Chapter Sixteen
Accounting for
State and Local
Governments,
Part I
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LO 1
Importance of Governmental Accounting
Why is it different than “for profit” businesses?
 Absence of profit motive removes an important
internal control
 Allocation of limited resources to unlimited needs
creates public debate
 Focus on sources and uses of funds
 Need to inform public (stewardship)
 Massive
 Federal government
 50 State governments
 Thousands of local governmental units
16-2
Governmental Accounting
Governmental Accounting Standards
Board (GASB) generates primary
standards.
 Focuses on financial reporting for nonprofit governmental agencies.
 Many concepts are similar to financial
accounting, but terminology and
procedures differ.
 Requires two sets of financial statements
16-3
LO 2
GASB Statement No. 34
Requires the production of two sets of
financial statements:
Fund Financial
Statements
Government-wide
Financial Statements
Show restrictions on
the use of resources,
and report current
revenues and
expenditures from
certain activities.
Report all revenues
and costs with a long
term focus. Of interest
to creditors, to assess
the likelihood of being
paid.
16-4
LO 3
Reporting Diverse Governmental
Activities - Fund Accounting
Governmental units
have many different
types of activities.
No common motivation
links these activities.
Each activity operates a
quasi-independent, selfbalancing set of
accounts called
“funds.”
Examples include:
Public Safety
Sanitation
Health & Welfare
Education
Parks & Recreation
Judicial System
Water and Sewer
Employee Pensions
16-5
LO 4
Fund Accounting Classification
All funds fall into one of three
broad classifications.
Governmenta
l 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.
16-6
LO 5
Government-Wide Financial
Statements
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).
16-7
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.
16-8
LO 6
Procedures –
Importance of Budgets
The budget serves several purposes:
– Expresses public policy
– Expresses financial intent
– Provides spending limits
– Compares actual results to the budget as a
means of evaluating performance
– Indicates proposed deficits
 The budget is recorded in the books as a
DEBIT to estimated revenues, and a CREDIT
to each “appropriation” approved.
16-9
LO 7
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.
16-10
LO 8
Procedures –
Recognition of 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”.
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LO 9
Procedures –
Issuance of Bonds
The town of Ruark issues $9 million 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
Debit
Cash
9,000,000
Other Financing Source Bond Proceeds
Credit
9,000,000
16-12
LO 10
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
government-wide 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
16-13