Explain Changes in Net Position
Principles of Cost Analysis and
Management
© Dale R. Geiger 2011
1
Terminal Learning Objective
• Task: Explain Changes in Net Position Over a
Period of Time
• Condition: You are a cost advisor technician with
access to all regulations/course handouts, and
awareness of Operational Environment
(OE)/Contemporary Operational Environment
(COE) variables and actors
• Standard: With at least 80% accuracy:
• Prepare Statement of Budgetary Resources
• Demonstrate proprietary reporting
• Prepare basic proprietary financial statements
© Dale R. Geiger 2011
2
Do federal agencies keep two sets of
books?
© Dale R. Geiger 2011
3
Two Types of Accounts
• Budgetary Accounts track budgetary activities
and resources
• Appropriations, Obligations, Expenditures
• Proprietary Accounts track financial activities
and resources
• Liabilities and payment of liabilities
• Assets and payments received
• Expenses and revenues
© Dale R. Geiger 2011
4
Budgetary Reporting
• Statement of Budgetary Resources
Open
Appropriations = Expenditures +
+ Unobligated
Obligations
Balance
& Other
Budgetary Resources
=
Status of Budgetary Resources
• Budgetary Resources consist of:
• Prior Year Unobligated Balance
• Current Year Appropriations
• Collections
© Dale R. Geiger 2011
5
Budgetary Reporting
• Statement of Budgetary Resources
Open
Appropriations = Expenditures +
+ Unobligated
Obligations
Balance
& Other
Budgetary Resources
=
Status of Budgetary Resources
• Budgetary Resources consist of:
• Prior Year Unobligated Balance
• Current Year Appropriations
• Collections
© Dale R. Geiger 2011
6
Statement of Budgetary Resources
• The fictional Training Appropriation Fund
received appropriations of $2720
• Purchase orders in the amount of $1280 were
issued
• Goods received were $824 (estimated and
actual)
• Task: Prepare the Statement of Budgetary
Resources
© Dale R. Geiger 2011
7
Statement of Budgetary Resources
• What items represent the Budgetary
Resources?
• What items represent the Status of Budgetary
Resources?
• How much are the expenditures?
• How much of the obligations was left
outstanding?
• What is the unobligated balance?
© Dale R. Geiger 2011
8
Statement of Budgetary Resources
Budgetary Resources:
Appropriations
$2720
Status of budgetary resources:
Obligations (unfilled orders)
Expended appropriations
Unobligated Balance
Total
$456
824
1440
$2720
© Dale R. Geiger 2011
9
Statement of Budgetary Resources
Budgetary Resources:
Appropriations
$2720
Status of budgetary resources:
Obligations (unfilled orders)
Expended appropriations
Unobligated Balance
The purpose of this
Total
report is to show that
$456
824
1440
$2720
all budgetary resources
are accounted for
10
© Dale R. Geiger 2011
Check on Learning
• What is the basic equation for the Statement
of Budgetary Resources?
• What items represent the Status of Budgetary
Resources?
© Dale R. Geiger 2011
11
Proprietary Reporting
• Statement of Net Cost
Costs – Earned Revenues = Net Cost
• Statement of Changes in Net Position
Financing Sources – Net Cost = Change in Net Position
• Balance Sheet
Assets = Liabilities + Net Position
• Uses the Accrual Basis of Accounting
© Dale R. Geiger 2011
12
Proprietary Reporting
• Statement of Net Cost
Costs – Earned Revenues = Net Cost
• Statement of Changes in Net Position
Financing Sources – Net Cost = Change in Net Position
• Balance Sheet
Assets = Liabilities + Net Position
• Uses the Accrual Basis of Accounting
© Dale R. Geiger 2011
13
Proprietary Reporting
• Statement of Net Cost
Costs – Earned Revenues = Net Cost
• Statement of Changes in Net Position
Financing Sources – Net Cost = Change in Net Position
• Balance Sheet
Assets = Liabilities + Net Position
• Uses the Accrual Basis of Accounting
© Dale R. Geiger 2011
14
Proprietary Reporting
• Statement of Net Cost
Costs – Earned Revenues = Net Cost
• Statement of Changes in Net Position
Financing Sources – Net Cost = Change in Net Position
• Balance Sheet
Assets = Liabilities + Net Position
• Uses the Accrual Basis of Accounting
© Dale R. Geiger 2011
15
Proprietary Reporting
• Statement of Net Cost
Costs – Earned Revenues = Net Cost
• Statement of Changes in Net Position
Financing Sources – Net Cost = Change in Net Position
• Balance Sheet
Assets = Liabilities + Net Position
• Uses the Accrual Basis of Accounting
© Dale R. Geiger 2011
16
Other Financing Sources
• Increase Net Position
• Prevent Revenues and Expenditures from
being counted twice in the same entity
• Transfers of cash from other funds in the same
government
• Unreimbursed services provided by another
governmental segment or entity
• Cash inflows from long term borrowing
© Dale R. Geiger 2011
17
Proprietary vs. Budgetary
• The budgetary accounts use the budgetary
basis:
Plan
Commitment 
Order
Obligation 
Receive
Pay
Consume
Expenditure
Once the goods are received, the budgetary
accounting process is finished and the
proprietary accounts take over
© Dale R. Geiger 2011
18
Proprietary vs. Budgetary
• The proprietary accounts use the accrual
basis:
Plan
Order
Receive
Pay
Asset & Liability  Remove Liability 
Consume
Expense
• When goods are received  liability recorded
• When payment is made  liability satisfied
• When goods are consumed expense
© Dale R. Geiger 2011
19
Lacy’s Proprietary Activities
• Lacy purchases supplies on account at the
grocery store (she RECEIVES GOODS)
• The EXPENDITURE is the final activity in the
budgetary accounts
• In the proprietary accounts:
• An asset is recorded: Supplies represent future
benefit – they can be used to make and sell lemonade
• A liability is recorded: Lacy has an obligation to pay
the bill in the future
© Dale R. Geiger 2011
20
Lacy’s Proprietary Activities
• When Lacy pays the grocery bill:
• In the proprietary accounts:
• Cash (an asset) decreases
• The liability is removed because Lacy has satisfied
her obligation
© Dale R. Geiger 2011
21
Lacy’s Proprietary Activities
• When Lacy uses the supplies to make and sell
lemonade
• In the proprietary accounts:
• Supplies (asset) decrease
• An expense is recorded
Plan
Order
Receive
Pay
Asset & Liability  Remove Liability 
© Dale R. Geiger 2011
Consume
Expense
22
Check on Learning
• What activity ends the involvement of the
budgetary accounts in the purchasing
process?
• What activity constitutes an expense in the
proprietary accounts?
© Dale R. Geiger 2011
23
Statement of Net Cost
• Most federal agencies generate revenues that
are insignificant in comparison to expenses
• Revenues are generally reimbursements for
costs incurred on behalf of other federal
agencies
• Expenses – Revenues = Net Cost
© Dale R. Geiger 2011
24
Statement of Net Cost
• Salaries and personnel costs for the fictional
Training Appropriation Fund for the year were
$398
• Other expenses amounted to $40
• Miscellaneous revenues of $186 were
collected
• Task: Prepare the Statement of Net Cost
© Dale R. Geiger 2011
25
Statement of Net Cost
Salaries and personnel costs
Other expenses
Total Costs
Less: Miscellaneous revenues
Net Cost
© Dale R. Geiger 2011
$398
40
$438
186
$252
26
Statement of Net Cost
Salaries and personnel costs
Other expenses
Total Costs
Less: Miscellaneous revenues
Net Cost
$398
40
$438
186
$252
The purpose of this statement is to show
the cost to the government of providing
this program or service.
© Dale R. Geiger 2011
27
Statement of Change in Net Position
• Shows how the activities of the period affect
the Net Position of the entity
• Net Position consists of:
Cumulative Results of Operations
+
Unexpended Appropriations
• The changes in the two categories are
calculated separately
© Dale R. Geiger 2011
28
Statement of Change in Net Position
Cumulative Results of Operations:
Unexpended Appropriations:
Appropriations used
+ Other financing sources
- Net Cost
= Net Change
+ Beginning
= Ending
Appropriations received
- Appropriations used
= Net Change
+ Beginning
= Ending
© Dale R. Geiger 2011
29
Statement of Change in Net Position
Cumulative Results of Operations:
Unexpended Appropriations:
Appropriations used
+ Other financing sources
- Net Cost
= Net Change
+ Beginning
= Ending
Appropriations received
- Appropriations used
= Net Change
+ Beginning
= Ending
Proprietary activity
© Dale R. Geiger 2011
30
Statement of Change in Net Position
Cumulative Results of Operations:
Unexpended Appropriations:
Appropriations used
+ Other financing sources
- Net Cost
= Net Change
+ Beginning
= Ending
Appropriations received
- Appropriations used
= Net Change
+ Beginning
= Ending
Budgetary activity
© Dale R. Geiger 2011
31
Statement of Change in Net Position
• The fictional Training Appropriation Fund is a
new entity, so beginning net position is zero
• Appropriations were $2720, and Expenditures
were $824 (from Statement of Budgetary
Resources)
• Net cost of operations is $252 (from
Statement of Net Cost)
© Dale R. Geiger 2011
32
Statement of Change in Net Position
• The fictional Training Appropriation Fund is a
new entity, so beginning net position is zero
• Appropriations were $2720, and Expenditures
were $824 (from Statement of Budgetary
Resources)
• Net cost of operations is $252 (from
Statement of Net Cost)
© Dale R. Geiger 2011
33
Statement of Change in Net Position
• The fictional Training Appropriation Fund is a
new entity, so beginning net position is zero
• Appropriations were $2720, and Expenditures
were $824 (from Statement of Budgetary
Resources)
• Net cost of operations is $252 (from
Statement of Net Cost)
© Dale R. Geiger 2011
34
Statement of Change in Net Position
Appropriations
Appropriations Used
Less: Net Cost
Net change
Add Beginning:
Ending:
Cumulative Results
of Operations
Unexpended
Appropriations
-$824
(252)
572
-0$572
$2720
(824)
-1896
-0$1896
© Dale R. Geiger 2011
35
Statement of Change in Net Position
Appropriations
Appropriations Used
Less: Net Cost
Net change
Add Beginning:
Ending:
Cumulative Results
of Operations
Unexpended
Appropriations
-$824
(252)
572
-0$572
$2720
(824)
-1896
-0$1896
© Dale R. Geiger 2011
36
Balance Sheet
• Similar to the Statement of Financial Position
• Assets = Liabilities + Net Position
• If Assets < Liabilities, Net position will be
negative
• Net position = Unexpended appropriations +
cumulative results of operations
© Dale R. Geiger 2011
37
Balance Sheet
• The fictional Training Appropriation Fund has
$2600 in its balance with the Treasury
• Equipment (net of depreciation):
$380
• Liabilities:
$512
• From Statement of Change in Net Position:
• Cumulative results of operations:
• Unexpended Appropriations:
$572
$1896
• Task: Prepare the Balance Sheet
© Dale R. Geiger 2011
38
Balance Sheet
Assets:
Balance with the Treasury
Equipment (net of depreciation)
Total Assets
$2600
380
$2980
Liabilities and Net Position:
Liabilities
Unexpended Appropriations
Cumulative results of Operations
Total Liabilities and Net Position
$512
1896
572
$2980
© Dale R. Geiger 2011
39
Balance Sheet
Assets:
Balance with the Treasury
Equipment (net of depreciation)
Total Assets
$2600
380
$2980
Liabilities and Net Position:
Liabilities
Unexpended Appropriations
Cumulative results of Operations
Total Liabilities and Net Position
$512
1896
572
$2980
© Dale R. Geiger 2011
This statement
lists the assets of
the entity and
shows how they
were financed:
(borrowing)
(appropriations)
(operations)
40
Check on Learning
• Which statement shows the cost to the
government of providing a particular program
or service?
• Which statement explains the changes in the
Net Position of the entity?
© Dale R. Geiger 2011
41
Why is it important to be familiar with
External Reports?
• External Reporting is the primary objective of
most accounting systems
• Cost accounting information is drawn from the
same accounting system
• Understanding the basis of the accounting
data permits a meaningful translation to
useful cost information
© Dale R. Geiger 2011
42
Issues with Budgetary Accounting
• Focus is on obligations and expenditures
• Ordering and receiving goods do not reflect actual
use of resources
• 99.9% philosophy of financial management
• All of the money will be spent, yet does not
necessarily reflect the true cost of operations
© Dale R. Geiger 2011
43
Governmental Reporting Spreadsheet
Enter data to record
budgetary activity
© Dale R. Geiger 2011
44
Governmental Reporting Spreadsheet
Prepare the Statement of
Budgetary Resources
© Dale R. Geiger 2011
45
Governmental Reporting Spreadsheet
Budgetary Resources
equal
Status of Budgetary
Resources
© Dale R. Geiger 2011
46
Governmental Reporting Spreadsheet
Prepare Statement
of Net Cost
© Dale R. Geiger 2011
47
Governmental Reporting Spreadsheet
Net cost flows into the Statement of
Change in Net Position, Cumulative
Results of Operations
© Dale R. Geiger 2011
48
Governmental Reporting Spreadsheet
The Statement of Change in Net Position shows
changes in both Cumulative Results of Operations
and Unexpended Appropriations
© Dale R. Geiger 2011
49
Governmental Reporting Spreadsheet
The Balance Sheet shows
Assets and Liabilities as well
as the new balances in
Unexpended Appropriations
and Cumulative Results of
Operations
© Dale R. Geiger 2011
50
Practical Exercise
© Dale R. Geiger 2011
51