Chapter 17 Flashcards
Governments General Funds
Governments don’t record fixed assets or long term debt
interperiod equity
determined whether current year revenues are sufficient to pay for services provided during that year or if future tax payers will be required to assume burdens for services previously provided or deficits created in prior years.
statement No 1
Governmental Accounting and Financial Reporting Principles
fund accounting
accounting for government entities
modified accrual method
used by government entities
elements of gov. financial statements
- Assets - Resources with present service capacity that the entity presently controls.
- Liabilities - Present obligations to sacrifice resources that the entity has little or no discretion to avoid
- a deferred outflow of resources - a consumption of net assets that is applicable to a future reporting period
- deferred inflow of resources - an acquisition of net assets that is applicable to a future reporting period..
- Net position - the residual of all other elements presented in a statement of financial condition
resource flows statement elements
outflow of resources - a consumption of net assets that is applicable to the current reporting period
inflow of resources - an acquisition of net assets that is applicable to the current reporting period
focus of gov accounting
changes in current financial resources available to provide services to the public in accordance with the governmental entity’s legally adopted budget
funds
units fiscal and accounting entities
expenditures
refers to decrease in net financial resources available under the current financial resources measurement focus
government funds
- general fund
- special revenue fund
- capital project fund
- debt service funds
- permanent funds
proprietary funds
enterprise funds
internal service funds
fiduciary funds
trust fund:
1. pension and other employee benefit trust funds
2. investment trust funds
3. private purpose trust funds
agency fund:
used to account for resources the government holds, solely in a custodial capacity
permanent fund
a fund that includes resources that are legally restricted so that the entity must maintain the principal and can use only the earnings from the fund’s resources to benefit the government’s programs for all citizens
(governmental fund) general fund
accounts for all financial resources except for those accounted for in another fund. includes transactions fro general governmental services provided by the entity’s executive, legislative, and judicial operations
(governmental fund) special revenue fund
accounts for the proceeds of specific revenue sources that are restricted for specified purposes. Includes resources and expenditures for operations, such as public libraries when a separate tax is levied for support
(governmental fund) capital project fund
accounts for financial resources for the acquisition or construction of the facilities and is closed once the project is completed
(governmental fund) debt service fund
accounts for the accumulation of resources for , and the payment of, general long-term debt principal and interest. This fund is used for servicing the government’s long term debt.
(governmental fund)permanent fund
accounts for resources that are restricted such that only earnings, but not principal, may be used in support of governmental programs that benefit the government or its citizenry
(proprietary fund) enterprise fund
accounts for operations of governmental units that charge for services provided to the general public. Includes activities financed in a manner similar to private business enterprises regarding the governing body’s intent to recover the costs of providing goods or services to the general public on a continuing basis through user charges. Includes operations that will run at a profit
(proprietary fund) internal service fund
accounts for the financing of good or services provided by one governmental unit’s department or agency to other of its departments or agencies. Usually provided on a cost reimbursement basis and are only offered to governmental agencies
example:
motor pool
(fiduciary funds) trust funds
pension trust fund - accounts for resources required to be held in trust for the members and beneficiaries of pension plans, other postemployment benefit plans, or other employee benefit plans
(fiduciary fund)investment trust funds
accounts for the external portion of investment pools reported by the sponsoring government
(fiduciary fund)private purpose trust fund
accounts for all other trust arrangements under which the fund’s resources are to be used to benefit specific individuals, private organizations, or other governments as the trust agreement specified
agency fund
accounts for assets held by a governmental unit in an agency capacity for employees or for other governmental units. An example is the city employees’ payroll withholding for health insurance premiums
reporting entity
primary government, component units(legally separate organizations for which the primary unit has financial accountability), other organizations that have a significant relationship with the primary government and need to be included in its financial statements to avoid misleading or incomplete financial representations
GASB 14
states that financial accountability exists if the government appoints a majority of an organization’s governing body and is able to
impose its will on the organization or
possesses a financial benefit or assumes a financial burden for the organization
government financial reporting model
has two integrated levels of financial statements:
- fund based financial statements p demonstrate fiscal accountability of the management of each fund
- government wide financial statements - a reconciled statement to go from the governmental fund to the government wide financial statements
governmental fudns
balance sheet
statement of revenues, expenditures, and changes in fund balance
balance sheet
assets(financial resources available for current use; presented in order of liquidity) total assets Liabilities & Fund Balances Liabilities(due and expected to be paid from current financial resources; presented in order of due date) Fund Balances Nonspendable Spendable: Restricted Limited Assigned Unassigned Total Liabilities & Fund Balances
current financial resources management focus
asset section of the balance sheet reports only financial assets such as cash or other assets that will convert into cash in the normal course of operations over the near future, which has been determined to mean within 60 days after the reporting period end.
liabilities in government FS
only those liabilities that have become due and will require current financial resources to liquidate, such as vouchers payable or the current portion of long-term debt.
short term debt is usually debt using future taxes as collateral
fund balance
difference between assets and liabilities
two categories of fund balance
nonspendable fund balances
amounts that are not in spendable form, such as amounts related to inventories and prepaid items, or required by legal or contractual provisions to be maintained intact, such as the principal of a permanent fund
spendable fund balances
amounts that are available for spending. Amounts in this portion of the fund balance would be further classified as restricted, limited, assigned, or unassigned.
statement of revenues, expenditures, and changes in fund balance for governmental funds
often called the operating statement
- Operating section: contains the revenues less expenditures for the period with the difference indicated as the excess of revenues over expenditures.
- Other financing sources or uses: nonrevenue items such as bond issue proceeds and interfund transfers
- Special and extraordinary items: lists extraordinary items that are both unusual and infrequent, such as losses due to a hurricane. Special items are transactions within management’s control that are either unusual or infrequent in occurrence. Example sale of a county park
- Fund Balance: bottom portion includes the balances of both the beginning and the ending fund.
revenues
recognized when they become measurable and available to finance expenditures of the fiscal period
expenditures
reports reductions in available current financial assets. Only when the governmental entity receives approved services or goods does it recognize the expenditure.
other financing sources and uses
the second section of the operating statement, reports changes in current financial resources from nonrevenue items, such as sales of bonds or interfund transfers with other funds of the governmental entity.
special items
this section includes unusual or infrequent items that affect the fund balance but are not revenue or expenditure items.
fund balance section
indicates the change in the fund balance to obtain its ending fund balance whose amount should reconcile to the total fund balance shown on the balance sheet
measurement focus
the flow that should be measured for operations
basis of accounting
the timing of recognizing a transaction for financial reporting purposes
modified accrual basis
a hybrid system that includes some aspects of accrual accounting and some aspects of cash basis accounting
used in funds that have a flow of current financial resources measurement focus
five governmental funds use this(ex:general fund, special revenue fund, capital projects fund, debt service fund, permanent fund)
economic resources measurement focus
accrual basis is used in these funds
proprietary and fiduciary
modified accrual basis
revenue: recorded in the accounting period in which it is both measurable and available to finance expenditures made during the current fiscal period
expenditures: recognized in the period in which the liabilities are both measurable and incurred and are payable out of current financial resources
revenue from nonexchange transactions
revenue from things like taxes that don’t require an exchange
- derived tax revenues(inc & sales tax)
a. asset(cash or receivable) recognized when the underlying transaction occurs or resources are received, whichever comes first
b. revenue recognition:depends on the accounting basis used to measure the transaction. Under accrual accounting(proprietary and fiduciary funds) revenue is recognized when the underlying exchange transaction occurs. Under modified accrual accounting(governmental funds), revenue is recognized when the underlying exchange has occurred and the resources are available - imposed non exchange revenues: ex: property taxes or fines
a. asset:recognized when the gov has an enforceable legal claim to the resources or has received them, whichever comes first
b. revenue recognition: made in the period when use of the resources for current expenditures is first permitted or required or when the asset is recorded if no time restriction on the fund’s use of the resources exists - Government mandated nonexchange transactions: example revenue from other sections of government
- Voluntary nonexchange transactions: from legislative or contractual agreements other than exchanges. Ex: certain grants and private donations
revenue is recognized 60 days after the period as
a deferred revenue in the current period and revenue in the following period
income taxes and sales tax
recognized in the period they are imposed or received whichever comes first
miscellaneous revenue
license fees, fines, parking meter revenue, and charges for services are generally recorded when the cash is received because these amounts cannot be predicted accurately.
grants, entitlements, and shared revenue
grants - contributions from another governmental unit to be sued for a specified purpose, activity, or facility.
entitlements - payments local governments are authorized to receive as determined by the federal government.
shared revenue - levied by one governmental unit but shared with other son some predetermined basis
proceeds from the sale of bonds
not revenue, they are classified as other financing sources on the statement of revenues, exp, and changes in fund balance
recognition of expenditures
modified accrual accounting - recorded when measurable and incurred ex:
- costs for personal services, such as wages and salaries, are generally recorded in the period paid because they are a governmental units normal, recurring expenditures.
- goods and services obtained from outside the gov entity are recorded as expenditures in the period in which they are received
- Capital outlays for equipment, buildings, and other long term facilities are recorded as expenditures in the period of acquisition.
- Interest on long-term debt is recorded in the period in which it is legally payable.
two major proprietary funds
internal service fund and the enterprise fund
both use the accrual method of accounting
fiduciary funds
uses accrual basis
ex:
agency fund - only have assets and liabilities; no fund equity, revenue, expenditures are used, ex: county’s billing and collecting tax system,
after the taxes are collected they are distributed to each unit based on their tax levy
operating budgets
specify expected revenue from the various sources provided by law, expected expenditures for various line items, such as employee payrolls, supplies, etc.
used in general fund, special revenue fund, and sometimes debt service fund
capital budget
prepared to provide info about proposed construction projects such as new buildings or street projects.
appropration
legal description of the authority to expend resources
Record general fund budget
est revenues control
appropriations control
budgetary fund balance - unassigned
estimated rev account
anticipatory asset; the gov anticipates receiving this
appropriations control
anticipatory liability
budgetary fund balance
the excess unassigned rev
steps to an expenditure
- appropriation
- encumbrance - reservation of part of the budget
- expenditure - it occurs
- disbursement - payment of cash for expenditure
encumbrance JE
encumbrances
budgetary fund balance assigned for encumbrencas
expenditure JE
budgetary fund balance - assgn for encumb (total amount)
encumbrances (total amount)
Expenditures (actual amount)
Vouchers Payable (actual amount)
remaining appropriations available
appropriations - (encumbrances+expenditures)
disbursement JE
Vouchers Pay( actual amount) cash (actual amount)
expenditures classification for governmental funds
fund - identified to show the specific source of the expenditure character - based primarily on the period the expenditures are anticipated to benefit ex: current, capital outlay, debt service, and intergovernmental function - group related activities directed at accomplishing a major service or regulatory responsibility. organizational unit - maintains each unit director's accountability. activity - recorded to maintain a record of the efficiency of each activity object class - groups types of items purchased or services obtained
lapse of outstanding encumbrances
where we get rid of what happened last year
JE to eliminate reserve for outst. encumb not being renewed
Fund Balance Assign for Encumb 15000
Fund Bal - Unassigned 15000
nonlapsing outstanding encumbrances at year end
Jan 1 entry
Fund Balance - Assigned for encumb 15000
Fund Balance - Assigned for encumb 2001 15000
purchase method of accounting for inventories
in this method the entire amount purchased is expended acquisition Expenditures 2000 Vouchers Pay 2000 Inventory of Supplies 1400 Fund Balance - Nonspend 1400 Following year Fund Balance 900 Inventory of Supplies 900
consumption method of accounting for inventory
In this method only the portion that is used is in ending expenditures Expenditures 2000 vouchers pay 2000 Inventory of supplies 1400 Expenditures 1400 Fund Balance Un-assigned 1400 Fund Balance - Nonspendable 1400 following year Expenditures 900 Inventory of Supplies 900 Fund Balance - Nonspendable 900 Fund Balance - Unassigned 900
acquisition of fixed assets
reserve amount encumbrances 12000 budgetary fund bal - assigned for encumb 12000 cancel reserve budgetary fund balance - assigned for encumbrances 12000 Encumbrances 12000 Receive truck Expenditures 12500 Vouchers Payable 12500
works of art
the government is encouraged to capitalize works of art if
- holds the collection for public exhibition, education or research
- protects and preserves the collection
- has an organizational policy that requires the proceeds from sales of collection items to be used to acquire other item for collections
long term debt and capital leases
cash
bond issue proceeds(included in other financing sources)
investments
can be recorded at fair value if they meet certain criteria
interfund activities
resource flows between fund entities
- interfund loans
- interfund services
- interfund transfers
- interfund reimbursements
interfund loans
entry on general fund due from other fund cash Cash due from other fund
interfund service provided and used
general fund expenditures due to other fund due to other fund cash other fund due from general fund charge for services cash due from general fund
interfund transfers
general fund
other financing uses - transfer out to capital projects fund
Cash
other fund
Cash
other financing sources-transfer in from general fund
interfund reimbursement
general fund cash expenditures other fund expenditures cash
general fund
modified accrual financial statements balance sheet current assets long term productive assets current liab long term debt fund balance Statement of Rev, Exp, and changes in fund balance Revenue Expenditures Other financing sources and uses changes in fund balance
