Chapter 18
Governmental Entities:
Other Governmental
Funds and Account
Group
McGraw-Hill/Irwin
©The McGraw-Hill Companies, Inc. 2006
Scope of the Chapter
2

To describe and illustrate the accounting and
reporting of Governmental funds other than
General Fund

Accounting and reporting for account groups
Types of other Governmental Funds
Special Revenue Funds
 Capital Projects Funds
 Debt Service Funds
 Permanent Funds

3
Types of Account Groups
a. General capital assets account group
 b. General long-term debt account group
Capital leases
Special assessment bonds

4
Other Governmental Fund incorporates many
Accounting Standards of General Fund



5
Modified accrual basis of accounting is
appropriate for all governmental funds
Recording budget is applicable to Special
revenue funds and may be useful for other
funds.
Recording of Encumbrance accounting is
appropriate for all funds.
Special Revenue Funds
Such Funds are established to account for
revenues and expenditures earmarked for
specified governmental operations or are
legally restricted for specific purposes.
Examples are Sales tax, Empowerment
zones, Gasoline tax, Parking Fees, Rubbish
collection, Traffic violation fines etc.
6
Special Revenue Funds



7
Budgetary processes for Special Revenue
Fund are similar to those of general fund.
All accounting entries, Ledger accounts and
Financial reports for a special revenue fund are
the same as those for the general fund.
Closing entries are similar to those of general
fund.
Capital Projects Funds


8
Established for the construction or purchase of
significant fixed assets.
Funds record the receipt and payment of cash
for the construction of plant assets of a
governmental entity other than those financed
by proprietary funds or trust funds.
Capital Projects Funds

Examples are:
- Municipal stadium
- County courthouse
- Constructions of special assessment projects (such as streets and
street lights etc)

Resources and Accounting
This fund accounts for the proceeds received from the sale of
general obligation bonds or grants from other governmental units to
finance construction or purchase of major capital facilities.
Resources may also come from grants or shared revenues or from
current tax revenue of general fund.
9
Capital Budget for Capital Projects
Funds


10
A capital budget is the control device
appropriate for a capital projects fund.
Capital budget deals with both the authorized
expenditures for the project and the bond
proceeds or other financing sources for the
project.
Budgetary control for Capital
Projects Funds



11
Budgetary accounting is essential where
numerous construction projects are financed
through a capital projects fund
Projects are constructed by government’s labor
force.
Projects adequately controlled by contracts
with contractor, formal budgetary accounting
might not be necessary.
Revenues and other financing for
Capital Projects Funds

Bond Issuance



Government grants


Reported as Other Financing Sources
Short term borrowing

12
Reported as Revenue when earned
General fund contributions


Bond liability is not recorded in the capital project fund.
Bond issue proceeds is presented on the statement and
expenditure as other financing sources.
Reported as Current Liabilities
Example of Bond Issue: Assume that a bond issue for $600,000
was authorized to build a new government building.

To record the bond proceeds in capital project fund
Dr
Cr
Cr

Transfer to debt service fund 10,000
Cash
10,000
Investment in CD
Cash
600,000
600,000
To record interest revenue earned on investment
Dr
Cr
13
10,000
Proceeds may be invested. (assume 600,000 invested in CD that earned 60,000)
Dr
Cr

610,000
Other Financial sources-bond issue proceeds 600,000
Premium on Bonds
To record transfer of premium to debt service fund
Dr
Cr

Cash
Cash
60,000
Revenue
60,000
Journal entries for Capital Projects
Fund
Encumbrances
are recorded.
Closing Entries at year end.



On
Completion of the Project,

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Budget if recorded in the beginning, is closed at year end.
Actual activity is closed at year end to Unreserved and
Undesignated Fund Balance account.
Encumbrances are closed at year end.
the Capital Project Fund is terminated by a transfer of any
unused cash to Debt Service Fund or General Fund as
appropriate. This is called a residual equity transfer.
Financial Statements for Capital Projects
Fund (Same financial statements as General fund)


15
The capital projects fund merely acts as an
asset account, recording project resources
received and expending the amounts to
complete the project.
Actual payment of principal and interest on the
long-term debt is made from the debt service
fund
Debt Service Fund (created for)

Created to account for
–
–
16
Accumulation of resources (cash and investments)
and
Payment of interest and principal on “long term
general obligation debt” (not recorded by the
general fund or by a relevant enterprise fund)
Debt Service Fund (types of bonds)

Two types of of general obligation bonds
recorded here
1.
2.
17
Serial bonds : Principal payable in annual
installments over the term of the bond issue.
Term bonds : Principal payable in total on maturity
date. (Generally proceeds of sinking fund)
Debt Service Fund
18

Budgetary processes for Debt Service Fund
are similar to those of general fund.

Encumbrances are not applicable to the Debt
service fund.
Debt Service Fund (resources)
This fund’s resources are derived from allocated
portions of taxes or receipt or transfer from
other fund.
Entry
–
19
Dr Cash
Cr Other financing sources
or
Cr Transfer from other fund
Debt Service Fund (investment income)
Any income from the investment of resources is
recorded as revenue.
Entry
Dr Cash
Cr Revenue
20
Debt Service Fund (expenditures)

Fund makes actual expenditures associated
with the principal and interest on general
obligation long term debt

Entry when interest is legally due
Dr
21
Expenditure
Cr Cash
Debt Service Fund (closing entries)
22

The budget, if created in the beginning, is
closed at year end. (reverse for the same
amount)

Actual activity is closed to fund balance at year
end.
Debt Service Fund (financial statements)

Balance Sheet

And
Statement of Revenues,Expenditures and
Changes in Fund Balance. (Budgeted amounts,
actual amounts and variances from budgeted amounts
are included in this statement)
23
General Capital Assets and General
Long Term Account Groups



24
Account groups are used to record capital
(plant) assets and long term debt not recorded
in Funds.
They are memorandum accounts and not
funds.
Their purpose is to record entity’s plant assets
and long term liabilities not recorded in on of
the entity's fund.
General Capital Assets Account
Group



25
Plant assets are recorded in the General
Capital Assets Account Group at their cost (fair
value if donated) to Government Entity.
The offsetting credit is to memorandum ledger
account.
Depreciation must be recorded in this Account
Group.
General Long Term Debt Account
Group


26
General obligation bonds and other long term
liabilities not recorded in any fund are recorded
as memorandum credit here.
The offsetting debit entry is to the Amount to be
provided ledger account.
General Long Term Debt Account
Group

Also possibly recorded in the general long-term debt
account group are
–
–
–
–

27
the noncurrent portion of claims, judgments, and compensated
absences;
the noncurrent portion of a liability under a capital lease;
and
special assessment bonds for which the governmental entity is
obligated in some manner.
The general long-term debt account group is not a
fund; it is a memorandum record only.
Capital Leases of Governmental
Entities.

If a capital lease is not recorded in a
proprietary fund :
–
–
28
The property is recorded in the general capital
assets account group and
The lease liability is recorded in the general long
term debt account group.
Special Assessment Bonds (purpose)

29
Sometimes are issued by a governmental
entity to finance construction projects pending
the receipt of special assessments payable in
annual installments.
Special Assessment Bond (Reporting)
30

Should be reported only if Government is
obligated in some manner.

If Government is not obligated in any manner
should not be displayed in the government’s
financial statements.
Special Assessment Bond (Reporting)




31
Portion that will be repaid from property owner assessments
should be reported as ‘special assessment debt with
governmental commitment.
Portion that will be repaid from general resources should be
reported like other general long term liability.
Portion that is related to and expected to be paid from proprietary
funds should be reported as liabilities of those funds in the
proprietary fund statement of net assets.
All other should be reported general long term liabilities in the
government-wide statement of net assets.