Yellow Book Flashcards
Governmental Financial reports are used primarily to:
- Compare actual financial results with legally adopted budget
- Assess financial condition and results of operations
- Assist in determining compliance with fincnace-related laws, rules, and regulations
- Assist in evaluating efficiency and effectiveness
- Accountability is the cornerstone of all financial reporting in government
What is not the goal of governmental entities?
Earning a profit is not the goal.
Who are the main users of governmental financial reports?
- The citizenry
- Legislative and oversight bodies
- Investors and creditors
What are the major types of governmental entities?
General purpose governments
- Provide wide array of services
- Examples: Federal government, state governments, cities, towns, townships, villages, counties, boroughs, and parishes.
Special purpose governments
- Governmental entity engaged in a single governmental activity-usually provide only a single or just a few services
- Examples: Park district, independent school systems, public colleges, public hospitals.
Not for Profit Organization
Legally separate organizations
Usually exempt from federal, state and local taxation
Religious, community service, private educational and health care, museums.
who is responsible for establishing GAAP for state and local governments and Governmental not for profits?
GASB -Governmental Accounting Standards Board
The Comprehensive Annual Financial Report (CAFR) contains what 3 main sections?
- Introductory Section
- Financial Section
- Statistical Section
What are the required supplementary info in the financial section?
- Management Discussion and Analysis (MD&A)
- Budgetary Comparison Schedule
- Information on Infrastructure
What are the two sets of “basic” financial statements required in the CAFR?
- Government Wide Statements
- Fund Statements
The Government Wide Statements consist of what statements? and on what basis are they reported?
- Statement of Net Position (like a BS)
- Statement of Activities (a statement of revenues and expenses)
All financial info in the government wide FSs reported on the ACCRUAL BASIS with economic resources focus.
Assists in assessing operational accountability- How efficiently resources are being used.
The Fund Statements consist of what funds and what statements?
-
Governmental Funds
- A BS
- A Statement of Revenues, Expenditures and Changes in Fund Balance
-
Proprietary Funds
- A Statement of Net Position
- A Statement of Revenues, Expenses and Changes in Net Positions
- Cash Flows (direct method)
-
Fiduciary Funds
- A Statement of Net Position
- A Statement of Changes in Fiduciary Net Positions
The Reporting Entity consists of:
the primary government and all component units for which the primary government is financially accountable.
What are component units?
Legally separate organizations for which the elected officials of the primary government are financially accountable.
Most component units are reported by what kind of presentation?
reported by discrete (separate column) presentation, rather than blending the component units financial info with the appropriate fund columns of the primary government.
What is Discrete Presentations?
Is when one or more component units are reported in separate columns, in addition to those pertaining to the primary government.
What is blending?
Is when the component units’ transactions and balances are reported as if they were part of the primary government- that is, the component units’ funds are accounted for just as if they were funds of the primary government.
*Blending is required when governing boards having the same member controls the primary government and the component units or the component unit provides services solely to the primary government. If those conditions are not satisfied then discrete presentation is required*
Full Accrual basis is used on the?
Government Wide Statements
Proprietary Funds
Fiduciary Funds
Modified Accrual basis is used on the ?
Governmental Funds
What is modified accrual?
- Recognizes revenue when measurable and available to cover liabilities of the current period
- Recognizes expenditures in the period that current resources are expected to be used
- Measurement focus is on short term assets and liabilites
- LT assets and liabilities are excluded from the BS
- Only shows the amounts that are needed/used in the current period
- Focus on cash resources that are measurable and available to finance current amounts due.
What are funds?
Separate fiscal and accounting entities within the organization. Each fund will have its own separate and distinct cash and noncash resources, obligations and fund balance.
What is the accounting formula for governmental accounting?
Assets=Liabilities + Fund balance
*Fund balance is used instead of owner’s equity, as governmental entities have no real owners*
What are Expendable Funds?
Funds are collected and spent or expended (Governmental Funds). The resources of this fund are to be used for a specific purpose. These funds are intended to be used in the current period to meet the objectives of the fund.
what are non-expendable funds?
Funds are continually replenished thru charges for the services provided (Proprietary Funds). Used for funds that are operated like a Business enterprise.
what are the three main funds for State and Local Governments?
Governmental
Proprietary
Fiduciary
What are governmental funds used for and what are the primary types of governmental funds?
Governmental- used to account for the governments operating and financing activities.
- General-the main fund used to account for all unrestricted resources that are not accounted for in other funds.
- Special Revenue- Revenues restricted for specified purposes
- Debt Service- Funds set aside for payment of principal and interest on LT debt
- Capital Projects- funds set aside to be used for acquisition or contruction of major capital items
- Permanent- used to report resources that are legally restricted- the main resource must stay intact- but the earnings on the principal may be used to support various governmental programs
How many general funds and other types of funds can a governmental entity have?
A governmental entity will have ONE general fund but it may have an UNLIMITED number of the other types.
What are Proprietary funds and what are the primary funds of Proprietary Funds?
Proprietary Funds are typically known as Business Type Funds- these funds are used to account for non-expendable funds that have business type activities that are similar to those of the private sector.
- Enterprise- business type activities provided to the public. The governmental entity actually sells the goods or services. (Utilities, golf courses, hospitals, parking, airport, housing)
- Internal Service- Funds are used to account for business type activities provided within the organization for a fee. (Computer services, copying services, automobile repair, office supplies)
What are Fiduciary funds used for that what are the primary funds used in Fiduciary funds?
Fiduciary- used to account for resources held by the governmental unit as either a trustee or an agent.
The funds of this type of fund typically are intended to benefit some party other than the governmental organization that holds them.
- Trust funds-pension and investment trust, private purpose.
- Agency funds- assets held on behalf of another entity. One governmental entity may collect taxes to be remitted to another.
What is a budget?
it is a financial plan submitted to the appropriate body for approval. Once approved, budgets carry the status of law:
- When voted upon, an appropriation act give the legal authority to spend and generally sets the max limit for spending
- An approved budgetary expenditure is an appropriation.
For Budgetary Comparison Schedule, GASB standards require governments to present a comparison of budgeted and actual results at year end for?
For the general fund and special revenue funds with legally adopted budgets.
For the Budgetary Comparison Schedule what is shown and what is optional?
- Both the original and the final adjusted budget is shown
- A variance column is typically shown, but IS OPTIONAL
How are budgetary accounts recorded?
Budgetary accounts are recorded opposite of the actual accounts- this serves to monitor the remaining amounts and helps prevent going OVER budget.
What is the entry to record the budget?
DR: Estimated Revenues
DR: Estimated Other Financing Source
CR: Appropriations
CR: Estimated Other Financing Use
CR: Budgetary Fund Balance (PLUG)
Assume $1,200,000 of revenues is budgeted along with $950,000 of estimated expenditures. A $100,000 transfer out and $50,000 transfer in is anticipated. What is the JE?
DR: Estimated Revenues $1,200,000
DR: Estimated Other Financing Source $50,000
CR: Appropriations $950,000
CR: Estimated Other Financing Use $100,000
CR: Budgetary Fund Balance $200,000 (PLUG)
Why record encumbrances?
- Governmental Entities use encumbrances to monitor expenditures and overall spending in relation to the budget
- Encumbrance accounting recognizes that an outstanding order will turn into an expenditure and a liability when the goods arrive.
- To prevent over-spending outstanding orders are entered into the books as encumbrances.
If an order for $150,000 is placed which consists of 3 buses costing $50,000 each it should be recorded as:
DR: Encumbrances $150,000
CR: Budgetary Fund Balance Reserved for Encumbrances $150,000
When encumbrances do not lapse, the portion of the fund balance still outstanding is classified as fund balance:
Restricted, commited, or assigned.
Is encumbrances account closed at year end?
The encumbrances account is closed at year end for both lapsed and not lapsed entries.
Explain the terms:
Appropriations
Encumbrances
Expenditures
Unencumbered Balance
Appropriations: legally engacted budget for this type of Expenditure
Encumbrances: Commitments to Expenditures that have not yet occurred
Expenditures: Exenses that have occurred
Unencumbered Balance: Total Budget less any Encumbrances and Expenditures that have been recorded. The balance in this account tracks exactly how much is available in the expense category
what two funds will have separate budgets?
General funds and special revenue funds will have separate budgets. Separate budgets are optional for other governmental funds and are not used for proprietary and fiduciary funds.
Revenue accounting in Governmental funds: For property taxes available, collection must occur in the current period or within how many days?
Within 60 days of year end (any not received with the 60 day is deferred inflow- an account used to hold it until recognition)
What is the JE for tax revenues not collected within 60 days of end of current period?
DR: Revenues
CR: Deferred inflows
What is “imposed- non excahgne transactions”?
When the government gives/receives without something of equal value exchanged.
how do you record loans of cash from one fund to another fund that are expcted to be repaid?
Receivable- due to
Payable- due from
How to record a tax levy that is expected to have 2% uncollectible out of $1,00,000?
DR: Taxes Receivable $1,000,000
CR: Estimated Uncollectible $20,000
CR: Revenue $980,000
Under the modified accrual basis of accounting for a governmental unit, revenues should be recognized in the accounting period in which they:
Became available and measurable.
List program revenues:
- Charges for services
- Operating grants and contributions
- Taxes levied by a state and shared with a local government
- Capital grants and contributions
List derived revenue (U SIFTED):
- Use
- Sales
- Income
- Fuel
- Taxes
- Excise
- Derived
In reimbursents grant, how do recognize revenue?
You recognize revenue only to the extent that Expenditures have been made and are now subject to reimbursement.
When is derived revenue recognized?
Derived revenue is recognized when the excahnge transaction on which the tax is incurred or when the resources are available, whichever occurs first.
what is the difference between:
Expenditure
Expenses
Encumbrances
Expenditure: A measure of a funds liabilities incurred or fund resources used in the period for operations, capital outlay or debt service
Expenses: A measure of the costs expired or consumed during an accounting period
Encumbrances: Expected costs of expenditures to be incurred when goods or services on order are delivered.
What are the 5 fund balance categories?
- Nonspendable-amounts that are not in a spendable form such as inventory or that must remain intact
- Restricted-amounts that can only be spent for a specific purpose as restricted by an EXTERNAL party.
- Committed-amount that can only be used for a specified purpose as specified by the governmental entities governing body (INTERNAL)
- Assigned- amounts that the entity intends to use for a specific purpose
- Unassigned-the residual of all of the other classifications- available for any purpsoe.
Fund balance is unique to what funds?
Unique to Governmental Funds. It serves a purpose similar to retained earnings.
What is the closing process for government type funds?
- Close Budgetary accounts (need to reverse original budgetary entry)
- Close revenues, expenditures, encumbrances, and related other financing sources or uses to Fund Balance
What is the entry to close out the budgetary account?
DR: Appropriations
DR: Estimated other financing uses
CR: Budgetary Fund Balance
CR: Estimated Revenues
What is the Capital Projects Fund?
This Fund accounts for the monies to pay for majore capital projects
What are the two types of capital projects?
General (public benefit). Examples: public buildings, roads, highways and bridges. Park improvements
Special assessment (private benefit). Examples: Street improvements, curbs, sidewalks, street lighting, sewage. Beemed to benefit citizens in a specified benefit district.
What is a capital asset?
Long lived assets used by activities reported in governmental funds.
is depreciation recorded under GASB for capital assets?
- Depreciation on general capital assets, including infrastructure assets, is required at teh government wide level under GASB.
- Depreciation is NOT recorded on inexhaustible assets, such as land and non capitalized collections of art.
The government can elect not to depreciate certain “eligible” infrastructure assets if the following criteria are met:
- They must maintain an asset management system
- It must contain an up to date inventory of eligible assets
- They must perform conditon assessments of the assets at least every 3 years with a summary of results using a consistent measurement scale
- They must maintain/estimate each year of the annual amount required to maintain and preserve the assets at the governments established condition level
A capital project fund may borrow money on a short term basis by using bond anticipation notes until longer term financing can be arranged- this funding should be recorded how?
Recorded as a current liability in the Capital Project Fund rather than being recorded in the Debt Serivce Fund.
what are the two types of leases for fixed assets? And what are the criteria?
- Operating lease:
- Rental Payments
- Used if criteria for capital lease are not met
- Capital lease
- These are ‘in-substance’ purchases of LT assets on time with ineterst
- Criteria:
- Lease transfers ownership
- Lease contains a bargain purchase option
- Lease term is greater than 75% of the economic life of the asset
- Present value of lease pmts are 90% of the FMV of the leased asset.
At the inveption of the lease, the PV of the min lease pmts is recorded in the capital projects funds as:
DR: Expenditure Capital Outley
CR: Other Financing Source- Capital lease
The rental payments for the interest and principal due on the capital lease will be recorded as expenditures in the debt service funds as:
DR: Expenditure- interest
DR: Expenditure- Principal
CR: Cash
What is the difference between grants, transfers and bonds in a capital project fund?
- Grants are revenue
- Bonds and transfers are other financing source.
What is debt service fund used for?
This fund is used to accumulate funds to pay interst and principal on LT debt. (Governmental Fund)
GASB requires a debt service fund for debt when?
- It is legally required
- Financial resources are being accumulated for principal and interest payments.
Debt Service Funds receive their revenues from several sources such as:
- Taxes or special assessments earmarked for debt service
- Transfers from the General Fund
- Premiums or accrued interest on bond issuance are often transfered to Debt Service Fund from Capital Project Fund
- Refinancing bond proceeds
- Residual equity transferred from CPF
What are the two different kinds of debt limits in the Debt Service Funds?
Direct debt: obligations that will be repaid by the government whose debt is being evaluated
Overlapping (indirect) debt: obligations of other governments that also have the power to tax property located in the jurisdiction of the government whose debt is being evaluated.
Is bond premium or discount amortized in the debt service fund?
No amortization is recorded within a DSF. Amortization of the bond premium/discount will take place only in the Government- wide F/S.
What are proprietary funds?
Funds that account for activities that are similar to a profit seeking business. Users of these funds are charges a fee for the goods or services provided.
Do proprietary funds record budgets or encumbrances?
No, typically do not.
What are the two types of proprietary funds?
Internal Service- business type activities to other governmental units charging each unit for the goods/services provided
Enterprise-business type activities to the general public-charging a user charge for goods/services provided.
will depreciation on capital assets under proprietary funds be recorded?
Yes.
What is the purpose of the Internal Service Fund?
Purpose is to pool resources for more efficient operations.
Enterprise funds are required to account for an activity in an enterprise fund if it satisfies any one of the following criteria:
- Have debt backed solely for fees and charges
- Legally required to charge fees that will recover the cost, including depreciation
- Government policy of requiring cost recovery from fees.
Solid Waste Landfill in the Enterprise Fund: How are they accounted and what is the JE?
Costs of complying with environmental protection laws after closure have to be estimated and accrued as a cost of operating the landfill during its life.
Each Year Accrue:
DR: Post closure expenses
CR: Liability for post closure expenses.
After closure of the solid waste landfill, what is the JE?
DR: Liability for post closure expenses
CR: Cash
For enterprise funds, the statement of cash flows must be prepared using which method?
Using the direct method. Governments, unlike businesses, cannot use the indirect method.
What are the four categories that Cash Flows is broken down to under the enterprise fund?
- Operating
- Capital Related Financing
- Noncapital Related Financing
- Ineseting
Under enterprise funds in cash flows, what section is interest and dividend recorded in?
Interest and dividend revenue is reported in investing section
Under enterprise funds in cash flows, where are interest payments reported in?
Reported in capital or noncapital related financing section.
Under enterprise funds in cash flows, where are the fixed asset transactions reported in?
Fixe dasset transactions are reported in capital related financing.
Under enterprise funds in cash flows, the reconciliation of income and cash flows from operations starts with?
Operating Income.
True or False: All activities of internal serice funds are aggregated and reported in a single column
TRUE. All internal service programs are aggregated in one single column.
Enterprise programs are shown in separate columns- each major enterprise fund in a separate column, a column for the toal of the nonmajor enterprise funds, and then a column showing the total enterprise funds.
Which event(s) should be included in a statement of cash flows for a governmental entity? I: Cash inflow from issuing bonds to finance city hall construction
II: Cash outflow from a city utility reporesenting payments in lieu of property taxes
II only.
Statement of Cash Flows is prepared only for proprietary funds. Item A is a capital project fund. Item II is a proprietary fund.
For Governmental Statement of Cash Flows, Capital and related financing activities include:
- Proceeds from capital debt
- Capital contributions
- Purchase of capital assets
- Principal paid on capital debt
- Interest paid on capital debt
- Advances from Enterprise funds
- Construction of capital assets
- Interest paid on LT debt
Fiduciary funds are maintained to:
Account for assets that governments hold as trustees or agents for individuals, private organizations, or other governmental units.
Fiduciary funds use what kind of resource focus and what kind of accounting basis?
Economic resources focus and the accrual basis of accounting.
Fiduciary funds report resources which belong to _________ but which are being held by the government as _______or_______.
Other parties
agent or trustee.
Are fiduciary funds included in the government wide statemetns?
NO, because the resources are not available for general use, they are reported at the fund level only.
What is the difference between agents and trustees?
- The difference in agents and trustees is a legal distinction concerning the responsibilites of the fund manager.
- Agents HOLD assets and keep them safe from theft.
- Trustees are responsible for not only HOLDING the assets safely, but also for ADMINISTERING an investment program to earn a reasonable return on the principal.
Describe Agency in Fiduciary Funds?
Assets held by the government unit temporarily as an agent for individuals, organizations or another governmental entity.
Do agency funds report revenues, expenses or net position?
Agency funds do not report revenues, expenses or net position as Assets will always be equal to Liabilities. any change in the assets or liabilities should be reported on the accrual basis.
What is the accounting equation for agency funds?
Assets=Liabilities
there are no revenues, expenses, or fund balances. Closing entries are not necessary.
What is the difference between Private Purpose Tursts vs. Permanent Trusts?
- Permanent fund use the modified accrual basis of accounting while Private Purpose Trusts use the accrual basis.
- Permanent Funds are included in the government-wide financial statemetns and Private Purpose Trusts are not.
Fiduciary funds (Trust Fund), net pension liability is the difference between?
The difference between the actuarial total pension liability and the FV of the legally restricted plan assts as the “Net Pension Liability” on the Government Wide Statement of Net Position.
What is a government merger?
- Two or more governments cease to exist as legally separate entities and are combined to from one or more new governments.
- One or more legally separate governments cease to exist and their operatiosn are absorbed into one or more continuing government.
- No significant consideration is excahgned.
What is the merger date?
- It is the date on which the combination becomes effective.
- Initial reporting period of the new government begins on the merger date.
How do you recognize and measure the combied assets of the mergins entities ?
As though the entities had been combined at the beginning of the continuing government’s reporting period.
What is the 2 step process to establish the beginning balances?
- The carrying value of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources are brought forward.
- Values are adjusted to align with the accounting principles to be used by the combined government
The process should be reported in the initial FSs as part of a restatement disclosure.
What is a government acquisitions?
One government acquires another entity, or the operations of another entity in exchange for consideration.
What is the acquisition date?
- Acquisition date is the date on which the acquiring government obtains control of the assets and becomes obligated for the liabilities of the acquired entity.
- This may result in recognizing items that the acquired organization was not originally required to report such as intangible.
What is a transfer of operations?
A transfer of operations is a combination involving the transfer of specific operations of a government.
What are the 3 sections of the CAFR?
- Introductory Section
- Financial Section
- Statistical Section
Main component’s of the financial section of CARF?
- The auditor’s report
- MD&A
- The basic FSs
- Required Supplementary info other than the MD&A
- Combining Statements and Schedules
What is included in the MD&A?
- A breif description of the required financial statements
- Condensed financial info derived from government-wide statements
- An analysis of the government’s overall financial position and results of operations, including impact of importnant economic factors
- An analysis of balances and transactions of individual funds
- An analysis of differences between original and final budget amounts and between actual and budgeted amounts
- A description of changes in capital assets and LT debt during the year
- A discussion of the condition of infrastructure assets
- A description of currently known facts, decisions, or conditions that have, or are expected to have, a material effect on financial position or results of operations.
Government wide FSs have what kind of perspective?
An entity wide perspective
Government wide FSs have LT focus on?
LT focus is on operational accountability
Government wide FSs use what kind of basis?
Accrual basis.
What are the two statements for government wide?
- Statement of Net Position
- Statement of Activities
On government wide all info must be reconciled from?
From Modified Accrual basis to the accrual basis of accounting.
- Revenues & expenditures must be adjusted to the accrual basis
- Capital Assets that were charged to an expenditure need to be reversed
- LT debt- proceeds of bonds will need to be recorded as a liability, expenditures for payment of principal need to be recorded as reduction fo the debt’s liability
- Any proceeds from the sale of LT assets will need to be adjusted
On Government wide statements, the gevernmental and the proprietary funds must be divided into two categories, what are they?
Governmental (including any internal service funds reported as proprietary)
Business type (Proprietary Enterprise Funds)
(In Government Wide) The governmentla types will need to be ___________- and any interfund transactions will need to be ____________.
Consolidated
Eliminated
Are fiduciary funds shown on government wide FSs?
They are not shown.
Are component units identified on government wide financials?
Yes (Blended or Discrete Presentation)
