Governmental Funds and Financial Statements Pt. 2 Flashcards
What is the capital projects fund?
it is established for the construction, purchase, or leasing of significant fixed assets (used by governmental funds [GRaSPP] only, not by proprietary or fiduciary funds [SEPCIPPOE]); the life of the capital projects fund is short and is limited to a construction period of 1-3 years
capital projects funds are generally funded by bond proceeds that are to be used to complete a particular project; the project may also be purely funded by a transfer from another fund, specific tax revenues, or capital grants; investment earnings may also appear in this fund, although the disposition of those earnings may be either to retain them in the fund for the benefit of the project or to immediately transfer them to a debt service fund for the benefit of the bondholders
tax revenue specifically identified for construction would be classified as tax revenue of a capital projects fund and recorded in a manner identical to tax revenue in the general fund
capital grants received in advance are often recorded as a liability and displayed as earned as they are expended (assuming no time restrictions); government grants may be restricted and are reported as revenue when earned (grant money expended by recipient fund), or may be unrestricted, and recognized immediately
What are special assessments?
they are defined as taxes or fees levied against property owners who will directly benefit from the project (ex. sidewalks and lights); accounting for special assessment transactions depends on the degree to which the governmental unit is responsible, or potentially liable for, for the debt often associated with the assessment
when the governmental unit is primarily or potentially liable for the special assessment debt, the governmental unit should:
account for the capital project and debt-related transactions through the appropriate governmental or proprietary fund
when accounted for in a governmental fund, debt proceeds associated with special assessments for which the governmental unit is either primarily or potentially liable should be classified as “contribution from property owners” on the operating statement to distinguish it from bond proceeds
assets and liabilities should be reported in the government-wide financial statements under the governmental or business-type activities column as appropriate
special assessment revenues, although technically a tax assessment, are displayed as program revenue on the government-wide financial statements because they specially defray a particular cost
when the governmental unit is not primarily or potentially liable and associated revenues do not qualify as revenues of the government (described in more detail in the presentation of fiduciary funds): transactions should be reported in a custodial fund and assets and liabilities should be excluded from government-wide presentations
when the governmental unit is not liable, a custodial fund will account for special assessments
What are bond issue proceeds?
the amount of net bond issue proceeds is presented as “other financing sources;” premiums and discounts associated with bond proceeds are included in other financing sources and uses and receive no additional accounting after the year in which they are received; there is no amortization of premiums and discounts
other bond issue costs (bond costs, underwriting fees, etc.) are displayed as debt service expenditures when they are incurred
What are expenditure and encumbrance types?
capital projects fund expenditures are usually entirely classified as capital outlay, one of the major character classifications (ex. current, capital outlay, debt service, etc.); during construction, encumbrances are recorded as commitments as they are incurred; vouchers are recorded when a liability is incurred and the expenditure is known; as vouchers are recorded, the encumbrance entry is reversed; cash is credited and vouchers payable is debited as payments are made
T/F: short-term borrowing might be necessary to start a project before either bond proceeds or other revenues are received
True; bond anticipation notes are generally accounted for as other financing sources, similar to the long-term debt that will replace it
short-term financing to be repaid with taxes or other revenues should be recorded as a current liability
at the end of the period, 3 closing entries are required in the capital projects fund: budget is closed at year-end, actual activity is closed at year-end, and encumbrances are closed at year-end
outstanding encumbrances at year-end should be carried forward as a component of fund balance; the entire amount of the capital projects fund is presumed to be restricted for capital outlay
**note: the special revenue fund has operating expenditures, the debt service fund has debt service expenditures, and the capital projects fund has capital outlay expenditures
What is the permanent fund?
it should be used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used for the purposes that support the reporting government’s programs
a public cemetery perpetual-care fund is an example of a permanent fund; these funds are the equivalent of nonexpendable trusts and may also be used for endowments that are governed by a formal trust agreement with the donor
revenues may include investment earnings from the trust
expenditures are related to the operating purpose of the fund (ex. cemetery maintenance)
two of the governmental funds (GRaSPP) do not record encumbrances: debt service fund and permanent fund
the easy way to determine where public-restricted funds are recorded is:
fund: special revenue fund –> available for public spending = principal and interest
fund: permanent fund –> available for public spending = interest only
