Chapter 17
Governmental Entities:
General Fund
McGraw-Hill/Irwin
©The McGraw-Hill Companies, Inc. 2006
Governmental Entities in United
States Include:
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Federal Government
State Government
Counties
Townships
Municipalities
School districts
Special districts
Objectives of Financial Reporting (GASB issued
Concept Statement No. 1):
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Should enable users to assess Government’s accountability
Should assist users in evaluating the operating result of
Governmental Entity
Should assist users in assessing the level of service provided and
Government’s ability to meet its obligation
The principal accounting unit is fund.
GASB has identified in three categories:
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Governmental Funds
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Proprietary Funds
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Fiduciary Funds
GOVERNMENTAL FUNDS
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GENERAL FUNDS
SPECIAL REVENUE FUNDS
CAPTIAL PROJECT FUNDS
DEBT SERVICE
PERMANENT FUNDS
PROPERTIARY
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ENTERPRISE FUND
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INTERNAL SERVICE FUND
FIDUCIARY FUNDS
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PENSION
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Investment Trust Fund
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Private Purpose Fund
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Agency Funds
General Fund
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General fund accounts for the general activities
of a government that are not accounted for by
any other fund
Only one general fund per reporting entity
General fund is created at beginning of the
“Unit” and it exists throughout the life of that
unit.
Governmental Fund of Governmental Entities
use Modified Accrual Basis of Accounting
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Revenues are recognized only when they become
both measurable and available
Expenditure are recognized when the related
liabilities are incurred
Short term prepayments are not recognized as
assets
Budgets are Legislative Control over
Governmental Entities
Basic Classification of Budgets
Annual Budget
(Include estimated revenue
and appropriations for
specific fiscal Year)
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Capital Budget
(used to control expenditure for
construction projects,
appropriate for capital project
fund)
Budgetary accounting is used to control
expenditures and to account for the levy of taxes
sufficient to cover estimated expenditures.
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Budgetary accounts are “estimated accounts” that are the
opposite (in terms of debit and credit) from real accounts.
Entry to record budgetary accounts are made twice during the
year.
At the beginning of the year to record budget.
And at the end of the year to reverse and close budget.
Journal Entry at the beginning of
the year to Record Budget:
Dr Estimated Revenues
Dr Estimated Other Financing Sources
Cr
Appropriations
Cr
Estimated Other Financing Uses
Cr/Dr
Budgetary Fund Balance
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Journal Entry at the end of the year
to Reverse and close Budget:
Dr
Cr
Dr/Cr
Cr
Cr
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Appropriations
Estimated Other Financing Uses
Budgetary Fund Balance
Estimated Revenues
Estimated Other Financing
Sources
Entries for Recording Revenue:
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Billed
Dr
Taxes Receivable – Current
Cr
Cr
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Collections
Dr
Cr
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Cash
Taxes Receivable – Current
Taxes Determined Uncollectible
Dr
Cr
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Allowances for Uncollectible Taxes
Revenue
Allowances for Uncollectible Taxes
Taxes Receivable - Current
Journal Entry to transfer uncollected taxes to
a delinquent category:
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Journal entry to reclassify receivable to delinquent
Dr
Cr
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Journal entry to reclassify current allowance for
uncollectible taxes to delinquent
Dr
Cr
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Taxes Receivable – delinquent
Taxes Receivable – current
Allowance for uncollectible taxes – current
Allowances for uncollectible taxes - delinquent
Encumbrances
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It is necessary to reflect not only the
expenditures, but also the obligations to spend
(Purchase Order).
This is done to prevent overspending of
appropriations.
Subsidiary Ledgers are used to record the
details of budgetary accounts, encumbrances
and other general ledger accounts
An encumbrance should not be viewed as an
expenditure. Similarly the reserve for expenditure is
not a liability.
Example :
1. Assume a purchase order is issued to purchase two sanitation
trucks by the City of A.The estimated Cost is $45000 each.
2. The invoice is received for one to the trucks, at an actual cost of
$44000.
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Example for Encumbrance Accounting:
1. Assume a purchase order is issued to purchase two sanitation trucks
by the City of A.The estimated Cost is $45000 each.
2. The invoice is received for one to the trucks, at an actual cost of
$44000. Assume that second truck is backordered.
1.
2.
3.
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Set up Encumbrance
Dr
Encumbrance
90,000
Cr
Reserve for Encumbrance
Record invoice and Reverse estimated encumbrance
(a)
Dr Expenditure
44,000
Cr
Vouchers Payable (or Cash)
44,000
(b)
Dr Reserve for Encumbrance
Cr
Encumbrance
At year end if encumbrance (Purchase Order) is still outstanding
(a)
Dr Reserve for Encumbrance
Cr
Encumbrance
(b)
Dr Unreserved fund balance
45,000
Cr
Fund Balance reserved for encumbrance
90,000
45,000
45,000
45,000
45,000
45,000
Inventory of Supplies (The Inventory of Supplies is
evidence of the availability of resources to benefit future periods
and the reserve for inventory of supplies account serves as a
reservation of fund balance.)
Entry when invoice received
Dr Inventory of Supplies
Cr
Vouchers Payable
Entry for Use of Supplies
Dr Expenditures
Cr
Inventory of Supplies
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Transfers Between Funds
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Types of transfers between funds can be
grouped as under.
– External Transfers
 Operating Transfers
 Reimbursement Transfer
 Routine fund transfer of Loan or Advance Nature
(Cash needed by one fund may be obtained from
other funds.)
 Quasi
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Entry to Record Routine Transfer
Dr
Cr
Dr
Cr
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Due from other fund
Cash
Or
Cash
Due to other fund
Entry to Record Operating Transfer
Dr
Cr
Other Financing Uses
Cash/Other Fund
Or
Dr
Cr
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Cash/Other Fund
Other Financing Sources
Financial Statements for the General
Fund of a Governmental Entity
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Balance Sheet
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And
Statement of Revenues,Expenditures and
Changes in Fund Balance. (Budgeted amounts,
actual amounts and variances from budgeted amounts
are included in this statement)
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Closing entries for a general fund
at the end of a fiscal year:
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Journal entry to close the budget at year end
(reverse for the same amount)
Journal entry to close Encumbrances ledger
account to the Unreserved and Undesignated
Fund balance account
Journal entry to close the Revenues, Other
Financing Sources, Expenditures, and Other
Financing Uses Ledger to the Unreserved and
Undesignated Fund Balance account