00:00 Hello viewers I am Mrs. Oyinloye. Welcome to Financial Accounting Class. We are looking

00:20 at Public Sector Accounting, Part 3. At the end of the lesson, Lennas would be able

00:26 to differentiate between government revenue and expenditure. Also, Lennas should be able

00:32 to prepare statements of revenue and expenditure accounts. Classification of government revenue.

00:41 Government revenue can be classified into revenue receipts and capital receipts.

00:50 What are revenue receipts? Revenue receipts are the total amount of revenue collected

00:56 by the government of the country from the irregular sources of revenue. You could also target

01:03 recurrent revenue. Now, these are daily revenue accrued to the government in a year. It could

01:10 be fees such as court fees, licenses and others that we mentioned earlier. Then, income tax is also

01:20 a means of government revenue. Then, we have capital receipts. Now, these are the total

01:28 revenue received from proceeds of assets and loans tied to a particular project, such

01:35 as sales of assets, sales of small weapons, loans from institutions tied to a project.

01:41 Now, we look at the difference between the two. Revenue receipts are regular and

01:47 recurrent. While capital receipts are more of particular assets being sold or money

01:55 coming in from capital items. Government expenditure. Now, government expenditure can also be divided

02:04 into two, such as capital expenditure and recurrent expenditure. What is capital expenditure? Capital

02:14 expenditure are the expenditure incurred on long-term projects. They usually add to the

02:22 value of assets. For instance, the government can decide to build bridges, construct bridges,

02:28 build hospitals and so on. And so, these are used to acquire assets that are permanent in

02:35 nature. They are normally paid from development funds. Examples of capital expenditure are said

02:45 earlier are building of classrooms, purchase of refuse disposal vans, thinking of boroughs,

02:51 purchase of incubators, purchase of vehicles and so on. Recurrent expenditure. Now, as the name implies,

03:03 recurrent expenditure are expenses used for dates to date running of the activities of the

03:10 government. You could involve payments of salaries to employees of the government. These

03:17 expenses are actually charged to consolidate funds. They are not permanent in nature unlike

03:24 capital expenditure. Like I said, we have examples such as salaries, repairs, purchase of drugs,

03:31 maintenance of vehicles and stationary. Preparation of statements of revenue and expenditure. In

03:42 preparing the statements of revenue and expenditure, all the revenue and expenditure, that is the

03:49 capital and recurrent expenditure should be recorded. Now, what this means is that the capital

03:56 expenditure for the government and the recurrent expenditure should be recorded when preparing

04:02 the statements of revenue and expenditure. Now, we're going to look at an example.

04:08 The following balances have been extracted from the books of Elisha Local Governments. For the

04:14 year-end date, 34th December 2000. General revenue balances, 3500,509. 1.001 salaries, 1.250,000,

04:31 1.002, maintenance of roads, 167,000, 1.003, telephone and postages, 32,000, 2.001 licenses,

04:43 31,750,000, 2.002 fines, 5,325,000, 1.004 repairs of vehicles, 6,735,000, 2.003 statutory allocation, 750,000,

05:02 1.005 stationery, 135,000, 1.006 renovation of schools, 230,000, 2.004 interest on fixed deposits

05:15 accounts, 4.0320, 2.005 vat allocation, 17,630, 2.006 rent from shops, 2.00347, 2.007 sanitation fees,

05:30 1.00353 NERA, 1.007 sinking of boroughs, 35,000, 2.35 NERA, 1.008 construction of classrooms,

05:42 20,000, 7.25. Revenue ads are coded, 2.001, 2.002 while expenditure ads are coded, 1.001, 1.002.

05:56 You are required to prepare a revenue and expenditure statements for the local government for the

06:02 year ended 34th December 1999. Now the question says we are to prepare a revenue and expenditure

06:12 statements. Now let's go back from what we have been told, we have the code ads for each of these

06:21 items. This 1.001 signifies expenditure while anything starting with 2 signifies revenue.

06:30 So preparing the revenue and expenditure statements is a straightforward thing.

06:35 All you need to do is to pick out all your revenue items, pick out your expenditure items

06:42 and prepare the statements of revenue and expenditure. You are required to prepare a revenue

06:48 and expenditure statements for the local government for the year ended 34th December 1999.

06:55 Now in solving this question, we have been told that the revenue items are items that start with

07:05 2. So you see 2.001, 2.002 and so on. Now for the expenditure items, they start with 1.001,

07:15 1.002 and so on and so forth. So all you need to do is to pick out the items of expenditure,

07:22 pick out the items of revenue and prepare the statements of revenue and expenditure.

07:29 Now let's look at these items. Of course you know your salaries is an expenditure item,

07:33 maintenance of roads is an expenditure item, telephone and postages is an expenditure item,

07:40 licenses are fees the government receive so it's a revenue item, fines is a revenue item,

07:47 repairs of vehicles is an expenditure item, statutory allocation is a revenue item,

07:53 stationary is an expenditure item, renovation of schools is an expenditure item,

08:00 interest on fixed deposits accounts is a revenue item, but allocation is a revenue item,

08:07 rent from shops is a revenue item, sanitation fees is a revenue item, thinking of balls is an

08:15 expenditure item and then construction of classrooms is an expenditure item. So what we want to do now

08:22 is to prepare a revenue and expenditure statement for the local government, revenue and

08:30 expenditure statement for 1999. Now you must understand the various eds. We have been told that the

08:39 eds of expenditure net I told you in the last class when we prepare the receipts and payments

08:44 accounts, that the receipts and payments account is prepared following the cash book

08:50 preparation. Now the revenue and expenditure statements is prepared following the profits and

08:57 loss accounts principle. Now in preparing your profits and loss accounts, your profits or your

09:05 items of income are credited through the profits and loss accounts while your items of expenditure

09:12 are debited to the profits and loss accounts. And so when preparing your revenue and expenditure

09:17 accounts, the items of income are credited to that account while items of expenditure are

09:24 debited to the accounts and then you find the difference between the two. When the revenue is

09:29 higher than the expenditure, you are the surplus of revenue over expenditure but in the situation

09:36 where the expenditure is higher than the revenue what you have is a deficit. So let's look at the

09:44 solution that I told you all the items of expenditure are debited to the accounts and what are those

09:51 items of expenditure based on the question that we have. The first one is the salary. Remember that

09:57 I told you that we are being given the various heads. Some questions will not give you the heads.

10:02 So you must be able to decipher the ones that are items of expenditure and items of revenue.

10:09 But in this question it makes this easier for us to prepare. So all the items of expenditure

10:15 are being given heads and so you use the heads to pick them. But even in picking all these items,

10:21 you should be able to know those items that are capital in nature and those that are

10:27 recurrent in nature. So now let's look at the items one after the other. 1,001 salaries,

10:34 1,002 maintenance of roads and we have the amount 167,000 NERA, telephone and postages 32,000 NERA,

10:43 repairs of vehicles 6,735 NERA, stationery 135,000 NERA, renovation of schools 230,000 NERA,

10:54 sinking of boroughs 36,235 NERA, construction of classrooms 20,725 NERA, and then for the revenue items,

11:07 we have a balance brought forward that the balance of the revenue 3,500,500 NERA,

11:14 then we have the license fees 31,750,000, 15 NERA, then fines 5,325 NERA, statutory allocation

11:25 750,000 NERA, interest on deposits 4,320, rent from shops 2,000, 347, sanitation 1,353.

11:39 Now is a straightforward thing like we said we find the difference between the two and that gives us

11:45 a surplus or a deficit. Now when we add all these items together, we have a total of 4,300 and that's

11:55 for the expenditure. If we add this will not give us 4,300 and 13,000 but our revenue total

12:04 will give us 4,300 and 13,500 and 30. Now when we add all the items of expenditure together

12:12 and we deduct from these total it will give us a surplus of revenue over expenditure which is

12:21 2,435,530. Now like I said earlier you should be able to know the difference between those

12:32 items that are capital in nature and those that are items that are recurrent in nature. Now let's

12:38 examine the expenditure items. Look at these salaries. Your salaries is you know when we have

12:45 salaries we pay on a recurrent basis, monthly our employees receive salaries and so that is

12:53 a recurrent expenditure or we can also call it revenue expenditure. Then we have maintenance

12:59 of roads. It's also recurrent expenditure because it's something we do on a regular basis.

13:06 Telephone and XR and postages. We also do that on a regular basis so it's recurrent expenditure.

13:13 We have repairs of vehicles, its recurrent expenditure, stationary, you buy buy roads and you buy

13:19 all other items. It's also recurrent expenditure. Renovation of schools is also recurrent expenditure

13:26 because it's something we do regularly. Then thinking of boreholes is more permanence in nature

13:33 because you're constructing something and then construction of classrooms is also permanence

13:40 in nature. So it's its capital expenditure. And so at the end of it all you find out the difference

13:46 between your revenue items and your expenditure items. That gives you either a surplus or a deficit.

13:55 And in this case we have a surplus of revenue over expenditure. Thanks for watching. I'm Mrs. Zoe

14:04 Lui. See you next time.