payment chapter 3 transactions - national treasury. handbooks...2,000.00 0002 gepf 1,661.48 0083...

1

Basic Accounting Handbook

for Government

Departments

PAYMENT

TRANSACTIONS

Chapter 3 July 2010

2

Contents

1. Overview ........................................................................................................................................ 3

2. Key learning objectives ............................................................................................................... 3

3. Payments ....................................................................................................................................... 4

3.1. Categories of Payments ...................................................................................................... 4

3.1.1 Compensation of employees ...................................................................................... 6

3.1.2 Goods and services ................................................................................................... 12

3.1.3 Interest and rent on land ........................................................................................... 17

3.1.4 Payments for financial assets ................................................................................... 19

3.1.5 Expenditure for capital assets .................................................................................. 20

3.1.6 Transfers and subsidies ............................................................................................ 22

4. Interdepartmental Transactions ............................................................................................... 25

4.1 Types of interdepartmental transactions ........................................................................ 25

4.2 Accounting for Interdepartmental Transactions ............................................................. 26

4.3 Transversal Services ......................................................................................................... 27

4.4 Other Transactions between Departments .................................................................... 28

4.5 Trading Physical Goods between Departments ............................................................ 30

5. Comprehensive example .......................................................................................................... 31

3

1. Overview

This Chapter is about explaining the different payment types and the accounting entries

required to capture expenditure transactions in BAS.

In the cash accounting environment expenditure is referred to as “payments” where such

payments refer to cash leaving the bank account i.e. the last step in the procurement

process following the authorisation of payments.

Exceptions such as unauthorised expenditure, irregular expenditure and fruitless and

wasteful expenditure are also explained in this chapter.

Classification of assets are dealt with and how to account for payments related to projects,

capital projects, capitalised payments and minor capital assets are explained.

There are some items that are not easily classified and guidance is provided for

classification of such items relating to goods and services and capital assets at the end of

the chapter.

The Office of the Accountant-General compiles an annual Departmental Financial Reporting

Framework (ADFRF), commonly referred to as the AFS Prep Guide, which is referred to

throughout the chapter.

2. Key learning objectives

Understand the classification of payments in terms of the Standard Chart of Accounts.

Understand the accounting entries for payment transactions.

Understand the accounting entries for payments in respect of projects.

Understanding the accounting entries applicable for inter-departmental transactions.

4

3. Payments

In the modified cash environment, payments are accounted for in the period in which the

monies are paid and not in the period in which the underlying transaction or event that gives

rise to the expenditure occurs. The management of payments must be directed at achieving

economy, effectiveness and efficiency and avoiding unauthorised, irregular or fruitless and

wasteful expenditure.

All functions and officials involved in the process of spending public funds must therefore

ensure that:

a genuine requirement exists to expend funds on particular goods and services;

the expenditure is justified; and

funds are available.

3.1. Categories of Payments

The main categories of expenditure in accordance with the Standard Chart of Accounts are:

Compensation of employees;

Goods and services;

Interest and rent on land;

Payments for financial assets;

Expenditure for capital assets; and

Transfer and subsidies

The BAS accounting entries for recording payment transactions are as follows:

Expenditure is authorised and captured in BAS:

Debit Relevant expenditure item

Credit Outstanding Payment Account

At this point the expenditure is recognised in the general ledger and the department’s AFS.

The payment is captured as follows:

Debit Outstanding Payment Account

Credit Outstanding Payment Account OR

BAS EBT Control OR

BAS Credit Transfer

5

Interface on the bank statement:

Debit Outstanding Payment Account OR

BAS EBT Control OR

BAS Credit Transfer

Credit Bank Account (department PMG account)

The decision tree below illustrates the classification process for departmental expenditure.

Expenditure

Requited Unrequited

Current expenditureExpenditure for capital

assets

Compensation of

employees

Goods &

services

Interest & rent on

land

Buildings & other

fixed structures

Heritage assets

Machinery &

equipment

Land & subsoil

assets

Investment property

Biological assets

Transfers & subsidiesFinancial tx in

assets &

liabilities

Provinces &

municipalities

Departmental agencies

& accounts

Universities &

technikons

Pub. corporations &

pvt. enterprises

Non-profit institutions

Households

Note that there is a time lag between the authorisation for payment and the interface on

the bank statement. At year-end the amount recognised as expenditure in the AFS

includes all purchases approved for payment (even if the payment still needs to clear the

bank account).

6

3.1.1 Compensation of employees

This item is the largest spending item in the budget of government as more than a million

public servants are paid via Persal on a monthly basis.

There are two main groupings within compensation of employees namely, “Salaries and

Wages” and “Social Contributions” (also referred to as employee benefits.). Salary and

Wages comprise of amounts paid to the employees of a department including all payments

made on their behalf such as PAYE/SITE and the employee’s contributions to pension and /

or medical schemes. The Social Contributions category includes the employers’ contribution

to the social insurance schemes to which the employee belongs.

The monthly salary slip of an employee is broken down as follows:

Salary slip Impact on department

Gross salary per month 3,000.00 Total payroll cost for the month Increase in expenditure

Less: deductions

(pension, medical, UIF

etc)

(500.00) Amount paid by employer on

behalf of employee (amount

employee owes other

institutions)

Decrease in cash

resources

Nett Salary 2,500 Amount paid to employee Decrease in cash

resources

The effect on the accounting equation is illustrated below:

Assets Liabilities Net/assets

(surplus/deficit)

Debit Credit Debit Credit Debit Credit

Increase Decrease Decrease Increase Decrease Increase

500.00 3,000.00

2,500.00

The payment to the employee and to the other institutions decreases the available cash

resources and at the same time increases the payroll costs of the department.

The above is reflected in the general ledger by:

Debiting The relevant payroll expenditure accounts

Crediting The bank account

1

2

3

12

3

= +

7

Net assets represents the residual value or net worth of the department which is equal to

the difference between the revenue generated and expenditure incurred (i.e. the

surplus/deficit). An increase in expenditure means a decrease in the surplus while an

increase in revenue results in an increase in the surplus of a department.

Salaries and wages include the following payments:

Payments made to government employees at regular weekly or monthly intervals.

Remuneration to staff members employed on a contractual basis who are on the

government payroll and paid at regular intervals;

Supplementary allowances such as housing allowances;

Special allowances for overtime;

Special allowances for dangerous work;

Salaries and wages paid to employees away from work for short periods (leave pay); and

Performance bonuses.

Salaries and wages exclude the following payments:

Reimbursement of expenses incurred by employees for goods purchased to enable them

to perform their duties e.g. tools, equipment and uniforms (classified as goods and

services);

Reimbursement for reallocation expenses e.g. when employees take up new positions of

employment (classified as goods and services);

Travel and subsistence expenses e.g. per diem and out-of-town allowances (classified

as goods and services);

Purchases of services provided by non-government employees e.g. consultants and

occasional workers (classified as goods and services);

Social benefit allowances e.g. accidental injury, severance and pay for incapacity

(classified as transfers to households); and

Allowances to dependents of employees are also categorised as social benefits

(classified as transfers to households).

8

Compensation of employees includes most payments to government employees, except

payments to government employees working on capital projects and where the department

elects to capitalise these payments.

These specific payments are classified as capitalised payments and are recognised in the

line item, “payments for capital assets”.

Salaries and wages are further subdivided into smaller categories:

- Basic salary

- Performance awards

- Service based

- Compensation/circumstantial

- Periodic payments

- Other non-pensionable allowances

Social Contributions

Social contributions are normally made on behalf of employees currently employed but can

also be paid on behalf of formerly employed people.

Social Contributions include employer contributions to social insurance schemes (e.g.

security funds, unemployment insurance funds, pension funds, provident funds and medical

aid schemes).

Social contributions are further subdivided into smaller categories:

- Pension

- Medical Aid

- UIF

- Bargain Council

- Official Unions and Associations

- Insurance

Note that all employees in the department may not receive the same medical benefits.

The medical aid contributions are usually split between the employee and the employer

however, in some cases, employees do not contribute to a medical aid fund and the

department pays the full benefit.

The amounts included under the heading pension and medical are the employer’s

contributions; any contribution made by the employee is included under basic salary.

9

Example 1: Posting salaries paid to the expenditure accounts

Mr Khumalo’s salary slip for the month of June is as follows:

Pay Date Bank Acc No. Gross

Salary

Deductions Nett Salary

20100115 Red Bank 123456789 26,032.59 8,017.01 18,015.59

EARNINGS DEDUCTIONS

Item Description Amount Item Description Amount

0001 BASIC

SALARY

22,153.52 0001 TAX RSA 4,613.33

0423 MOTOR

CAR

2,000.00 0002 GEPF 1,661.48

0083 HOUSING

ALL

600.00 0007 BOND 1,000.00

0428 NP CASH 1,279.47 0005 MEDICAL 575.00

0028 PSA 57.00

0214 TELEPHONE 110.19

Once paid, Mr Khumalo’s salary will be posted to the following accounts:

S&W: Basic Salary (expenditure account)

Salary payment (June) 22,153.52

S&W: Home Owners Allowance (expenditure account)

Salary payment (June) 600.00

S&W: Non-Pensionable Allowances (Other) (expenditure account)


Employer Contribution: Pension (expenditure account)


Employer Contribution: Medical (expenditure account)


10

Employer Contribution Bargaining Council (expenditure account)


Communication: Telephone (expenditure account)

Recovery of costs from

employee

110.19

Bank Account (ledger account)

Salary – Mr Khumalo 18,015.59

SARS 4,613.33

GEPF [1,661.48 x 2] 3,322.96

Bond institution 1,000.00

Medical fund [575.00 x 2] 1,150.00

Bargaining council

[57.00 x 2]

114.00

TOTAL DEBITS 28,326.47 TOTAL CREDITS 28,326.47

11

Employee benefits

Not all employee benefits are recognised under the cash basis of accounting. Therefore

certain benefits that give rise to a present legal or constructive obligation is shown in the

disclosure notes to the AFS

Employee benefits are mainly made up of the following accrual amounts:

leave entitlements;

service bonuses; and

performance bonuses;

Refer to the AFS Prep Guide for guidance on how these amounts are calculated and

disclosed.

The basic flow and source documents for the payroll cycle are illustrated below:

Appointment letter is

issued and the employee

is registered on PERSAL

Employee related

costs processed on

PERSAL

Monthly payroll run

calculated and

prepared

Payment made to

employee and third

parties

Interface transactions

to BAS

Payroll certificates

certified

Reconcile PERSAL

to BAS

12

3.1.2 Goods and services

This item refers to all government payments for goods and services, excluding purchases of

capital assets. This item would in most instances be the second largest spending item for

departments.

An invoice from a supplier for the purchase of goods / services is broken down as follows

(refer to the Fundamentals chapter for a discussion on the minimum requirements for an

invoice):

Invoice Impact on department

Cost of goods acquired 7,540.00 Amount recorded as the cost of

goods acquired.

Note:

the trade discount is not

recorded separately .

the cost of goods acquired

includes the VAT levied by

the supplier as a department

is not a VAT vendor and

cannot claim this amount

from the Receiver.

Increase in expenditure

resulting in a decrease in

the surplus of the

department;

AND

Decrease in cash

resources;

Less: trade discount (377.00)

Total excl VAT 7,917.00

VAT 1,108.38

Total incl. VAT 9,025.38



(surplus/deficit)



9,025.38 9,025.38

The payment to the supplier decreases the available cash resources and at the same time

increases the costs of the department.


Debiting The relevant goods and services expenditure account


1

= +

1

1

13

An invoice received from the telephone company for the month of May is as follows:

Summary of account Impact on department

Previous invoice Bal brought

forward

R1,112.49

Payment(s) Thank you (R1,112.49)

This invoice

(May 2010)

R1,219.42 Amount payable to

the service provider

Increase in creditors

(usually recorded in

the interface control

account)

Rental R 114.91

Usage R 933.79

Subtotal R1,048.70

VAT R 170.72

Total R1,219.42 Actual cost of line

and calls made

Increase in

expenditure

resulting in a

decrease in the

surplus of the

department;





1,219.42 1,219.42


Debiting The relevant goods and services expenditure account

Crediting The telephone interface control account

When the department pays the company in June 2010 the impact on the general ledger is as

follows:




1,219.42 1,219.42


Debiting The telephone interface control account


1

1

= +

2

2

= +

14

Goods and services include the following payments:

Payments for goods costing less than R5,000 for use by the department and not

intended for use as input on a capital project

Goods purchased for resale e.g. postcards for resale by government owned museums

Goods purchased by government but later transferred in kind to employees or other

units; this is because government does not apply the full accrual accounting principles

with regard to in- kind transactions.

Goods to be included in goods and services are for example petrol, coal, small tools and

equipment, stationery, foodstuff and electricity.

Payments for use of buildings from other departments, for example Public Works

Payments for research, design costs, bursaries to government employees and

consultants’ fees

Other examples of goods are: for example petrol, coal, small tools and equipment,

stationery, foodstuff and electricity.

Other examples of services are: accommodation (hotels, etc.), restaurants, transport,

communication, banking, business services, consultant fees, market research and staff

training, as well as rental of buildings (not rental of land), other fixed structures,

equipment and vehicles.

Reimbursements of:

o expenses incurred by employees on tools, equipment, uniforms and other items that

are needed to enable them to carry out their work; uniform allowances if the

employee is required to purchase a uniform required for use at work;

o expenses incurred by employees when they take up new jobs or are required by their

employer to move their homes, e.g. relocation expenses; and

o payments in respect of travel and subsistence while on government duty away from

duty station; per diem and out of town allowances are also included in this category

Goods and services exclude the following payments:

Payments for capital assets (classified as “expenditure for capital assets”)

Payments for goods and services, to be used as input into a capital project executed by

government (classified as capitalised payments)

15

Rent of land (where it is not possible to distinguish the rent of land from rent of buildings

on the land the total amount is included in goods and services)

Example 2: Purchase of goods / services

A division within a national department purchases printer paper from the government

printing works. The total cost of the paper is R1,250.

The following accounting entries apply in the books of the Department.

Fund: Voted funds

Objective: Relevant programme

Responsibility: Relevant division within programme

Item: Debit and credit item

Project: Non-project related; stand-alone current

Asset: Non-asset related

Region: Whole of country domestic

Debit Inventory: Stationery and printing – government printer

1,250

Credit Bank* 1,250

*This is the ultimate account; refer to the BAS/SCOA chapter for a further explanation on the

credit leg of this transaction.

Example 3: Purchase of goods / services

The national department of higher education hires a consultant to assist it in the

planning and management of its organisation transformation. The total cost of this

service is R50,000.


Fund: Voted funds






16


Debit Business & advisory services: research and advisory services

50,000

Credit Bank* 50,000



The basic flow and source documents for the purchase of goods / services are illustrated

below:

End user completes

a purchase form

Supervisor approves

the request

VAS 2 VAS 2

Budget manager

approves the request

VAS 2

Order is raised with

supplier and

recorded on LOGIS.

Funds committed in

BAS

Receive goods /

services. GRN

signed by end user.

Approved purchase

form sent to SCM

Finance matches

order, GRN and

invoice and captures

payment on BAS

-------------------

---

-------------------

-------------------

-------------------

---------

Payment approved.

EBT and payment

advice sent to

supplier

17

3.1.3 Interest and rent on land

The following examples of interest payments may not be applicable to all departments.

Interest includes the following payments:

Total value of interest payments where such payments are associated with debt, e.g.

interest on borrowing and overdraft facilities

Interest payments on bills and bonds issued by other government units

Interest paid on overdue accounts

Rent on land includes the following payments:

Total value of payments due to the use of land owned by another party, including other

government units.

Total value of payments due to use of sub-soil assets and other naturally occurring

assets that are commercially exploitable such as virgin forests, game and fisheries. If it is

impossible to distinguish between the rent of land and rental of the fixed structures

erected thereupon, the whole amount, including the payment for use of land, is included

in goods and services

Note that all rent on land excludes rental for the use of buildings or other fixed structures.

If it is not possible to distinguish between payment for the use of land and the fixed

structures on it, the whole amount is recorded under goods and services.

Example 4: Interest and rent on land

A provincial department of health purchases medicine from a supplier. It is policy to

pay all suppliers within 30 days. In this instance the department takes 90 days to settle

the account. Consequently the supplier charges interest of R150.


Fund: Voted funds




18



Region: Whole of province (select relevant province)

Debit Interest paid: overdue accounts 150

Credit Bank* 150



Example 5: Interest and rent on land

The department of defence rents a property that includes offices and a warehouse

located outside Pretoria. The rent is made up of R50,000 for the fixed structures and

R10,000 for the plot. The agreement is an operating lease.

The following accounting entries apply in the books of the Department for the

rent on land.

Fund: Voted funds





Asset: Leased assets: land and subsoil assets


Debit Rent on land 10,000

Credit Bank* 10,000



19

The following accounting entries apply in the books of the Department for the

rent of the fixed structures.

Fund: Voted funds





Asset: Leased assets: buildings and other fixed structures


Debit Operating leases 50,000

Credit Bank* 50,000



3.1.4 Payments for financial assets

This item consists mainly of lending for policy purposes. The reason for expensing this

payment rather than treating it as financing is that, unlike other financial transactions, the

purpose of the transaction is not market oriented.

Example 6: Payments for financial assets

The department of public enterprises loans money to Eskom for the upgrading of its

infrastructure. The amount loaned is R50 million, no interest is charged.


Fund: Voted funds




Project: Non-project related; stand-alone payments for financial assets


20


Debit Extension of loans for policy purposes

50,000,000

Credit Bank* 50,000,000



3.1.5 Expenditure for capital assets

Capital assets are goods that are expected to be used during more than one reporting period

and from which future economic benefits or service potential are expected to flow, provided

that their value exceeded the capitalisation threshold when originally acquired. Examples of

capital assets are buildings, vehicles and machinery.

Payments on goods worth less than the capitalisation threshold are never included under

payments for capital assets. This is relevant even for goods that can be used during more

than one reporting period. These items are not considered capital assets and payments on

such goods should be classified as goods and services.

Payments for capital assets include all costs associated with the purchase of the asset,

examples of such are:

the cost of a new asset;

the cost of improvements to existing capital asset;

the cost of ownership transfers of land, buildings and other assets; and

the cost of the warranty included with the initial purchase of the asset.

Note when recording a purchase of a capital asset in BAS it is important to identify the

type of asset acquired in the asset segment. This will assist the department in

reconciling the assets purchased during the year to the asset registers.

21

Example 7: Payments for capital assets

A national department purchases a motor vehicle for its Minister for cash. The total

cost of the vehicle is R750,000.


Fund: Voted funds




Project: Non-project related; stand-alone capital

Asset: Motor vehicles


Debit Motor vehicles 750,000

Credit Bank* 750,000



The basic flow and source documents for the purchase of capital assets is similar to the

illustration for the purchase of goods / services, refer to section 3.1.2 above.

22

3.1.6 Transfers and subsidies

Transfers and subsidies include all unrequited payments made by a department. A payment

is unrequited when the department does not receive anything directly in return for the

transfer to the other party. Both current and capital transfers are included in this item.

Current transfers are:

social security benefits paid to households

fines

penalties

compulsory fees

compensation for injuries or damages paid to another unit

Capital transfers are:

Payments that are conditional on the recipient unit using the funds to acquire capital

assets

Transfer to enterprises (publicly or privately owned) to cover large operating deficits

accumulated over at least two years or to finance their cost of purchasing capital assets

Capital taxes payable to other departments.

All these transfer categories are self-explanatory, however certain categories are explained

in more detail below.

o Subsidies on production

- comprise all current, unrequited payments to businesses – both government and

privately owned – on the basis of their level of production or quantity, or values of

products produced, sold, imported or exported.

- Subsidies influence the level of production and/or pricing policies of the recipient.

- Subsidies on production are current transfers

- Subsidies can be payable on specific products or on production in general. A subsidy

on a product is a subsidy payable per unit of a good or service. The subsidy may be

a specific amount of money per unit of quantity of a good or service, or it may be

calculated ad valorem as a specified percentage of the price per unit. A subsidy may

also be calculated as the difference between a specified target price and the market

price actually paid by a buyer. A subsidy on a product usually becomes payable

23

when the good or service is produced, sold, exported, or imported. But it may also be

payable in other circumstances, such as when a good is transferred, leased,

delivered, or used for own consumption or own capital formation.

- Subsidies on production consist of subsidies that enterprises receive for engaging

in production but that are not related to specific products. Included are subsidies on

payroll or workforce, which are payable on the total wage or salary bill, the size of the

total workforce, or the employment of particular types of person; subsidies to reduce

pollution; and payments of interest on behalf of corporations.

- Subsidies also include transfers to public corporations to compensate for losses

they incur on their productive activities as a result of charging prices that are lower

than their average costs of production because of deliberate government economic

and social policy. If such losses have been accumulated over two or more years,

however, the transfer is considered to be of a capital nature and classified as other

transfers to public corporations and private enterprises.

o Other transfers to public corporations and private enterprises

- consist of all capital transfers and those current transfers whose purpose is not to

subsidise production. Most of these transfers are capital transfers; e.g. of this

category include payments to corporations and enterprises to finance purchases of

capital assets, to compensate them for damages to capital assets, and to cover large

operating deficits accumulated for at least two years.

o Transfers to municipalities

- Include payment of rates and taxes. Property rates are levied by a municipality in

terms of the Municipal Property Rates Act to pay for a wide range of public services,

from the maintenance of roads and traffic control, to providing public parks, libraries,

clinics, recreation centres and other similar services for the public. These services

are for the benefit of the community as a whole and not an individual ratepayer. As

such there is no direct link between the amount paid by a ratepayer and the value of

services received in return.

o Transfers to households

- Social benefits are current transfers to households, but not all transfers to

households are included under this category. Included are the transfers made to

households to protect them against events that may adversely affect their social

24

welfare; e.g. include the child support grant; payments for medical, convalescent and

dental care and home care. Social benefits also encompass the cost to provide free

housing and housing below market prices.

- Other transfers to households consist of all other transfers to households. All

capital transfers to households are included here. This category also includes

payments of bursaries (but excluding bursaries to government employees, which are

recorded under goods and services), fines and penalties paid to households. It also

includes compensation for injuries and damages caused by natural disasters or

departments if paid to households.

“households” are defined as small groups of persons who share he same living

accommodation, pool some or all of their income and wealth, and consume certain

types of goods and services

The basic flow and source documents for transfers and subsidies are illustrated below:

Receive entity’s

business plan with

budget etc

Obtain PFMA section

38 assurance

certificate

Complete request for

payment

Supervisor approves

the request

Payment approved.

payment advice sent

to entity

25

4. Interdepartmental Transactions

Interdepartmental transactions arise when one department provides goods or services to

another department because it is able to provide a more efficient or cost effective service.

Reasons for interdepartmental transactions:

the department provides a specialist service to other departments;

in the absence of a specialist service one department may provide a service to other

departments so that all departments can benefit from economies of scale; and

secondment of staff from one department to another and recovering the salary costs

without changing permanent employment of the staff member.

4.1 Types of interdepartmental transactions

Interdepartmental transactions arise as a result of the following:

Transversal services

The generation of receipts or payments as a result of one department performing common

services on behalf of other departments

Individual transactions between departments

Personnel transfers as a result of secondment of staff; other services between departments

or the sale of goods between departments.

Transactions between departments and other government bodies

These are transactions between departments and or public entities / municipalities. This

also encompasses transactions between national and provincial departments.

Note that interdepartmental services are rendered at a price. The following may be

applied:

Market related prices that may be adjusted downward when internal transacting occurs;

Cost related prices base on complete costing, direct costing or activity based costing; or

Negotiated prices which may deviate from market and cost related prices.

26

4.2 Accounting for Interdepartmental Transactions

When departments transact and there is a flow of funds the accounting entry on BAS can be

one of two options, these are:

Option 1: A department (X) pays expenses on behalf of another department (Y) and

subsequently claims the costs from that department.

Department X incurs expenditure to the value of R56,000:

Debit Relevant expenditure account 56,000

Credit Bank 56,000

When department X submits a claim for the R56,000 to department Y:

Debit Claims recoverable 56,000

Credit Relevant expenditure account* 56,000

*The original expenditure accounts are credited and the debtor is raised in the books

When Department Y pays department X:

Debit Bank 56,000

Credit Claims recoverable 56,000

No entry is made in the books of department Y when the expenses are paid by department

X. However, when Department Y pays Department X the following entry is made:

Debit Relevant expenditure account 56,000

Credit Bank 56,000

27

4.3 Transversal Services

Accounting transactions for transversal services will be explained by way of an example:

Residential buildings

The Department of Public Works owns government buildings which are rented to

government employees who have to pay rent to the Department of Public Works. The rental

is usually charged at a rate lower than market value if the tenants are government

employees; such rental payments are deducted from the monthly salaries of the employees

and the department then pays the money over to the Department of Public Works in respect

of the rent.

For the purpose of this example the employee’s department will be referred to as

Department ABC.

When the employee’s salary is captured:

Debit Salaries and Wages

Credit PERSAL Salary Interface Control Account

When the rental amount is deducted from the employee’s salary

Debit PERSAL Salary Interface Control Account

Credit Rent Deductions Control Account

When the rental amount paid over to the Department of Public Works

Debit Rent Deductions Control Account

Credit Bank account

Department of Public Works receives the rental money from Department ABC

Debit Bank account

Credit Rental Residences

Department of Public Works transfers the money to the relevant revenue fund

Debit General Account of Revenue

Credit Departmental PMG Account

28

Summary,

Upon completion of capturing the above entries the Salaries and Wages account

(compensation of employees) will reflect the gross salary of the employee;

The Salaries Control Account (salary interface control account) will have a zero balance

because the sum of the deductions and actual payout should equal to the total salary of

the employee;

The Rent Deductions Control Account should be zero because the total amount

deducted from the employee’s salary is paid out of the bank account;

The Department of Public Works maintains all the relevant documentation for the rental

deduction from the employee’s salary;

The Department of Public Works only captures receipts when the money is paid over by

the employee’s department; and

The Department of Public Works pays over the revenue to the relevant revenue fund.

4.4 Other Transactions between Departments

Accounting transactions for other transactions between departments will be explained by

way of an example:

Transfers of personnel

When an employee leaves one department (home department) to work for another

department (new department) it may take some time to change the employee’s existing

PERSAL information hence the employee’s salary and related deductions may continue to

be paid from the home department for one or two months after the employee has left for the

new department.

In this case the home department must reclaim the employee’s salary and related costs from

the new department. It may also happen that the employee has received an increase in

salary upon joining the new department; the home department must then reclaim this

additional expense as well.

29

The accounting entries in the books of the home department are as follows:

When the employee’s salary is paid:


Credit Bank account

The home department sends an invoice in respect of the salary payment to the new

department:

Debit Claims recoverable

Credit Salaries and Wages

When the new department pays the invoice to the home department:

Debit Departmental PMG Account

Credit Claims Recoverable

In the books of the new department:

The only entry is made when the invoice is paid to the home department:



Note that the accounting transactions between the home department and the new

department in the case of secondments are captured in the same way as those for transfer

of personnel.

30

4.5 Trading Physical Goods between Departments

Accounting transactions for trading physical goods between departments will be explained

by way of an example:

Department ABC recently moved offices and discarded much of its old furniture selling it off

to other departments. The furniture valued and was priced accordingly by an external party.

Department MNO expressed an interest in acquiring most of the available furniture. Once

Department MNO selected all the items they wanted Department ABC prepared the

necessary invoice in respect of the furniture purchased by Department MNO.

The accounting entries in the books of Department ABC are as follows:

When Department ABC receives the money for the invoice from Department MNO:

Debit Bank

Credit Sale of Capital Assets

Department ABC surrenders the revenue to the relevant Revenue Fund:

Debit General Account of Revenue


In the books of Department MNO:

When Department MNO pays the invoice:

Debit Payment for Capital Assets (appropriate item to be selected)

Credit Bank

31

5. Comprehensive example

The Head of Department (HoD) is planning a strategic planning retreat for fifteen senior

managers. The secretary and the HoD will also attend hence reservations for a two night

stay is for seventeen participants.

Part One:

1. The secretary makes enquiries at three venues for seventeen rooms for a two night stay

including all meals, tea and refreshments for the duration of the two day strategic

planning session for the 11th and 12th August 2009.

2. The secretary presents the options to the HoD who selects the least expensive option,

R30 000.

3. The Sunny Park Hotel requires an upfront deposit of fifty percent to reserve the booking.

On the 31st July 2009 the Department pays the fifty percent deposit of R15 000.

4. On the 7th August 2009 the HoD has a crisis and has to leave town for two weeks. The

HoD asks the secretary to reschedule the Strategic Planning Retreat for 10th and 11th

September 2009

5. The Sunny Park Hotel is unable to reschedule the booking for the later dates. The terms

and conditions of the Sunny Park Hotel specifies that cancellations or changes must be

made at least fourteen days prior to the booking dates. Given that the Department’s

request is within three days of the booking date the deposit is non-refundable.

6. The secretary informs the HoD that the Department has forfeited it’s deposit because of

the last minute cancellation.

Solution: Part One

The following accounting entries apply in the books of Department ABC:

On the 31st July 2009 the department pays the deposit of R15,000 to the Sunny Park Hotel:

Fund: Voted Funds


Responsibility: Relevant cost centre or Control Responsibility

Item: See Below

Project: No Projects: Stand Alone Current

Asset: Non asset related

32


Debit Venues and facilities 15,000

Credit Bank account 15,000

On the 7th August 2009 the sunny Park Hotel informs the secretary that in the Department

has forfeited the R15,000 deposit:

No entries are made in the books of the department. The department may consider whether

the expenditure was fruitless and wasteful.

Part Two:

1. The secretary makes books an alternative hotel, Winter Sands Hotel and Conference

Centre for the 10th and 11th September 2009, total cost R40,000.

2. The Winter Sands Hotel and Conference Centre requires a fifty percent deposit to confirm

the booking. On the 1st of September 2009 the Department pays the deposit of R20,000.

3. During the conference one senior manager did not stay at the hotel; he travelled home

each night and returned in the morning to attend the strategic planning working sessions.

4. On the last day of the Strategic Planning retreat the invoice is presented to the HoD upon

departure. The invoice shows the following:

i) seventeen rooms were reserved and charged for even though one senior manager did

not utilise the rooms reserved (R100 per night for two nights, total cost R200)

ii) a miscellaneous charge for R350 for branded bath products that were removed from

three of the rooms

iii) a mini bar charge for R65 for one of the rooms

Extract for the invoice presented for payment:

Description Rands

Balance of booking cost due (R40, 000 less R20,000 deposit) R20,000.00

Miscellaneous charge (bath products)

Room numbers: 1115 & 1117 (R175 per room)

R350.00

Mini bar charge (room number 1120) R65

Total amount due: R20, 415

33

Solution: Part Two

The following accounting entries apply in the books of Department ABC:

On the 1st September 2009 the department pays the deposit of R20,000 to the Winter

Sands Hotel:

Fund: Voted Funds



Item: See Below






On receipt of the final invoice the department pays total amount due, R20,415.00:

Fund: Voted Funds



Item: See Below






Accounting entries in respect of the R200 where the expenditure was incurred in vain as the

senior manager did not utilise the room reserved for him.

34

The CFO proceeds to recover the R200 from the senior manager.

Fund: Assets & Liabilities Fund



Item: See Below




Debit Debt account 200

Credit Venues and facilities 200

Debit Bank 200

Credit Debt account 200

Accounting entries in respect of the R350 for the bath products removed from the three

rooms.

The CFO proceeds to recover the R175 per senior manager responsible.

Fund: Assets & Liabilities Fund



Item: See Below




Debit Debt account 175

Credit Venues and facilities 175

35

Debit Bank 175

Credit Debt account 175

Part Three:

In February 2009 the HoD and the CFO from Department ABC are invited by the Provincial

Treasury to attend the provincial budget party at the Royal Delight Hotel. The HoD decides

to thank his senior management team for their contribution to the department’s budget

process by hosting a lunch at the department

The following costs are incurred:

1. Food is ordered from Delicious Treats at R2,500

2. Beverages are purchased at Macro at R800

3. Crockery, cutlery and glasses are hired from Breakables CC at R500

4. The secretary insists on flowers for the tables and these are purchased from the local

florist at R600.

Solution: Part Three

Food purchased from Delicious Treats at R2,500

Fund: Voted Funds



Item: See Below



Region: Whole of province

Debit Catering: departmental activities 2,500


36

Beverages purchased at Macro, R800

Fund: Voted Funds



Item: See Below




Debit Catering: departmental activities 800

Credit Bank account 800

Crockery, cutlery and glasses hired from Breakables CC at R500

Fund: Voted Funds



Item: See Below




Debit Catering: departmental activities 500


37

Flowers from the local florist at R600

Fund: Voted Funds



Item: See Below




Debit Inventory other consumables: workplace decoration

600


payment chapter 3 transactions - national treasury. handbooks...2,000.00 0002 gepf 1,661.48 0083...

Documents