CHAPTER 11
ACCOUNTING
F O R S TAT E &
LOCAL
GOVERNMENTS, I
OBJECTIVES OF GOV. REPORTING
• SGAC 1
• Government financial reports should respond to
needs of the citizenry, their representatives, and
investors and creditors involved in the lending
Stresses
process
• Four uses of financial reports
2
accountability
1.Compare actual financial results with the legally
adopted budget
2.Assess financial condition and results of
operations
3.Determine compliance with finance-related
laws, rules and regulations
4.Evaluate efficiency and effectiveness
GOVERNMENT’S ACCOUNTABILITY
 Fiscal Accountability: to justify that its actions
comply with public decisions about obtaining
and expending public resources in current year.
 Operational Accountability: to report how
efficiently and effectively it achieves its
objectives using available resources.
 Interperiod equity: Whether financial resources
are sufficient for the services rendered in each
period.
 current tax payers’ vs future tax payers’ obligation
 available for economic, political, and social decision-making
CORPORATE AND GOVERNMENTAL
ACCOUNTING SYSTEMS
 Corporate Accounting
Profit Motive
• 1 reporting entity, 1 accounting entity
Revenue & cost of providing
• Accrual accounting system
services, Inflow & outflow of
• Measuring economic resources
all resources
 Governmental Accounting
• 1 reporting entity, many accounting entities
• GASB No.14: Primary government and its component units
• Primary Government: separately elected body, legally separated,
and fiscally independent
• Fund accounting system
• Measuring flow of financial resources
GASB STATEMENT NO. 34 (1999)
Requires the production of two sets of
financial statements:
Fund Financial
Statements
Show restrictions on the
use of resources, and
report current revenues
and expenditures from
certain activities.
Government-wide
Financial Statements
Report all revenues and
costs with a long term
focus. Of interest to
creditors, to assess the
likelihood of being paid.
11-5
IMPORTANT DIFFERENCES
Fund Financial
Statements
• individual activities.
• current financial
resources
• fiscal accountability
in raising and
utilizing money.
• modified-accrual
accounting.
Government-wide
Financial Statements
•
•
•
•
•
a whole.
operating accountability
all economic resources.
accrual accounting.
Help users evaluate
government’s financial
decisions and its longterm stability.
11-6
FUND ACCOUNTING CLASSIFICATION
Governmental
Funds
Proprietary
Funds
Fiduciary
Funds
Accounting for
activities
related to
serving the
public.
Accounting for
business-type
activities.
Accounting for
financial
resources held
for others as
trustee.
11-7
VARIOUS FUND TYPES.
Governmental
Funds
General Fund
Capital Project
Fund
Special
Revenue Fund
Debt Service
Fund
Permanent Fund
Proprietary
Fiduciary Funds
Funds
Enterprise Fund Pension Trust
Fund
Internal Service Investment Trust
Fund
Fund
Private-purpose
Fund
Agency Fund
FUND STRUCTURE
Fund
Resources from
Resources for
General
Income tax, fees
administration
Special Revenue
Gov. grants, special
taxes
Particular operation
specified by rules
Capital Project
Specific project
proceeds
acquisition of infra
structure
Debt Service
Other funds, interest
earned on investment
Payment for interest
and principal
Permanent
Earnings from trust, legal
agreements
As specified by trust
agreement
Enterprise
Revenues from
customers
Business activities
Internal service
Charges to other city
department
Operating expense,
capital expenditure….
GOVERNMENT-WIDE F/S
Two statements are required:
1)Statement of Net Assets
2)Statement of Activities
Reporting is separated into
governmental activities (government
funds and most internal service
funds) and business-type activities
(enterprise funds and remaining
internal service funds).
11-10
STATEMENT OF NET ASSETS
Governmental Business-Type
Activities
Activities
Note: The
Statement of
Net Assets
reports
Governmental
Activities
separate from
the BusinessType
Activities.
ASSETS:
Cash
Other Current Assets
Capital Assets
Total Assets
LIABILITIES:
A/P
Noncurrent Liabilities
- Due within one year
- Due in more than one year
Total Liabilities
NET ASSETS:
Invested in Capital Assets, Net of Debt
Restricted for:
Capital Projects
Debt Service
Unrestricted
Total Net Assets
$
$
$
100
1,580
2,950
4,630
$
750
Total
$
130
430
2,750
3,310
$
$
$
$
230
2,010
5,700
7,940
$
230
$
980
$
400
1,800
2,950
$
180
700
1,110
$
$
$
580
2,500
4,060
$
1,410
$
2,110
$
3,520
$
50
140
80
1,680
$
60
30
2,200
$
$
$
$
50
200
110
3,880
11-11
STATEMENT OF NET ASSETS
Governmental Business-Type
Activities
Activities
Also note this
statement
does not give
information
about
Fiduciary
Funds.
ASSETS:
Cash
Other Current Assets
Capital Assets
Total Assets
LIABILITIES:
A/P
Noncurrent Liabilities
- Due within one year
- Due in more than one year
Total Liabilities
$
$
$
100
1,580
2,950
4,630
$
750
400
1,800
2,950
Total
$
130
430
2,750
3,310
$
$
$
$
230
2,010
5,700
7,940
$
230
$
980
180
700
1,110
$
$
$
580
2,500
4,060
This is consistent with the
$
$
“economic resources
NET ASSETS:
Invested in Capital Assets,management
Net of Debt $
1,410 $focus”
2,110 -$ only
3,520
Restricted for:
Capital Projects
50
- $
50
include assets
and liabilities
Debt Service
140
60 $
200
Unrestricted
80
$
110
that are available
to30 use
for
Total Net Assets
$
1,680 $
2,200 $ 3,880
governmental purposes.
11-12
STATEMENT OF ACTIVITIES
On the
Statement of
Activities,
the net for a
given
function is
determined
horizontally,
while the
totals for
expenses and
revenues are
determined
vertically.
Function
Governmental Activities:
- General Government
- Public Safety
- Public Works
- Education
Total Gov't Activities
Net (Expense) Revenue
Program Governmental Business-Type
Expenses Revenues Activities
Activities
Total
$ 3,200 $ 1,400 $
9,700
880
2,600
600
8,400
300
$ 23,900 $ 3,180 $
Business-Type Activities:
- Water
3,600
4,030
- Sewer
4,920
5,610
- Airport
2,300
3,120
Total Business-Type
Activities
$ 10,820 $ 12,760 $
Total Government
$ 34,720 $ 15,940 $
(1,800)
(8,820)
(2,000)
(8,100)
(20,720) $
$ (1,800)
(8,820)
(2,000)
(8,100)
- $ (20,720)
430
690
820
- $
(20,720) $
430
690
820
1,940 $ 1,940
1,940 $ (18,780)
11-13
STATEMENT OF ACTIVITIES
Continued
The
general
revenues
are shown
separately
at the
bottom of
the
statement.
Function
Total Government
General Revenues:
- Property Taxes
- Investment Earnings
- Transfers
Total Gen'l Revenues
Change in Net Assets
Beginning Net Assets
Ending Net Assets
Net (Expense) Revenue
Program Governmental Business-Type
Expenses Revenues
Activities
Activities
Total
$ 34,720 $ 15,940 $
(20,720) $
1,940 $ (18,780)
$
20,400
420
600
21,420 $
$ 20,400
70
490
(600)
(530) $ 20,890
700 $
980
1,680 $
1,410 $ 2,110
790
1,770
2,200 $ 3,880
$
$
$
11-14
FUND FINANCIAL STATEMENTS
Two statements are required:
1)Balance Sheet
2)Statement of Revenues, Expenditures, and
Changes in Fund Balance
Fund-Based statements will include
information on fiduciary funds.
11-15
FUND FINANCIAL STATEMENTS
These statements
will differ from the
Government-Wide
financial
statements for
three reasons.
The Internal Service
Funds are included
in separate
statements for
Proprietary Funds.
The current financial
resources
measurement basis
is used.
The modified
accrual accounting
approach is used.
11-16
FUND ACCOUNTING –
BALANCE SHEET EXAMPLE
General Fund
Separate
column for
each
“major”
fund (where
a fund total
> 10% of all
funds in the
same
category, or
> 5% of all
funds).
ASSETS:
Cash
Investments
Receivables
Supplies & Materials
Total Assets
LIABILITIES:
A/P
Notes Payable-Current
Total Liabilities
FUND BALANCES
Reserved for:
Nonspendable
Restricted
Committed
Assigned
Unassigned
Total Fund Balances
Total Liabilities and Fund Balances
$
$
$
$
$
$
$
Library
Program
Other Gov't
Funds
Total Gov't
Funds
40 $
580
120
10
750 $
10 $
120
200
10
340 $
50 $
200
210
10
470 $
100
900
530
30
1,560
230 $
300
530 $
170 $
170 $
110 $
100
210 $
510
400
910
10 $
100
30
20
60
220 $
750 $
10 $
90
50
20
170 $
340 $
10 $
60
100
90
260 $
470 $
30
250
180
130
60
650
1,560
11-17
STATEMENT OF REVENUES,
EXPENDITURES, & CHANGES IN FB
General Fund
Also reports
each “major”
fund (where
a fund total >
10% of all
funds in the
same
category, or
> 5% of all
funds) in
separate
columns.
Revenues
- Property Taxes
- Investment Earnings
- Program Revenues
Total Revenues
Expenditures
Current:
General Government
Public Safety
Education
Debt Service:
Principal
Interest
Capital Outlay
Total Expenditures
Excess(deficiency) of revenues
over expenditures
$
$
$
$
$
Library
Program
Other Gov't
Funds
Total Gov't
Funds
17,200 $
100
500
17,800 $
900 $
200
100
1,200 $
2,300 $
180
2,500
4,980 $
20,400
480
3,100
23,980
3,400 $
5,100
6,700
- $
800
100 $
400
-
1,100
16,300 $
1,500 $
300
1,100 $
1,100 $
1,000
600
3,300
5,400 $
(420) $
3,500
5,500
7,500
1,000
600
4,700
22,800
1,180
11-18
STATEMENT OF REVENUES,
EXPENDITURES, & CHANGES IN FB
Statement continued. . .
General Fund
Other Financing Sources (Uses):
Bond Proceeds
Transfers In
Transfers Out
Total Other Financing Sources and
Uses
Change in Fund Balance
Fund Balances - Beginning
Fund Balances - Ending
Library
Program
Other Gov't
Funds
Total Gov't
Funds
$
- $
(1,300)
- $
20
-
1,000 $
580
(1,000)
1,000
600
(2,300)
$
(1,300) $
20 $
580 $
(700)
$
200 $
20
220 $
120 $
50
170 $
160 $
100
260 $
480
170
650
$
11-19
GOVERNMENTAL ACTIVITIES
1.
Issued general obligation bonds, par value of $300
at101 to finance a Gov. office construction
Fund ? CA
=
CL + FB
CPF
303
303
2. Transferred the premium to the fund for repaying
liability.
Fund ?
CA
=
CL + FB
CPF
-3
DSF
+3
-3
+3
GOVERNMENTAL ACTIVITIES
3. Incurred and paid construction costs of
$100 on the building (10yr life, residual val=0)
Fund ?
CPF
CA
=
CL
+ Fund Balance
-100
-100
4. Received $100, a federal grant for the building
construction.
Fund ?
CPF
CA
+100
=
CL
+ Fund Balance
+100
GOVERNMENTAL ACTIVITIES
5. Paid general government employees’ salaries,
$45. Another $5 of salaries accrued but
has not been paid
Fund ?
GF
CA
=
- 45
CL
+5
+ Fund Balance
-50
6. Borrowed $75 on a six-month note to finance
general operating costs of the government.
Fund ?
CA
GF
75
=
CL
75
+ Fund Balance
GOVERNMENT ACCTG CYCLE
Budgetary Entry
Estimated Revenues <-->Appropriation
Execution
Encumbrances
Reserved for Encumbrances
Taxes Receivable
Taxes Revenues, & Allowance
Expenditure
Vouchers Payable or Cash
Cash
Taxes Receivable
Closing
Reserved for Encumbrances
Encumbrances
….
Appropriation<--> Estimated Revenues
Revenues
<--> Expenditures &
Encumbrances
PROCEDURES – RECORDING
BUDGETARY ENTRIES
A town enacts a motel excise tax to promote tourism and
conventions. For 2013, the tax is expected to generate $490 in
Special Revenues. The city council authorizes expenditures of
$420 including $200 for salaries, $30 for utilities, $110 for
supplies, and $80 for advertising.
Date
Description
Estimated Revenues - Tax Levy
Appropriations - Salaries
Appropriations - Utilities
Appropriations - Advertising
Appropriations - Supplies
Budgetary Fund Balance
Debit
490
Credit
200
30
80
110
70
11-24
PROCEDURES –ENCUMBRANCES
For Fund-Based Financial Statements:
An entry is required to record the
encumbrance.
An entry is required when the bill is received.
For Government-Wide Financial Statements:
No entry is required to record the
encumbrance.
An entry is required when the bill is received.
11-25
PROCEDURES –
ENCUMBRANCES
Assume a city’s police department ordered $18
worth of equipment. This amount has been
committed even though no formal liability exists
until the equipment is received.
General Fund - Police Department
Description
Encumbrances Control
Fund Balance - Reserve
To record an equipment order
Debit
Credit
18
18
11-26
PROCEDURES –ENCUMBRANCES
The equipment arrives with an invoice for $19. Sales tax, price
adjustments, and other costs may cause the actual invoice to differ
from the estimated amount.
General Fund – Police Department
The
account
title
typically
used in
place of
Accounts
Payable.
General Fund - Police Department
Description
Debit
Expenditures -Equipment
19
Vouchers Payable
To record equipment received
Fund Balance - Reserve
For Encumbrances
Encumbrance Control
To remove encumbrance
Credit
19
18
18
11-27
PROCEDURES – FIXED ASSETS
The expenditure for fixed assets is recorded in the
General Fund for fund-based statements.
But, depreciation is not recorded in the
governmental fund, since net income is not a
concept relevant to governmental units.
However, GASB requires a record of ALL capital
assets in the Statement of Net Assets in
government-wide statements.
And, depreciation expense is recorded.
11-28
PROCEDURES –RECOGING REVENUES
Classifications
Derived Tax Revenues
Imposed Nonexchange Revenues
Government-mandated Nonexchange Transactions
Voluntary Nonexchange Transactions
For Fund Statements,
record the revenues
when they become
“available for
recognition”.
For Government-Wide
Statements, record the
revenues when “eligibility
requirements have been
met”.
11-29
PROCEDURES –ISSUANCE OF BONDS
The town of Ruark issues $9,000 in bonds for the
construction of new school building.
The following journal entry is prepared to reflect the
sale of the bonds.
Capital Projects Fund - School Building
Date
Description
Cash
Other Financing Source Bond Proceeds
Debit
9,000
Credit
9,000
11-30
PAY FOR LONG-TERM LIABILITY
The town makes a $500 bond payment and pays 3 months of
interest amounting to $10.
Government-Wide
Financial Statements
Record principal and
interest as with
GAAP.
Date
Description
Fund-Based Financial
Statements
Record expenditures in
the Debt Service Fund.
Debit
Bond Payable
Interest Expense
Cash
500
10
Expenditure - Bond Principal
Expenditure - Interest
Cash
500
10
Credit
510
510
11-31
SPECIAL ASSESSMENTS
Governments may provide improvements or
services that benefit particular properties.
They may assess the costs, in total or in part, to the
property owners.
Examples
• Paving
• Curbing
• Sidewalks
• Sewers and drains
• Water lines
Usually financed by debt issuance and liens on the
benefited property (to ensure reimbursement).
11-32
SPECIAL ASSESSMENTS - ACCTG
Government-wide financial statements
• Debt and subsequent construction handled as
for-profit enterprises do
• Asset recorded at cost
• Taxes assessed and collected
• Tax receipts used to settle debt
Fund-based financial statements
• Infrastructure not recorded
• Debt not recorded
• Reported in Capital Projects Fund and Debt
Service Fund (tagged as special assessment in
both)
11-33
INTERFUND TRANSACTIONS
Commonly used, particularly monetary transfers
from the General Fund
Normally reported as “other financing source” and
“other financing use” within the fund-based
financial records
Many of these are not reported in the governmentwide financial statements because they create no
net impact (intra-activity transactions)
Interactivity transactions occur between
governmental and enterprise funds and are
reported on government-wide financial statements
11-34