Chapter 3
Governmental Operating
Statement Accounts –
Budgetary Accounting
Dr. Chula King
The University of West Florida
Student Learning Outcomes
Explain how operating revenues and expenses
related to governmental activities are classified and
reported in the government-wide financial
statements
Distinguish, at the fund level, between Revenues
and Other Financing Sources, and between
Expenditures and Other Financing Uses
Explain how revenues and expenditures are
classified in the General Fund.
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Student Learning Outcomes
Explain how budgetary accounting contributes to
achieving budgetary control over revenues and
expenditures, including such aspects as:
• Recording the annual budget
• Accounting for revenues, encumbrances, expenditures
and allotments
• Reconciling GAAP and budgetary accounts.
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Government-wide Statement of
Activities
Expenses – Program Revenues = Net (Expense) Revenue
Expenses – reported by function or program
• Direct expenses – Associated with a function or program
• Indirect expenses – Not directly linked to an identifiable function
Revenues – distinction between program and general
revenues
• Program revenues – reported in the program/functions section of the
statement
• General revenues – not directly linked to any program/ function and
reported in a separate section at bottom of statement.
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Government-wide Statement of
Activities
Extraordinary items, special items, and transfers are
reported as separate line items near the bottom (see.
Ill. 1-5 and 3-1).
• Extraordinary items – both unusual in nature and
infrequent in occurrence, and usually beyond the control
of management – last item
• Special items – either unusual or infrequent, and usually
within the control of management – before extraordinary
items.
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General Fund
Used to account for the general administration and
most traditional services of government
Examples
• Public safety – police and fire
• Public works – maintenance of buildings, roads, bridges
• Culture and recreation – arts, parks, youth activities
• Health and welfare – public health, food facilities
inspection, juvenile counseling.
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Example
General Ledger
Debit
Credit
General Fund
Cash
2,000,000
Other financing sources
proceeds of two-year note
Governmental Activities, Government-wide
Cash
2,000,000
Notes payable
2,000,000
2,000,000
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Example
General Ledger
Debit
Credit
General Fund
Expenditures
2,000,000
Cash
Governmental Activities, Government-wide
Equipment
2,000,000
Cash
2,000,000
2,000,000
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Budgetary Accounts
Used to record the budgetary inflows and outflows
estimated or authorized in the annual budget
Accounts
• Estimated Revenues, Estimated Other and Financing
Sources
• Appropriations, Estimated Other and Financing Uses
• Encumbrances.
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Definitions
Fund Balance: Portion of fund equity available for
spending
Revenue: Increases in fund financial resources
other than from interfund transfers and debt issue
proceeds
Other Financing Sources: Operating statement
classification in which financial inflows other than
revenues are reported, e.g., transfers-in and
proceeds of long-term debt.
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Definitions
Expenditure: Represents the cost of a good or
service consumed during the period. Decrease in a
fund’s current financial resources other than from
interfund transfers
Other Financing Uses: Operating statement
classification in which financial outflows other than
expenditures are reported, e.g., transfers out.
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Fund Equation – General Fund
Assets = Liabilities + Fund Equity
Balance Sheet
Accounts
(Permanent)
Budgetary/
Operating
Statement
Accounts
(temporary)
Reserved
+
Fund Balance
Operating
Statement
Accounts
Unreserved
Fund Balance
Budgetary
Accounts
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Fund Equity
Operating Statement Accounts Budgetary Accounts
CR
Revenues
Estimated Revenues DR
Appropriations
Encumbrances
DR Expenditures
CR Other Financing Sources
DR Other Financing Uses
CR
Estimated Other DR
Financing Sources
Estimated Other
Financing Uses
CR
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Budgetary Comparison Schedule
Required by GASB #34 for General Fund and each
major special revenue fund for which a budget is
legally adopted
Required supplementary information after notes
Separate columns for both originally adopted and
final amended budgets, and actual amounts using
the government’s budgetary basis
Variance column recommended, but not required.
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Budgetary and Operating
Statement Accounts
Revenues and Other Financing Sources increase
fund balance when closed. Both are recognized on
the modified accrual basis – when measurable and
available to pay current period obligations
Expenditures and Other Financing Uses – decrease
fund balance when closed. Both are recognized on
the modified accrual basis – when incurred, if
expected to be repaid from currently available
resources.
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Budgetary Operating Statement
Accounts
Appropriation – legal authorization granted by the
legislative body to incur liabilities for purposes
specified in the appropriation act or ordinance.
Encumbrance – estimated amount recorded for
purchase orders, contracts, or other expected
expenditures chargeable to an appropriation
Expenditures – Recorded when liabilities are
incurred pursuant to authority given in an
appropriation.
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Budgetary Control – Expenditures
Achieved by
• ensuring that a valid appropriation exists prior to
recording an encumbrance or expenditure, and
• periodically comparing encumbrances and expenditures
to appropriations.
Comparison is enhanced by using a common
classification scheme for appropriations,
encumbrances, and expenditures.
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Expenditure Classification
Fund – denotes which fiscal and accounting entity
was affected
Function or program – Assists in budgeting
resources for carrying out major areas of service
activities or goals
Organization unit – Assists in enhancing managerial
control and responsibility accounting.
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Expenditure Classification
Activity – assists in assessing performance on
specific lines of work and determining cost of
activities
Character – Assists in evaluating which period is
benefited by an expenditure: past, present or future
Object – Assists in determining how much was
expended for specific things, such as personnel and
equipment.
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Accounting Controls Expenditures
Three control accounts – appropriations and
encumbrances (budgetary), and expenditures
(operating statement) – are used to control similarly
named columns in the detailed budget accounts in
the subsidiary ledger (see Ill. 3-7)
The sum of appropriations, encumbrances and
expenditure account balances of the subsidiary
ledger must equal the general ledger control account
balances.
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Budgetary Control - Revenues
Periodically compare
• Actual revenues or actual other financing sources to
• Estimated revenues or estimated other financing sources
Use a common classification scheme for revenues
and estimated revenues.
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Accounting Control - Revenues
Two control accounts – estimated revenues
(budgetary) and revenues (operational statement) –
are used to control similarly named columns in the
detail accounts in the Revenue subsidiary ledger
(See Ill. 3-6)
The sum of the Estimated Revenues and Revenue
account balances of the subsidiary ledger must
equal the general ledger control account balances
for those accounts.
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Classification of Revenues and
Estimated Revenues
By Fund
By Source
• Taxes (Ad-valorem and self-assessing)
• Special Assessments
• Licenses and Permits
• Intergovernmental Revenues
• Charges for Services
• Fines and Forfeits
• Miscellaneous Revenues
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Ad-valorem and Self-assessing
Taxes
Ad-valorem taxes are those that are paid according
to the value of the underlying property, e.g.,
personal and real property taxes
Self-assessing taxes are those that are based on
income or sales, and thus are not measurable until
income or sales for a period are known. Ordinarily
not accrued until the amount becomes known.
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Property Taxes
If rates are below the statutory limit, property taxes
may be viewed as a residual source of revenues.
The gross tax levy is calculated as the amount of
revenue required from property taxes divided by the
estimated collectible portion of the levy, e.g., .96.
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Special Assessment Taxes
Levied against certain properties deemed to receive
a particular benefit that not all taxpayers receive.
Examples
• Street repair
• Street cleaning
• Snow plowing for taxpayers who live outside the normal
service area.
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Licenses and Permits
Includes items such as vehicle licenses, business
licenses, liquor licenses, marriage licenses, animal
licenses, building permits, zoning variances
Ordinarily not measurable in advance of
transactions; thus accounted for on the cash basis.
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Intergovernmental Revenue
Includes grants, entitlements, and shared revenues
Often the amount is known before the actual receipt
of cash and thus may be accrued under the modified
accrual basis.
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Charge for Services
Many governments have shifted much of their
revenues from taxes on all taxpayers to charges to
recipients of services, including charges for
recreational services, building inspections, etc.
Accrue if the amount is known prior to the receipt
of cash.
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Fines and Forfeits
Fines are assessed by the courts against those guilty
of statutory offences and neglect of official duties,
e.g., speeding tickets
Forfeits arise from deposits or bonds made by
contractors, accused felons, and others to assure
performance on contracts or appearances in court
Accrue if the amount is known prior to the receipt
of cash, which is usually not the case.
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Miscellaneous
Revenues that do not fall into one of the other
categories
Examples
• Proceeds from the sale of government assets
• Investment income
Accrue if the amount is known prior to the receipt
of cash; but usually accounted for when collected in
cash.
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Recording the Budget
Estimated Revenues
Fund Balance
Revenues Ledger
Taxes
Intergovernmental Revenues
Licenses and Permits
General Ledger
Debits
Credits
1,277,500
1,277,500
Subsidiary Ledger
Debits Credits
882,500
200,000
195,000
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Recording the Budget
Fund Balance
Appropriations
Estimated Other Fin. Uses
Appropriations Ledger
General Government
Public Safety
Other Financing Uses Ledger
Interfund Transfers Out
to Other Funds
General Ledger
Subsidiary Ledger
Debits
Credits Debits Credits
1,636,500
1,362,000
274,500
1,150,000
212,000
274,500
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Budgetary Control of Revenues
Cash
Revenues
Revenues Ledger
Licenses and Permits
Intergovernmental Revenues
General Ledger
Debits
Credits
75,100
75,100
Subsidiary Ledger
Debits Credits
13,200
61,900
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Budgetary Control of
Encumbrances and Expenditures
Appropriation is authorization for administrators to
incur liabilities in the amounts specified in the
appropriation ordinance or statute.
Purchase order Î Appropriation has been
encumbered.
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Budgetary Control of
Encumbrances and Expenditures
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Encumbrances-2005
45,400
Reserve for Encumbrances-2005
45,400
Encumbrances Ledger
General Government
38,000
Public Safety
7,400
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Budgetary Control of
Encumbrances and Expenditures
Reserve for Encumbrances-2005
Encumbrances-2005
Encumbrances Ledger
General Government
Public Safety
Expenditures-2005
Vouchers Payable
Expenditures Ledger
General Government
Public Safety
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
42,000
42,000
35,000
7,000
42,400
42,400
35,100
7,300
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Allotments
Internal allocations of funds by executive
management to quarters or other time periods.
Prevents the expenditure of all or most of the
authorized amount early in the year.
Some modification of the appropriations subsidiary
ledger is required to add an Unallotted
Appropriations column in each detail account.
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Reconciliation of GAAP and
Budgetary Amounts
Explain differences between
• the GAAP basis operating statement (Ill. 1-7) and
• the budgetary comparison schedule (Ill. 3-4)
Show on the face of the budgetary comparison
schedule or on a separate page (Ill. 3-8)
Examples may include:
• transfers to other funds
• claims and compensated absences
• proceeds from sale of capital assets
• encumbrances and expenditures.
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Concluding Comments
The General Fund and special revenue funds
usually require a legally adopted budget before the
government can collect revenues from taxes and
other sources and incur expenditures.
Severe penalties may exist for failure to comply
with the budget, so it is imperative that the
accounting system facilitate accounting for the
budget as well as all other operating transactions.
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The Next Step
Chapter 3 – City of Smithville simulation. Due no
later than midnight, CDT on June 12.
Chapter 3 – CAFR assignment. Due no later than
midnight, CDT on June 12.
Problem 3-2, 3-3, 3-5 and 3-6.
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