F8: Governmental Accounting Flashcards
Objectives of Governmental and Non-for-Profit Reporting
designed to demonstrated the accountability of each org for the stewardship in the resources in their care
Accountability Issues
- focused on providing efficient and effective delivery of services w either public resources or private resources shielded from taxation
Resources
- gov. derive revenues from taxes or answer to public authorities
- NFPs derive income from contributions or fees and are not taxable
- these publicly funded entities differ from commercial in that they usually derive their income from sales or fees and are generally taxable
Dual Objective*
- both gov. and NFP orgs seek to demonstrate their operational accountability for the entity taken as a whole and their fiscal accountability
- F/S: 1. Timeliness 2. Consistency 3. Comparability
- but reliability is hard
Objectives of Fund Accounting and Reporting
foundational to gov and NFP accounting is concept of fund accounting
Purpose*
- funds = legal restrictions
- enables service and mission-driven orgs to easily monitor and report compliance w spending purposes (fund restrictions), spending limits (budget), and other fiscal accountability objectives
Use
- gov: use to demonstrated fiscal accountability in their external reporting and use funds for internal accting
- NFP: use funds for internal accting
- external fund reporting is only allowed for gov.
Industries that use Gov or NFP Accting and Reporting Principles
governmental, NFP, and commercial accting are applied to entities consistent w their basis of organization and their funding sources, not their industries
Governmental Units Colleges and Universities Health Care Organizations Voluntary Health and Welfare Organizations Foundations Other NFP Organizations
F8 to F9 skipped bc will be talked about in future lectures
Governmental Accounting Principles and Standards
Governmental Accounting Standards Board (GASB), the gov. counterpart of FASB, established accting and reporting standards for govs.
hierarchy of GAAP established by GASB 55:
- GASB Statements and Interpretations
- GASB Technical Bulletins, AICPA Industry Audit Guides, and AICPA Statements of Position
- AICPA Practice Bulletins
- GASB Implementation Guides
Governmental Finance Officers Association (GFOA), the professional trade organization for gov. officers, provides optional and nonauthoritative guidance
- like AICPA
Establishment of Accting Principles and Standards for NFP Organizations
- FASB
- Audit and Accounting Guides
- Industry-specific literature
Government Accountability Office (GAO)
GAO prescribes governmental auditing standards* (Yellow Book standards) for audits of gov. orgs and federal assistance programs, activities, and functions
- federal financial assistance is primarily awarded to govs and NFPs, and is freq. subject to audits under Single Audit Act*: requires compliance w gov. audit standards and specific single audit rules
Fund
sum of money or other resource segregated for the purpose of carrying on a specific activity or attaining certain objectives in accordance w specific regulations, restrictions, or limitations, constituting an independent fiscal and accting entity
- each fund is a self-balancing set of accounts
- like a checkbook
Gov. Accting generally tested w/i context of 3 themes
Pass Key
- fund structure
- fund accounting
- external reporting
Fund Accounting
fund classifications w/i fund structure defined by GASB impact basis of accounting and measurement focus principles associated w each fund category
- application of diff. accting principles to funds in each group is frequently tested
- 11 fund types
Fund Structure*
GASB 34 defines fund structure for government. 11 fund types are classified in 3 generic categories
- Governmental Funds
- Proprietary Funds
- Fiduciary Funds
fund FSs should be separately presented for governmental, proprietary, and fiduciary funds to report additional and detailed info about the primary government
- all checkbooks ultimately get consolidated in government wide FSs
Gov External Reporting*
GASB 34 establishes min. reporting requirements to be in compliance w GAAP
- fund based and government wide presentations supported by notes to FSs and variety of supplementary info
- presentation of a reconciliation of FSs to government-wide FSs to fully integrate reporting objectives is also required
Government Wide Presentations
Gov External Reporting*
= consolidated FS*
- full accrual accounting (basis of accounting)
- economic resources measurement focus
government-wide FSs convert disaggregated fund-based FSs using multiple measurement focuses and a basis of accting to a single consolidated set of FSs which use full accrual basis of accting and economic resources measurement focus
financial activity of the primary gov. is classified in 2 ways:
- governmental activities
- business-type activities
Major Fund Financial Statements
Gov External Reporting*
major funds presented using basis of accting and measurement focus unique to each category of fund
- only major funds (as defined by GASB) are presented
- nonmajor funds are displayed in the aggregate
- like segment reporting
- reconcile to gov-wide presentations
Dual Perspective Reporting~
Gov External Reporting*
Gov Fund Reconciliation
- gov fund FSs are reconciled to the ‘governmental activities’ section of the gov-wide presentation
Disposition of Other Funds
- Enterprise Funds: carried into business-type activities section of gov-wide FS, gr w no reconciling items
- Internal Service Funds: often merged w governmental activities displayed in gov-wide FS
- Fiduciary Funds: presented individually as fund FS, but excluded from gov-wide FS presentation
Disclosures and Supplementary Info~
Gov External Reporting*
- budget vs actual data
- managements discussion and analysis
- presentation of nonmajor funds
- modified approaches to presentation of infrastructure
Governmental Funds
Fund Structure
no profit motive
- modified accrual accounting (basis of accting)
- current financial resources measurement focus
“GRaSPP”
- General fund: for ordinary operations, financed from taxes and other general revenues
- all transactions not accted for in other funds
- all accounts are ‘current’, no fixed assets or LT debt - special Revenue funds: for revenues from specific taxes or other earmarked sources that by law are restricted or committed to finance particular activities of gov.
- debt Service funds: for accumulation of resources and payment of interest and principal on all ‘general obligation debt’
- other than that serviced by enterprise funds or special assessments in another fund
- restricted, committed, or assigned to debt service expenditures - capital Project Funds: for acquisition or construction of major capital assets
- except those projects financed by enterprise fund - Permanent fund: legally restricted to the extent income, and not principal, may be used for purposes supporting the reporting government’s programs
BS
current assets and deferred outflows | current liabilities + deferred inflows of resources + fund balance = total current liabilities, deferred inflows of resources, and fund balances
Statement of Revs, Expenditures, and Changes in Fund Balance (demonstrates compliance w rules)
- revenues - expenditures + other financing sources (- uses) = Net Change in Fund Assets
Proprietary Funds
Fund Structure
for business-type activities, accting similar to commercial
- full accrual accounting
- economic resources measurement focus
- treat like customers/not citizens
“SE”
internal Service funds
- for goods and services provided by designated epartments on a (cost reimbursement) fee basis to other departments and agencies w/i a single gov unit or to other gov units
- customers are primarily internal
Enterprise funds
- for acquisition and operation of gov facilities and services intended to be primarily (50%+) self supported by user charges
- customers primarily external
- required when any 1/3 is met:
1. activity of fund financed by debt secured by pledge of fee revenue
2. law requires collection fees adequate to recover costs or
3. pricing policies established to produce fees to recover costs
Statement of Net Position
- all assets and def. outflows of resources - all liabs and deferred inflows of resources = Net Position
Statement of Revs, Exps, and Changes in Fund Net Position
- operating revenue - op. exps + non op revs (-exps) = Change in Net Position
Fiduciary (Trust) Funds
Fund Structure
assets received where gov. acts in capacity of a trust or agency fund
- full accrual accounting
- economic resources measurement focus
- except for certain pension liabilities and post-employment health care plans
“PAPI”
- Pension (and other employee benefit) trust funds
- Agency trust funds: resources in temporary custody of a gov unit
- Private purpose trust funds
- designated funds for all other trust fund arrangements under which principal and income are for benefit of specific individuals, private orgs, or other govs
- need to record escheat property here - Investment trust funds: account for external investment pools
Statement of Fiduciary Net Position
- all assets and deferred outflows of resources - all liabilities and deferred inflow of resources = Net Position
Statement of Changes in Fiduciary Net Position
- additions - deductions = Change in Net Position
Measurement Focus and Basis of Accounting~
used in gov-wide and fund financial presentations
- accomplishes accountability objectives unique to each fund and to gov-wide presentations
- use of measurement focus and basis of accting in gov funds different from those used in gov-wide FS are source of reconciling items b/w their respective FSs
Balance Sheet- Measurement Focus
measurement focus refers to how to recognize transactions in the FS, governs where transactions appear
Current Financial Resources (GRaSPP)
- modified accrual
- current financial resources measurement
- only current assets and liabilities included on BS
- no fixed assets, no non-current liabilities
- adding FA and subtracting non-current liabs are 2 of the most significant reconciling items b/w governmental funds and government-wide FSs
Economic Resources (SE-PAPI)
- full accrual
- economic resources measurement
- all assets and liabilities included on BS, including deferred outflows/inflows
- net position analyzed and reported in 3 components: net investment in capital assets, restricted, and unrestricted
Income Statement- Basis of Accounting
Basis of Accounting: when revs/expenditures are recognized in accts and reported in FS, timing of measurements made
Modified Accrual (GRaSPP)
- used w current financial resources measurement focus; blend of accrual and cash basis
- revenue is recognized when measurable and available
- available: collectible w/i current period or soon enough thereafter to be used to pay liabilities in current period (gr 60 days after YE)
- expenditures gr recorded when related fund liability is incurred, w some exceptions: unmatured interest on LT debt is not accrued, only recorded when legally due
- add. of accrual basis revenues in excess of modified and subtraction of accrued debt are freq. reconciling items b/w governmental fund FS and government-wide FS
Full Accrual (SE-PAPI)
- used w economic resources measurement
- identical to commercial enterprises
- rev recognized when earned
- exps recognized when incurred
Classification of Governmental Fund Balances (GRaSPP)
GASB 54 established 5 categories of fund balances/degrees of constraint in order:
- Nonspendable Fund Balance
- prepaid expenses, inventories, etc - Restricted Fund Balance
- assets restricted by external authorities
- bond covenants, legislation, grantors, creditors, etc - Committed Fund Balance
- assets obligated by formal action of gov’s highest decision-making authority
- resolutions, encumbered appropriations, etc - Assigned Fund Balance
- assets the gov intends to obligate but has not formally committed - Unassigned Fund Balance
- only general fund should have positive unassigned fund balance
GRaSPP “NU CAR”
F8-14 summary chart
Which Leads to Fund Accounting by a Gov Org?
HW
financial control: yes
legal restrictions: yes
Similarities w Commercial GAAP
Modified Accrual Accounting (GRaSPP)
- both use double-entry bookkeeping (debit/credit)
- both serve to produce periodic BS (current assets and deferred outflows of resources = current liabilities and deferred inflows of resources + fund balance)
- both serve to produce periodic operating statements (no IS in gov. fund reporting)
- both use historical cost and comply w most GAAP
- terminology is similar, but add. terms unique to modified accrual
- both concerned w safeguarding assets and providing info for internal and external use
Differences w Commercial GAAP
Modified Accrual Accounting (GRaSPP)
- funds must comply w both legal statutes and GAAP
- no profit motive in any gov. funds* thus no income determination (budget, activity, encumbrances)
- each fund is separate entity; a self-balancing set of accounts
- Budgetary accting is emphasized in order to control spending
- Activity emphasizes flow of current financial resources
- Encumbrance accting used to record purchase orders
book BAE, then close BAE to BS, then roll forward to next year
- book and close for same amount
Budgetary Accounting
Modified Accrual Accounting (GRaSPP)
~ to control expenditures and account for levy of taxes sufficient to cover estimated expenditures
- balanced budget supports *interperiod equity as an objective of public administration and fiscal accountability
- *may use cash basis or modified accrual, but expanded reporting req. if budgets not displayed on GAAP basis
- budgets anticipate estimated revenues and appropriates them for current operations
gov resources typically derived from
- revenue: taxes (income and sales), taxes (property and real estate), fines and penalties
- other financing sources: debt proceeds (bonds and notes), interfund transfers
JEs**
- budgetary accounts are “estimated accounts”, the opposite from real, proprietary, or actual accounts in terms of natural debit and credit balances
- posted only twice during the year (book and close) unless supplemental appropriation is made
- beg of year: diff b/w est. revs and appropriations goes into account called ‘budgetary control’, like the equity account
(dr: est. rev. control, dr: est other financing sources (transfer in), dr: budgetary control (negative/deficit), cr: appropriations control, cr: est. other financing uses (transfer out), cr: budgetary control (positive/surplus) - at end of year: budget is reversed and closed using same amounts +/- ay amendments
Activity
Modified Accrual Accounting (GRaSPP)
emphasis on flow of current financial resources (nearly cash flow), not on profit and loss
- no application of matching principle like accrual IS
- Revenue: measurable and available
- Expenditures: all spending
- Assets: expenditured (not carried/capitalized)
- Debts: other financing sources (not LTD)
Activity: Revenue*
Modified Accrual Accounting (GRaSPP)
gov. fund revenues recorded when measurable and available
- available: collection w/i 60 days of fiscal year end
Imposed Non-Exchange Revs: Billed/Recorded
- real estate taxes (due)
- fines and penalties
Derived Tax Revenue: Received
- income taxes
- sales taxes
Gov Mandated and Voluntary Non-Exchange: Earned
- rev. collected in advance (unearned)
- real estate taxes paid in advance (unearned)
- restricted grants (earned when spent)
- deferred inflows of resources are recognized in some instances where assets are recorded but related revenues are not eligible for recognition
Activity: Expenditures*
Modified Accrual Accounting (GRaSPP)
operating, capital, principal payment on debt are current year expenditures
- spending of funds
- timing of expenditure consistent w accrual accounting, governed by when the voucher payable* is recorded
- no matching principle
some Current Assets (inventory, prepaids, supplies) may use:
- Purchase Method: expenditure CA when purchased
- reverse (set-up as current asset) for items not used during the period (still on hand)
- purchase: dr: expenditure, cr: vouchers payable
- end of per: dr: supplies inventory, cr: nonspendable fund balance-inventory - Consumption Method: set up as CA when purchased
- expenditure items as consumed (by periodic physical count)
- purchase: dr: supplies inventory, cr: vouchers payable
- use of item: dr: expenditure (consumed amt), cr: supplies inventory
Transfers b/w Funds
- not an expenditure, but transfers out represent use of financial resources
- must be authorized and may occur throughout the period
- general fund to debt service: dr: other financing uses- transfers out (debt service fund), cr: cash (from general fund)
- restricted fund to debt service at end of period
Activity: Expenditures Classifications w/i fund
Modified Accrual Accounting (GRaSPP)
- Function or Program
- overall purpose of expenditure
- function: major services of gov. entity (public safety, highways, education, etc)
- program: attainment of specific purposes or objectives (programs for elderly, drug addiction, education, etc) - Organizational Unit
- corresponds to organizational structure of gov. entity
- roll up into functional presentations
- (e.g. police and fire departments) they combine to form public safety function - Activity
- by classifying expenditures by specific activity, economy and efficiency of operations can be measured
- measurement standards (e.g. expenditure per unit of work) can be determined
- basis for budget preparation
- activity can be an event, task, or unit of work w specific purpose - Character
- determine basis of fiscal period the expenditures are presumed to benefit
- major classifications:
a) current expenditures- current period
b) capital outlays- both present and future
c) debt service- prior and current and future
d) intergovernmental- transfers - Object Classes
- chart of accounts
- classified expenditure according to type of items purchased or services obtained
Activity: Fixed Assets
Modified Accrual Accounting (GRaSPP)
acquisition of Fixed Assets is not capitalized, it is an expenditure
- consistent w current financial resources measurement
- FA reported on government-wide FSs
- no depreciation
dr: expenditure-capital outlay, cr: vouchers payable (or cash)
proprietary and fiduciary funds (SE PAPI) use full accrual and will capitalize FA and depreciate consistent w economic resources measurement focus
Activity: LT Debts
Modified Accrual Accounting (GRaSPP)
proceeds from LTD recorded as “other financing sources” in statement of revenues, expenditures, and changes in fund balance (not BS)
- gov. funds do not record or carry LTD
- LTD recorded on gov-wide FSs
- repayment of LTD are expenditures of both principal and interest
proceeds
dr: cash, cr: other financing sources-bonds issued (operating statement)
payment of principal and interest (debt service fund)
dr: expenditure-principal, dr: expenditure-interest, cr: cash
Encumbrances
Modified Accrual Accounting (GRaSPP)
obligations to spend (purchase orders)
- prevent overspending of appropriations
- dr: encumbrances, cr: budgetary control
- when invoice received, reverse estimated encumbrances and record actual expenditure (Activity)
- if encumbrance is o/s at YE and appropriations do not lapse, reverse the JE and include o/s encumbrances in an appropriate fund balance (usually committed or assigned) by reducing unassigned
- dr: unassgined fund balance, cr: fund balance, committed
- next year when used, record as expenditureof prior year, not against current period appropriations
- dr: expenditure-prior year, cr: vouchers payable/cash
- encumbrances will not be specifically detailed on the face of the FS but may be disclosed if material
Deferred Outflows and Inflows of Resources
deferred outflow: consumption of net assets that is applicable to a future reporting period
- postiive effect on net position and reported following assets, but before liabilities
deferred inflow: acquisition of net assets applicable to a future reporting period
- negative effect on net position and reported following liabilities, but before equity
Presentation of Statements of Financial Position
Government-Wide Statement of Net Position
- Net Position = assets and deferred outflows of resources - liabilities and deferred inflows of resources
Governmental Fund BS (GRaSPP)
- Total Liabilities, Deferred Inflows of Resources, and Fund Balance = assets and deferred outflows of resources = liabilities and deferred inflows of resources + fund balance
Proprietary and Fiduciary Statement of Net Position
- proprietary: encouraged to report net position
- fiduciary: required to report net position
- same as gov-wide presentation
- proprietary can also use similar to BS: assets and deferred outflows of resources = liabilities and deferred inflows of resources + net position
Types of Transactions Classified as Deferred Outflows and Deferred Inflows of Resources
- Service Concession Arrangements (GASB 60)
- Derivatives Instruments and Hedge Accounting (GASB 53 and 64)
- Other Deferred Outflows/Inflows of Resources (GASB 65)
- Accounting and Financial Reporting for Pensions (GASB 68)
Service Concession Arrangements (GASB 60)
Types of Transactions Classified as Deferred Outflows and Deferred Inflows of Resources
SCAs include payments by an operator to a government for rights to operate and collect user fees from third parties on infrastructure or other public assets
- may provide revenue sharing b/w gov. and operator during term of arrangement
Criteria for Qualifying for Deferred Outflow/Inflow
- gov. conveys to operator right and related obligation to provide public services in exchange for significant consideration such as: upfront payment, installment payments, new facility or improvements
- operator collects and is compensated by fees from third parties
- gov. has ability to modify or approve what services the operator provides, pop. to be served, and prices or rates charged
- gov. is entitled to sig. residual interest of facility at end of arrangement
Transferor Accounting
- gov. continues to show the managed facility as a capital asset
- gov. displays liability for sig. contractual obligations
- upfront or installment payments displayed as asset at their PV along w deferred inflow of resources
- deferred inflows recognized in a systematic and rational manner
dr: cash, cr: deferred inflows of resources (upfront payment)
- recognized as rev. on rational basis over life of agreement
Derivatives Instruments and Hedge Accounting (GASB 53 and 64)
Types of Transactions Classified as Deferred Outflows and Deferred Inflows of Resources
Derivative instruments are used by govs. to manage specific risks or make investments
- common types: interest rate and commodity swaps, interest rate locks, options, swaptions, forward contracts, future contracts
Accounting Treatment
- derivatives reported at FV
- changes in value of derivatives used as investments: displayed w/i investment revenue classification in earnings
- changes in value of derivatives used for hedging activities: reported as either deferred outflows or deferred inflows of resources
- derivative disclosures~ F8-31
Changes in Hedge Accounting
- effective derivative instruments reported as if effective from inception
- ineffective are evaluated as of end of prior reporting period
- termination of hedge accting occurs when*
a) hedging instruments no longer effective
b) expected transactions to be hedged no longer probable
c) hedged transactions are executed
d) hedged assets or liabilities are removed from BS - termination eliminated use of deferral classifications and results in recognition of changes in derivative values in income
Other Deferred Outflows/Inflows of Resources (GASB 65)
Types of Transactions Classified as Deferred Outflows and Deferred Inflows of Resources
Imposed Non-exchange Revenue Transactions
- receivables prior to formal levy or prior to period resources are required to be used (taxes and occupational licenses billed early)
- reported as deferred inflows
- record rev. when billed
Government-mandated Non-exchange Transactions and Voluntary Non-exchange Transactions
- deferred inflow by recipient, deferred outflows by provider
- record rev. when earned
Refunding of Debt
- diff b/w reacquisition price and net carrying amt of old debt reported as deferred outflow (loss) or deferred inflow (gain) and recognized as component of interest expense over remaining life of old or new debt, whichver is shorter
Sales and Intra-entity Transfers of Future Revenues
- gr reported as deferred inflows of resources
- govs that factor their receivables initially record proceeds from sale as deferred inflow recognized over time
Leases
- gains or losses from sale and leaseback transactions
- result in deferred inflow/outflow recognized over life of lease
Regulated Operations
- rat actions by regulator that impose limitations on assets of a gov
- deferred outflows or inflows
Assets Associated w Unavailable Revenues
- asset recorded, but revenue not available
- e.g. measurable but not collected until more than 60 days after YE
- deferred inflow of resources
~ Debt Issuance Costs
- immediately expensed in gov-wide FS in addition to proprietary and fiduciary fund FS
Accounting and Financial Reporting for Pensions (GASB 68)
Types of Transactions Classified as Deferred Outflows and Deferred Inflows of Resources
deferred outflows/inflows to account for changes in a gov’s pension liability
- accounted for in 1 of 2 ways in sponsoring fund’s FS and gov-wide FS
- Expensed (SIR)
- current service costs and interest net return on plan assets are expensed - Deferred Outflows and Deferred Inflows (AGE)
- changes in actuarial assumptions, diff b/w expected and actual return on plan assets, and unearned portion of PSC are accounted for as deferred outflow/inflows
- earned portion of PSC expensed
General Fund
Governmental Funds (GRaSPP)
Purpose
- created at beg. of gov. unit and exists throughout life
- accounts for general activities of a gov. not accounted for by any other fund
Revenue Sources
- taxes
- public safety and regulation (fees, fines, licenses, permits)
- intergovernmental: shared or grant revs from other govs
- charges for services
- other revs: investment earnings and misc.
Expenditure Types:
- general gov: administrative
- public safety: police dept, fire dept, jail, etc
- culture and recreation: parks, libraries, etc
Financial Statements
- BS: CA and def. outflows = CL and def. in + fund balance (NU CAR)
- Statement of Revenues, Expenditures, and Changes in Fund Balance
- supplementary info: Budgetary Comparison Schedule
- modified accrual accounting (BAE)
- current resources measurement
Special Revenue Fund
Governmental Funds (GRaSPP)
Purpose
- revs and expenditures legally restricted or committed for specific purposes other than debt service or capital projects
- resources are expendable
- examples: tax funds, grant funds, funds to acct for specific fees
Revenue Sources
- intergovernmental revenues (specific taxes and shared taxes, grants)
- fees
Expenditure Types
- character: current operating, capital outlays, both
- function: consistent w purpose of revenue
Expendable Trust Activities
- accounted for in a special revenue fund
- e.g. scholarships and endowment funds
- Donations may be: 1) donor/grantor restricted or government restricted (forefeiture act-illegal activities)
Grants
- when grant received, recipient gov. monitors and/or determine eligibility
- monitoring: special revenue fund
- non-monitoring: agency trust fund
Financial Statements
- Statement of Revs, Expenditures, and Changes in Fund Balance
- FS assumptions ~ F8-41
Debt Service Funds
Governmental Funds (GRaSPP)
Purpose
- accumulation of resources and payment of currently due interest and principal on LTD
- pays off debt of GRaSPP funds not SE-PAPI
Revenue and Other Financing Sources
- interfund transfers (dr: cash, cr: interfund transfers from __)
- *investment income (dr: cash, cr: revenue-investment income)
Expenditure
- interest and principal payments (dr: expenditures-interest, dr: expenditures-principal, cr: cash)
- recorded when legally payable per bond agreement
- no amortization of premium or discount
- underwriter’s fees and other debt issue costs*
Debt Service Fund Requirement
- required only when legally mandated or being accumulated for LTD
- general fund can pay interest and principal instead, unless use of debt service fund is mandated
Closing Entries
- budget closed at YE
- activity closed at YE
- no encumbrances*
Financial Statements
- BS
- Statement of Revenues, Expenditures, and Changes in Fund Balance
Capital Projects Fund
Governmental Funds (GRaSPP)
Purpose
- for construction or purchase or leasing of significant fixed assets
- purchasing dept
- life of capital projects fund is short and limited to construction period of 1-3 years
Revenues and Other Financing Sources
- Investment Earnings
- Tax Revenues: specifically identified for construction
- Capital Grants:
a) restricted: reported as revenue when earned=spent/expended (dr: cash, cr: rev. collected in advance) (dr: rev collected in adv, cr: rev)
b) unrestricted: recognized immediately - Transfers: reported as “other financing sources” (dr: cash/due from __ fund, cr: other financing sources (transfers in)) report on IS
- Special Assessments: taxes or fees levied against property owners who will directly benefit from the project. accting depends on degree gov. unit is responsible for debt:
a) primarily or potentially liable: acct for capital project and debt related transactions through appropriate governmental or proprietary fund
b) not primarily or potentially liable: reported in agency fund and assets and liabilities excluded from gov-wide presentations - Bond Issue Proceeds: “other financing sources” on IS
Expenditure and Encumbrance Types
- encumbrances recorded as commitments are incurred
- vouchers recorded when liab. incurred and expenditure is known
- as vouchers are recorded, encumbrances are reversed
more F8-52… bleh
Permanent Funds
Governmental Funds (GRaSPP)
Purpose
- resources legally restricted to extent that only earnings, and not principal, may be used for gov programs
Revenues
- investment earnings
Expenditures
- operating
Investments gr req. to be accounted for at FV for governmental investments
- otherwise use governmental fund accounting principles
*No encumbrances (like Debt Service Fund)
- public restricted funds
- principal and interest: Special Revenue Fund
- interest only: Permanent Fund
Internal Service Fund
Proprietary Funds (SE)
Purpose
- finance and acct for services and supplies provided exclusively to other departments w/i a gov unit or to other gov units
- typically on a cost-reimbursement basis
- “Central”
Revenue Sources
- Restricted Grant Revenues: when money is spent
- Operating Revenues: when earned
- Nonoperating Revs: interest earnings, etc
Expense Types
- Operating Expenses: when incurred
- Nonoperating Exps: segregated
- Net Position “RUN”
- 3 categories of equity: restricted for purpose (externally restricted) , unrestricted (includes assigned), and net investment (in capital assets, less related debt)*
Establishing an Internal Service Fund JE 58-59
Financial Statements
- statement of net position
- statement of revenues, expenses, and changes in net position
- statement of cash flows
Reconciling Item
- internal service fund net position and changes in net position are used as reconciling items b/w the total gov funds and gov-wide FS
Enterprise Fund
Proprietary Funds (SE)
Purpose
- operations that are financed and operated in a manner similar to private business enterprise
- required to be reported as enterprise fund if any criteria is met:
a) activity financed w debt secured solely by pledge of net revenue from fees and charges
b) laws and regulations require the cost of providing services be recovered through fees
c) pricing policies of the activity establish fees and charges designed to recover its cost
Examples
- public stuff, private is for not-for-profit
Revenue Sources
- Operating (determined by classification in statement of cash flows)
- Nonoperating: shared revenues*, interest, non-exchange transactions, etc
Expenses
- Operating: personal services, utilities, depreciation
- Nonoperating: interest expense is common
Financial Statements*
- Statement of Net Position
* 2. Statement of Revenues, expenses, and Change in Fund Net Position “INCASET”
- Income (operating)
- Nonoperating income and expense
- Capital contributions and
- Additions to endowments
- Special items (unusual or infrequent)
- Extraordinary items
- Transfers
* 3. Statement of Cash Flows
- CF from Operating Activities, CF from Noncapital Financing Activities, CF from Capital and Related Financing Activities, CF from Investing Activities, Reconciliation of Operating Income to Net Cash Provided (Used) By Operating Activities
- operating income not net income - Footnotes, MD+A, and RSI*
Enterprise Fund: Municipal Landfills (the dump)
Proprietary Funds
municipal landfill accounting is governed by Accounting for Municipal Solid Waste Landfill Closure (MSWLF) and Postclosure Care Costs (GASB 18)
- GASB 18 refers to Environmental Protection Agency rules and establishes standards for accting and reporting for MSWLF closure and postclosure
Reporting and Disclosure
- disclosed as “estimated total current cost of MSWLF closure and postclosure care to be recognized”
Cost Components
- cost of equipment expected to be installed and facilities expected to be constructed near or after the date the MSWLF stops accepting solid waste and during the postclosure period (for items that will be exclusively used for the MSWLF)
- cost of a gas monitoring and collection system
- cost of final cover (capping) expected to be applied near or after date MSWLF stops accepting solid waste
- this estimate should be adjusted annually, expensed based on usage each period
- just like depletion!!
Pension (and other employee benefit) Trust
Fiduciary Funds (PAPI)
Revenue (Addition) Sources
- Employer and Employee Contributions- Restricted Account (dr: cash, cr: additions: employer contribution-restricted)
- Other Fund Transferring Money: expenditure for GRaSPP fund, expense for SE-PAPI fund
- Income from Investments
Expense (Deduction) Types
- freq. include: benefit payments, refunds, and administrative expenses
Net Pension Liability
- total pension liability less amt of pension plan’s fiduciary net position
- determined from data reported in pension fund FS and reported in gov-wide FS, as well as individual fund FS
~ F8-70
Reporting Changes in Net Pension Liability
- typically included in pension expense (SIR), but certain changes (AGE) are deferred inflows/outflows instead
~ F8-71
Financial Statements
- Statement of Fiduciary Net Position
- assets reported at FV
- subtract liabilities to get Net Position: Held in trust for pension benefits and other purposes - Statement of Changes in Fiduciary Net Position
- additions: contributions received, net appreciation/depreciation of FV of plan assets, realized and unrealized gains and losses, premiums and discounts on debt securities, investment earnings
- deductions: pension benefit payments and administrative expenses
Notes to FS ~F8-74 to 75
Agency Trust Fund
Fiduciary Funds (PAPI)
Purpose
- collects cash to be held temporarily for an authorized recipient to whom it will be later disbursed
Revenue Sources
- revenues not recognized
Expenses
- expenses not recognized
Tax Collection Funds
- when 1 local gov. collects a tax for an overlapping gov. unit and remits the amt collected, less administrative charges, to the recipient unit
(dr, cash, cr: due to other units, cr: due to county general fund)
Clearance Funds
- accumulate a variety of revenues from different sources and apportion them to various operating funds in accordance w a statutory formula or procedure
- Cash Conduit Arrangements (no monitoring): pass through grants, food stamps, traffic citations, alimony and divorce
- if gov. unit has monitoring and/or determines eligibility, Special Revenue fund is used
- Special Assessments
- when gov. unit is “not otherwise obligated” for the debt (not primarily or potentially liable), receivables and debt service transaction are accounted for in agency fund
- if has liability, accounting through Capital Projects and Debt Service Funds
- if special assessment paid for through collections from 3rd parties: Agency
- if paid for through general fund: LT debt on gov-wide statement of net position in LT liabs
Financial Statements
- Statement of Fiduciary Net Position
- current assets = current liabilities
- no net position, no IS, no cash flow statement
Private Purpose Trust
Fiduciary Funds (PAPI)
Purpose
- principal and income are for benefit of one of the following: specific individuals, private organizations, or other governments
- examples: escheat property fund (forfeited goes to special revenue), specific private purposes
Revenue Sources
- transfer from private purpose trust to general fund JEs
Expense Types
- expenses: relate to purpose of trust may relate dto benefits or admin. charges
- Capital Gains (losses): adjustments to fund principal and not to income, unless grantor specified otherwise
Escheat Property
- property that reverts to a gov. in absence of legal claimants or heirs at time estate is settled
- gr should be reported as asset in gov. or proprietary fund to which the property ultimately escheats
- held for individuals, private orgs, or other govs should be reported in private purpose fund
- revenue is reduced and fund liability is reported to extent property will probably be reclaimed
- transfers to other funds are “operating transfers”
- advances to/from occur if assets < liability to future claimants
Correct Fund to account for Restricted Funds
Pass Key
Special Revenue
- public use
- interest and principal (expendable)
Permanent Fund
- public use
- interest only (non-expendable)
Private Purpose Fund
- private use
- interest and/or principal (expendable)
Financial Statements
- Statement of Net Position
- Statement of Changes in Net Position
- Footnotes
Investment Trust Funds
Fiduciary Funds (PAPI)
Purpose
- Accounting and Financial Reporting for Certain Investments and for External Investment Pools (GASB 31) established that a gov. entity that sponsors 1+ external investment pools should report the external portion of each pool as a separate investment trust fund
Revenue (Addition) Source
- contributions, net appreciation/depreciation of FV of plan assets, including realized and unrealized gains and losses, premiums and discounts on debt securities
Expense (Deduction) Types
- payments to beneficiaries and administrative expenses
Investments reported at FV basis
Financial Statements
- Statement of Fiduciary Net Position
- Statement of Changes in Fiduciary Net Position
- net increase/decrease in net plan position from beg. of year to end of year
fixed assets donated to a governmental unit should be recorded
HW
at estimated fair value when received, as if they had been purchased
Special Assessment Debt
HW
planning to be paid from general fund in future: goes on government-wide statement of net position in general LT liabilities
repaid from collections from third parties: Agency Fund
Revenues for GRaSPP
HW
grants is part of it
LTD/general bond issue and transfers are Other Financing Sources
Acquisition of property/land as a result of nonpayment of taxes used for general governmental purposes. What do you capitalize relative to governmental activities?
HW
lower of cost or market value as a capital asset in governmental activities column of gov-wide statement of net position
payment to a pension trust fund (from general fund)*
HW
is an expenditure, not a transfer
difference between taxes being pledged and levied
HW
e.g. taxes pledged for paying off debt
if pledged: will go in Special Revenues Fund bc just pledged for paying off debt
if levied: will go in Debt Service Fund
Transfers to other funds: how is it treated b/w different fund types?
HW
governmental: Other Financing Uses
proprietary: Nonoperating Expenses
fiduciary: Deductions
estimated total current cost of a municipal solid waste landfill closure and post closure care
HW
the costs of assets required for closure and post closure costs would be accrued on an annual basis. when the actual asset is purchased, assets will not increase, rather it will just reduce the outstanding liability
Interfund Transfers (for all types of funds)
HW
aren’t necessarily considered revenues and expenses but affect the funds’ expendable resources, thus affect operations in fund financial statements
governmental: other financing sources/uses
proprietary and fiduciary: interfund transfers
HW
a balanced budget demonstrated interperiod equity
- interperiod equity is a significant part of accountability
- helps users assess whether current year revenues are sufficient to pay for the services provided that year
- residual equity is an obsolete term used as a distractor
importance of “levies” vs designated or anything else
not levied goes in Special Revenue which will then be transferred later
