Accounting Flashcards by Peter Gorman

What does Credit translate to? Debit?

Debits on left

Credits on right

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What is the difference between a temporary and permanent fund?

Temporary starts at $0 each year (the balance at the end of the year gets transferred into a new account), permanent carries over (asset, liability and equity accounts).

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What are expenditures?

The gov fund version of expenses.

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In gov’t, you use net revenue (not profit). Whatever is left over gets moved to an Equity permanent account.

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Define an Asset and Liability

Asset: Things you won or are owed (Cash, accounts receivable, buildings).

Liability: Things that you owe (accounts payable, loans, payroll taxes)

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What is Fund Balance?

If you sold all of your assets for what they were worth and paid off all of your liabilities, this is what you have left.

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What is accounts payable (two definitions)

A Process to manage the tracking and payment of vendors.

It is ALSO a specific account:

e. g. -the balance will raise as you incur invoices
- the balance will decrease as you pay invoices

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What is the Accounting Equation?

Assets=Liabilities+Fund Balance (Rev-Exp)
or
Assets-Liabilities= Fund Balance (aka retained earnings or net assets)

Fund Balance is unique to Gov accounting.

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Natural balance:

Assets increase with Debits
Liabilities increase with credits
Expenses increase by debits

Different accounts: $1000 change

Assets table:
-Assets increase by $1000 debit

Liabilities table:
Liabilities decrease by $1000 debit

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Journal Entry:
Every entry in accounting must have at least two numbers typically in two different accounts.

One will be a debit (DR), one will be a credit (CR)

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Name the 3 types of Gov funds?

Governmental (police, fire, city hall)
Proprietary (parking, fresh water, sewer ‘run like they are their own business’)
Fiduciary (managing funds: pension programs, housing, etc..)

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What are Special Revenue Funds?

That supplied gas taxes, fed storm water grants (rev must be legally used for a very specific purpose that requires additional reporting).

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What are Capital projects funds:

Funds for “big” projects. Buildings, roads, a new fire truck, etc…

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What are debt service funds

Government often issues debt by selling bonds. These funds are used to manage monies reserved for the repayment of those loans.

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What are permanent funds (endowment fund)

A portion of this fund never goes away because the donor chose to make the gift a permanent source of interest revenue. The interest earned may go toward some designated purpose.

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What is a general fund

Used to account for all resources not accounted for in another fund.

Governmental Fund Balance

Nonspendable: Typically large assets, e.g. buildings or money in encumberances
Restricted: Externally enforceable-legal limitations
Committed: self imposed legal limitations imposed (by city counsel)
Assigned: Most money that’s not committed ends up. Has an associated use.
Unassigned: Remaining equity in the general fund

What are Proprietary Funds

Supported by fees and charges. These are non-gov funds that pay their own way without reliance on the general tax base.

What are Enterprise Funds:

Electric, Water, Sewer, Parking, Airport. They act like for profit business (fee based).

Internal Service Funds?

Central services like: Payroll, legal, fleet maintenance provided to OTHER parts of the gov, which are billed for these services.

Fiduciary (Trust) Funds (4):

Funds that hold money on behalf of parties outside the gov

1) Pension funds (retirement)
2) Investment trust fund-Money used to invest and earn income
3) private-purpose trust fund: If an investment does not meet the requirement to be called a pension or investment fund, it may land here.
4) Custodial funds: A broad category of monies managemened for other parties.

What is Interfund Activity

When money is moved from one fund to another for services, there are two categories:

1) Reciprocal transfers involve one fund paying another for services. Loans between funds also fall into this category.
2) a “gift” or “subsidy”: Non-reciprocal transfers involve moving monies between funds with no expectation of repayments.

Name 3 types of accounting Govs use:

Cash: Revs and Expenses are reported when cash enters or leaves your books
Accrual: Rev and Exp are reported when you earn rev or incur expense (requires accounts receibable)
Modified Accrual: (combo of the cash and accrual system) When Revenues are measurable and available and when expenses are normally paid. Can be recorded in AR on two instances:
MEASUREABLE: when you are reasonably certain you will receive it
AVAILABLE: when you are certain you will receive it within 60 days.

Why do Govs prefer to use Modified Accrual?

Gov funds rely on taxes and grants from outside parties
The other fund categories (proprietary, fiduciary) act like for-profit businesses with their own revenue stream
Govs have a legal duty to ensure receive and expend monies per their operating budget.

What is GASB? | GFOA?

Governmental Accounting Standards Board -The rules they write are referred to as GAAP or Generally Accepted Accpounting Principles Government Finance Officers Association -They write the blue book (GAAFR), which attempts to explain GAAP as GASB defines them.

What is the Annual financial report and audit:

What happened in the last year and what your financial situation is.

The Report has 3 sections, what are they?

Introduction-What's important, major things going on Financial-Bulk of report (many reports organized showing how each fund is doing) Statistical-10 years of financial history, demographics, statistics

What do Gov Financial Statements do differently than business'?

- provide multi year data to demonstrate trends - Provide multi fund info - demonstrate complliance - Provide extensive economic and demographic info - Have their financial statements audited by a CPA

What are the two types of financial reports?

- Fund Statements: Financial accountability focus, detailed, short term, Use modified accrual - Government-wide statements: focus on operational accountability, big picture, long term, funds converted to full accrual.

What's the nature and purpose of the annual audit?

- Role of Management-Responsible for prepping the financial statements - Role of Internal Control-reasonable basis can be provided only by a comprehensive framework of internal control. - Role of Governing Body-responsible for ensuring that management meets its responsibilities. Typically an audit committee, comprising members of the governing body, provides the necessary oversight. - Objective of Fair Presentation - Concept of Reasonable Assurance

What is the Chart of Accounts?

A financial organizational tool that provides a complete listing of every account the the general ledger of gov, broken into subcategories. Necessary so stakeholders can use that data to make decisions.

OpenGov Account String numbers

Fund, Object, Department, Program, Project, Proj Category, User Code, User Code, User Code

What are the following? ``` A Fund Object Department Program Project Category ```

A fund: an accounting entity with a self-0balanceing set of accounts that is used to record financial resources and liabilities, as well as operatizing activities. Object Codes: Objects that come in: taxes, fees, other govs

Budgeting vs Accounting (what's the difference?)

Budgeting: What are the goals, where's funding coming from? Has the same force as law once approved. Typically just one year. End product is the budget book. Accounting: Did we meet our goals. What came up that we didn't expect? Cumulative from the beginning of time. End product is the comprehensive annual financial report.

What is a capital asset and what are some major asset classes?

- A minimum threshold of $5000 (individual item) - Some include a longer minimum useful life of assets, i.e. 3 years. - Items that don't need this criteria might be classified as Non-Capital ``` Classes: --Land --Buildings Improvements (other than buildings) -Furnishings and equipment -Infrastructure -Construction/Development -Other Capital Assets ```

What is depreciation? Encumbrances?

Depreciation: The allocation of the cost of an asset over the duration of its useful life. Encumbrances: A way to anticipate an expense in advance. Typically created through a purchase order or contract.