CBP Circular Letter

October 20, 1980 CBP CIRCULAR LETTER TO : All Non-Bank Financial Intermediaries Attached is a Primer on the Manuals of Accounts for Non-Bank Financial intermediaries prescribed under CB Circular No. 523, presented in a question-and-answer form, the subject matter of which came from various queries, comments and suggestions posed by non-bank financial intermediaries, their associations and/or third parties, and the corresponding answers are the replies made by the Central Bank to the parties concerned. LexLib It is hoped that this "Primer" will serve as a valuable guide/reference for all concerned. (SGD.) G. S. LICAROS Governor ANNEX 1 PRIMER ON THE MANUALS OF ACCOUNTS FOR NON-BANKS ASSET ACCOUNTS CASH ON HAND Q 1 Mat is meant by "cash deposits value-dated the following business day? A It refers to cash received and deposited on the same day after depository bank's cut-off time for closing its books of accounts, the deposit slip for which is dated the following business day. CHECKS AND OTHER CASH ITEMS Q 2 Does the "Checks and Other Cash Items" account include check collections after cut-off time, i.e., check collections value-dated the following day? A Yes, since check collections before cut-off time are deemed to have been deposited for clearing during the day they have been received. Q 3 Does the phrase "Central Bank checks" as used in the description of the "Checks and Other Cash Items" account refer to checks issued by the Central Bank, or to checks cleared thru CB clearing? A The phrase refers to checks issued by the Central Bank. DEPOSITS IN BANKS Q 4 Under what account shall out-of-town checks received by non-bank financial intermediaries and deposited with their depository banks be booked? A They shall be debited to "Miscellaneous Assets" account and credited to the applicable account. As soon as such out-of-town checks have been cleared, the "Deposits in Banks" account shall be debited and "Miscellaneous Assets" account shall be credited. RECEIVABLES/LOANS Q 5 Under what account shall direct/ordinary loans to financial institutions, evidenced by non-negotiable promissory notes be lodged? A Such loans shall be lodged under the "Other Receivables/Loans" account. Q 6 Does the "Client's Equity" account in receivable financing transactions refer also to down payment? A No. It refers only to the unfinanced portion of a receivable. Q 7 If real estate is sold on installment basis, under what account shall installments receivable be lodged? A When title to the real estate is transferred to the buyer who executes a real estate mortgage thereon in favor of the company, such installments receivable shall be lodged under the "Mortgage Contracts Receivable" account. If title remains in the name of the company, they shall be lodged under the "Sales Contracts Receivable" account. Q 8 Under what account shall receivables assigned/sold be lodged? A 1. Receivables assigned/sold without recourse are credited directly to the respective receivables account. 2. 2. Receivables assigned/sold with recourse are booked as follows: a. If the assigning/selling non-bank financial intermediary performs quasi-banking functions, the transaction is recorded as follows: (1) Where the liability of the non-bank financial intermediary in the transaction is primary or on a joint and solidary basis: Dr. Cash on Hand/Checks and Other Cash Items x x x Cr. Bills Payable Deposit Substitutes x x x and Dr. Private Securities/Commercial Papers Sold under Certificates of Assignment/Participation with Recourse x x x Cr. Receivables Financed/ Lease Contracts Receivable x x x (2) Where the liability of the non-bank financial intermediary in the transaction is secondary, the receivables assigned/sold are credited directly to the respective receivables account, and the transaction is lodged under the contingent account "Bills Purchased/Securities Sold with Recourse. b. If the assigning/selling non-bank financial intermediary does not perform quasi-banking functions, the transaction is recorded as follows: Dr. Cash on Hand/Checks and Other Cash Items x x x Cr. Receivables Financed/ Discounted x x x Q 9 Under what account shall overdue/default private securities/commercial papers be lodged since these are normally shown as part of inventory? A They shall be lodged under "Past Due Receivables" account. Q 10 At what amount shall past due receivables/loans be recorded? A Past due receivables/loans shall be recorded at their balance or unpaid portion of the principal amount, excluding any accrued interest. Q 11 Under what account shall loans to officers/stockholders be lodged? A They shall be lodged under the "Other Receivables/Loans" or "Mortgage Contracts Receivable" account, whichever is applicable. Q 12 Can the "Receivables from Dealers/Brokers" account be properly split into two general ledger accounts? A No. However, subsidiary ledger accounts for "Receivables from Dealers" and "Receivables from Brokers" may be maintained. Q 13 Where shall stock subscriptions paid by the securities dealer/broker for the account of its customers be lodged? A Said stock subscriptions shall be lodged under the "Receivables from Customers Cash Accounts" or "Receivables from Customers Margin Accounts" account, whichever is applicable. Q 14 Shall receivable accounts referred to the company's legal department, with or without the institution of legal action be lodged under the "Past Due Receivables" account? A It depends. If the accounts referred to the company's legal department without the institution of legal action are already classifiable as "past due" under existing Central Bank rules and regulations, such accounts shall still be lodged under "Past Due Receivables" account. Once a case has been filed in court or sheriff's office against the borrower/debtor, such accounts shall be lodged under "Items in Litigation" account DEALER'S/BROKER'S TRADING ACCOUNTS Q 15 Why is "Marketable Securities" account not consolidated with the "Dealer's/Broker's account? A These two (2) accounts represent separate and distinct types of transactions. Although both transactions involve securities owned/purchased, it is necessary for control purposes to segregate securities which are regularly purchased for the company's buy and sell activities (Marketable Securities) from those purchased under odd-lot and/or error transactions (Dealer's/Broker's Account). Q 16 Can separate general ledger accounts for odd-lot transactions and error accounts be properly set up? A No. Both transactions shall be booked under the account "Dealer's/Broker's Account" for which subsidiary ledger accounts may be created for each type of transaction. TRADING ACCOUNT SECURITIES Q 17 What are the pro-forma entries involving "Government Securities" Sold Under Repurchase Agreements" account? A The pro-forma entries are as follows: Dr. Cash on Hand/Checks and Other Cash Items/ Deposits in Bank x x x Cr. Bills Payable Deposit Substitutes x x x Dr. Government Securities Sold Under Repurchase Agreements x x x Cr. Government Securities Purchased x x x Q 18 What are the pro-forma entries involving "Private Securities/Commercial Papers Sold Under Repurchase Agreements" account? A The pro-forma entries are as follows: Dr. Cash on Hand/Checks and Other Cash Items/ Deposits in Bank x x x Cr. Bills Payable Deposit Substitutes x x x Dr. Private Securities/Commercial Papers Sold Under Repurchase Agreements x x x Cr. Private Securities/Commercial Papers Purchased x x x Q 19 Does the term "cost" as used in the definition of trading account securities refer to the purchase price or face amount? A Cost refers to the purchase price or the total amount involved in the acquisition of the securities. Q 20 Under what account shall purchase of commercial papers issued by affiliates/related interests intended for trading or money market purposes be lodged? A They shall be lodged under "Private Securities/Commercial Papers Purchased" account Q 21 Under what account shall bonds purchased for trading or money market purposes be lodged? A They shall be lodged under the "Private Securities/Commercial Papers Purchased" or under "Government Securities Purchased" account, whichever is applicable. Q 22 How shall accruals of income on commercial papers be recorded? A Such accruals as allowed under existing rules and regulations shall be recorded under the "Accrued Interest Receivable" account. Q 23 Does the "Private Securities/Commercial Papers Purchased" account include commercial papers of both financial and non-financial entities? A Yes. Q 24 Does the "Private Securities/Commercial Papers Purchased" account include shares of stock purchased from stock exchanges intended for trading or money market purposes? A Yes. Q 25 Does "Government Securities Purchased" account include government securities earmarked for a specific purpose, such as CBCIs used as reserve for deposit substitutes? A Yes. Although the said account represents the cost of government securities purchased for trading or money market purposes, such securities may be used any time as reserve for deposit substitutes, provided the following reclassification entry is made: Dr. Investments in Bonds and Other Debt Instruments x x x Cr. Government Securities Purchased x x x REAL ESTATE FOR SALE/LEASE Q 26 Does the "Real Estate for Sale/Lease" account also include the cost of a building acquired for leasing purposes? A Yes. DUE FROM HEAD OFFICE/BRANCHES Q 27 Is it proper for the head office to carry all branch accounts in its books instead of using the "Due from/to Head Office/Branches" accounts? A No. REAL PROPERTY, FURNITURE, FIXTURES AND EQUIPMENT Q 28 How shall the cost of a building owned and used by the company in the conduct of its business, which is at the same time being partly leased to other parties, be recorded? A The cost of such building shall be lodged under the "Real Property Building" account. Q 29 Under what account shall the cost of investments in a condominium purchased under lease agreements be lodged? A The cost of condominium purchased for the conduct of the buyer's business shall be lodged under the "Real Property Buildings" account, while the cost of condominium purchased for investment purposes shall be lodged under the "Real Estate for Sale/Lease-account. Q 30 Why is there no appraisal increment account for furniture, fixtures and equipment? A Under existing Central Bank rules and regulations, appraisal increment is only allowed for premises (land and building). REAL AND OTHER PROPERTIES OWNED OR ACQUIRED Q 31 Is the booking of appraisal increment on foreclosed or repossessed properties allowed? A No. Under existing Central Bank rules and regulations, appraisal increment may be set up only for land and buildings owned and used in the conduct of business. Q 32 Does the phrase "balance of the loan" as used in the definition of "Real and Other Properties Owned or Acquired" account include interest, service charges, penalties and other expenses, like attorney's fees incurred prior to acquisition? A No. Balance of the loan refers only to the balance or unpaid portion of the principal amount of the loan. OTHER ASSETS Q 33 Why are the "Accrued Interest Receivable" and "Petty Cash Fund" accounts classified under "OTHER ASSETS?" A Petty Cash is a fund segregated from "Cash on Hand" account to take care of small/petty expenses. Accrued interest receivable is not classifiable under any of the other major asset captions prescribed in the Manuals of Accounts. Hence, "Petty Cash Fund" and "Accrued Interest Receivable" accounts are included under "OTHER ASSETS" caption. Q 34 Is the practice of debiting "Accounts Receivable" account for expenses incurred in connection with the litigation proceedings, etc., instead of charging the said expenses to "Litigation/Assets Acquired Expenses" account allowed? A No. Although these expenses are still collectible from the borrower/debtors concerned, they are considered operational in nature, and, therefore, they should be lodged under "Litigation/Assets Acquired Expenses" account. Q 35 Does miscellaneous advances in the definition of the "Accounts Receivable" account refer to cash advances? A Yes Q 36 Which expenses incurred in the establishment of branches are classifiable as deferred charges, and thus amortizable over a period not exceeding five (5) years? A Only those expenses which shall benefit the company for a period exceeding one (1) year. Q 37 Can interest earned on deposits in banks which has not yet been collected by the company or credited to its accounts be properly taken up in its books? A No. The cash basis of recording interest earned on deposits is considered a conservative and better procedure. The certainty of receiving interest earned on deposits is affected by the depository bank's performance and the period during which the deposits are allowed by the company-depositor to remain with the bank. LIABILITY ACCOUNTS BILLS PAYABLE Q 38 Why is there no general account for the liability on repurchase agreement? A The liability on repurchase agreements is taken care of by "Repurchase Agreement" a subsidiary ledger account of the general ledger account "Bills Payable Deposit Substitutes." Q 39 Under what account shall matured deposit substitutes be lodged? A Under existing rules and regulations, they remain under "Bills Payable Deposit Substitutes" amount. DEALERS' RESERVE Q 40 Under what account shall "holdback" on receivables financed be lodged? A It shall be lodged under "Dealers' Reserve" account. UNEARNED INCOME AND OTHER DEFERRED CREDITS Q 41 Under what account shall advance rental deposits received on premises sub-leased to others be booked? A Such advance rental deposits shall be lodged under the "Other Deferred Credits" account. OTHER LIABILITIES Q 42 Under what account shall the cost of documentary stamps, registration and other similar fees/expenses collected in advance from clients be lodged? A They shall be lodged under the "Accounts Payable" amount. Q 43 Under what account shall the tax withheld on dividends paid on traded shares of stock be lodged? A It shall be lodged under the "Due to the Bureau of Internal Revenue Withholding Tax" account. Q 44 Is the use of "Accounts Payable" account restricted to what are stated in its description? A No. The description of the account merely enumerates the sample transactions that may be booked thereunder. Q 45 Under what account shall collection guarantee fee (prompt payment discount) be lodged? A It shall be lodged under the "Miscellaneous Liabilities" account. Q 46 Under what account shall temporary overdrawings incurred against the company's current accounts be booked? A Temporary overdrawings which are not allowed under existing rules and regulations, except for normal bank charges not exceeding P200 per current account, shall be booked under "Bills Payable Others" account for non-banks without quasi-banking functions, and under "Bills Payable Deposit Substitutes (Others)" account for non-banks with quasi-banking functions. If such temporary overdrawings have been converted into loans by the creditor-bank, they shall be reclassified from "Bills Payable Deposit Substitutes (Others)" to "Bills Payable Deposit Substitutes (Promissory Notes Issued)", as prescribed in Appendix "B" of the Manuals of Accounts. Q 47 Under what account shall deposits for the company's shares of stock received prior to the execution of stock subscription agreements be booked? A Such deposits shall be booked under the "Accounts Payable" account CAPITAL ACCOUNTS Q 48 What is meant by the sentence, "This account shall not form part of the combined capital accounts of the Company," included in the definition of the "Appraisal Increment Reserve" account? A It means that the "Appraisal Increment Reserve" account is not included in the computation of the minimum Capital requirement. CONTINGENT ACCOUNTS Q 49 Why is the "Lease Contracts Receivable Operating Method" account included in the Contingent/Memorandum Accounts and not considered a real asset among the "Receivables/Loans" accounts? A Under the operating method of recording lease transactions, the leased property/asset is taken up in the lessor company's books as a real asset. To book the leased property and the receivable both as real accounts would inflate the assets of the lessor company. The inclusion of the "Lease Contracts Receivable Operating Method" account in Contingent/Memorandum Accounts is to keep track of the lease transaction. INCOME ACCOUNTS Q 50 Under what account shall service fees, such as management fee income earned but not yet collected, be lodged? A They shall be lodged under the "Other Professional Service Fees account. Q 51 Under what account shall interest on "Cash" accounts be lodged? A It shall be booked under the "Interest on Loans and Other Receivables" account. Q 52 Under what account shall profits realized from the sale of equity investments be lodged? A They shall be lodged under the "Profit/(Loss) from Assets Sold/Exchanged" account. Q 53 Under what account shall penalty charges collected from clients be lodged? A They shall be lodged under the "Miscellaneous Income/(Loss)" account. EXPENSE ACCOUNTS Q 54 Under what account shall commitment fees on funds borrowed by the company be lodged? A Such fees shall be lodged under the "Finance Charges" account. Q 55 Are penalties for late payment of taxes booked under the "Fines, Penalties & Other Charges" account or under "Taxes and Licenses" account? A Such penalties shall be lodged under the "Taxes and Licenses" account. Q 56 Under what account shall loss on sale of repossessed/foreclosed items for which no provision for losses has been set up be lodged? A Such loss shall be lodged under the "Profit/(Loss) from Assets Sold/Exchanged" account Q 57 Under what account shall damages/losses incurred by the company due to erroneous execution or non-execution of orders of its customers be lodged? A They shall be lodged under the "Miscellaneous Loss" account. Q 58 Under what account shall provision for management bonus be lodged? A It shall be lodged under the "Provision for Year-End Expenses" account. Q 59 How is depreciation on appraisal increment recorded? A It is recorded as follows: Dr. Appraisal Increment Reserve xxx Cr. Accumulated Depreciation Real Property Appraisal Increment xxx Q 60 Why is "Interest/Finance Charges on Borrowed Funds" so detailed? A The interest/finance charges accounts correspond to their respective "Bills Payable" accounts. MISCELLANEOUS MATTERS Q 61 Are non-bank financial intermediaries allowed a certain degree of flexibility to use subsidiary ledger accounts? A Yes, except for certain subsidiary ledger prescribed in the Manuals of Accounts should be strictly adopted. Q 62 Are all the accounts appearing in the Chart of Accounts general ledger accounts? A Yes, except capitalized captions under which general ledger accounts are provided. Q 63 Will the use of a few general ledger accounts from among those prescribed in the Manuals of Accounts and supplemented by subsidiary records be allowed? A No. The general ledger accounts prescribed in the Manuals of Accounts should be strictly adopted. Q 64 Are companies allowed to generate two sets of computer printouts, one set arranged according to the Central Bank Manual of Accounts and the other set arranged to suit the companies' own requirements, which sets shall be both based on the same inputs supported by the same vouchers/documents? A Yes. Q 65 Does CB Circular No. 523 require adoption of the Uniform System of Accounts for reporting/publication purposes only, since it can be noted from the said Circular that the System's major concern/emphasis is on the preparation of Central Bank reportorial requirements? A No. CB Circular No. 523 requires strict adoption of the Uniform System of Accounts not only for reportorial requirements but also for the recording system for transactions of non-bank financial intermediaries. Q 66 Under what sub-control account(s) of Appendix A of the Manuals of Accounts shall restructured loans agreed to be payable on amortization basis by the borrowers concerned be lodged? A Such loans shall be lodged under the following sub-control accounts: a) Restructured Receivables/Loans b) Receivables/Loans payable on amortization basis Q 67 If a non-bank financial intermediary performs multiple functions, how shall its transactions be recorded? A The non-bank financial intermediary shall maintain a separate set of books for each type of function/business activity for which a specific Manual of Accounts has been prescribed for strict adoption/implementation.