GOVERNMENTAL ACCOUNTING
Presented by: Professor N Amy Santos, State
College of Florida
Purposes and Sources
 What is the organizational
purpose of governments?
To promote the well-being of
citizens
To provide public services
Note: No generation of
returns to owners
 What is the source of
governmental revenue?
Many of the resources are
derived from taxes and
other non-exchange
transactions.
Important aspects of the GNP
Environment
 Accountability Issues: The obligation to demonstrate
accountability related to the use of public funds.
 Budgetary Authority: As far as the role of the budget, it is
important to note that government budgets often carry the
authority of law and prevent public officials from spending
outside their budgetary authority.
 Budgetary Accounting: The Governmental Accounting
Standards Board (GASB) standards include a three-part
budgetary principle: a) an annual budget should be adopted
by every governmental unit; b) accounting system should
provide the basis for budgetary control; c) budgetary
comparisons should be included where appropriate.
U.S. Standard Setters
 Federal level
 FASAB - Federal Accounting Standards Advisory Board



GAO – Governmental Accountability Office
U.S. Treasury Department
OMB - Office of Management and Budget
 State and Local Government (SLG)
 GASB - Governmental Accounting Standards Board
 Private (non-governmental) Not-for-profits
 FASB - Financial Accounting Standards Board
GASB Concepts Statement No.1
 “The Board believes that financial reporting plays a major role in
fulfilling government's duty to be publicly accountable in a
democratic society.”
 Public accountability is based on the belief that the taxpayer has a
"right to know.”
 “Financial reporting should provide information to assist users in
assessing interperiod equity by showing whether current-year
revenues are sufficient to pay for current-year services or whether
future taxpayers will be required to assume burdens for services
previously provided.”
 “State and local governmental financial reports should possess
these basic characteristics: understandability, reliability, relevance,
timeliness, consistency, and comparability.”
Contents of Governmental Financial
Reports
 Management’s Discussion and Analysis
 Basic Financial Statements
 Government-wide Financial Statements (Statement of Net
Assets and Statement of Activities).
 Fund Basis Financial Statements (Governmental Type Funds,
Proprietary Funds, and Fiduciary Funds).
 Notes to the Financial Statements.
 Required Supplementary Information (infrastructure assets,
budgetary comparisons, pension plans, external financing
pools).
Measurement Focus
 Measurement focus when applies to financial statements
refers to what items are being reported.
 An economic resource measurement focus measures both current
and long-term assets and liabilities and is used by for-profit
businesses (reports balances in fixed assets and long-term
liabilities).
 A current financial resources measurement focus measures the
extent to which financial resources obtained during a period
are sufficient to cover claims incurred during that period
against financial resources and the net financial resources
available for future periods.
Basis of Accounting
 Basis of accounting focuses on the recognition of transactions and
events in the accounting records.
 Cash Basis (does not apply to governmental accounting)
determines that recognition of transactions and events (revenues
and expenses) is based on when cash is actually or constructively
received and when cash is paid.
 Accrual Basis recognizes revenues when earned (and expected
to be realized) and expenses when incurred or the related goods
or services are used up.
 Modified Accrual Basis recognizes revenues when measurable
and available to finance the expenditures of the current period.
Expenditures (not expenses) are recognized in the period in
which the fund liability is incurred.
Overview of Basic Financial Statements

Government-wide Statements

Statement of Net Assets (Statement of Net Position after 2013)


Statement of Activities


Similar to business balance sheet (assets= liabilities +
owners/stockholders’ equity)
Similar to business income statement (revenues – expenses = net
income/profit or net loss).
Government-wide statements use the accrual basis and
report long-term assets and liabilities for both governmental
and business activities (governmental funds are reported
using the modified accrual basis).
Government-wide Statement of Net
Assets (Position)
 Assets are listed in the order of liquidity
 Classifying assets and liabilities into current and noncurrent
categories is optional
 NET ASSETS (or net position) is reported in three categories
 1. Net Investment in capital assets
 2. Restricted
 3. Unrestricted
 There must be two separate columns, one for Governmental
Activities and one for Business Activities
 The numbers in these columns are taken from the totals in the individual
governmental and business type fund statements. The governmental
activities must first be adjusted to the accrual basis.
 Component Units will have one or more columns or be shown in
notes
Government-wide Statement of
Activities
 It is the operating (resource flows) statement reporting expenses
classified by program or function and revenues derived directly
from programs or functions.
 Revenues generated directly from programs or functions can be
user charges or resources received directly from external sources,
such as grants and contributions
 Program expense minus program revenue (net expense) of each
program or function is reported in separate columns for
governmental activities, business-type activities, and component
units.
 General revenues, such as taxes of all kinds and transfers between
governmental and business-type activities, are reported in the
bottom portion of the statement.
Fund Financial Statements
• Governmental Funds have
– Balance Sheet
– Statement of Revenues, Expenditures and Changes in Fund Balance
– Required supplementary Budgetary Comparison (optional)
• Proprietary Funds have
– Statement of Net Assets (Net Position for June 30, 2013)
– Statement of Revenues, Expenses and Changes in Fund Net
Assets/Position
– Statement of Cash Flows
• Fiduciary Funds have
– Statements of Net Assets (Net Position for June 30, 2013)
– Statement of Changes in Fund Net Assets/Position
Balance Sheet
 A total column is required
 Fund balance is displayed using categories of nonspendable,
restricted, committed, assigned and unassigned. The
categories represent various degrees of constraint placed on
the use of net resources.
 Total fund balances reported in the total column must be
reconciled to total net assets presented in the governmental
activities column of the government-wide Statement of Net
Assets.
Balance Sheet Items
 General Fund: Accounts for most of the basic services provided
by the government. It accounts for and reports all financial
resources not accounted for and reported in another fund.
 Capital Projects Funds: Account for and report financial
resources that are committed, or assigned to expenditure for
capital outlays (purchase and construction of major capital
improvements, except those purchased or constructed by a
proprietary or fiduciary fund).
 Debt Service Funds: Account and report financial resources
that are restricted, committed, or assigned to expenditure for
principal and interest, other than on proprietary or fiduciary
activities.
Balance Sheet Items (Cont.)
 Special Revenue Funds: Account for and report the
proceeds of specific revenue sources that are restricted or
committed to expenditure for a specified purpose other than
debt service or capital projects (activities funded by federal
or state grants or by taxes and restricted to certain
activities).
 Permanent Funds: Account for and report resources that
are restricted to the extent that only earnings, and not
principal, may be used for purposes that support the
reporting government’s programs.
Statement of Revenue, Expenditures,
and Changes in Fund Balance
Format:
Revenues
Less Expenditures
+ or - Other Financing Sources or Uses
and Special Items
= Change in Fund Balance
+ Beginning Fund Balance
= Ending Fund Balance
Statement of Revenues, Expenditures,
and Changes in Fund Balance
 Expenditures are classified by “character”
 Current (by function)
 Debt Service
 Capital Outlay
 ‘Character’ relates to ‘time’ or interperiod equity issues:
 current outlays, past spending (paying off debts of previous
generation), or buildings that will benefit the future