G&NP Chapter 1 and 2 Flashcards
Chapter 1) Governmental and Nonprofit Accounting, Environment and Characteristics Chapter 2) State and Local Government Accounting and Financial Reporting Model, The Foundation
Fund
Independent accounting entity with a self-balancing set of accounts.
1) Governmental - expendable funds
2) Proprietary - nonexpendable funds, business type activities
Budgetary basis differs from GAAP how
1) The accounts are maintained on the budgetary basis during the year to effect budgetary control through the accounts.
2) Adjustments are made at year end to convert the budgetary basis to GAAP basis.
3) The differences are explained and reconciled in the annual financial report.
Governmental-type activities focus on…
Fiscal accountability - responsibility to demonstrate its compliance with public decisions about the raising and spending of public monies in the short term.
Operational accountability - responsibility to demonstrate the extent to which it has met its operating objectives and whether it can continue to meet its objectives in the foreseeable future.
Types of G&NP
1) Governmental
2) Educational
3) Health & Welfare
4) Religious
5) Charitable
6) Foundations
GAAP Hiearchy
A) Pronouncements from NCGA GASB Statements of Financial Accounting Standards and Interpretations B) GASB Technical Bulletins AICPA Industry Audit Accounting Guides Statements of Position C) AICPA AcSEC Practice Bulletins Positions of GASB Emerging Issues Task Force D) GASB Implementation Guide
Who sets Accounting and Reporting Standards for whom?
FASB - Business organizations and non-govt non profit
GASB - Government and governmental non-profit
What is MFBA
MF = Measurement of Focus (types of transactions, events or elements that are reported in the financial statements),, tells us what to measure
Economic Resources Focus - business type activities, assets consist of all resources at our disposal which can be measured in monetary terms, expiration of economic resources = expense
Financial Resources Focus - Governmental activities, assets consist of only spendable resources (items that can be easily converted into cash), expiration of financial resources = expenditure
BA = Basis of Accounting, tells us when to recognize events/transactions
Full Accrual Basis = recognize revenues when earned, expenses when incurred, this is the approach we take in for profit business
Modified Accrual Basis = We recognizes revenues when they are measurable and available, recognize expenditures when the liability exists (is incurred). Interest on debt is only recognized when due. Transfers between funds should be recognized in the period in which the interfund receivable and payable arises.
How is government-type activity unique?
1) Purpose
2) Source of financial resources
3) Financial resource allocation mechanisms
4) Accountabilities
5) Reporting issues and problems
Proprietary Funds
MF - Economic Resources
BA = Accrual
user fees are charged at least in part to cover the costs of providing the service
like a business, funds record their own fixed assets and long term debt
Enterprise Funds - recover costs through the user charges, users are external to the government
Internal Service Funds - used to account for activities designed to provide service to other parts of the government
Governmental Funds
MF = Current Financial Resources
BA = Modified Accrual
Source of funds = taxes, intergovernmental revenues
Allocation of resources = determined by restrictions and budgetary control
Users of financial activity = citizens, legislative bodies, investors, creditors, internal users
General Fund - Catch all
Special Revenue Fund - Account for resources legally restricted to as expenditure
Capital Projects Funds - Used to account for acquisitions and construction of new assets. While capital assets themselves are not included in the fund, we do account for the cash inflows and outflows on the project.
Debt Service Fund - Used to account for money set aside for long term debt. The long term debt itself is not recorded in the fund, only the payment.
Permanent Fund - Used to account for legally restricted resources provided by a trust for the purposes of supporting the primary government’s programs. Income only can be spent, the body of the trust must main intact.
Fiduciary Funds
MF = Economic Resources BA = Accrual
A government may hold money in trust for someone.
Agency Fund - used to account for resources held by the government as an agent for another entity, everything received is payable to another party, therefore no fund balance.
Pension Trust Fund - retirement funds for government employees, we are interested in the change in net assets
Investment Trust Funds - used to account for the external portion of managed investment portfolios of the sponsoring government and other governmental units participating in the fund.
Private-purpose Trust Funds - Used to account for legally restricted resources provided by trusts for the purpose of supporting private individuals, organizations and other governments.
Budgetary expenditure estimates when approved…
become binding appropriations, which both authorize expenditures for specified purposes and limit the amounts that can be expended for each specified purpose
Expenditures
the cost of goods delivered or services rendered, whether paid or unpaid, including current operating costs, provision for retirement of debt not reported as a liability of the fund from which retired, and capital outlays
Expenses
the cost of assets and services consumed during the period
The financial reporting model has been called a “dual perspective” model because it requires reporting both…
Fund Financial Statements
and
Government-wide Financial Statements
the fund financial statements and government-wide financial statements are considered to be one set of financial statements and thus are linked by reconciliations of their differences
RSI
Required Supplementary Information - actuarial information related to the SLG’s defined benefit pension plan and other post-employment benefit plans
MD&A
Management’s Discussion and Analysis - A brief analysis and discussion by the SLG’s management of its financial statements, its schedules, other specified analyses, and any known event or situation that is expected to affect the SLG in the near future.
Nonfund Accounts
General Capital Assets
General Long-Term Liabilities
GCA
General Capital Assets
not included in the governmental funds themselves
do not qualify as assets
are reported in the government wide financial statements only
GLTL
General Long-Term Liabilities
Accounting equation used in proprietary funds
[Current Assets + Noncurrent (including Capital) Assets + Deferred Outflows] - [Current Liabilities + Long-Term Liabilities + Deferred Inflows] = Net Position
Accounting equation used in governmental funds
[Financial Assets + Deferred Outflows] - [Related Liabilities + Deferred Inflows] = Fund Balance
FA
Financial Assets - cash, investments, and receivables
RL
general government liabilities that are related to the current year and are normally paid from available expendable financial assets
FB
the net position of the fund, the difference between it’s FA plus deferred outflows (DO) and it’s RL and deferred inflows (DI)
What is the major difference between the proprietary fund and the governmental fund accounting equations?
The governmental fund accounting equation does not include either capital assets used in general governmental activities or unmatured long-term liabilities incurred for those activities.
To be considered a revenue under a governmental fund it must be…
1) Earned during or levied for the period
2) objectively measurable
3) available - collected within the period or soon enough thereafter to pay liabilities incurred for expenditures for the period
To be considered an expenditure under a governmental fund it must be…
1) when operating or capital outlay liabilities to be paid currently from governmental funds are incurred
and
2) when general government debt services (principal and interest) payments on long-term liabilities are due.
The accounting equation for the combined General Capital Assets and General Long-Term Liabilities Nonfund Account is…
General Capital Assets (GCA) - Unmatured General Long-Term Liabilities (GLTL) = Net Position (NP)
Predominant customer for Enterprise Funds
the general public (as well as businesses and other entities beyond the government’s own department or agencies)
the predominant customers for Internal Service Funds
other departments or agencies of the government
The General Fund is used for what?
to account for and report all financial resources not accounted for and reported in another fund
All governments with general government activities will have ONE General Fund
The majority of government activity goes into the General Fund
Special Revenue Fund
Established to account for and report the proceeds of specific revenue sources that are restricted or comitted to expenditure for specified purposes other than debt service or capital projects.
Capital Projects Funds
Established to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets.
Enterprise Funds
Used to account for any activity for which user fees charged for goods and services provided to external customers are a principal revenue source
Internal Service Fund
May be used to account for any activity of a fund, department, or agency that provides goods or services primarily to other funds, departments, or agencies of the government unit or to other governmental units, on a cost reimbursement basis.
Debt Service Funds
Established to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. Only accumulation of resources associated with general government long-term liabilities that are recorded in the GLTL accounts are accounted for in Debt Service Funds.
Permanent Funds
Established to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s program.
Pension (and other employee benefit) Trust Funds
Established to account for resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other post-employment benefit plans, or other employee benefit plans.
Investment Trust Funds
Established to account for the external portion of investment pools held by the sponsoring government.
Private-Purpose Trust Funds
Such as a fund used to report escheat property - are established to account for all other trust arrangements under which principal and/or income benefit individuals or groups outside the government
Agency Funds
Established to account for resources held by a government in a purely custodial capacity for others. Examples would be when one govt collects taxes for multiple levels.
Intefund activity
transactions between funds
interfund loan
amounts provided by one fund to another with a requirement for repayment
only type of interfund transaction that initially affects only balance sheet accounts
interfund transfers
flows of assets (such as goods or cash) from one fund to another without equivalent flows of assets in return and without requirement for repayment
other financing sources
other financing uses
unique to governmental fund financial statements
GASB requires that interfund transfers and certain transactions that affect both a financial asset or related liability in a governmental fund AND a general capital asset or general long term liability should be reported under this
Comprehensive Annual Financial Report (CAFR)
recommended annual financial report of a state or local government
contains three sections 1) introductory 2) financial and 3) statistical
Individual Fund Statements and Schedules
present status or operating data for a single fund, often in detail and/or with budget-to-actual or current year to prior year comparative data
Combining Fund Statements and Schedules
present individual fund data for multiple funds in adjacent columns
Modified accrual
Revenue recognition: when measurable and available
expenditures: when the liability exists
interest on long term debt: when due, because technically the liability doesn’t exist until it is due.
short term interest on debt: as soon as it is created
Governmental entities must comply with what?
GAAP as set by GASB and comply with finance related legal and contractual provisions.
IF state reporting requirements differ from those of GASB, then these reports are offered as “special reports” in addition to the GASB statements.
Major fund
one who’s assets, liabilities, revenues, expenditures/expenses are at least 10% of the total of all funds of the same type
AND
5% of the total for all funds combined
Capital Assets
Proprietary Funds: Account for the assets within these funds, they are included in the fund financial statement and the government wide financial statements, Record depreciation expense and A/D within the funds and include in the financial reports for those funds.
Fiduciary Funds: Account for them within these funds, only included in the Statement of Fund Net Assets. Record depreciation expense and A/D within the funds and include in the financial reports for those funds.
Governmental Funds: Capital assets not included in the Fund Assets
Valued at historical costs for purchased assets
Donated assets valued at fair market value
Long Term Liabilities
Recognized and reported in the proprietary and fiduciary funds
If the LT debt relates to governmental activities, we do not account for the liability within the governmental fund.
We do recognize them within the government wide statements for all fund types
Statement Elements
Assets
Deferred Outflows - deferred charges that will affect future periods
Liabilities
Deferred Inflows - Revenues received in advance that are not yet “available”
Net Position = (Assets + Deferred Outflows) - (Liabilities + Deferred Inflows) GASB #63
Annual Financial Reports
The reports must cover what we call the primary government and any related governmental units. A component unit is accountable to the primary government, so to leave them out would be misleading to the users.
A comprehensive set of financial information is required:
The Basic Financial Statements
1) Government Wide Financial Statements
A. Government Wide Statement of Net Position
B. Government Wide Statement of Activities
2) Fund Financial Statements
A. Governmental Funds Financial Statements
a) Governmental Funds Balance Sheet
b) Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances
c) General Fund and Major Special Revenue Funds Statement of Revenues, Expenditures, and changes in Fund Balances - Budget and Actual
B. Proprietary Funds Financial Statements
a) Proprietary Funds Statement of Net Position
b) Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Position
c) Proprietary Funds Statement of Cash Flows
C. Fiduciary Funds Financial Statements
a) Fiduciary Funds Statement of Fiduciary Net Position
b) Fiduciary Funds Statement of Changes in Fiduciary Net Position
