5
Chapter
Recognizing Expenditures
In Governmental
Funds
Expenditures Vs. Expenses

Governmental funds are concerned with expenditures



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Decreases in net financial resources
Generally recognized when an asset is acquired
Report only current liabilities
Governmental activities are concerned with expenses

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Decreases in net economic resources
Generally recognized when consumed
Report both current & long term liabilities
Payroll Items

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Wages see page 164 – Wages and salaries should be recognized in
the period earned not paid!
 No difference between fund and govt-wide
Vacation see page 166 – Vacation expenditures and related liability
should be recognized in the period in which payments are due
 Notice difference between fund entry and govt-wide entry
Sick – see page 168 Sick expenditures should be recognized in the
period in which payments are made
 Notice difference between fund entry and govt-wide entry
Accounting for Payroll

Payroll accounting is similar for a
governmental fund and a for-profit entity,
except Expenditures rather than Expenses
are recorded
 Debit
Expenditures for full amount of payroll and credit
liabilities for withholdings from employees pay; credit Cash
for the amount paid to employees
 Record Expenditures for the employer’s payroll costs,
including employer’s share of FICA and credit a liability to
federal government

Encumbrances usually are not recorded for
recurring expenditures such as payroll
Accounting for Payroll (Cont’d)
Macon City recognized its payroll for the most recent
two week pay period for employees paid from the
General Fund.
GF General Journal
Expenditures—2005
Due to Federal Gov’t
Due to State Gov’t
Cash
Dr.
948,000
Cr.
86,000
49,000
713,000
Accounting for Payroll (Cont’d)
The employer’s share of FICA is recorded.
GF General Journal
Expenditures—2005
Due to Federal Gov’t
Dr.
Cr.
86,000
86,000
Sabbatical Leave

Two different types:

A) Sabbaticals that “enhance reputation or otherwise
benefit the employer



Generally activities must be approved
Recognize expense in the period leave is taken
B) Sabbaticals for “compensated unrestricted time off”


Accrue a liability during the period that leave is earned
Would only appear in the governmental activities
Pension

See example on page 170

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The expenditure is the amount that will be liquidated
with expendable available financial resources
However, notice the difference between the fund and
governmental activities


Must recognize full expense in the governmental activities
A pension liability will be on the balance sheet for the
difference between expense and what was paid
Claims & Judgements

See example on page 171-172

The key question is when and in what amount should be
recorded?


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Usually monetary damages are incurred years prior to
payment
Expenditures – should only be recognized in the
governmental funds when amount is paid
Expenses – should be recognized in the governmental
activities when


Probable that an asset has been impaired
Amount of the loss can be estimated
Prepayments/Materials/Supplies


2 Methods – Consumption and Purchases
See example on page 173-176

Purchases Method


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Recognize expenditure when items are purchased
Make necessary adjustment to fund balance and asset
account at year end
Consumption Method



Recognize an asset when items are purchased
Record expenditures when assets are consumed
Additional entry to fund balance at year end
Capital Assets

Capital assets or their corresponding depreciation
cannot be recorded in the governmental funds


Example on page 177 –
Governmental fund entry would be:
Expenditures
Cash

90,000
90,000
Governmental activities entry would be:
Truck
90,000
Cash
90,000
Accounting for General Capital Assets

General capital assets are:

Capitalized in the governmental activities
accounts at the government-wide level

Depreciated at the government-wide level

Debited to Expenditures in the appropriate
governmental fund.
Accounting for Acquisition of Capital Assets
Example: Purchased office equipment for the Mayor’s
office and paid $50,000 cash from the General Fund.
Governmental Activities:
Equipment
Cash
General Fund:
Expenditures
Cash
Dr.
50,000
Cr.
50,000
50,000
50,000
Depreciation Accounting and Reporting



Depreciation on general capital assets, including
infrastructure, is required at the governmentwide level under GASBS 34.
Depreciation is not recorded on inexhaustible
assets, such as land and noncapitalized
collections of art.
The government can elect not to depreciate
certain eligible infrastructure assets.
Installment Notes and Leases

Installment Notes:
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Proceeds from long term debt should be called “other
financing sources” in the governmental funds
Expenditures are recognized in the governmental funds
when payment is made
See example on page 178
What entry would you expect to see at the government
activities level for this entry?
Installment Notes and Leases

Leases



Capital leases are similar to a purchase of an asset
Operating leases are conventional rental agreements
Capital lease accounting is similar to Installment Notes –
See page 179 – 180
Accounting for Capital Leases
 Follow
SFAS No. 13 criteria to determine if the lease
is a capital lease, rather than an operating lease
 Record
capital assets in the government-wide
statements in the amount of the present value of
minimum lease payments or fair value, if lower
 Record
an expenditure in the governmental fund that
is using the asset and making the payments.
Accounting for the Disposition of
General Capital Assets

Remove original cost of assets being disposed of.
If only part of structure is demolished, remove a
pro-rata share of the cost.

Record in both the governmental fund and the
governmental activities general journals.
Accounting for the Disposition of
General Capital Assets (Cont’d)
Example 1: Assume a machine is sold for $500. The asset
had originally been purchased for $8,000 using GF
revenues. It was fully depreciated.
General Fund:
Dr.
Cash
500
Revenues—Misc.(or OFS)
Cr.
500
Governmental Activities:
Cash
Accumulated Depreciation
Machine
Gain on Sale of Machine
500
8,000
8,000
500
Accounting for the Disposition of
General Capital Assets
Example 2: Assume a building with an original cost of $100,000 (from
tax-supported bonds) is demolished; cost of demolition was $5,000. It
was fully depreciated.
General Fund:
Expenditures
Cash
Dr.
Cr.
5,000
5,000
Governmental Activities:
Loss on Disposal of Building
Accumulated Depreciation
Buildings
Cash
5,000
100,000
100,000
5,000