Accounting for State and Local
Governmental Units –
Governmental Funds
Chapter 19
©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
19 - 1
Objective 1
Prepare journal entries for
governmental funds.
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Accounting for the General Fund
Grantville Town
Post-Closing Trial Balance
June 30, 2001
Debits
Cash
Taxes receivable-delinquent
Accounts receivable
Supplies inventory
Total debits
$310,000
150,000
30,000
60,000
$550,000
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Accounting for the General Fund
Credits
Allowances for uncollectible
taxes – delinquent
Vouchers payable
Note payable (short-term)
Reserve for encumbrances
Unreserved fund balance
Total credits
$ 10,000
140,000
150,000
90,000
160,000
$550,000
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Accounting for the General Fund
General Fund Budget Summary
For Fiscal Year 7/1/01 to 6/30/02
Revenue Sources
Taxes
$2,075,000
Licenses and permits
205,000
Other
1,220,000
$3,500,000
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Accounting for the General Fund
Expenditures
Current services
General government
Public safety
Other
Total appropriations
Other financing sources (uses)
Budgeted increase in fund balance
$ 477,500
897,750
1,945,000
$3,320,250
115,000
$ 64,750
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Recording the Budget
Estimated Revenues
3,500,000
Appropriations
3,320,250
Estimated Other Financing
Uses – Transfers Out
115,000
Unreserved Fund Balance
64,750
To record the budget for the year July 1, 2001,
to June 30, 2002
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Subsidiary Ledgers
Recording estimated revenues for individual
items as debits in the subsidiary revenue ledger
and recording actual revenue items as credits
allows the outstanding subsidiary account
balances during the year to reveal differences.
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Accounting for Property Taxes
$2,000,000 tax bills are mailed.
Taxes Receivable – Current2,000,000
Allowance for Uncollectible
Taxes – Current
Revenue
To record the property tax levy
20,000
1,980,000
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19 - 9
Accounting for Property Taxes
The town records collection of $1,760,000 current
property taxes and past-due taxes of $140,000.
Cash
1,900,000
Taxes Receivable – Current
1,760,000
Taxes Receivable – Delinquent
140,000
To record collection of property taxes
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Accounting for Property Taxes
Specific tax bills totaling $10,000 were
determined to be uncollectible.
Allowance for Uncollectible
Taxes – Delinquent
$10,000
Taxes Receivable – Delinquent
10,000
To record write-off of uncollectible account
©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 11
Derived Tax Revenues
Governments recognize sales tax revenue when
tax returns are received from merchants and the
taxes are expected to be remitted to the government
by year end (or within 60 days thereafter).
What is the entry to record $150,000 in sales
taxes, of which three equal payments are
required by 7/15, 8/15, and 9/15?
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Derived Tax Revenues
Accounts Receivable
Revenue
Deferred Revenue
To record sales tax activity
150,000
100,000
50,000
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Recording Expenditures
Under modified accrual accounting, governmental
funds normally recognize expenditures when
they incur the related liability.
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Objective 2
Learn about accounting methods
unique to governmental
accounting – budgetary issues,
encumbrance accounting,
interfund transactions.
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Accounting for Encumbrances
During the year, the town orders snow-removal
equipment expected to cost $150,000.
What is the journal entry?
Encumbrances
150,000
Reserve for Encumbrances
150,000
To record a purchase order for equipment
What is the unencumbered balance
of the appropriations?
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Accounting for Encumbrances
Appropriations
$3,320,250
Less encumbrances
150,000
Unencumbered appropriations $3,170,250
Assume that the actual cost of the
equipment purchased is $140,000.
What are the journal entries?
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Accounting for Encumbrances
Reserve for Encumbrances 150,000
Encumbrances
150,000
To reverse the encumbrance entry for snow-removal
equipment
Expenditures
Vouchers Payable
To record expenditures
140,000
140,000
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Supplies
Purchases Method
Consumption Method
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Supplies
The town orders supplies
expected to cost $60,000.
What is the journal entry under
the consumption method?
Encumbrances
60,000
Reserve for Encumbrances
60,000
To record the purchase order for operating
supplies
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Supplies
Reserve for Encumbrances 60,000
Encumbrances
60,000
To reverse the encumbrance entry upon receipt
of the operating supplies
Inventory of Supplies
60,000
Vouchers Payable
To record receipt of operating supplies
60,000
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Capital Lease
The Town of Grantville enters into a general
government capital lease agreement with
a down payment of $5,000.
The present value of the lease is $50,000.
What is the entry at the inception of the lease?
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Capital Lease
Expenditures (capital outlay)
Cash
Other Financing Sources –
Capital Lease
50,000
5,000
45,000
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Interfund Transactions
Other Financing Uses –
Nonreciprocal Transfer to CPF 100,000
Other Financing Uses –
Reciprocal Transfer to SRF
50,000
Other Financing Uses –
Nonreciprocal Transfer to DSF 14,250
Cash
To record transfers to CPF, SRF, and DSF
164,250
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Year-End Procedures
Supplies inventory of $90,000
are on hand at year end.
$60,000 BI + Purchases $60,000 = $120,000
$120,000 – $90,000 = $30,000
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Year-End Procedures
The $240,000 uncollected taxes are past due.
Taxes Receivable – Delinquent 240,000
Allowance for Uncollectible
Taxes – Current
20,000
Taxes Receivable – Current
Allowance for Uncollectible
Taxes – Delinquent
240,000
20,000
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Closing Entries
Dr.
Appropriations
Estimated Other
Financing Sources
Revenues
Cr.
Estimated Revenues
Expenditures
Encumbrances
Other Financing Uses
The budgeted and actual Unreserved Fund
Balance can be either a debit or credit.
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Objective 3
Determine the appropriate
governmental fund
to be used.
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Special Revenue Funds
A SRF is the entity that a government uses
to account for the proceeds of
specific revenue sources.
Typically, all or part of
resources are restricted.
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Special Revenue Funds: Grants
Governments often receive grants from
other governments or private sources.
Grant revenues can be recognized when all
eligibility requirements have been met.
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Permanent Funds
They account for contributions for which
the grantor specifies that a principal
amount must be maintained but for
which interest accumulation or
asset appreciation or both are to
be used for a specified purpose.
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Capital Projects Funds
The purpose of capital projects funds
(CPF) is to account for resources that
are used to acquire major long-lived
general government capital facilities.
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Sources of Financing
Proceeds of
bond issues
Grants and
shared revenues
Transfers from
other funds
Contributions
from property
owners
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Accounting for a Capital
Project Fund
On 9/1/2001, the Town of Grantville
authorized the construction of a new
town hall expected to cost $1,000,000.
Sources of financing:
Bond issue proceeds
$ 500,000
Federal grant
400,000
Transfer from GF
100,000
Total
$1,000,000
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Accounting for a Capital
Project Fund
Creation of the CPF requires a memorandum entry.
The town transfers $100,000 from the
general fund to the CPF.
Cash
100,000
Other Financing Sources –
Nonreciprocal Transfer
100,000
To record receipt of funds from the GF
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Accounting for a Capital
Project Fund
Planning and architect’s fees are paid.
Expenditures
40,000
Cash
To record payments for planning and
architect’s fees
40,000
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Accounting for a Capital
Project Fund
A contract is awarded for $950,000.
Encumbrances
950,000
Reserve for Encumbrances
950,000
To record encumbrances for the amount of the
contract
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Accounting for a Capital
Project Fund
Bonds were issued at a premium of $2,000.
Cash
502,000
Other Financing Sources –
Proceeds from Bond Issue
502,000
To record sale of bonds
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Accounting for a Capital
Project Fund
Premium is transferred to the debt service fund.
Other Financing Uses –
Nonreciprocal Transfer to DSF 2,000
Cash
2,000
To transfer the premium to DSF
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Accounting for a Capital
Project Fund
Construction is certified to be 50% complete and
a bill for $475,000 is received from the contractor.
Reserve for Encumbrances
475,000
Encumbrances
475,000
To reverse half of the amount encumbered
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Accounting for a Capital
Project Fund
Expenditures
475,000
Contracts Payable
427,500
Retained Percentage
47,500
To record expenditures and a 10% retained
percentage on the construction
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Accounting for a Capital
Project Fund
Contracts payable, less a 10%
Retained percentage, is paid.
Contracts payable
427,500
Cash
427,500
To record partial payment to the contractor
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Accounting for a Capital
Project Fund
At the end of the year the CPF books are closed.
The town hall construction project has not
been completed and the statements for the
CPF are interim statements from the
standpoint of the project.
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Accounting for a Capital
Project Fund
Intergovernmental revenue
Due from Federal Government 400,000
Revenue
400,000
To recognize revenue from the federal grant
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Closing Entries
Revenues – federal grant
400,000
OFS – nonreciprocal
transfer from general fund
100,000
OFS – bond proceeds
502,000
Expenditures
OFU – nonreciprocal
transfer to DSF
Encumbrances
Unreserved fund balance
To close the books at the end of 2001
515,000
2,000
475,000
10,000
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Other Items
Special assessment
activities
Debt service
funds
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Objective 4
Prepare governmental
fund financial statements.
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Governmental Fund Statements
Statement of net assets or balance sheet
Statement of revenues, expenditures, and
changes in fund balance (GAAP basis)
Statement of revenues, expenditures, and
changes in fund balance – budget and actual
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Governmental Fund Statements
An original budget column is required as
well as the final revised budget column.
Budgetary comparisons are required for
the general fund and for each annually
budgeted major special revenue fund.
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Objective 5
Convert fund financial
statements to government-wide
financial statements.
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Preparing the Government-Wide
Financial Statements
– Fund basis
– Financial resources
measurement focus
– Modified accrual
– Aggregate basis
– Economic resources
measurement focus
– Accrual accounting
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Conversion of
Governmental Activities
Statement 34 requires a reconciliation between
the changes in fund balance reported on the
fund statement of changes in revenues,
expenditures, and changes in fund balance
and the changes in net assets reported in
the statement of activities.
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End of Chapter 19
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