Advanced Accounting
by Debra Jeter and Paul Chaney
Chapter 19: Introduction to
Accounting for State and Local
Governmental Units
Slides Authored by Hannah Wong, Ph.D.
Rutgers University
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Components in
Governmental Accounting
 Governmental funds (expendable)
 Proprietary funds (nonexpendable)
 Fiduciary funds
 Account groups
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Governmental Funds
 Accounting focus:
 sources,
use and balances of current
financial resources
 compliance
with legal provisions that
specify the types of revenues to be raised
and purposes for which financial resources
may be expended
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Types of Governmental Funds
 General fund
 account
for all financial resources unaccounted
for in another fund
 Special revenue funds
 to
account for proceeds of specific revenue
sources
 Capital projects funds
 to
account for resources to be used for
acquisition/construction of major capital
facilities
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Types of Governmental Funds
 Debt service funds
account for accumulation of resources for,
and payment of, general long term debt
principal and interest
 to
 Permanent funds
 to
account for resources legally restricted
such that only earnings may be used for
government programs
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Proprietary Funds
 Accounting focus:
 determination
of operating income,
changes in net assets, financial position,
and cash flows
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Types of Proprietary Funds
 Enterprise funds
 to
account for any activity for which a fee
is charged to external users
 Internal service funds
 to
account for any activity that provides
goods or services to other government
agencies on a cost-reimbursement basis
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Fiduciary Funds
 Accounting focus:
assets held in a trustee or agency
capacity and that cannot be used to
support the government’s own programs
 reports
 focus
on net assets and change in net
assets
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Types of Fiduciary Funds
 Pension funds
 Investment trust funds
 Private-purpose funds
 Agency funds
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Account Groups
 General fixed assets account group
 to
account for all fixed assets of a
governmental unit other than those related
to specific proprietary funds or trust funds
 General long-term obligation account
group
 to
account for all unmatured general
obligation liabilities of a governmental unit
other than those of proprietary funds or
trust funds
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Capital Project Funds - Early Stage
Setting Up The Fund
Due from state government
1,000,000
Grant Revenue
1,000,000
To record authorization of library construction grant by state legislature
Bond Issuance
Cash
2,100,000
Bond issue proceeds - other financing sources
2,100,000
To record receipt of proceeds from issuance of bond securities
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Capital Project Funds - Early Stage
Premium on Bond Issuance
Transfer to debt service fund
100,000
Cash
100,000
To transfer bond premium to debt service fund
Investment
Certificates of deposit
Cash
1,000,000
1,000,000
To record investment of excess cash in temporary investments
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Capital Project Funds - Early Stage
Construction Contract
Encumbrances
2,500,000
Reserve for encumbrances
2,500 ,000
To record signing of construction contract
Receipt of Grant
Cash
750,000
Due from state government
750,000
To record collection of grant from state legislature
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Capital Project Funds - Early Stage
Fees Unencumbered
Expenditures
Vourchers payable
200,000
200,000
To record unencumbered expenditures for architect and legal fees
Billings on Construction
Expenditures
1,300,000
Contracts payable
Reserve for encumbrances
1,300,000
1,300,000
Encumbrances
1,300,000
To record billings on construction completed to date
and to remove the encumbrance
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Capital Project Funds - Early Stage
Payment
Vouchers payable
150,000
Contracts payable
1,300,000
Cash
1,450,000
To record payment of liabilities
Interest Revenue
Interest receivable
12,500
Interest Revenue
12,500
To record interest earned on certificates of deposit
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Capital Project Funds - Year End
Revenues Closing Entry
Bond issue proceeds
Grant revenue
Interest revenue
Transfer to debt service fund
Unreserved fund balance
2,100,000
1,000,000
12,500
100,000
3,012,500
To record revenue and related accounts to unreserved fund balance
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Capital Project Funds - Year End
Expenditures Closing Entry
Unreserved fund balance
Encumbrances
Expenditures
2,700,000
1,200,000
1,500,000
To record expenditures and encumbrances accounts
to unreserved fund balance
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Capital Project Funds
Completion of Construction
Reestablish Encumbrances
Encumbrances
Unreserved fund balance
1,200,000
1,200,000
To reestablish contract encumbrance closed out at end of previous year
Expenditures Unencumbered
Expenditures
225,000
Vourchers payable
225,000
To record unencumbered expenditures
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Capital Project Funds
Completion of Construction
Receipt of Grant
Cash
250,000
Due from state government
250,000
To record collection of grant from state legislature
Redemption of CD
Cash
1,020,000
Certificate of deposit
Interest receivable
Interest Revenue
1,000,00
12,500
7,500
To record redemption of certificates of deposit
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Capital Project Funds
Completion of Construction
Final Contract Billing
Expenditures
Contracts payable
1,200,000
Reserve for encumbrances
1,200,000
1,200,000
Encumbrances
1,200,000
To record billing on construction completed
and to remove remaining encumbrance
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Capital Project Funds
Completion of Construction
Payment
Contracts payable
1,200,000
Contracts payable - retained percentage
Cash
125,000
1,075,000
To record payment of contract except for 5% retention
Payment
Vouchers payable
275,000
Cash
275,000
To record payment of liabilities
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Capital Project Funds
Completion of Construction
Final Payment
Contracts payable - retained percentage
125,000
Cash
125,000
To record final payment on contract
Fund Balance
Transfer to debt service fund - other financing use 63,333
Expenditures
31,667
Cash
95,000
To transfer fund balance to debt service fund
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Debt Service Funds - Term Bonds
Transfer from capital projects fund
Cash
100,000
Transfer from capital projects fund
- other financing use
100,000
Investment in CD
Certificates of deposit
Cash
100,000
100,000
Interest receivable from CD
Interest receivable
Interest income
4,000
4,000
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Debt Service Funds - Term Bonds
Budget Additions
Required additions
Required earnings
487,595
32,760
Fund balance
520,355
Budgeted Bond Interest for Current Year
Fund balance
Appropriations
160,000
160,000
Property taxes earmarked
Property tax receivable
Allowance for uncollectible taxes
Revenue
503,000
15,000
488,000
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Debt Service Funds - Term Bonds
Property taxes collected
Cash
485,000
Property tax receivable
485,000
Investment of fund resources
Investments
Premium on investments
360,000
15,000
Cash
375,000
Received interest on investments
Cash
26,000
Interest receivable
Interest income
4,000
22,000
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Debt Service Funds - Term Bonds
Property taxes collected
Allowance for uncollectible taxes
Property tax receivable
13,000
13,000
Accrued interest on investments
Interest receivable
Interest income
21,000
21,000
Premium amortization
Interest income
Premium on investments
1,200
1,200
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Debt Service Funds - Term Bonds
Accrued interest on bonds
Expenditures
160,000
Interest payable
160,000
Payment of interest on bonds
Interest payable
Cash
160,000
160,000
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Debt Service Funds - Term Bonds
Year End Closing entries
Revenue
Required additions
488,000
487,595
Fund balance
Interest income
405
41,800
Required earnings
32,760
Fund balance
Appropriations
Expenditures
9,040
160,000
160,000
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Debt Service Funds - Term Bonds
Closing out the fund
Expenditures - principal
Expenditures - interest
2,000,000
160,000
Cash
Transfer to X fund - other financing use
2,160,000
60,000
Cash
Fund balance
60,000
2,220,000
Expenditures - principal
Expenditures - interest
Transfers to X funds -other financing use
2,000,000
160,000
60,000
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Endowment Funds
 Classics endowment fund
 to
account for the nonexpendable fund
principal and the investment
a
permanent fund
 Classic acquisition fund
 to
account for the expenditure of the
earnings of the endowment fund
a
special revenue fund
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General Fixed Assets Account Group
Purchase of a fixed asset
Machinery and equipment
250,000
Investment from general fund revenues
250,000
Sale of a fixed asset
Investment from general fund reserves
225,000
Accumulated depreciation
140,000
Machinery and equipment
225,000
Reduction in investment from
general fund revenues
140,000
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General Fixed Assets Account Group
Construction of a fixed asset
Construction in progress
1,500,000
Investment from general obligation bonds
Investment from state grant
1,000,000
500,000
Construction completed
Land
200,000
Buildings
2,725,000
Investment from general obligation bonds
950,000
Investment from state grant
475,000
Construction in progress
1,500,000
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General Fixed Assets Account Group
Depreciation
Reduction in investment in general fixed
assets due to accumulation depreciation
306,000
Accumulation depreciation - building
Accumulation depreciation - machinery
Accumulation depreciation - improvements
120,000
55,000
131,000
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General Long-term Obligation Account
Group
Bond issuance
Resources to be provided in future years
for payment of term bonds
2,000,000
Term bonds payable
2,000,000
Increase in debt service fund
Resources available in debt service
fund - term bonds
104,000
Resources to be provided in future years
for payment of term bonds
104,000
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Government-wide Statements
 Help users assess government’s
investment in capital assets
 assess services received during the year
 identify cost shifts to other periods
 highlights net cost of each government
function/program
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Types of Interfund Activities
 reciprocal activities
 similar
to exchange transactions
 interfund
loans: receivables and payables
 interfund
services: revenues and expenses
 nonreciprocal activities
 interfund
transfers: other financing
sources, other financing uses
 interfund
reimbursements
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Advanced Accounting
by
Debra Jeter and Paul Chaney
Copyright © 2001 John Wiley & Sons, Inc. All rights reserved.
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