Basics of Accounting and
Finance for Small Water
Systems
Prepared for PADEP
by RCAP Solutions
Introduction
• We’ll be describing some of the basics of
accounting and finance
• Why should you care about the accounting
and finances of the system?
1
Definitions
• Key terms will be defined here
• Familiarity with these is critical
2
Definitions
• Assets
– Examples: Cash, Inventories, Equipment,
Plant, Lines
3
Definitions
• Liabilities
– Examples: Notes Payable (debt), Accounts
Payable (outstanding bills)
• Retained Earnings (RE)
4
Definitions
• Revenue
– Example: Water sales
• Expense
– Example: Electrical use in pumping water
5
Definitions
• Asset vs. Expense
– Example: Line extension (asset), Testing
(expense)
6
Definitions
• Time for some exercise!
– Take a few minutes to work through the
exercise in your workbooks
7
Accounting Systems
Considerations
• Income Measurement
• Chart of Accounts
• Data Management
• Financial Reporting
• Internal Controls
• Auditing
8
Income Measurement
• Cash Basis
– Example: Records an expense when a bill is
paid and cash is disbursed
9
Income Measurement
• Accrual Basis
– Example: Delivery of water to customers
10
Income Measurement
• Accrual Basis: Revenue vs. Expense
– Example: Customer prepay for water delivery
11
Income Measurement
• Accrual Basis vs. Cash Basis
• Accrual Basis is
– preferred
– more complete
– GASB 34 compliant
12
Chart of Accounts
• A listing of all accounts
• Account numbers
• “Space”
• Follow guidelines
13
Data Management
• Electronic ledger
– Presets
– Financial reports
– Back ups
– Software and hardware
– Skills required
14
Data Management
• Paper ledger
– Low cost
– Skills required
15
Exercise
• Time for another workout!
– Take a few minutes to work through the
exercise in your workbooks
16
Financial Statements
• 3 discussed here
– Balance Sheet
– Income Statement
– Statement of Cash Flows
17
Balance Sheet
• Financial position at a point in time
• Three main parts
– Assets
– Liabilities
– Retained Earnings
18
Balance Sheet
• Example in Appendix 1
• It “balances”
19
Income Statement
• Financial results of system operation over any
time period
• Resources used in the operation of the system
• Profit and Loss (P&L) statement
• Net Income = financial success
20
Income Statement
• Example in Appendix 2
21
Statement of Cash Flows
• Cash Flows (CF) from the system during a
specified time period
• Three main parts
– CF from Operating Activities
– CF from Investing Activities
– CF from Financing Activities
22
Statement of Cash Flows
• Example in Appendix 3
• Depreciation added back in
23
Financial Statements
• So how are these statements related?
24
Financial Statements
• So how do these statements differ?
25
Exercise
• More exercise!
– Take a few minutes to work through the
exercise in your workbooks
26
Internal Control
• Written
• Functional
27
Internal Control
• Review and Approval
– Board involvement is critical!
28
External Control
• Auditing
– Probably required
29
External Control
• Auditing
– Provides an “opinion”
– May include “findings”
30
Exercise
• Another exercise!
– Take a few minutes to work through the
exercise in your workbooks
31
Summary
• Key points
32
Resources and References
• PA Department of Environmental
Protection
– Dennis Lee
• RCAP Solutions
– Don Schwartz, PA/NJ Program Manager
33