Governmental & Not-For-Profit Flashcards
Government Wide Reporting uses what measurement and basis of accounting?
Governmental Fund?
Proprietary Fund?
Fiduciary Fund?
Economic Resource Measurement and Accrual Basis are used by Government Wide, Proprietary Funds and Fiduciary Funds.
Governmental Funds use Current Financial Resource measurement and Modified Accrual Basis.
Modified Accrual basis: Revenues recorded only if they are MEASURABLE & AVAILABLE for paying CURRENT period debts. Expenditures recorded only when obligation that will be paid from CURRENT financial resources has been INCURRED.
Objectives of Government financial reporting:
Government has management’s duty to be accountable for funds used, to citizens, creditors, and oversight boards.
- Budgetary integrity
- Operation performance
- Assess effectiveness & efficiency, compliance with laws, regulations, and rules
- Compare actual results with legally adopted budget
- The Authority for standards established for all units of state and local Government, and governmental NFPs.
- The Authority for accounting standards for For Profit Organizations and non-Governmental NFO orgs.
- The Authority for accounting standards for Federal governmental, agencies, and departments.
- Governmental Accounting Standards Board GASB
- Financial Accounting Standards Board FASB
- Federal Accounting Standards Advisory Board FASAB
AICPA designates GASB, FASB, and FASAB as the authoritative bodies to establish GAAP for state, local, federal governments, businesses and NFP non governmental organizations.
Governing bodies of FASB, GASB, FASAB?
FASB & GASB fall under Financial Accounting Foundation
FASAB falls under the Office of Management and Budget, which is directed by Comptroller General.
Statements required for
- Government - Wide?
- Governmental Funds?
- Proprietary Funds?
- Fiduciary Funds?
- General Purpose Governments?
- Statement of Activities (ie Operating Stmnt) & Statement of Net Position (ie Stmnt of Net Assets aka Balance Sheet)
- Balance Sheet & Statement of Revenues, Expenditures, and Change in Fund Balance
- Statement of Fiduciary Net Position & Statement of Change in Fiduciary Net Position
- Must have Management’s Discussion & Analysis (MDA), all Government-wide statements, fund statements, Notes to Financial Statements, and Required Supplemental Information
Required Supplemental Information includes:
Budgetary comparison schedules, MDA, Pension schedules, information on infrastructure assets, and claims development information.
Deferred Inflows and Deferred outflows?
Where are they reported in Statement of Net Position?
Deferred Inflows are acquisitions of new assets applicable to future reporting periods. Report below Assets section
Deferred Outflows are the consumption of net assets by the government that is applicable to future reporting periods. Report below Liabilities section
What is Inter-period equity?
Current year revenue must be sufficient to pay for services provided that year and whether future taxpayers will assume burden for services previously provided.
Is Comprehensive Annual Financial Reporting CAFR required for state and local governments?
Includes what items?
- Which are required at minimum?
NO, but these governments use CAFR.
Introduction with title page
Letter of transmittal
Description of Government
Financial section with Auditor’s report, MD&A, basic financial statement, RSI and any other supplemental information.
Statistical section with tables/charts on economic data and trends.
Required at minimum are MD&A, RSI, and basic Financial Statement
What criteria must all be met to be consideration a Primary Government?
Otherwise, is a unit of a Primary Government. Report discrete presentation unless?
Has a separately elected governing body
It is legally separate
It is fiscally independent of other state and local governments
Discrete presentation unless substantially the same governing body, provides almost entirely all of services for Primary Government, or if its debt is to be repaid with resources provided by Primary Government.
THE reporting entity in governmental accounting?
Definition of governmental organization?
Primary Government
A Governmental organization has status as bodies corporate and politic and with power to enact and enforce a tax levy.
What types of governmental reporting are there?
Two types: Government wide (reports as a whole on operating accountability) Fund level (focus on short term flow)
Major Fund Criteria
Major funds: Governmental, Proprietary, and Fiduciary
Within each fund, the total of the elements (Expenditures, Revenue, Total Assets, and Total Liabilities) must be at least 10% of total fund type (Governmental, Enterprise, Fiduciary)
The elements individually must be at least 5% of total governmental and enterprise element type.
Governmental funds include:
General fund (every state and local government has only ONE, it is main operating fund for general purpose, city managers, finance, etc)
Special Reserve Fund (tax or grant revenues or private gifts restricted by EXTERNAL resource providers or committed by legislation; fewest needed) also called Special Revenue
Debt Service Fund (accounts for financial resources segregated for making PRINCIPAL & INTEREST payments on general LT Debt)
Capital Projects Fund (Accounts for tax/grant revenues or bond proceeds for capital projects)
Permanent Fund (Accounts for permanent endowments created when donor stipulates principal be invested and PRESERVED, but earnings may be used for PUBLIC purpose)
A Fund is a separate fiscal entity with its own resources, liabilities, and operating activity for fiscal period.
Are short term or long term assets allowed in fund accounting?
Short term assets belong in Fund accounting.
No Long Term assets are recorded in Funds accounting, these belong in Government Wide statement of Net Position.
The Statement of Net Position includes what items?
What is the calculation for Net Position?
Either Restricted or Unrestricted:
- Capital Assets net of related debt (General LT Liabilities)
- Def. Outflows and Def. Inflows
(Assets + Def Outflow) - (Liabilities + Def Inflows) = Net Position
The Statement of Activities includes what items?
Each program or function is listed with their respective revenues and Net expenses.
Separated by governmental, business-type, and component units.
General Fund : Revenue Other Financing Sources Expenditures Other Financing Uses
Revenues are from sources OTHER THAN proceeds from issuance of DEBT and InterFUND transfers. (so taxes are revenue)
OFS are non-revenue increases in fund Net Position (interfund transfers, sales of general capital assets, bond issue proceeds)
Expenditures are Increases in fund liabilities or decreases in fund assets. Include only current operating expenditures, capital outlays, and repayment of general LT liability PRINCIPAL only.
OFU are non expenditure decreases in Fund Net Position (interfund transfers out to other funds)
Budgetary Accounts include:
Estimated Revenues
Appropriations (Expenditures)
Encumbrances
Estimated Revenues can include:
taxes, licenses, permits, special assessment issue if government responsible, penalty and interest, intergovernmental revenue, fines, forfeits, and charges for services.
Appropriations (Expenditures) are:
Legal authorization to expend Financial resources for specified purposes. Reduces fund balances.
Encumbrances:
Record changes of Goods and Services against Appropriations for budgetary control purposes. Estimated cost of G/S recorded temporarily in this account.
Disbursement cycle in fund:
Appropriations -> Encumbrances -> Expenditures -> Payment
Journal Entries for recording budget.
Max amount able to spend =
DR Est.Revenue
DR or CR Budget Fund Balance = plug
CR Appropriations
Max able to spend = Appropriations less Encumbrances and Expenditures
Journal entries for invoice for acquisition and when items received.
DR Encumbrances
CR Encumbrances Outstanding-year #
Reverse entirely when items received for the invoiced amount.
Balances in Encumbrances are removed at year end.
Journal Entries for future payment of invoice for received acquisition.
Journal entries for payment of vouchers
DR Expenditures
CR Voucher Payable
CR Due to.. (if applicable)
DR V/P
CR Cash
Expense goes to Governmental Activities
Expenditures under modified accrual basis are recorded when?
What are the 5 classifications of expenditures?
Record when incurred except unmatured interest & principal of General LT debt, which is expensed.
- Function or Program (Economic Development?)
- Organizational Unit (Fire Department? City Clerk)
- Activity (waste collection?)
- Character (current expenditure, intergovernmental use, etc)
- Object (what was acquired, services? wages?)
Prior year Expenditures are equal to?
Current Year total Expenditures?
Current Liabilities balance at beginning of current year.
Claims paid currently will first liquid that balance.
The remainder of claims paid + new balance at year end are current total expenditures.
What are the 5 Fund Balance types?
Nonspendable - resources not in cash or A/R, legally required to remain intact. Certain resources of governmental funds are not monetary in nature and will not lead to a collection of monetary resources in the future. These assets, usually prepaid items and inventories, are considered nonspendable.
Restricted - external constraints by creditors or grantors
Committed - Can only be used by formal action of highest level of government authority
Assigned - Intent to be used for specific purposes. Is the remaining fund balance in excess of Encumbrances and Liabilities.
Unassigned - Residual of General Fund Balance. Only allowed in GENERAL FUND.
Reclassification of Fund balance
Purchase 12 vehicles for $264,000 but only received half this year. Started with $132,000 fund balance.
What balances at year end would appear on Balance Sheet?
Do J/Es
DR Encumbrances 264,000
CR Enc. Oustd 264,000
DR Enc. Outstd 132,000
CR Enc. Oustd 132,000
Balance in Encumbrances 132,00
Dr Expenditures 264,000
C V/P 264,000
DR V/P 132,0000
CR Cash 132,000
DR Fund Balance 264,000
CR Expenditures 264,000
Left Fund balance with Debit balance 132,000
Report both the encumbrance balances and the fund balance as:
DR Fund Balance - Unassigned 132,000
CR Fund Balance - Committed 132,000
Enterprise Funds (proprietary fund type)
Enterprise funds are used to report any activities for which a fee is charged as primary revenue source.
Fee can be charged to internal departments and agencies.
If activity financed with debt, secured by pledge of net revenue from fees and charges, must use an Enterprise Fund.
If required by law to have costs covered by fees and charges must used Enterprise Fund.
Internal Service Funds (Proprietary Fund Type)
Created to improve management of resources, provide goods and services to departments and agencies within same or other governments on cost reimbursement basis.
Liquidates after mission completed, funds moved to other funds or governments.
Where are depreciation and capital assets recorded?
ONLY recorded in Internal Service Fund
What is a Fiduciary Fund?
Fiduciary Fund has 4 main types, what are they?
Accounts for resources that government is managing as an AGENT or TRUSTEE for EXTERNAL party.
Types:
Agency Fund - holds cash on custodial basis (taxes collected for other government). Total Assets = Total Liabilities
Pension Fund - employee benefit holds assets in trust to provide retirement benefits
Investment Trust Fund - Equity of external participants in a sponsoring government’s investment pool.
Private Purpose Trust Fund - Benefit private individuals (scholarships)
Property Tax Levy calculation
End Receivables
Less: Collections w/in 60 days of year End
Less: Ending Allowance for Uncollectible
—————————————————————–
=Deferred Revenue
Property Taxes
Estimated Revenue = ?
Current Year Revenues=?
Estimated Revenue from taxes is the NET of Gross Levy (ie Taxes Receivable) and % uncollectible. (est Rev/1-%)=tax levy
Current year revenues are amounts collected in current year and those collected w/n 60 days of year end.
- Def. Rev = more than 60 days expected to collect
Tax levy JEs
Reclassifying Delinquent Taxes JEs
DR Taxes/R
CR Est Uncoll - Current
CR Revenues
Collection: DR Cash
CR Taxes/R
Delinquent taxes:
DR Taxes/R- Delinquent
DR Est Uncoll-Current
CR Taxes/R-Current
CR Est Uncoll-Delinquent
Debt and Bonds where are they recorded?
Payments of these are recorded where?
LT Liabilities are record in Capital Assets of government wide statements.
Debt Service Fund used to record PAYMENTS of PRINCIPAL and INTEREST of general government ST/LT debt.
Expense issue cost and debt insurance as they are current period (per GASB)
Fund Balance classification
Is it the General Fund? If NO, cannot use unassigned
Are the assets NONCASH? If Yes, they are nonspendable
Are there Outstanding Encumbrances? If Yes, that amount is committed
Total Equity of Assets = Assets less Liabilities
Excess of Equity over encumbrances reserved are Unassigned in the General Fund ONLY.
What is the minimum budgetary information required to be reported in the City of Newbury’s budgetary comparison schedules?
A. A schedule of unfavorable variances at the functional level
B. A schedule showing the final appropriations budget and actual expenditures on a budgetary basis
C. A schedule showing the original budget, the final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis
D. A schedule showing the proposed budget, the approved budget, the final amended budget, actual inflows and outflows on a budgetary basis, and variances between budget and actual
C.
The budgetary comparison schedule should present both (a) the original and (b) the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and balances, stated on the government’s budgetary basis. A separate column to report the variance between the final budget and actual amounts is encouraged, but not required. (GASB 2400.102)
What accounts are closed out at year end?
Operating Statement Accounts, i.e. nominal accounts, are closed out, as are Budgetary Accounts. Both are Temporary.
Revenue, Expenditures, OFS and OFU are operating
Est. Revenue, Appropriations, Encumbrances, Reserve for Encumbrances, Est OFS, Est. OFU are budgetary.
EXCEPT, if there are outstanding Encumbrances not received, these are balance sheet items that will be moved to Fund Balance either Committed or Assigned.
What counts as Program Revenue?
business licenses/permits/fines, special assessments, forfeitures, services, intergovernmental revenues, operating grants and contributions, capital grants and contributions.
What counts as General Revenue?
ALL Taxes are reported as General Revenue.
Any revenue not directly linked to any specific function/program.
Depreciation Expense
Report as a Direct Expense of the function/program if the capital asset expense is identifiable.
Record receipt of bond or LT dept proceeds
DR Cash
CR Other Financing Sources - Proceeds Bonds
Record the transaction of short-term financing received from a bank, secured by the city’s taxing power
DR Cash
CR Tax Anticipation N/P
The loan represents establishment of a fund liability (not an increase in “other financing sources” as is the case when the General Fund accounts for the proceeds from long-term borrowing).
The orientation of accounting and reporting for all proprietary funds of governmental units is
income determination
The measurement focus of governmental type funds is on
both flow of financial resources and financial position
“Other financing sources and uses” is not an appropriate category for proprietary funds
In governmental funds, interfund transfers should be reported as “other financing uses” in the fund making the transfer and as “other financing sources” in the fund receiving the transfer. In proprietary funds, which use full accrual accounting, transfers should be reported separately after nonoperating revenues and expenses.
Inflows of assets from other funds without a requirement for repayment are considered interfund transfers.
An interfund transfer to/from a governmental fund should be reported as “other financing sources or uses” in the governmental fund.
GASB N50.104 groups nonexchange revenues into four different categories: derived tax revenues, imposed nonexchange revenues, government-mandated nonexchange transactions, and voluntary nonexchange transactions.
Property taxes are an imposed nonexchange revenue because they are levied or imposed by government on nongovernmental entities and they are not assessments on exchange transactions. Income and sales taxes are derived tax revenues as they are assessments imposed on exchange transactions. A federal grant would be either a voluntary or mandated nonexchange transaction depending on the terms of the grant.
The service efforts and accomplishments (SEA) performance of governmental entities is primarily measured by output, outcome, and efficiency measures. These measures report what services the entity has provided, whether those services have achieved the objectives established, and what effects they have had upon the recipients and others.
SEA performance information measures should meet the characteristics of relevance, understandability, comparability, timeliness, consistency, and reliability.
All of these measures, except for understandability and relevance, can be objectively examined. Understandability and relevance will be subject to the user’s own interpretation
Special Purpose governments are Park districts, tollway, school district, sanitation district.
Can be governmental, business type fiduciary and both governmental/business type activities.
Public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report infrastructure using the provisions of GASB Statement 34 codified as GASB Sp20.104. These provisions include the reporting of capital assets that are defined in GASB 1400.103 to include infrastructure.
Governmental NFP components belong after Primary Government on F/S Govt Wide.
Discretely present components.
Follows full governmental model if special purpose.
Public Universities recognize revenue on what basis and under what eligibility criteria being met?
Accrual Basis when available and earned
All eligibility criteria must be met in order to recognize.
- Contributions with purpose restriction only are recognized as revenue and reported as restricted Net Position (same as pledges)
Public Universities recognize revenue on what basis and under what eligibility criteria being met?
Accrual Basis when available and earned
All eligibility criteria must be met in order to recognize.
- Contributions with purpose restriction only are recognized as revenue and reported as restricted Net Position (same as pledges).
If pledged contribution not received until next year but is restricted, count as revenue.
GASB 1300.109.c states that enterprise funds should be employed when the pricing policies of the activity establish fees and charges to external users designed to cover its costs, including capital costs.
GASB Ho5.102 notes that accounting for government-operated hospitals financed in whole or in part by fees charged are usually reported in an enterprise fund. Note: Governmental hospitals may also be component units.
Public NFP required statements include:
State of Net Position (A + DCF - L - DIF) in classified format
Net Position -> Net Investment (expendable or nonexpendable for scholarships/endowments)
Statement of Rev,Exp, chg NP -> All inclusive to reconcile to ending total NP. State appropriations are Nonoperating Revenue.
Statement of Cash Flows ->Direct Method only.
Statement of Cash Flows for Public NFP includes what headings and what goes into each:
Operating: Receipts from customers, sales to other funds, payments to suppliers, payments to employees.
Noncapital financing: Proceeds from Debt not clearly attributable to acquisition, construction, or improvement of capital assets; grants/subsidies, other taxes.
Capital & related financing: Debt proceeds from Special assessments and taxes for capital asset construction, acquisition, or improvements; receipt of capital grants, sale of capital assets, insurance proceeds on capital assets
Investing: Collections of loans, interest and dividends on loans, debt instruments of other entities, equity security, sales of debt or equity, disbursement of loans.
What are the classifications required for reporting of expenses by all not-for-profit entities?
FASB Accounting Standards Codification requires expenses to be reported by functional classification (i.e., program services, management, fundraising, etc.).
Only those not-for-profits that are voluntary health and welfare entities must augment the functional classification of expenses that appears in the statement of activities with a natural classification of expenses, displayed in a matrix format, that is shown in a separate document, a statement of functional expenses.
What financial categories are used in a nongovernmental not-for-profit entity’s statement of financial position?
Assets, liabilities, and net assets
Private NFPs classify Net Assets using which three categories?
Permanently Restricted - (such as art, endowments, land)
Temporarily Restricted - unexpended resources to be used in future
Restricted - by donors/grantors ONLY. Not Board of Directors, managers, trusts, etc.
Presume resources are unrestricted unless other evidence exists. Unrestricted is still internally designated.
Private NFP financial statements include?
Statement of Financial Position (ie Balance Sheet): Assets - Liabilities = Net Assets
Net assets is not a term required by FASB, can subdivide unrestricted component units. Net assets are Equity.
Statement of Activities reports the changes in net assets for the period (Rev, Gains, Exp, Losses, )
Statement of Cash Flows
How are all expenses reported for NFPs?
According to the FASB Accounting Standards Codification, all expenses in the statement of activities are classified as changes in unrestricted net assets and therefore decrease unrestricted net assets.
Plant and related equipment are either temporarily restricted or unrestricted. Do depreciate?
Yes, depreciate and charge for exhaustible fixed assets.
Are collections capitalized for NFPs?
If does not meet all of criteria and therefore, not capitalized, NO revenues/contributions are recognized.
Capitalize if all of following met:
Held for public exhibition, education, research
Protected, kept encumbered, care for, preserved
Subject to organizational policy requiring the proceeds from sales of collections used to acquire other items for collections.
NFPs -
Unconditional Contributions are recorded as?
Assets to Contribution Receivable and Liability to Contribution Revenue.
If there are conditions, no recognition of revenue. CR Refundable Advance instead of revenue.
FASB ASC 958-605-25-2 provides that “contributions received shall be recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received.”
FASB ASC 958-605-25-16 provides that contributions of services “shall be recognized if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.”
Patient service and ancillary service revenues pertain to the core mission of patient care in a hospital
Cafeterias are operated as a convenience to staff and guests to support the core mission of patient care. Thus, the revenues from a hospital cafeteria are classified as other revenues.
NFP
Natural expense classification is a method of grouping expenses according to the kinds of economic benefits received in incurring those expenses. Examples of natural expense classifications include salaries and wages, employee benefits, supplies, rent, and utilities.
Functional Expense: those related to either the program or mission of the oroganization or management/general/fundraising expenses or object of expense.
A statement of functional expenses is required for voluntary health and welfare entities.
o FASB requires not for profit organizations (private universities) to disclose functional classifications of expenses in notes
Program services expenses are incurred in carrying out the primary mission of an organization.
Supporting services (management, general, or fundraising).
Under what condition will Forkin be allowed to use “operating profit” and to segregate its recurring items from its nonrecurring items in its statement of activities?
The organization reports the change in unrestricted net assets for the period.
. Amounts required are changes in net assets for each of the three classes (unrestricted, temporarily restricted, and permanently restricted) and totals for revenues, expenses, gains, losses and the amounts of assets released from restriction
In the government-wide financial statements, what is the correct revenue classification of fines and forfeitures?
Charges for services
Vulnerability to concentrations refers to risk due to a lack of diversification. Disclosure of such risk must be made if, based on management’s information, the following criteria are met:
The concentration exists at the date of the financial statements.
The concentration makes the entity vulnerable to the risk of a near-term severe impact.
It is at least reasonably possible that the events that could cause the severe impact will occur in the near term.
