal special tax receipt should be used .The
withholding tax does not reduce the cost of the goods to the public body. The withholding tax is
a reduction to the payment made to the supplier. The payment is made to the appropriated
government instead. When a purchase is made that requires the withholding of tax, a bank
payment voucher is prepared that indicates, in the space provided for accounting use only
(MOFED and DSA project manual, December 2002).
The expenditure account code with a debit for the full purchase price. If the tax is federal,
withholding tax revenue code 1103 or 1104 (depending of whether the supplier is an individual
or a corporation) with a credit for the amount of the tax. The only exception is if the payment is
made with retained revenue. If retained revenue is the source of funds for the payment,
payable account code 5028 is credited for the amount of the tax.
If the tax is regional, payable account code 5026 with a credit for the amount of the tax.
Cash at bank 4,103 with a credit for the actual amount paid to the supplier.
Cash Expenditures: Cash Payment Requiring Withholding of Tax: Federal Tax

When federal tax is withheld from a purchase, the tax is recorded as revenue immediately
subsequently; an amount of cash equal to the tax is transferred to MOFED.
Example: A public body buys office supplies from a corporation for Birr 200,000 from its
recurrent expenditure budget - Birr 198,000 relates to the cost of the office supplies and Birr
2 ,000 is the withholding tax.
Transaction #1: Payment effected to supplier
Transaction Register of Public Body:

No Description TB Account Others Cash at bank

Number 4103
Dr Cr Dr Cr
1 Office supplies 01 6212 200,000
Withholding tax revenue 1104 2,00 198,00
0 0

Transaction #2: Transfer to MOFED

Transaction Register of Public Body:

No Description T Account Others Cash at bank

B Number 4103
Dr Cr Dr Cr
2 Transfer to MOFED 4009 2,000 2,000

24
Transaction Register of MOFED:
No Description T Accoun Others Cash at bank
B t 4105
Numbe
r
Dr Cr Dr Cr
1 Transfer to MOFED 4009 2,000 2,000

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

When regional tax is withheld from a purchase, the tax is recorded as a payable to the region.
Subsequently, an amount of cash equal to the tax is transferred to MOFED. MOFED pays the tax
amount to the region. A subsidiary ledger should be maintained for payable to region account
code 5026 if tax is collected for more than one region. Each region should be a separate
account in the subsidiary ledger.
Example: A public body buys office supplies for Birr 200,000 from its recurrent expenditure
budget - Birr 198,000 relates to the cost of the office supplies and Birr 2,000 is the regional
withholding tax.
Transaction #1: Payment effected to supplier
Transaction Register of public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
1 Office Supplies 01 6212 200,000
Tax payable to Region 5026 2,00 198,00
0 0

Transaction #2: Transfer to MOFED

Transaction Register of Public Body:
No Description TB Account Others Cash at bank
Number 4103
Dr Cr Dr Cr
2 Payable to MOFED 5026 2,000 2,000

25
 r
Dr Cr Dr Cr
1 Tax payable to region 5026 2,000 2,000
Transaction #3: MOFED pays tax to region

Transaction Register of MOFED:

No Description T Account Others Cash at bank
B Number 4105
Dr Cr Dr Cr
2 Payable to region 5026 2,000 2,000
Cash Expenditures: Construction Projects
According to MOFED AND DSA Project, December 2002, long-term construction projects involve
complicated financial arrangements. Several accounting entries are necessary over the life of
the project. In general, when a construction contract is signed, there are several steps in the
payment process, At each stem, an accounting entry is required. The general steps are:
Payment of an advance: Usually the contract calls for an advance payment to the
contractor. The advance payment is proportionately deducted from future payments to
the contractor.
Progress payments based on payment certificates: Usually the contract calls for partial
payment of the total contract price as the construction reaches agreed-upon
percentages of completion. A payment certificate is evidence that the agreed-upon
completion percentage is reached.
Payment of the retention: Usually a percentage of the payment is retained and not paid
until final acceptance of the completed construction.
Example: Assume the following:
A contract is signed to construct a building for 2,000,000 Birr. Terms of contract are:
Initial advance of 20% = 400,000 Birr
Advance adjusted proportionately with each payment certificate approval.
Retention of 10% withheld from each payment certificate & paid after final approval.
Steps in payment are:
Payment of 20% advance.
Payment certificate when 40% complete.
Payment certificate when 80% complete.
Payment certificate when 100% complete.
Transaction #1: payment of 20% advance:
Accountant prepares a check for 400,000 Birr.
Accountant prepares payment Voucher for 400,000 Birr:
Debit to 4251 & Credit to 4103
Transaction Register of public Body:

26
 No Description TB Accoun Others Cash at bank
t 4103
Numbe
r
Dr Cr Dr Cr
1 Advance to contractor 4251 400,000 400,00
0

Transaction #2: payment certificate when 40% complete.

Accountant Prepares a check for 560,000 Birr as follows:
800,000 payment certificate request
160,000 adjustment to advance
80 ,000 retention.

Accountant prepares payment Voucher as follows:

Debit to 6323 for 800,000
Credit to 4251 for 160,000
Credit to 5061 for 80,000
Credit to 4103 for 560,000
Transaction Register of public Body:

No Description T Accoun Others Cash at bank

B t 4103
Numbe
r
Dr Cr Dr Cr
2 Construction - Building 02 6323 800,00
0
Advance to contractor 4251 160,00
0
Retention on contract 5061 80,000 560,00
0

Transaction #3: payment certificate when 80% complete.

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

27
 800,000 payment certificate request
160,000 adjustment to advance

80 ,000 retention
No Description TB Account Others Cash at bank
Accountant prepares payment voucher as follows:
Number 4103
Debit to 6323 for 800,000 Dr Cr Dr Cr
4Credit
Construction
to 4251 for -160,000
Building 02 6323 800,000
Advance
Credit to contractor
to 5061 for 80,000 4251 160,00
0
Credit to 4103 for 560,000
Retention on Contract 5061 80,000 560,00
Transaction Register of public Body: 0

Transaction #4: payment certificate when 100% complete.

Accountant prepares a check for 280,000 Birr as follows:
400,000 payment certificate request
80 ,000 adjustment to advance
40 ,000 retention
Accountant prepares payment Voucher as follows:
Debit to 6323 for 400,000
Credit to 4251 for 80,000
Credit to 5061 for 40,000
Credit to 4103 for 280,000

28
 Advance to contractor 4251 80,000
Retention on Contract 5061 40,000 280,00
0

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

Accountant prepares a check for 200,000 Birr.
Accountant prepares payment voucher for 200,000 Birr:
Debit to 5061 & Credit to 4103

Transaction Register of public Body:

No Description TB Accoun Others Cash at bank
t 4103
Numbe
r
Dr Cr Dr Cr
5 Retention on contract 5061 200,00 200,00
0 0

Chapter FOUR:
4 Financial Reports and Financial statements
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. 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.
4.1 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:

29
• 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
- 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 expenditure 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

30
 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 is
assistance listed by budgetary institution with details of original budget, revised
budget, actual expenditure and the difference.

4.2 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.

31
REFRENSE

32