Government Funds & Transactions Flashcards
How many types of funds may a government have?
One general fund. It may have any number of other funds (or no other funds), depending on its activities, but no more than necessary.
What are the three main types of funds?
Governmental – finance general government activities
Proprietary – finance business-like/self-supporting activities
Fiduciary – account for resources held as by a trustee (or an agent)
What are the different kinds of governmental funds?
General fund
Special revenue fund
Capital project fund
Debt service fund
Permanent fund
What is the accounting equation used by most governmental funds?
Current Assets - Current Liabilities = Fund Balance
They are “working capital funds”
What are the different kinds of proprietary funds?
Enterprise funds
Internal service funds
What are the different kinds of fiduciary funds?
Pension trust funds
Investment trust funds
Private-purpose trust funds
Agency funds
(PIPPA)
What is the basis of accounting used for different kinds of funds?
Governmental – modified accrual basis (revenues and expenditures)
Proprietary and fiduciary – accrual basis (revenues and expenses)
Exception: accrual basis not used in fiduciaries for recognition of certain postemployment plans
What are two ways in which modified accrual accounting differs from accrual accounting?
Revenue is accrued when available and measurable (rather than when earned)
Fixed assets are expenditures (not capitalized as assets)
Which types of funds typically do not depend on annual budgets?
Proprietary, fiduciary, and most capital projects funds
Basically, any funds not supported by taxation
What is peculiar about the balances of budgeted funds?
They are the opposite of companion accounts
E.g. Estimated Revenues account has a debit balance
What are encumbrances?
Commitments to spend funds a certain way – not liabilities
Used in governmental funds to prevent overspending
What are the JEs when a planned expenditure is encumbered?
Dr: Encumbrances (or Encumbrances Control)
Cr: Reserve for Encumbrances (or Budgetary Fund Balance – Reserved for Encumbrances)
These are reversed when the actual expenditure occurs
What is the formula for unencumbered appropriations?
Appropriations - (outstanding encumbrances + year-to-date expenditures) = unencumbered appropriations
What occurs if funds are encumbered at the end of a period?
Close out remaining balance in the Encumbrances account (just reverse the previous JE) and adjust fund balance account for amount of potential obligations
How do you adjust the fund balance for potential obligations?
(if General Fund)
Dr: Unassigned Fund Balance
Cr: Committed Fund Balance
(if other funds)
Dr. Assigned Fund Balance
Cr: Committed Fund Balance
For non-general funds, use “Unassigned Fund Balance” only if fund is in deficit
If encumbrances exist at period-end and are closed, what occurs at the beginning of the next period?
The closing entry is reversed, so that the Encumbrances and Reserve for Encumbrances account are brought to the amounts they had before
For governmental funds, which account is debited to record the budgeted revenue?
Estimated Revenues Control
For governmental funds, which account is credited to record the budgeted expenditures?
Appropriations Control
What are “other financing sources” for governmental funds?
Sources besides taxation – usually interfund transfers and bond proceeds
In what way is the Fund Balance account similar to Owners’ Equity for a business?
It presents a balance of assets less liabilities – though it does not show any ownership
How should fund balances be reported?
According to the extent to which the gov’t is obligated to constrain the purposes for the funds
What are different fund balance classifications?
Nonspendable, restricted, committed, assigned, and unassigned
Not all of these are necessarily used
What are the three types of JEs for governmental funds?
Those related to:
- budgets
- encumbrances
- actual activity
What is a typical JE to open a general fund budget at the beginning of the year?
Dr: Estimated Revenues Control
Cr: Appropriations Control
Cr: Budgetary Fund Balance (can be DR or CR)
There are also are debits and credits for “other financing” accounts
JEs to close the budget are the exact opposite
When is an encumbrance entry recorded?
When an item is ordered
Amount of JE is estimated cost of item
How are expenditures of prior year’s encumbrances accounted for?
As a use of the committed fund balance (not a current-year expenditure)
What does it mean for a revenue to be “available”?
Either collected or collectible within the current period, or collectible early enough to be used to pay for expenditures incurred in the current period – usually within 60 days
What happens if revenue-related assets (e.g. taxes receivable) are not “available”?
They should be deferred
Deferred revenue is then debited when Revenue is credited
In governmental funds, how should grants be recognized as revenue?
Unrestricted grants are recognized immediately, while restricted grants are recognized when earned
In governmental funds, what happens if significant amounts of revenue are received before the ordinary collection time?
Recorded as deferred revenue
In governmental funds, which expenditures are exceptions to the normal rule of recording expenditures?
Inventory items – can be recorded as expenditures either when purchased or when used
Prepaid expenses (e.g. insurance) may be either reported as expenditures or split up between other periods
Interest on “general” long-term debt is recorded as an expenditure on its due date (not accrued earlier)
How are interfund transfers recorded?
Transfers in and out are not netted
Reported after revenues and expenditures
How are capital assets treated in governmental funds?
Not included – included only in financial statements
How is debt treated in governmental funds?
Not included – included only in financial statements
What is the purpose of the general fund?
Accounts for resources not accounted for by other funds – routine operations
e.g. taxes, licenses, fines, and interest
How do governmental funds record estimated bad debts?
As direct reductions of revenue
Dr: Receivables
Cr: Allowance for Uncollectible Receivables
Cr: Revenues Control
After an invoice is received and the encumbrance JEs are reversed, how is the actual expenditure recorded?
Dr: Expenditures Control
Cr: Vouchers Payable
This is recorded at the actual cost, even if the (budgeted) encumbrance is different. There is not a JE to reconcile the budgeted and actual costs.
How does the Expenditures Control account vary?
According to the nature of the expenditure – e.g. “Expenditures Control – Salaries”
If inventory items are initially recorded as expenditures when purchased but are still on-hand at year-end, what JE is needed?
Dr: Supplies Inventory
Cr: Nonspendable Fund Balance
If a grant is paid to a school district, what would the JE be?
Dr: Other Financing Uses
Cr: Cash
What would be the JE needed to close out the original budget?
The exact reversal of the original budget entries, including all the amounts
What would be the JE needed to close out the encumbrances?
Take the remaining amounts of the “Reserve for Encumbrances” and the “Encumbrances” accounts and cancel them out
At the beginning of the next year, it will be reversed
What would be the JE needed to close out the actual activity?
Close out “Revenue Control,” “Expenditures Control,” and Other Financing Sources/Uses
“Unassigned Fund Balance” will be the difference
What would be the three types of JEs for a special revenue fund?
Dr: Cash
Cr: Other Financing Source: ____
Dr: Expenditures – ____
Cr: Cash
Dr: Other Financing Sources: ____
Cr: Expenditures – ____
Cr. Fund Balance [could be DR]
Note the essential similarities between this and the general fund, except that the account names pinpoint some special revenue purpose (e.g. library books).
If a special revenue fund is supposed to receive cash from another fund, what would be the debited account instead of “Cash”?
Due from Permanent Fund [or whatever the fund’s name is]
If a fund is getting cash from another fund, should both funds record the cash as distributions?
No – only the fund for which the cash is intended
What happens if a special revenue fund is no longer being funded primarily by specific revenue sources?
The fund’s remaining sources should be reported in the general fund
By definition, a “substantial portion of the inflows” for a SR fund must be from specific revenue sources (i.e. constrained in their purposes)
What distinguishes a special revenue fund from an enterprise fund?
Intent – if intent is to recover <50% of expenses from user fees, then SR fund
What distinguishes a special revenue fund from a private purpose trust fund?
The beneficiaries – if they are citizens or the entity itself, then SR fund; if they are individuals, private organizations, or other governments, then the fund should be a private purpose trust fund
What are capital project funds?
Funds with financial resources restricted to capital assets
CP funds do not include capital outflows financed by proprietary funds or for assets held in trust
How long do capital project funds last?
As long as the corresponding capital project exists – or as long as at least one of the projects assigned to the fund exists
How are bond issue proceeds reported?
Other Financing Sources (though JE might say “Bond Issue Proceeds”)
Premiums and discounts are Other Financing Sources/Uses
Debt issue costs are expenditures
What is interim financing?
Financing for the early stages of a capital project (e.g. before bond proceeds are received) – may involve interfund loans, bond anticipation notes (BANs), or loans from banks
How is interim financing classified?
Assuming it’s short-term, it is a current liability
Either “Notes Payable” or “Due to [Fund]”
What are debt service funds?
Funds with financial resources restricted to repaying principal and interest
In debt service funds, what are the JEs to record expenditures for principal and interest retirement?
Dr: Expenditures
Cr: [Matured] Bonds Payable
Cr: [Matured] Interest Payable
What happens if debt is unpaid at year-end?
Unredeemed Bonds Payable (or Unredeemed Interest Coupons Payable) are credited
What is a permanent fund?
A fund whose resources are solely the return on some particular investment (never the “principal”), used for a restricted purpose
For a permanent fund, what JE records an initial endowment?
Dr: Cash
Dr: Investments
Cr: Contribution Revenues
For a permanent fund, how are donations recorded?
At FV – regardless of the cost to the donor
Closed to “Fund Balance – Principal” at year-end
For a permanent fund, what is the JE to record earnings from an investment?
Dr: Revenues – Investments
Cr: Expense
Cr: Fund Balance – Earnings
There will be different types of Expense accounts credited (e.g. Commissions, Administration, etc.)
The JE might also have a gain/loss, depending on the donor’s restrictions on earnings calculation
For a permanent fund, what is the JE to record the transfer of investment earnings to a special revenue fund?
Dr: Other Financing Use: Transfer to __ SRF
Cr: Cash
For a permanent fund, how are the various accounts closed?
Simply undo all the other JEs
What is the main accounting equation for proprietary funds?
Current Assets + Fixed Assets + Other Assets = Current Liabilities + Long-Term Debt + Net Assets
Note that “net assets” is essentially equity, and it’s very similar to the ordinary equation A=L+E
What is significant about the Net Assets account?
It is like equity but without a separation between contributed capital and retained earnings
What does GASB 29 do?
Allows certain state and local governments to use either the nonprofit or the governmental model
What are current refundings and advance refundings?
Current = issue new debt and use the proceeds to immediately pay off old debt
Advance = new debt proceeds are held in escrow to later pay off old debt
How are debt refundings to be reported in proprietary funds?
GASB 23 requires any difference between the (a) reacquisition price (amount needed to retire debt) and (b) net carrying amount of debt to be deferred and amortized as interest expense
-The liability is reported net of the deferred amount
Amort. period = remaining life of old debt or life of new debt, whichever is shorter
What are internal service funds?
Account for goods/services provided by one government to another
Done on a “cost reimbursement basis”
E.g. repair shops, printing shops
What sort of gains are internal service funds expected to have?
None – they are designed to break even; all revenues recoup their expenses
What do internal service funds have instead of a Revenues account?
Billings to Departments, or something similar
Which fixed assets are recorded in an internal service fund?
Only fixed assets that are expected to be replaced through the fund
E.g., if printing equipment is in a courthouse, the print shop ISF would depreciate the equipment but not a segment of the courthouse
What do enterprise funds do?
Account for a government’s business-type activities
If the government intends for all costs to be recovered primarily through user charges, then an enterprise fund must be used
For an enterprise fund, what are interest income/expense, capital gains/losses, unrestricted grants, and interfund transfers classified as?
Nonoperating revenue
What does NCGA Statement No. 1 permit?
Allows governments to account for any business-type activity in an enterprise fund if it prefers
E.g. city buses
What happens if other types of funds (e.g. capital, debt service) are required to be related to an enterprise activity?
Accounted for as subfunds of the enterprise fund, not separate funds
How are assets and liabilities recorded in subfunds?
They have their separate accounts, with the name of the subfund included (e,g, Interest Payable – Debt Service, or Cash – Construction)
Do subfund assets and liabilities need to balance?
No, though all of them (except agency subfunds) can be balanced with net asset reserve accounts (e.g. Reserve for Debt Service, or Reserve for Construction)
How are revenues and expenses recorded in subfunds?
They do NOT have separate accounts, but are treated as enterprise revenues/expenses
What are pension trust funds?
A kind of fiduciary fund to manage pensions or retirement trust funds for government employees
Needed only for governments that don’t outsource it or participate in statewide plans
Uses accrual basis
Who can be represented through agency funds?
Anyone – other governments, private organizations, or individuals
How does equity work for an agency fund?
There is none, since it is purely custodial – assets = liabilities
Agency funds lack revenues (and therefore don’t need operating statements)
What is the most common type of agency fund?
Tax agency fund – when one government collects taxes for several governments, including itself
What would a JE be to collect taxes for other districts?
Dr: Taxes Receivable – Other Funds and Units
Cr: Due to City
Cr: Due to School District
Cr: Due to General Fund
The GF is the collector’s GF, and it would receive not only its share of taxes, but also any collection fees charged to the others (which would be reflected in those particular funds, not in the agency fund)
In a tax agency fund, what happens for uncollectible taxes?
No allowance is recorded – uncollected receivables are returned to other units so they can try to collect (and they have an allowance)
Are interfund transfers expected to be repaid?
No – they are nonreciprocal
What are quasi-external transactions?
Transactions that would be treated as revenues or expenses/expenditures if they involved a non-government organization
That is, these are transactions where funds buy and sell from one another
How are quasi-external transactions recorded?
Very basically – one fund will have a “due to __” entry and the other a “due from __” entry, or one will have revenues and the other expenditures, etc.
How are reimbursements accounted for?
The reimbursed fund treats them not as revenues, but as reductions of expenditures/expenses
The reimbursing fund treats them as expenses/expenditures
What is the difference between operating transfers and residual equity transfers?
OTs are Other Financing Sources/Uses, while RETs are direct changes to fund balance
This distinction is no longer important for the exam, however
How are interfund transactions reported on the financial statements?
Quasi-external transactions and reimbursements are included in revenues and expenditures/expenses
Transfers are included in Other Financing Sources/Uses
How are transfers reported in proprietary funds?
After nonoperating revenues and expenses
Reported as Transfers In (Out)
How are short-term loans recorded in the lending and borrowing funds?
Simply using “Due From” and “Due To” accounts
Can also be “payable” or “receivable”
How are long-term loans recorded in the lending and borrowing funds?
Using “Advance to” and “Advance From” accounts
In the general fund, long-term loans require a Fund Balance to be opened – if the GF is lending, DR “Unassigned Fund Balance” and CR “Reserve for Advance to ___ Fund”
How are transfers closed?
In governmental funds, closed to Fund Balance
In proprietary funds, closed to Retained Earnings
What is the measurement focus of governmental funds?
Both (1) the flow of resources and (2) financial position
When recording the initial budget JE for the general fund, what else can affect the amount for Budgetary Fund Balance?
Estimated interfund transfers
E.g. Dr: Estimated Revenues Cr: Appropriations Cr: Estimated Other Financing Use -- Transfer Cr: Budgetary Fund Balance
What is peculiar about special revenue fund revenues?
The revenues must correspond in some way to the service provided by the fund
E.g. taxes on gasoline fund road repairs, parking meter revenues fund the traffic court
What kinds of debt are debt service funds intended to repay?
Only general long-term debt
Money restricted to repay debt for fiduciary and proprietary funds is not held in DSFs
