Essentials of Accounting for
Governmental and
Not-for-Profit Organizations
Chapter 3
Modified Accrual Accounting: Including
the Role of Fund Balances and
Budgetary Authority
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of Chapter 3



The basic accounts used by governmental
funds.
Recognition criteria for revenues and
expenditures under the modified accrual
basis.
Fund balance classifications for
governmental funds.
3-2
Modified Accrual Accounting


The modified accrual basis is a distinct
system of accounting that contains financial
statement elements that appear nowhere
else.
Among these are expenditures and fund
balances.
3-3
Modified Accrual Accounting


Although, revenues appear in the financial
statements of accrual and modified accrual
funds, revenues follow different recognition
criteria between the two bases.
Finally, there are no expenses in modified
accrual funds
3-4
Account Structure – Permanent Accounts
Accounts that are not closed at year end
(Balance Sheet)
Assets:
Cash and Cash Equivalents
Investments
Receivables: Taxes Receivable
Accounts Receivable
Due from Other Governments
Supplies Inventories
Restricted Assets (typically cash)
Liabilities:
Accounts Payable
Accrued Liabilities
Deferred Revenues
Fund Balances:
Nonspendable
Restricted
Committed
Assigned
Unassigned
3-5
Account Structure - Nominal Accounts
Accounts that are closed at year end
Budgetary Accounts
Estimated Revenues
Appropriations
Estimated Other Financing Sources
Estimated Other Financing Uses
Encumbrances
Budgetary Fund Balance –
Reserve for Encumbrances
Financial Statement Activity Accounts
Revenues
Tax Revenues
Charges for Services
Expenditures
Current
Capital Outlay
Debt Service
Other Financing Sources
Transfers In
Debt Proceeds
Other Financing Uses
Transfers Out
3-6
Assets and Liabilities

Modified Accrual Funds use the Current
Financial Resources Measurement Focus


Generally speaking, the assets represent cash
and assets that may be expected to be
converted into cash in the normal course of
operations. (no long-term assets)
Similarly, these funds report only those liabilities
which will be settled with current financial
resources. (no long-term liabilities)
3-7
Fund Balance

The account category, Fund Balance, is
unique to governmental funds.

Fund Balance serves a purpose similar to
retained earnings, in that activity accounts are
closed to this account at the end of each
accounting period.
3-8
Fund Balance - interpretation


Since only current financial resources and claims
against those resources are recognized in these funds,
the difference between assets and liabilities (fund
balance) represents the net resources of the fund that
are currently available for future spending.
However, even current financial resources vary in the
extent to which government managers have discretion
over their future use and this is reflected by assigning
fund balance to five categories (nonspendable,
restricted, committed, assigned and unassigned).
3-9
GASB 54 – Establishes the
Reporting of Fund Balances

The objective of Statement No. 54 is to
provide clearer fund balance classifications.

Users want to know whether the use of amounts
reported in governmental funds is constrained
and how binding those constraints are.
3-10
GASB 54 – Fund Balances
Financial Statements

Statement No. 54 affects only fund-basis
statements of the Governmental Type
funds

Does not affect reporting of Net Assets(Position) by
Proprietary or Fiduciary Funds

Does not affect reporting of Net Assets(Position) of
Governmental Activities in the government-wide
statements.
3-11
GASB 54 – Fund Balances
Summary

Fund balances of governmental type funds
are reported within 5 categories
•
•
•
•
•
Nonspendable
Restricted
Committed
Assigned
Unassigned
3-12
Two Step Process
Step 1: Nonspendable resources

Two Step Process – Step 1:

Identify those fund resources that are
Nonspendable
Nonspendable resources include:

•
Inventories and prepaids (also incudes assets held for sale
and long-term receivables)
•
The principal (corpus) of a Permanent Fund
3-13
Two Step Process
Step 2: Spendable resources

Spendable Resources

All remaining net resources of a fund after
removing those determined to be
Nonspendable
-
Spendable resources are further classified
according to the nature of any constraints
imposed on their use, using a hierarchy of
constraints
3-14
GASB 54 – Fund Balances
Constraint Heirarchy
Most constrained
Restricted Funds
Committed Funds
Assigned Funds
Unassigned Funds
No Constraint
(General Fund)
3-15
Constraint Heirarchy:
Restricted Funds

Restricted : Constraints placed on the
use of resources are:
•
Externally Imposed (debt covenant, grantor,
contributors, or other governments)
•
Imposed by law (constitutionally or enabling
legislation)
i.e. enforceable requirement that resources be
used only for specified purposes
3-16
Constraint Heirarchy:
Restricted Funds

In general, the definition of “restricted fund balance”
is nearly identical to that of “restricted net
assets(position)” in the Government-wide Statements
–
Exception is Permanent Fund Principle which is classified as
Nonspendable in the governmental funds and restricted in the
government-wide statements
Government -Wide
Statement of Net
Assets(Position)
Net assets – restricted
$ xxx
Fund-Basis
Governmental
Funds Balance Sheet
Restricted fund balance
$ xxx
3-17
Constraint Heirarchy:
Committed Funds
 Committed:
Constraints placed on
the use of resources by:
•
The formal action of the government’s highest level of
decision making authority.
GASB 54 specifically identifies Contractual
Obligations as one form of committed resources
3-18
Constraint Heirarchy:
Rainy Day Funds

Statement 54 also provides guidance on the classification of budget
stabilization or rainy day funds Such stabilization amounts that meet
certain criteria are classified as committed or (less commonly)
restricted, if imposed externally or by law.

Rainy day funds are classified as committed only if they are created by
a resolution or ordinance that identifies the specific circumstances
under which the resources may be expended.


Rainy day amounts that are available “in emergencies” or in periods of “revenue
shortfalls” would not be classified as committed unless the emergency or shortfall
condition is specified and of a magnitude to distinguish it from events that occur
routinely.
Rainy day funds not meeting these conditions are reported as unassigned fund
balance in the General Fund.
3-19
Constraint Heirarchy:
Assigned Funds

Assigned: The government has an
expressed intent to use resources for
specific purpose:
•
For governmental funds other than the General Fund,
this is the category for all remaining (positive) amounts.
•
For the General Fund, assignment conveys a narrower
intended use than the general purposes of the
government
3-20
Constraint Heirarchy:
Unassigned Funds
 Unassigned:
Residual classification
of the General Fund
–
Only the General Fund can report a positive
“unassigned fund balance”
–
For other governmental funds – this is used only for a
negative fund balance (in any of the previous 3 constraint
categories)
3-21
Classification: Step 1
CITY
Balance Sheet
Governmental Funds
As of December 31, 2009
Are there assets
not in spendable
form? – e.g.
Inventory & prepaids
Required to maintain
permanent fund
corpus?
ASSETS
Special
Revenue
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
Capital Projects Debt Service
Fund
895,300
Fund
Permanent
Fund
230,000
25,366
230,000
25,366
Receivables (net)
Taxes receivable
Accounts Receivable
Due from Other Governments
Supplies Inventory
No
General
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
Accounts payable
2,085,358
70,000
207,134
Accrued liabilities
543,064
LIABILITIES
Proceed to
spendable
categories
Deferred Revenues
TOTAL LIABILITIES
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Nonspendable
Supplies Inventory
Permanent fund principal
3-22
CITY
Balance Sheet
Classification: Step 1
ASSETS
Governmental Funds
As of December 31, 2009
General
Special
Revenue
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
Capital Projects Debt Service
Fund
895,300
Fund
Permanent
Fund
230,000
25,366
230,000
25,366
Receivables (net)
Assets not in
spendable form? –
Inventory & prepaids
Required to maintain
permanent fund
corpus?
Taxes receivable
Accounts Receivable
Due from Other Governments
yes
Supplies Inventory
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
Accounts payable
2,085,358
70,000
207,134
Accrued liabilities
543,064
LIABILITIES
Deferred Revenues
TOTAL LIABILITIES
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Nonspendable
Assume the permanent fund
corpus is $ 25,000.
Supplies Inventory
Permanent fund principal
23,747
25,000
3-23
Classification:
Step 2a (Restricted Funds)
ASSETS
Are restrictions
imposed by outside
creditors, grants, or
imposed by law?
CITY
Balance Sheet
Governmental Funds
As of December 31, 2009
General
Special
Revenue
Capital Projects
Debt Service
Permanent
Fund
Fund
Fund
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
895,300
230,000
25,366
230,000
25,366
Receivables (net)
yes
Taxes receivable
Accounts Receivable
Due from Other Governments
Supplies Inventory
Assume the following:
• Bond sinking fund
• Federal school lunch grant
• State highway grant
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
Accounts payable
2,085,358
70,000
207,134
Accrued liabilities
543,064
LIABILITIES
Deferred Revenues
TOTAL LIABILITIES
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Restricted
Bond Sinking Fund
School lunch grant
Highway grant
200,000
370,000
302,000
3-24
Classification:
Step 2b (Committed Funds)
CITY
Balance Sheet
Governmental Funds
As of December 31, 2009
Has city council
formally committed
funds to specific
activities?
ASSETS
yes
Special Revenue
Capital Projects
Debt Service
Permanent
Fund
Fund
Fund
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
895,300
230,000
25,366
230,000
25,366
Receivables (net)
Taxes receivable
Accounts Receivable
Due from Other Governments
Assume the following:
• Construction contracts
• School construction funds
• Rainy day reserve
General
Supplies Inventory
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
Accounts payable
2,085,358
70,000
207,134
Accrued liabilities
543,064
LIABILITIES
Deferred Revenues
TOTAL LIABILITIES
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Committed
Construction Contracts
School construction
Rainy Day Funds
120,000
450,000
3,500,000
3-25
Classification:
Step 2c (Assigned Funds)
CITY
Balance Sheet
Governmental Funds
As of December 31, 2009
Are there positive
residual balances
in non-General Fund
Governmental funds?
ASSETS
General
Special Revenue
Capital Projects
Debt Service
Permanent
Fund
Fund
Fund
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
895,300
230,000
25,366
230,000
25,366
Receivables (net)
yes
Taxes receivable
Accounts Receivable
Due from Other Governments
Supplies Inventory
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
2,085,358
70,000
207,134
LIABILITIES
Accounts payable
Accrued liabilities
Deferred Revenues
TOTAL LIABILITIES
543,064
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Assigned
School lunch program
Capital projects
Debt Service
Other purposes
202,014
40,032
30,000
366
3-26
Classification:
Step 2c (Assigned Funds)
CITY
Balance Sheet
Governmental Funds
As of December 31, 2009
ASSETS
Are there specific
resources in the
General Fund that are
intended for identified
purposes?
General
Special Revenue
Capital Projects
Debt Service
Permanent
Fund
Fund
Fund
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
895,300
230,000
25,366
230,000
25,366
Receivables (net)
Taxes receivable
yes
Accounts Receivable
Due from Other Governments
Supplies Inventory
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
Accounts payable
2,085,358
70,000
207,134
Accrued liabilities
543,064
LIABILITIES
Assume the government has
outstanding encumbrances for
the following:
• Library acquisitions
• Other capital projects
Deferred Revenues
TOTAL LIABILITIES
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Assigned
School lunch program
Capital projects
Debt Service
Other purposes
Library acquisitions
202,014
75,000
40,032
30,000
366
25,000
3-27
Classification:
Step 2d (Unassigned Funds)
All negative restricted,
committed, or assigned
net resources are
classified as Unassigned.
ASSETS
Governmental Funds
As of December 31, 2009
General
Special Revenue
Capital Projects
Debt Service
Permanent
Fund
Fund
Fund
Fund
Fund
Cash and cash equivalents
6,408,214
Investments
3,312,992
627,837
895,300
230,000
25,366
230,000
25,366
Receivables (net)
Taxes receivable
Accounts Receivable
Due from Other Governments
Supplies Inventory
The remaining net
resources of the General
Fund are classified as
Unassigned
CITY
Balance Sheet
2,872,611
679,215
14,177
1,085,184
243,264
23,747
Restricted Assets
3,933,126
TOTAL ASSETS
18,315,089
642,014
1,138,564
Accounts payable
2,085,358
70,000
207,134
Accrued liabilities
543,064
LIABILITIES
Deferred Revenues
TOTAL LIABILITIES
19,398
4,408,087
7,036,509
70,000
226,532
-
FUND BALANCE
Nonspendable
Supplies Inventory
23,747
Permanent fund principal
25,000
Restricted
Bond Sinking Fund
200,000
School lunch grant
370,000
Highway grant
302,000
Committed
Construction Contracts
120,000
School construction
Rainy Day Funds
450,000
3,500,000
Assigned
School lunch program
Capital projects
202,014
95,000
40,032
Debt Service
30,000
Other purposes
Library acquistions
Unassigned
TOTAL FUND BALANCE
366
25,000
7,634,833
11,278,580
572,014
912,032
230,000
25,366
3-28
Classification Completed
FUND BALANCES
Nonspendable
Supplies Inventory
Permanent fund principal
Restricted
Bond Sinking Fund
School lunch grant
Highway grant
Committed
Construction Contracts
School construction
Rainy Day Funds
Assigned
School lunch program
Capital projects
Debt Service
Other purposes
Library acquisitions
Unassigned
TOTAL FUND BALANCE
General
Fund
Special
Revenue
Fund
Capital
Projects
Fund
Debt Service Permanent
Fund
Fund
23,747
25,000
200,000
370,000
302,000
120,000
450,000
3,500,000
202,014
95,000
40,032
30,000
366
25,000
7,634,833
11,278,580
572,014
912,032
230,000
25,366
3-29
GASB 54 – Fund Balances
Encumbrances


Encumbrances
Under past reporting practices, outstanding encumbrances at year
end were reported in the governmental funds as fund balance:
reserve for encumbrances.


Statement 54 requires that significant encumbrances be disclosed in the notes
along with required disclosures about other commitments.
However, there is no separate reporting of encumbrances within the
fund balance section of the governmental funds’ balance sheet.

Rather, encumbered resources should be reported within the restricted,
committed or assigned categories in a manner consistent with the criteria for
those classifications.
3-30
GASB 54 – Fund Balances
Encumbrances

Encumbrances – Interpretation

At the very least, the existence of an encumbrance suggests that the
government has an expressed intent to use resources for a particular purpose
and therefore these resources should not be classified as unassigned.

Encumbrance accounting may also be used in the case of contractual
obligations, such as construction contracts. Statement 54 requires that
resources obligated to contractual obligations be classified as committed.
3-31
GASB 54 – Fund Balances
Negative balances

Negative Balances

Statement 54 does not permit the reporting of negative
restricted, committed or assigned fund balances. If this occurs,
the government should reduce any assigned fund balances (in
that fund) by the amount of the negative balance.
 The rationale is that if expenditures exceed restricted or
committed resources, then funds have in effect been
reallocated to the purpose used.

If a deficit remains once all assigned fund balances are zero, the
remaining negative amount should be reported as unassigned
fund balance.
3-32
Activity Accounts – Sources of funds


Other Financing Sources include
transfers in from other funds and the
proceeds of long-term borrowing.
Revenues are defined as all other inflows
and include taxes, charges for services,
and amounts provided by other entities
such as the state or federal government.
3-33
Activity Accounts – Uses of funds


Expenditures are recognized when a liability is
incurred that will be settled with current financial
resources in the fund. Expenditures may be for
salaries (current), land, buildings or equipment
(capital) or for payment of interest and principal
on debt (debt service).
Transfers out of a fund to other funds are
classified as Other Financing Uses.
3-34
Classification of Inflows and
Outflows on Budget Schedule

Revenues are classified by source



Where the money came from: taxes, licenses and
permits, charges for service, etc
May be subdivided further such as by type of tax,
sometimes shown in separate schedule
Expenditures and Encumbrances may be
classified by

function, program, department, activity, character, or
object
3-35
Outflow Classifications


Character groupings are always: CURRENT,
CAPITAL OUTLAY, and DEBT SERVICE
Current are typically classified by function:
General government, public safety, streets and highways

Public safety could be subdivided by department: Police
and fire

Police could be subdivided further by activity: Traffic and
drug enforcement
 Activities in the traffic area could be divided into objects of
expenditure: Policeman’s salary, gas for automobiles
3-36
Budgetary Accounting


GASB standards require governments to present a
comparison of budgeted and actual results for the
General Fund and special revenue funds with legally
adopted budgets.
While GASB standards guide the format of this
comparison, the GASB does not prescribe budgetary
accounting practices and does not require governments
to maintain budgetary accounts.
3-37
Recording Budgets

Although budgetary accounts do not
appear in the general purpose financial
statements, governments typically record
budgets and governmental accounting
systems are designed to assure
compliance with budgets.
3-38
Budgetary Accounts


Revenues to be raised pursuant to law during a
budget period are set forth in an Estimated
Revenues budget.
An Appropriation, when enacted into law, is the
legal authorization for the government to incur
liabilities for purposes specified in the appropriations
statue or ordinance.

Estimated Other Financing Sources and Estimated
Other Financing Uses are budgetary accounts
reflecting anticipated inflows and outflows of resources
from sources other than revenues and expenditures
3-39
Encumbrances

When a purchase order or contract is
issued as authorized by an appropriation,
the government recognizes this
commitment as an Encumbrance.

An encumbrance is not a liability since the goods
or services have merely been ordered, not
received.
3-40
Encumbrances

Commitments are reflected in the
budgetary accounts through the recording
of Encumbrances and the corresponding
Budgetary Fund Balance - Reserve for
Encumbrances.
3-41
Expenditure Cycle
3-42
Encumbrance to Expenditure

Once goods or services are received, the government
has a liability. At this point, two journal entries are
necessary.


The first reverses the encumbrance at its original amount.
Since the government has incurred an actual liability, it is no
longer necessary to reflect a commitment for the outstanding
purchase orders or contracts.
The second entry records the liability (Accounts Payable) and
an Expenditure in the amount of the invoice.
3-43
Why Record Encumbrances?

In business accounting, orders are not
entered into the general ledger


Governments recognize 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
3-44
Encumbrance Example

Place an order for $150,000 which consists of three mini-buses
costing $50,000 each. Recorded as:
Encumbrances
Budgetary Fund Balance Reserve for Encumbrances

150,000
150,000
Assume two of the buses arrive, but with freight, they cost $102,000
instead of $100,000.

First, reverse a part of the encumbrances:
Budgetary Fund Balance Reserve for Encumbrances
Encumbrances

100,000
100,000
Second, record the actual amount of expenditure:
Capital Expenditure
Accounts Payable
102,000
102,000
3-45
Accounting for Revenues

Since taxes and many other revenues do
not involve exchange transactions,
governments cannot determine the point at
which these revenues are earned.

Therefore revenue recognition occurs when the
resulting resources are deemed to be both
measureable and available to finance
expenditures of the current period.
3-46
Revenue Recognition



Nonexchange transactions are transactions in which a
government receives resources without directly giving
equal value in exchange.
The most common forms of nonexchange transactions
are tax revenues and intergovernmental grants.
Before a government may recognize revenue resulting
from nonexchange transactions, it must meet a number
of eligibility requirements.
3-47
Eligibility Requirements
Non-Exchange Revenues




Required Characteristics of Recipients. The recipient must have
the characteristics specified by the provider.
Time Requirement. If time requirements (for expenditure) are
specified by the resource provider or legislation, those time
requirements must be met
Reimbursement. For those grants and gifts that are payable only
upon the incurrence of qualifying outlays, revenues would be
recognized only when the expenditures have been incurred.
Contingencies. Resources pledged that have a contingency
attached are not recognized as revenue until the contingency has
been met.
3-48
Types of Nonexchange Transactions
1.
Imposed nonexchange revenues
property tax, special assessments, fines/forfeits
2.
Derived tax revenues
sales, income, motor fuel taxes
3.
Government mandated transactions
federal government requires lower level
expenditures
4.
Voluntary nonexchange transactions
grants, donations
3-49
Imposed Nonexchange Revenue

Taxes and other assessments that do not result
from an underlying transaction.


Examples include property taxes and special assessments
imposed on property owners.
Also includes fines and forfeits.
3-50
Imposed Nonexchange Revenue
Modified Accrual
Basis Recognition
Record the receivable (and an allowance for
uncollectibles) when an enforceable claim exits.
Revenues should be recognized in the period for
which the taxes are levied (i.e. budgeted), but
are also subject to the 60 day rule. Revenues
expected to be collected > 60 days after yearend are deferred.
1. Property taxes levied
1. Taxes Receivable ………Dr
Estimated Uncollectible Taxes ….…..Cr
Revenues Control ……………….…Cr
2. Revenues Control ………Dr
Deferred Revenues – Property Taxes Cr
2. Deferral of portion
expected to be collected >
60 days after year end
3-51
Derived Tax Revenues

These are taxes assessed on exchange
transactions conducted by businesses or
citizens.

Examples include sales, income, and excise
taxes.
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Derived Tax Revenue
Revenue Recognition –
Modified Accrual
Record the receivable when the taxpayer’s underlying
transaction takes place.
Revenues should be recognized when available and
measurable. Revenues not expected to be collected in
time to settle current liabilities are deferred (i.e.
available and measurable criteria).
1. Income tax withholdings 1. Cash …………………….Dr
Revenues Control ……………………Cr
are received.
2. Additional income taxes 2. Taxes Receivable ……….Dr
Revenues Control ……………………Cr
expected to be received
Deferred Revenues – Income Taxes ……Cr
after year end. Part of this
will not be received in time
to be avail-able for current
liabilities.
3-53
Government Mandated
Nonexchange Transactions

These are commonly grants from higher levels of
government (federal or state) given to support a
program.

Since the program is required, the lower-level government
has no choice but to accept.

For example, a state may require schools to mainstream
certain students and provide funds to carry out this mandate.
3-54
Voluntary Nonexchange
Transactions

These include donations and grants given
to support a program.

Since the program is not required, the receiving
government voluntarily agrees to participate.
3-55
Government-Mandated and Voluntary
Nonexchange Revenues
Revenue
Recognition –
Modified Accrual
Record the receivable and the revenue when all
eligibility requirements have been met.
Many of these are reimbursement grants. In this
case, revenue is recognized only when qualified
expenditures have been incurred.
Reimbursement type
grants
1. Expenditures Control …..Dr
Accounts Payable/Cash ……………..Cr
2. Due from grantor ……… Dr
Revenues Control ……………………Cr
3-56
Government-Mandated and Voluntary
Nonexchange Revenues
Revenue
Recognition –
Modified Accrual
Advance receipts are deferred until expenditures
are incurred. Revenue recognition is subject to
the available and measurable criteria.
Advance funded
grant:
1.
1. Receipt of advance
funding.
2. Incur qualified
expenditures and
recognize revenue.
Cash ……………………Dr
Deferred Revenues – Grants ………..Cr
2a. Expenditures Control …...Dr
Accounts Payable/Cash ……………..Cr
2b. Deferred Revenues –
Grants .. ……… Dr
Revenues Control ……………………Cr
3-57
Recording the budget
Estimated Revenues
12,000,000
Estimated Other Financing Sources
500,000
Appropriations
Estimated Other Financing Uses
Budgetary Fund Balance
11,700,000
250,000
550,000
In the above entry, Budgetary Fund Balance is the expected change in
fund balance assuming actual amounts are exactly as budgeted. It may be
either a credit (or less frequenty) or debit balance in the entry.
3-58
Budget Revisions

Budget revisions may be
necessary during the year
due to changes in revenue
projections or operating
conditions … for example,
electricity price increases,
decrease in sales taxes
due to low consumer
spending

Budget revisions usually
are taken back to the
appropriate legislative
body for approval,
although some
jurisdictions may allow
some percentage of the
budget to be transferred
between accounts
3-59
Recording a budget revision
Budgetary Fund Balance
Appropriations
Estimated Revenues
150,000
70,000
80,000
In the above entry, the budget reflects a decrease in estimated revenues of
$ 80,000 and an increase in appropriations of $ 70,000.
3-60
Budgetary Comparison Schedule



Both the original and the final adjusted
budget is shown
The revised appropriations are compared to
the Actual Expenditures for the current
period plus Outstanding Encumbrances
A variance column is typically shown, but is
optional
3-61
Budgetary Comparison Schedule

The actual column
should use the basis of
accounting assumed in
the budget. This may
be different than
GAAP basis

Another schedule will
reconcile the ‘actual’
figures on the
budgetary vs. GAAP
basis
3-62