SU 2: GOV Fund Accounting Flashcards
Reporting entity
Defines the financial reporting boundaries of a particular entity by describing whose assets, liabilities, expenses, and equities are included in its financial reports
Component units
Legally separate entities for which the primary government is financially accountable.
May be reported as part of the primary’s financial statements or separately within the financial statements
Fund
A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations
Fiscal entity
The separate budgetary nature of an individual fund
Accounting entity
The unit treated as an entity for accounting and reporting purposes
Fund balance
Aka net position
The difference between assets and liabilities (and deferred inflows of resources) for an entity in the absence of owners ewuity
General Fund
Residual fund to account for resources not accounted for in other funds. Also most important fund: from which government appropriates resources for day to day operations
Categories of funds
- governmental
- proprietary
- fiduciary
Mirror the broad types of activities the funds perform
Governmental-type funds
Used for day to day governmental services
Primarily financed by tax revenue
Use capital assets financed by issuing debt (debt is accounted for in a separate governmental-type fund)
Expenditures controlled by legally adopted budgets (appropriationsL
Proprietary type funds
Aka business-type funds
Used to account for govt activities that operate in a similar manner to private sector business. Charge fees for services and measure of revenue covers expenses though may receive transfers from the general Fund.
Cost data may be used to determine fee amounts
Tend to be supporting activities that may receive subsidies, maybe provide govt revenues (lotteries)
Focus on cost recovery so use accounting principles similar to commercial entities
Proprietary fund accounting
Used by government business type enterprises that are legally separate from the government
Fiduciary type funds
Used to account for resources that governments hold (or transaction they make) in trust or custodial capacity for others.
Cannot be used to support government’s own programs
Report as fiduciary activity only if government controls the assets of that activity (has the ability to direct use)
Assets in fiduciary funds cannot be used to support government’s own programs
Governmental-type fund financial statements
- resource inflows and outflows (statement of revenue, expenditures, and changes in fund balance: operating statements)
- financial position (balance sheets)
Proprietary type fund financial statements
- Operating statements
- statements of net position
- statements of cash flows
Fiduciary type funds financial statements
-statements of net position and changes in net position
Government wide financial statements
Consolidate individual funds into two groups:
Governmental vs business type
Starts with funds statements and adjusts them so all activities use same measurement focus and basis of the accounting
Excludes fiduciary funds (they do not support government’s own programs)
Measurement focus
What is being expressed and which resources are being measured in the report
Governmental accounting measurement focus
Only measures current financial resources: financial assets, short term liabilities, and matured long term liabilities
This tracks the amount of financial resources available for current spending by recording inflows and outflows of financial (or near term) assets
Inflows: revenues/ other financing sources
Outflows: expenditures/ other financing uses
Basis of accounting
When the assets, liabilities. Revenues and expenses are recognized (recorded) in financial statements
A timing concept
Measurement focus and basis of proprietary and fiduciary funds
Measurement focus: all the economic resources available to the activity (economic resources measurement focus)
Basis: accrual basis
Information needs of government budget officer and central budget office
Amount of financial resources available for current spending
Basis of accounting for Governmental-type funds
Modified accrual basis
Focuses on flows of current financial resources
No measurement of capital assets or long term liabilities
Only accruals of NEAR-TERM financial resources recorded (inflows and outflows)
Five types of governmental funds
General Fund Special revenue funds Debt service funds Capital projects funds Permanent funds
Governmental funds: general
Day to day activities. Anything not accounted for in another fund
Governmental funds: special revenue
Proceeds of specific revenue items (taxes and fees) restricted/ limited to spending for specific purposes (other than debt service or capital projects)
Generally established by law or contract
May be supplemented with funds from the general Fund
Provides greater transparency in how dollars collected from specific source are used
Financial statements must include purpose of the special revenue fund
No unassigned portion of fund balance - all classified restricted
Governmental funds: capital projects
Financial resources restricted for the acquisition or construction or capital facilities (inc infrastructure) /other capital assets
Not used for outflows financed by proprietary funds or for assets held in trust
Used when capital outlays are financed by general obligation bond proceeds (separate funds for separate bonds for transparency)
May have transfers from other funds
Governmental funds: debt service
Financial resources restricted or otherwise limited to spending for principal and interest on general long term debt
May also be used to accumulate resources for paying long-term liabilities (debt-like commitments)
Use if legally mandated or if financial resources are being accumulated for principal and interest that comes due in future years (bonds that require a sinking fund)
May be different funds for different bonds
Governmental funds: permanent
Resources restricted to the extent that only earnings (not principal) may be used for government programs (endowment funds).
Do not include private-purpose trust funds (fiduciary type funds)
Usually a special revenue fund designated as the beneficiary of the permanent fund to which earnings are transferred and from which they are then used
Revenue recognition for modified accrual accounting
Recognition of revenue that is measurable and available (collectable soon enough to pay current period bills) = taxes accrued as revenue
Property tax: if collectable within 60 days of the end of the accounting period accrued in that period
Expenditure recognition for modified accrual accounting
Three types of expenses in operating statements of governmental type funds
- current operating items (liabilities payable shortly after accrual)
- capital asset acquisitions (financial resources consumed cannot be spent elsewhere)
- debt service (interest and principal on long term borrowing but only when due for payment. Decrease in financial resources)
What is accounted for in the current budget
Expenses that would be recognized on full accrual accounting left off of modified accural
Long term liabilities are recognized only when they mature (not provided for in the current budget!). This includes payroll accruals of vacation and retirement as well as debt that is not yet mature
General obligation bonds
GO bonds
Secured by a state or local government’s full faith, credit, and taxing power. Government presumed to be able to pay via taxes or other resources
Bond proceeds in governmental-type funds
No long term liability reported. Cash inflow from general obligation bonds reported as “other financing source” on operating statement
Budgetary basis of government accounting
Set by legislature not standard setting body
Government-wide financial reporting of governmental-type funds
Aggregated with other funds and adjusted to the economic resources measurement focus and accrual basis of accounting
Governmental-type fund statement of revenues, expenditures, and changes in fund balance
Done for a period (year ending in x)
Revenues section
Taxes - list of taxes- total taxes
List of other revenues
Total revenues
Expenditures section
Split into current (general), debt service, and capital outlay
Total expenditure
Excess (deficiency) of revenue over expenditures
List of other financing sources (uses)
- includes intergovernmental transfers that are not changes in revenue or expense but do change fund balance
Total other financing sources(uses)
Net change in fund balance
Fund balance, beginning
Fund balance, end
Governmental-type funds balance sheet
For position on a specific date
Assets section (only current financial) Total assets
Liabilities, deferred inflows of resources and fund balance liabilities section
Liabilities section
Current liabilities
Deferred inflows of resources: unavailable revenue
Fund balance section
Should restricted/assigned/ unassigned amounts
Total fund balance
Total liabilities, deferred inflows of resources and fund balances
Source of general funds
Taxes: real property, sales, personal & corporate income
Intergovernmental grants
Licenses, fees, and fines
Governmental funds operating statements
Show financial resources available for spending
Ignores: long term (capital) assets and liabilities
Essentially modified cash flow statement
Sections:
- revenues
- expenditures
- other financing sources(uses)
Other financing sources (uses) section of operating statement
- accommodates financial resources measurement focus
- report interfund transfers
Governmental-type fund balance sheet
No capital assets included, just current financial resources including transfers from other fund
No longer-term liabilities
Due from other funds
When an entity has an asset for short term receivables due from other funds
Advances to other funds
Long term loans to other funds
Due to other funds
Short term loans from other funds on the liabilities section of the governmental-type funds on a balance sheet
Advances from other funds
Long term loans between funds
Have special treatment in balance sheet
Classifications of fund balwnce
Nonspendable Restricted Committed Assigned Unassigned
Governmental funds accounting equation
Financial assets = short term and matured long term liabilities + fund balance
Financial assets: cash, investments, receivables
Short-term liabilities: payables (less than the 1-year short term of financial accounting)
Discontinuing special revenue designation
When government no longer expects the specific revenue sources to be a substantial portion of the special revenue funds resources
Discontinuing special revenue designation
When government no longer expects the specific revenue sources to be a substantial portion of the special revenue funds resources
Capital projects funds financial statements
Governmental-type funds
Other financing sources: long-term borrowing and transfers from other funds (are not revenues)
Revenues: intergovernmental grants
Do not show capital assets or the related long-term debt issued to acquire those assets (those go in government-wide statements
General long term debt
Debt other than that related to and expected to be paid from proprietary type or fiduciary type funds
Debt service fund resource sources
- transfers from the general Fund
- income from investment of resources held by the fund
- taxes assessed specifically to service the debt
- portion of bond proceeds
Defeasance
a provision in a contract that voids a bond or loan on a balance sheet when the borrower sets aside cash or bonds sufficient enough to service the debt.
Proprietary fund measurement focus and basis
Economic recourses measurement focus
Accrual basis of accounting
Types of proprietary funds
Enterprise fund
Internal service fund
Enterprise fund
Resources used to supply goods and services, for a fee, to users who are entirely or primarily external to the government
Generally a separate find for each type of activity
Internal service fund
Resources used to supply goods or services, based on cost reimbursement, within the government itself and to other governments
(Central motor pool, central purchasing)
User-charge or cost reimbursement structure
Used ONLY if the reporting government is the predominant participant in it’s activity (otherwise enterprise fund). Separate funds used for separate activities
Criteria for enterprise fund
If one of the following is true enterprise funds must be used:
1) the activity is financed with debt that is secured solely by a pledge of net revenues from the activity’s fees and charges
Or
2) laws or regulations require that the costs of providing services, including capital costs (depreciation, debt service) be recovered through fees and charges rather than taxes
Or
3) the activity’s pricing policies set fees and charges that are designed to recover it’s costs, including capital costs
Revenue bonds
Bonds secured with a pledge of the net revenues from an activity’s fees and charges
Accounting for public authorities/public benefit organizations
Legally separate from the parent government, so reported separately from the enterprise funds of the parent government
Use enterprise type (accrual basis) accounting
Reasons to use of internal service funds
Cost savings via:
- consolidation of similar support type activities into a single unit
- purchasing in volume
Accounting system for internal service finfd
- bills other funds receiving goods and services
- billed amounts are expenses for other funds and revenues for the internal service fund
- provides information on real total cost of goods or services
- economic resources measurement focus
- full accrual accounting basis
- interfund billings eliminated in government wide financial statements
Financial statements for proprietary funds
- operating statement (statement of revenues, expenses, and changes in net fund position)
- statement of net position
- statement of cash flows
Operating statement for proprietary type funds
Multistep.
Operating revenues (List and total) Operating expenses (List and total) Revenues - expenses = operating income Nonoperating revenues (expenses) (List and total) Add or subtract from operating income to get income before transfers Add capital contributions Add and subtract transfers in or out Extraordinary items = Net change in position Net position beginning of year Net position, end of year
Proprietary fund statement of net position
Prepared in classified form
Assets
Current assets
Noncurrent assets
Total assets
Liabilities and net position
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
Net position
Total net position
Total liabilities and net position
Proprietary fund statement of net position
Prepared in classified form
Assets
Current assets
Noncurrent assets
Total assets
Deferred outflows of resources
Total
Liabilities and net position
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
Deferred inflows of resources
Total
Net position
Net investment in capital assets
Unrestricted
Total net position
Total liabilities and net position
Traditionally assets = liabilities + net position
Could also be framed: assets - liabilities= net position
Proprietary type funds statement of cash flows
Prepared using direct method
Bottom section reconciles operating income and changes in net position to cash provided by (used in) operating activities
Statement of cash flows direct format
Cash flows from operating activities
List
Net cash provided by operating activities
Cash flows from Noncapital financing activities
Net cash used in Noncapital financing activities
Cash flows from capital and related financing activities
Net cash used in capital and related financing activities
Cash flows from investing activities
Net cash provided by investing activities
Net change in cash and other money market instruments
Beginning of the year
End of the year
Reconciling operating income to net cash provided by operating activities
(Indirect statement of cash flows method)
Fiduciary
involving trust, especially with regard to the relationship between a trustee and a beneficiary
Pension (and other employee benefit) trust fund
Most widely are used/ significant type of fiduciary funds
Administered by government for benefit of members and their beneficiaries
Requirements for employee benefit trust funds
Must meet all three
- contributions to and earnings of the benefit plan are irrevocable
- assets in the benefit plan are dedicated to providing benefits for plan members
- assets in the benefit plan are legally protected from the creditors of the contributing entities, plan administrators, and plan members of defined benefit plans
Types of employee pension plans
Defined benefit plan
Vs
Defined contribution plan
Types of fiduciary type funds
- pension (and other employee benefit) trust
- investment trust
- private purpose trust
- custodia
Investment trust funds
Fiduciary type fund
An investment pool sponsored by the government in which they invest and managed resources belonging to the sponsoring government and other governments
Requirements for an investment trust fund
To be classified as an investment trust fund, assets held must be:
- administered through a trust in which the government itself is not a beneficiary
- dedicated to providing benefits in accordance with the benefit terms
- legally protected from the government’s creditors
Reporting for an investment trust fund
Sponsoring governments portion of the pool of investments: reported as assets in funds for which investments were made
External portion of pool: reported in investment trust funds
Private-purpose trust funds
Used to report all fiduciary activities that
- are not required to be reported in pension (or other employee benefit) or investment trust funds
And
- are held in a trust meeting the criteria of an investment trust fund
Ex: escheat property fund (property that reverts to a governmental entity in absence of legal claimant/heirs). Fund holds in case later claim established
Custodial funds
Fund for fiduciary activities that are not required to be reported in a pension, investment, or private- purpose trust
Ex: state government held clearing account for county sales tax until distribution
Only undistributed amounts not belonging to holding government reported in custodial fund. Amounts belonging to the holding government should be reported in their appropriate fund
Used to hold deposits by contractors when submitting bids on government construction contracts
Financial statements for fiduciary type funds
- statement of changes in fiduciary net position
- statement of fiduciary net position
Statement of changes in fiduciary net position
Statement for period
Additions
Contributions
Investment income (changes in value + interest and dividends - investment expense)
Total additions
Deductions
Benefits
Withdrawals
Admin expenses
Total deductions
Net increase or decrease in fiduciary net position
Net position beginning of year
Net position end of year
Statement of fiduciary plan net position
Statement on a certain date of assets held in the trust
Assets
Investments
Cash & receivables
Total assets
Liabilities
Accounts payable
Refunds payable
Net position
List restrictions
Total net position
Does not list liability for total pension promise (so cannot discern if obligation for pension benefits is met). That information is in government-wide financial statements and in notes
Financing for general fund
Taxes (mostly property, also sales tax, income tax, and taxes on select items) Intergovernmental grants from higher levels of gov Miscellaneous item (license charges, fees, fines, etc..)
General fund revenue reporting
Aggregated by category for statement purposes but different revenue sources must go to separate accounts
General fund operating expenditures
Generally in five to ten broad categories depending on government need
Categories may contain different org units with the government
