CHAPTER
25
GOVERNMENTAL
ACCOUNTING: THE
SPECIAL-PURPOSE
FUNDS
AND SPECIAL
GENERAL LEDGER
FOCUS OF CHAPTER 25
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•
•
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The Remaining Governmental Funds
The GCA-GLTL General Ledger
The Proprietary Funds
The Fiduciary Funds
Financial Reporting to the Public:
General-Purpose Financial Statements
THE GOVERNMENTAL FUNDS:
SPECIAL REVENUE FUNDS (#2 of 5)
• Purpose: To account for the proceeds of
specific revenue sources that are
legally restricted to expenditure for
specific purposes—excluding inflows for:
– Capital projects and Expendable trusts.
• Inflows: Usually from specific taxes or
nontax sources not directly related to
services provided.
• A General Fund “clone”—same structure.
THE GOVERNMENTAL FUNDS:
CAPITAL PROJECTS FUNDS (#3 of 5)
• Purpose: To account for the proceeds of
financial resources that are to be used for
the acquisition or construction of
MAJOR CAPITAL FACILITIES—other
than:
– Those financed by
• Proprietary Funds and
• Trust Funds
THE GOVERNMENTAL FUNDS:
CAPITAL PROJECTS FUNDS (#3 of 5)
• A temporary fund—at completion of the
project:
– The fund is closed and
– The facility ’s cost is recorded as a capital
asset in the GCA-GLTL g/l.
– Costs incurred during construction are
charged to expenditures (outflows).
– Inflows: Bond sales and transfers from
the General Fund.
THE GOVERNMENTAL FUNDS:
DEBT SERVICE FUNDS (#4 of 5)
• Purpose: To account for the servicing of debt
initially recorded as a liability in the GCA-GLTL
g/l.
• “Servicing of Debt” defined: The payment of
(1) interest and (2) debt principal at maturity.
• Unusual Features:
– Interest is not accrued until the due date.
– Principal payments are not recorded as
liabilities until the due date.
SPECIAL ASSESSMENTS
• Special Assessments: Assessments
made against properties that directly
benefit from improvements:
– Examples: Sidewalks, street lighting.
• Special Assessment Bonds are usually
issued to pay for the improvements.
– All construction activity takes place in a
Capital Projects Fund.
SPECIAL ASSESSMENTS
• Bond Repayment: Assessees pay taxes over
several years to pay off the bond issue.
• Special Assessment Debt may or may not
have the backing of the governmental unit
in the event of default.
• Special Assessment Debt (SAD) Categories:
– SADs With Government Commitment.
(This is the usual situation.)
– SADs Without Government Commitment.
SPECIAL ASSESSMENTS
• SADs With Government Commitment:
– A Debt Service Fund is used to account for:
• All collections from assessees.
• All payments to bondholders.
– The bond liability is recorded in the GCAGLTL g/l.
– Unique Item: The entire tax assessment is
recorded as Property Tax Receivables—
the noncurrent portion is Deferred
Revenues.
SPECIAL ASSESSMENTS
• SADs Without Government Commitment:
– An Agency Fund is used to account for:
• All collections of property taxes
from assessees.
• All payments to bond holders.
• No liability is recorded in the GLTDAG.
– The governmental unit is viewed merely
as an agent for the assessees and the
bondholders.
THE GCA-GLTL
GENERAL LEDGER
• Purpose: Accounts for capital assets (at
historical cost) and debt not accounted for in:
– Enterprise Funds, Internal Service Funds,
or Trust Funds.
• Not a fund—it has no cash for paying
liabilities.
• A self-balancing set of accounts.
GENERAL CAPITAL ASSETS
• Categories of Assets:
– Land
– Buildings
– Improvements other than buildings
– Equipment
– Construction work in progress (being
performed by Capital Projects Funds)
– Infrastructure assets (see next slide)
GENERAL CAPITAL ASSETS:
Infrastructure Assets
• Capitalization is mandatory for public
domain or “infrastructure” capital
assets such as:
– Streets and roads
– Sidewalks
– Bridges and tunnels
– Water & sewer systems
– Lighting systems
GENERAL CAPITAL ASSETS:
Infrastructure Assets
• Infrastructure Assets:
– Long-lived capital assets that normally
are:
• Stationary in nature
• Normally can be preserved for a
significantly greater number of years
than most capital assets.
GENERAL CAPITAL ASSETS:
Postcapitalization Periods
• Depreciation is mandatory—except for
certain infrastructure assets:
– Depreciation Expense is never reported
in the operating statement of
governmental funds.
– It is reported only in the two
government-wide statements.
• Sales of Assets: Record proceeds as
OTHER FINANCING SOURCES in General
Fund.
INFRASTRUCTURE ASSETS:
Depreciation
• Noneligible Infrastructure Assets:
– Must be depreciated.
(See following slide regarding eligible
infrastructure assets.)
INFRASTRUCTURE ASSETS:
Depreciation
• Eligible Infrastructure Assets :
– Need not be depreciated.
– Defined: Assets being (1) managed using
an asset management system having
certain characteristics (described in GAS
34) and (2) preserved approximately at or
above an established and disclosed
condition level.
• Condition assessments must be
performed at least every 3 years.
GENERAL LONG-TERM
LIABILITIES
• Long-term debt that is not properly shown in
Proprietary Funds or Trust Funds. GLTL
includes:
– DEBT issuance liabilities having a maturity
date of more than one year at the time of
issuance (these are borrowings).
– NONDEBT issuance liabilities that would
not “normally be liquidated with
expendable available financial resources”
(e.g., a lawsuit liability to be paid in 3
yrs.).
GENERAL LONG-TERM
LIABILITIES
• Examples of Debt Recorded in GCA-GLTL g/l:
– General obligation bonds (usually issued to
pay for capital projects).
– Claims and judgments.
– Compensated absences (vacation & sick
pay).
– Unfunded pension contributions.
– Capital leases payable.
– Special assessment debt having
government commitment (explained earlier).
GENERAL LONG-TERM DEBT
LIABILITIES
• Consequences of Reporting “Nondebt
Issuance Liabilities” in the GCA-GLTL g/l:
– It enables governments to magically conceal
whether they are living within their
means at the fund-based reporting level.
– It results in the fund-based “operating
statement” being a “Statement of ALL of the
Revenues and SOME of the Costs Incurred
This Period.”
GENERAL LONG-TERM
DEBT LIABILITIES
• BAD NEWS:
Many governmental units have tons of
nondebt issuance liabilities that will
have to be paid by future generations
(which may find it quite burdensome or
impossible to pay).
GENERAL LONG-TERM
DEBT LIABILITIES
• GOOD NEWS:
GAS 34 (issued in 6/99) requires
“government-wide financial statements”
that measure the flow of economic
resources on the accrual basis. Such
statements reveal:
(1) the cost of providing services.
(2) the change in the financial
condition.
GENERAL LONG-TERM
DEBT LIABILITIES
• Liquidation of GLTL:
– Debt Issuance Liabilities: At the
maturity date, the liability is transferred to
a Debt Service Fund.
– Nondebt Issuance Liabilities: At the
payment date, the liability is transferred
to the General Fund.
Note that GLTL is not removed from the GCA-GLTL
g/l when it becomes a current liability (due within 12
months).
THE GOVERNMENTAL FUNDS:
PERMANENT FUNDS (#5 of 5)
• Permanent Funds:
– Accounts for endowment-type
situations in which:
• Only the endowment’s earnings can
be used for purposes that support the
reporting government’s programs.
• Benefits the reporting government or
its citizenry.
THE PROPRIETARY FUNDS:
INTERNAL SERVICE FUNDS
• Purpose: To account for activities that
provide services solely to other
departments.
• Manner of accounting parallels that of
commercial businesses (accrual basis &
measurement of flow of economic
resources).
– Balance sheet reports Long-Term Debt.
THE PROPRIETARY FUNDS:
ENTERPRISE FUNDS
• Purpose: To account for activities
that provide services primarily to the
public.
• Examples: Gas, electric, water utilities.
• Manner of accounting parallels that of
commercial businesses (accrual basis &
measurement of flow of economic
resources).
– Balance sheet reports Long-Term Debt.
THE FIDUCIARY FUNDS
• Two categories (four funds) exist:
– Agency Funds.
– Trust Funds:
• Pension (and other employee benefit)
Trust Funds
• Investment Trust Funds
• Private-Purpose Trust Funds
THE FIDUCIARY FUNDS:
AGENCY FUNDS
• Purpose: To serve as conduits for the
transfer of money—purely custodial in
nature.
• ASSETS ALWAYS EQUAL LIABILITIES.
A = L
• The following items do not exist:
– A fund balance/equity
– An operating statement
THE FIDUCIARY FUNDS:
TRUST FUNDS
• Purpose: To account for the investing
and using of money in accordance with
stipulated provisions of trust indenture
agreements or statutes.
• Pension (and other employee benefit)
Trust Funds.
• Investment Trust Funds (created by
GAS 31).
• Private-Purpose Trust Funds.
PRIVATE-PURPOSE TRUST
FUNDS
• Accounts for property held under trust
arrangements in which:
– Both the principal and income
benefit:
• Individuals
• Private organizations
• Other governments
FINANCIAL REPORTING TO
THE PUBLIC: The CAFR
• The Comprehensive Annual Financial
Report (CAFR). Includes:
– Government-wide statements (2)
– Fund-based statements (7)
Government-Wide
Statements
• Two major statements that:
– Are presented on the accrual basis.
– Measure the flow of economic
resources (same measurement flow
as in commercial accounting).
Government-Wide
Statements
• These two statements are the:
– Statement of Net Assets (includes all
GCA and GLTL).
– Statement of Activities (includes
depreciation expense).
• These two statements are presented
in addition to the Fund-Based Financial
Statements (7 of them).
Government-Wide
Statements
• The two government-wide statements
enable assessment of whether:
– Current-year citizens paid for the
services they received in the current
year, or if the costs of services were
shifted to future-year citizens.
Government-Wide
Statements
–
A government’s financial position has
improved or deteriorated as a result
of the year’s operations.
Government-Wide
Statements
• Each of the two government-wide
statements must distinguish between:
#1 – Governmental activities and businesstype activities of the primary
government.
#2 – The total primary government and its
discretely presented component units
by reporting each in separate columns.
Government-Wide
Statements
• Fiduciary activities are:
– Excluded from the government-wide
statements if their resources are NOT
available to finance the government’s
programs.
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Net
Assets:
#1 – Reports all “general capital assets”—
including infrastructure.
#2 – Reports all debt—including GLTL.
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Net Assets
(cont.):
#3 – Reports net assets in 3 categories:
#1 • Invested in capital assets, net of
related debt
#2 • Restricted
#3 • Unrestricted
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Net Assets
(cont.):
#4 – In general, interfund balances (loans,
advances, and due to and due from
accounts) are eliminated.
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Activities:
#1 – Presented in at least the same level of
detail provided in the governmental
fund statements (generally, expenses
and program revenues by function—e.g.,
public safety, public health, and
recreation).
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Activities:
#2 – Format must report expenses reduced
by program revenues—results in a
measurement of “net (expense)
revenue” for each of the government’s
functions.
Government-Wide
Statements
• IMPORTANT FEATURES of the governmentwide Statement of Activities (cont.):
– Program expenses include all direct
#3
expenses.
• Depreciation expense that can
specifically be identified with a function
is reported as a direct expense.
• Allocated overhead and other indirect
expenses to individual programs are
presented in a separate column.
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Activities
(cont.):
#4 – Reports extraordinary items (items
beyond control of mgt.) separately.
#5 – Reports special items (items within the
control of mgt.) separately.
Government-Wide
Statements
• IMPORTANT FEATURES of the
government-wide Statement of Activities
(cont.):
#6 – In general, interfund activity is
eliminated:
• Interfund services provided and used.
• Interfund transfers.
• Other interfund activity.
Fund-Based Statements
•
Purpose of fund-based statements:
– These statements show the short-term
performance of individual funds using
the same measures that governments
use to manage their money.
Fund-Based Statements
• A SHARPENED FOCUS:
– Must report information about the most
important funds—the “major funds”
(including the General Fund).
Fund-Based Statements
• Major funds are those whose revenues,
expenditures/expenses, assets, or
liabilities are at least:
– 10% of the total for their fund category or
type (governmental or enterprise) and
– 5% of the aggregate amount for all
governmental and enterprise funds.
Fund-Based Statements
–
Nonmajor funds are:
• Aggregated and
• Reported in a separate column
(labeled “all other funds”).
Fund-Based Statements
• IMPORTANT FEATURES of the fundbased statements
#1 – Must present two summary
reconciliations that show the interplay
between the two types of statements.
• Both types of statements together
constitute “an integrated set of
statements.”
Fund-Based Statements
• IMPORTANT FEATURES of the fundbased statements (cont.):
– In general, interfund activity will be
#2
reported separately:
• Interfund services provided and used.
• Interfund transfers.
• Other interfund activity
• Interfund open balances.
Fund-Based Statements
• IMPORTANT FEATURES of the fundbased statements (cont.):
#3 – Internal Service Funds are aggregated
and presented in a separate column on
the proprietary fund statements.
Fund-Based Statements
• IMPORTANT FEATURES of the fund-based
statements (cont.):
– Proprietary Funds:
#4
• Statement of Net Assets (or Balance
Sheet):
–Displays net assets using the same
categories used in government-wide
statements.
–Distinguishes between restricted and
unrestricted assets.
Fund-Based Statements
• IMPORTANT FEATURES of the fundbased statements (cont.):
#4 – Proprietary Funds (cont.):
• Statement of Revenues, Expenses,
and Changes in Fund Net Assets (or
Equity):
–Must distinguish between operating
and nonoperating revenues and
expenses.
Fund-Based Statements
• IMPORTANT FEATURES of the fund-based
statements (cont.):
#4 – Proprietary Funds (cont.):
• The all-inclusive change in fund net
assets includes (1) capital contributions; (2)
contributions to term and permanent
endowments, (3) special items, (4)
extraordinary items, and (5) transfers.
• Cash flow statement must use the direct
method (interest expense is financing—not
operations as in private sector).
Required Supplementary
Information (RSI)
• RSI includes:
– Budgetary comparison statements for the
General Fund and each major Special
Revenue Fund.
• Use both original budget and
• Any amended budget.
– Management’s discussion and analysis
(the MD&A).
End of Chapter 25
Time to Clear Things Up—Any
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