Flashcards
Estimated Liabilities - Premiums
offers to stimulate sales; cost is charged to sales in the period that benefit from the offer. # of outstanding offers must be estimated accurately to reflect the current liability at the end of each period.
Estimated Liabilities - Warranties
liability account must be established if the cost of the warranty can be reasonably estimated. Entire liability should be accrued in the year of the sale to match the cost with the corresponding revenue.
Estimated Liabilities - Service Contracts
Cash received in advance of when the related expense occurs. Unearned revenue and are estimated and accrued in the financial statements.
Accrued Liabilities
expense recognized or incurred but not yet paid (Ex: Bonuses)
Classification of contingencies (GAAP)
Probable - likely to occur ; reasonably possible - more than remote; but less than likely ; remote - slight chance of occurring
Loss Contingencies-Loss Probable & Can Be Reasonably Estimated
Record JE; Dr Exp/Cr Liab for the best estimate of the loss to be recognized. If a range is given; the lower of the range is used for GAAP. Mid range for IFRS.
Loss Contingencies-Loss Reasonably Possible
Disclose but do not accrue
Loss Contingencies-Loss is Remote
Ignore but disclose if made for guarantee type remote loss contingencies such as co-x debts; guarantee to repo receivables; commercial bank obligations under standby letters of credit
Gain Contingencies
Do not accrue (conservatism) but disclose; being careful not to mislead as to the likelihood of realization
Subsequent Event
event or transaction occurring after B/S date but before the F/S are issued or available to be issued (2 types: recognized and nonrecognized)
Recognized Subsequent Event
Existed at B/S date. Must be recognized in the F/S.
Nonrecognized Subsequent Event
Did not exist at B/S date. Do not accrue; but disclosures should be made.
Subsequent Event Evaluation Period
Public companies - through the date that the F/S are issued. All other entities - date that the F/S are available to be issued.
Fair Value Option for Financial Instruments
On specified election dates; entities may choose to measure eligible financial instruments at FV. Unrealized gains and losses are reported in earnings; the option is irrevocable and is applied to individual financial instruments.
Derivative Instrument
###############################################################################################################################################################################################################################################################
Hedging
use of a derivative to offset anticipated losses or to reduce earnings volatility
Option Contract
gives one party the right but not the obligation to buy (call) or sell (put) something to the other party at a specified price. Option buyer must pay a premium to the seller to enter into the contract.
Futures Contract
Publicly Traded agreement between two parties to exchange a commodity or currency at a specified price on a specified date. One party takes a long position (buy) and another takes a short position (sell)
Forward Contract
Privately Negotiated contract; similar to futures
Swap Contract
Private agreement between two parties to exchange cash payments. (interest rate swaps; currency exchange swaps; equity swaps; commodity swaps; etc.); Equivalent to a series of forward contracts
B/S treatment of Derivative Instruments
Either assets or liabilities depending on the rights or obligations under the contract (all measured at FV)
Gains and Losses for Derivatives that are not designated as hedges
recognized on I/S
Gains and Losses for Derivatives designated as Fair Value Hedge
designed to hedge the exposure to changes in fair value of a recognized asset or liability. Included in current earnings as an offset to the gain/loss from the change in FV of the hedged item
Gains and Losses for Derivatives designated as Cash Flow Hedge
###############################################################################################################################################################################################################################################################
Gains and Losses for Derivatives designated as Foreign Currency Fair Value Hedge
designed to hedge the exposure to changes in fair value of foreign currency translation. Included in current earnings as an offset to the gain/loss from the change in FV of the hedged item
Gains and Losses for Derivatives designated as Foreign Currency Cash Flow Hedge
###############################################################################################################################################################################################################################################################
Gains and Losses for Derivatives designated as Foreign Currency Net Investment Hedge
###############################################################################################################################################################################################################################################################
Dual Objectives of Governmental and NFP accounting and reporting
Operational accountability (F/S) and Fiscal accountability ($ used for purpose intended)
Fund
Sum of $ or other resource segregated for the purpose of carrying on a specific activity or attaining certain objectives in accordance with specific regulations; restrictions; or limitations
Fund structure - three types
Governmental; Proprietary; Fiduciary
Government-wide presentation of F/S
Full accrual accounting and economic resources measurement focus
Dual Perspective Reporting
###############################################################################################################################################################################################################################################################
Governmental Funds
###############################################################################################################################################################################################################################################################
Proprietary Funds
Full accrual accounting and economic resources measurement focus; SE (internal service funds; enterprise funds) Carries everything. Statement of Net Position; Stmt of Revenues; Expenses; & Changes in Fund Net Position. Expenses; not expenditures
Fiduciary Funds
Full accrual accounting and ecomomic resources measurement focus; PAPI (pension; agency; private purpose; investment trust) Carry everything; Stmt of Fiduciary Net Position; Stmt of Changes in Fiduciary Net Position
MAC-GRSPP / SPACE
Modified Accrual Current Fin Resources measurement focus GRSPP / SE PAPI Accrual accounting; Carry FA and LTD; Economic resources measurement focus
Governmental B/S Measurement Focus - Current
(GRSPP) Modified Accrual; only CA & CL are included on the B/S. No FA & No non-current liabilities are reported
Governmental B/S Measurement Focus - Economic
(SE PAPI) Full Accrual; All assets are included on the B/S; including deferred transactions classified as deferred ouflows/inflows. Net position is reported in 3 components: net investment in capital assets; restricted; and unrestricted.
Governmental I/S Basis of Accounting - Modified
(GRSPP) Revenue is recognized when measurable and available (collectible within 60 days of year end). Expenditures are generally recorded when the related fund liability is recorded
Governmental I/S Basis of Accounting - Full Accrual
(SE PAPI) Identical to accounting methods used in commercial enterprises. Revenue is recognized when earned and expenses are recognized when incurred.
Classification of Governmental Fund Balance Constraints
NU CAR (Nonspendable; Unassigned; Committed; Assigned; Restricted)
Non-spendable fund balance
CA that cannot be spent (Ex prepaid expenses; inventories; etc.)
Restricted fund balance
Restricted by external authorities (legislation; creditors; grantors; bond covenants; etc.)
Committed fund balance
Obligated by formal action of the gov’t highest decision making authority (resolutions; encumbered; appropriations; etc.)
Assigned fund balance
Funds that the gov’t intends to obligate but has not formally committed
Unassigned fund balance
spendable assets neither restricted; committed; nor assigned. Residual equity classification for the general fund. Only the general fund should have a positive unassigned fund balance.
Differences between Commercial GAAP and Governmental Funds
Comm. I/S->RE->B/S->Next Year // Governmental: Book (Budget/Activity/Encumbrances) then close the same to B/S -> Next year
BAE (Governmental Modifed Accrual)
Budgetary - emphasized to control spending; Activity - emphasizes flow of current financial resources; Encumbrance - used to record purchase orders
Budgetary Accounts
estimated accounts which are opposite from the natural Dr & Cr balances. Only posted twice a year; beginning and end; unless a supplemental appropriation is made.
Budgetary Control account
The budgetary equity account. Beg of year: difference between estimated revenues and appropriations goes here.
Budget Accounting - Beginning of year
Dr. Estimated Revenue Control; Dr Estimated other financing sources; Cr Appropriations Control; Cr Estimated other financing uses; Dr. Budgetary control if negative; Cr if positive
Budget Accounting - End of Year
J/E reverses the entry that was made at the beginning of the year line for line; (+/-) any amendments
Activity - Revenue
Recorded when measurable and available (w/in 60 days of year end)
Activity - Expenditures
###############################################################################################################################################################################################################################################################
Timing of expenditure recognition consistent with accrual accounting
Governed when the voucher payable is recorded; do not delay the expenditure until the cash payment is made.
Alternatives for expenditure recognition
For current assets only - 1-Purchase method: expenditure the assets when they are purchased; reverse items not used at year end. 2-Consumption method: set up as current asset when purchased and expenditure as consumed.
Transfers between funds
move money. Not an expenditure; not spending. Dr other financing uses; Cr cash
Character of Governmental Expenditures
Current - period exp; Capital outlays - FA (present & future); Debt Service - Pay off LTD (prior; current; future); Intergovernmental - transfer from one unit to another.
Activity - Assets
Purchased; constructed; leased - expenditured; not capitalized. Expenditure timed when liability in incurred; not when payment in cash is made.
Activity - Debts
Other financing sources; do not carry or record LTD. Debt repayment is both interest and principal expenditures
Encumbrances
Open POs represent an encumbrance or commitment of the available appropriations of a government. Not typically used for recurring exp such as salaries
JE to set up encumbrance
Dr Encumbrance & Cr Budgetary Control (reduces fund balance). Can reverse to adjust estimate
JE to record actual expenditure after encumbrance
Dr expenditures; Cr Vouchers Pay or Cash
Encumbrances outstanding at year end (open PO)
If appropriations do not lapse; reverse the JE and include outstanding encumbrances in an appropriate fund balance classification. (ex: fund balance - committed)
Expenditures from prior year
###############################################################################################################################################################################################################################################################
Deferred Outflows
Consumption of net assets that is applicable to a future reporting period. Have a positive effect on net position
Deferred Inflow
Acquisition of net assets that is applicable to a future reporting period. Have a negative effect on net position
Govt-wide Stmt of Net Position
Assets and Deferred Outflows - Liabilities and Deferred Inflows = Net Position
Govt Fund Balance Sheet
Assets + Deferred Outflows = Liabilities + Deferred Inflows of Resources + Fund Balance
Proprietary and Fiduciary Stmt of Net Position
Assets and Deferred Outflows - Liabilities and Deferred Inflows = Net Position
Service Concession Arrangements
Payments by an operator to a government for the right to operate and collect user fees from 3rd parties on infrastructure or other assets. (EX: tollway)
Derivative Instruments and Hedge Accounting
###############################################################################################################################################################################################################################################################
When to terminate hedge accounting
When hedges are no longer effective; when expected transactions are no longer probable; when hedged transactions are executed; and when hedged assets or liabilities are removed from the B/S.
Special Revenue Funds
Revenues and expenditures that are legally restricted or committed for specific purposes other than debt service or capital projects. Life may be limited or unlimited but resources are expendable.
Expendible Trust Activities
Funding whose principal and income may be expended in the course of their designated operations so they are depleted by the end of their designated lives. GASB 34 says they should be accounted for in a Special Revenue Fund. (Ex: scholarship fund)
Special Revenue Grant
Monitoring = Special Revenue Fund / Non-Monitoring = Agency
Debt Service Fund
Accumulation of resources and the payment of currently due interest and principal on long term GO debt. Pays off debt of GRSPP funds; NOT SE PAPI funds. Encumbrance accounts are NOT USED
Capital Projects Fund
(Purchasing) Construction; Purchase; or Leasing of significant FA (GRSPP; not SE PAPI) Life is short (1-3 years)
Capital Grants
If received in advance - recorded as liability and displayed as earned as they are expended. If unrestricted; revenue now; if restricted; deferred revenue. When spent; reverse the classification as deferred revenue to just revenue.
Special Assessments
If governmental unit is liable; account for through the appropriate govt fund. If not; use agency fund.
Bond Issue Proceeds (Capital Projects Fund)
Presented on the Stmt of revenues; expenditures; and changes in fund balance as other financing sources. NOT LTD
Permanent Fund
###############################################################################################################################################################################################################################################################
Internal Service Fund
The other department/fund is the customer; not the citizen. Established to finance and account for services and supplies provided exclusively to other depts within a govt; typically on a cost reimbursement basis
SE PAPI BAE BAE
not used. Exam trick; BAE BAE only used for GRSPP funds
Net Position - Proprietary Funds
RUN; restricted; unrestricted; net investment in capital assets. NOT Fund Balance like in GRSPP.
Internal Service Fund - Reconciling Item
Frequently combined with governmental funds for the govt-wide financials. GRSPP + S. E-separate and PAPI excluded.
Enterprise Fund
similar to private business enterprise. Shown separately on Financials. Ex: DIA. Activity is financed with debt secured by a pledge of net revenue from fees and charges.
Operating vs. Nonoperating revenues
Operating - charge for services/nonoperating - shared revenues (collected by one govt and shared with another) and interest / investment income.
Presentation of line items on a proprietary fund Stmt of Revenues; Expenses; and Changes in Fund Net Position
INCASET - Income (operating); Nonoperating income & expense; Capital Contributions; Additions to endowments; special items (U or I); extraordinary items; transfers
Muni Landfills
Cost of equipment expected to be installed; gas monitoring and collection system; final cover (capping). Adjust annually and amortize over years leading up to closure; similary to ARO.
Properietary Funds - Stmt of Cash Flows
Order switched. Normally O; I; F. Operating; Noncapital Financing; Capital Financing; investing
Fiduciary Funds - Stmt of Cash Flows
NOT required. Trust funds do not use them
Agency Fund
Collects cash to be held temporarily for an authorized recipient to whom it will be later disbursed.
Clearance Funds - Cash Conduit Arrangements
###############################################################################################################################################################################################################################################################
Agency Trust Fund Statement of Fiduciary Net Position
CA=CL. No year end balance; no net position; no I/S; no C/F Stmt
Private purpose trust
###############################################################################################################################################################################################################################################################
Correct fund use for restricted funds
Public use; interest and principal (expendable) - special revenue / Public use; interest only (non-expendable) - permanent / Private use; interest and/or principal (expendable) - Private purpose fund
Investment Trust Funds
Govt entity that sponsors one of more external investment pools should report the external portion of each pool as a separate investment trust fund
Operational Accountability
Govt wide F/S - focus is to report the extent to which the govt has met its operating objectives efficiently and effectively.
Fiscal Accountability
Fund F/S - focus is to demonstrate that the govt has complied with decisions in the raising and spending of funds
GASB 34 Integrated Approach
1 - MD&A; 2-Gov’t wide & Fund F/S (Reconciled); then notes; 3-Required supplementary info
Primary Government Entity
reports by itSELF: Separately Elected; Legally separate; Fiscally independent
Component Unit
Primary govt is financially accountable OR by its nature and significance of its relationship with the primary govt; it cannot be excluded from the primary govt’s F/S without making the primary govt F/S misleading or incomplete.
Blended Presentation of Component Units
So intertwined that they are; in substance; the same as the primary govt; the CU serves the primary govt exclusively or almost exclusively; the CU is not a separate legal entity
Discrete Presentation of Component Units
Used when the criteria for blended presentation are not met (most common or default method)
Reporting NFP entities as CU of Govt
NFP providing ongoing support to a primary govt or to a CU of primary govt may also be a CU of primary govt (Ex: private foundations assoc w/state universities or private foundations assoc w/public health care facilities)
Criteria for Discrete Presentation
###############################################################################################################################################################################################################################################################
MD&A
###############################################################################################################################################################################################################################################################
Govt wide F/S - Stmt of Net Position
Economic resources measurement focus & full accrual. Fiduciary funds are excluded and CU are included.
Govt wide F/S - Stmt of Net Position - Capital Assets
Capitalization of construction period interest is not required for govt. Infrastructure should be recorded as general capital assets. Only reported here because of the incompatibility with recording these assets at the fund level.
Modified approach for infrastructure assets
###############################################################################################################################################################################################################################################################
Artwork and historical treasures
Govts should capitalize at historical cost or FV at date of donation. They may elect not to capitalize if held for exhibition; protected; and org policy exists to have proceeds from sales used to acquire other items for collections.
Program Revenue Categories
SOC; Service Charge; Operating Grants; Capital Grants
Major Fund Reporting Criteria
###############################################################################################################################################################################################################################################################
Reconciliation of B/S between Fund & Govt wide
GALS BARE GRSPP fund balance + assets (Non current) - liabilities (non current) + service (internal) fund net position + basis of accounting accrued revenues and expenses
Reconciliation of I/S between Fund & Govt wide
GOES BARE GRSPP fund balance + other financing sources - expenditure - capital outlay; net of depreciation + service (internal) fund net income + basis of accounting additional accrued revenues and expenses
Differences between Govt C/F and Commercial C/F
###############################################################################################################################################################################################################################################################
Fiduciary Funds in Govt Wide F/S
NOT included
Notes to Govt wide F/S
description of govt wide activities noting the exclusion of the fiduciary funds; policies relating to elimination of internal activity; description of modified approach to reporting infrastructure; revenue recognition for modified accrual (60 days); etc.
Budgetary Information
Required supplementary info - must show original budget; final amended budget; and actual amounts. Computation of variances or differences is optional.
Reciprocal Interfund Activity
Interfund loans - temporary extensions of credit to other funds that are expected to be repaid (due to/due from) & Interfund Services Provided and Used - sales and purchases at external pricing - accounted for as revenues and expenses/expenditures
Nonreciprocal Interfund Activity
###############################################################################################################################################################################################################################################################
F/S Displays and disclosure (Interfund)
###############################################################################################################################################################################################################################################################
Classification of net assets (NFP)
unrestricted; temporarily restricted; permanently restricted
NFP Required F/S
Statement of Financial Position (B/S); Statemene of Activities (I/S); Statement of C/F; and Statement of Functional Expenses (required for voluntary health and welfare orgs and encouraged for other orgs)
NFP Net Assets - Unrestricted
Financing of general ops and may be expended at the discretion of the governing board. Internal board-designated funds are considered unrestricted
NFP Net Assets - Temporarily Restricted
Donor-imposed stipulations either expire with the passage of time or can be fulfilled and removed by actions of the organization
NFP Net Assets - Permanently Restricted
Result from contributions and other net inflows whose use is limited by donor-imposed stipulations that neither expire with the passage of time nor can be fulfilled or otherwise removed by actions of the organization
NFP Statement of Activities
4 elements: Change in unrestricted net assets; change in temp restricted net assets; change in perm restricted net assets; and change in total net assets
Expense classification in the Statement of Activities
Reported as decreases of unrestricted net assets. Categories: program services; support services; combined costs
Statement of C/F (NFP)
Either direct or indirect; 3 categories like with commercial accounting
NFP Statement of C/F (Financing)
Cash transactions related to borrowing; and also cash transactions related to certain restricted contributions (increases to endowments; purchases of assets; annuity agreements; etc)
NFP Statement of C/F (Investing)
Proceeds from sale of works of art; or purchases of works of art; investment in equipment; etc.
Functional Classifications of Expenses
Program Support Expense; Fund Raising Expenses; Management and Genral Costs; Multiple Cost Items
Unconditional Promises
(Pledge = revenue) recorded at FV when the promise is made (written or verbal)
Conditional Promises
depends on an occurrence of a future and uncertain event. Recognition does not occur until the conditions are substantially met
Multi Year Pledges
###############################################################################################################################################################################################################################################################
Split interest Agreements
NFP receiving benefits that are shared with other beneficiaries. Temporarily restricted; should be measured at FV at the date of acquisition.
Donated Services
###############################################################################################################################################################################################################################################################
Recording Promises to Contribute - Unrestricted
Dr Pledge Receivable; Cr Allow; Cr Contrib revenue - temp restricted. When collected; Dr Cash; Cr pledge receivable - temp restricted
Recording Promises to Contribute - Restricted
Cannot Debit expense until funds are in an unrestricted state
Agency transactions
resources received by the NFP over which the NFP has little or no discretion or variance power
Exchange Transactions
amount transferred - fair value dues or purchase = contrib revenue
Recipient accounting - without variance power
assets at FV are recognized as a liability to the beneficiary
Recipient accounting - with variance power
assets at FV are recognized as contrib revenue when received and expensed when distributed to the beneficiary
Special funds used in NFP accounting - endowments
permanent - principal cannot be spent; term - held for a specified time; quasi- internal governing board has determined that the funds are to be retained and invested for a specified purpose (not restricted)
Fund Accounting for NFP
NOT used for external reporting; for internal use only. Unrestricted current funds; restricted current funds; plant funds; loan funds; endowment funds; annuity and life income funds; agency funds
College/University Industry Specific Accounting
Student and Tuition fees should be reported at gross amounts. Scholarships; tuition waivers; etc. should be shown as expenditures
3 Categories of Health Care Organization Revenue
Revenue; Other Operating Revenue; Non-operating revenue and support gains and losses
Patient Service Revenue
accrual basis at established standard rates; even if full amount is not expected to be collected. Net out charity care and record patient service revenue.
Other Operating Revenue - Health Care Orgs
Tuition from medical schools; cafeteria revenue; gift shop revenue; etc.
Nonoperating revenue and support gains and losses - Health Care Orgs
unrestricted grants; gifts; etc.; & donated services
Donated Supplies to NFP Health Care Orgs
Recognized as revenue & assets or reduction of liab depending on how received
Voluntary Health and Welfare Orgs
obtain most of their operating funds from donations from the general public (Ex: American Red Cross) Can use Cash basis if not materially different from accrual method
Voluntary Health and Welfare Orgs - Statement of Functional Expenses
Mandatory. Detailed schedule of the expenses divided into functional areas; such as program services and support services.
