Accounting for State and Local
Governmental Units –
Proprietary and Fiduciary Funds
Chapter 20
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Learning Objective 1
Review the appropriate
accounting and financial
reporting for proprietary funds.
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Proprietary Funds
The objective of proprietary funds is to
maintain capital or produce income, or both.
Full accrual accounting procedures apply.
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Proprietary Funds
Current
Assets
–
+
Noncurrent
–
Assets
Noncurrent
=
Liabilities
Current
Liabilities
Net
Assets
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Financial Statements
Statement of net assets
Statement of revenues, expenses,
and changes in net assets
Statement of cash flows
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Types of Funds
Internal
service
Enterprise
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Internal Service Funds
Internal service funds (ISF) are proprietary
funds that a government uses to account
for governmental activities that provide
goods and services to other departments
or agencies of the governmental unit,
or to other governmental units.
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Sources of Financing
Nonreciprocal contributions
Loans
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Accounting for an
Internal Service Fund
The village of Tara creates a central motor
pool fund with a cash contribution of
$200,000 from the general fund and
a contribution of motor vehicles
with a book value of $120,000.
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Accounting for an
Internal Service Fund
Cash
200,000
Motor Vehicles
120,000
Nonreciprocal Transfer from GF
Contributed Capital from Municipality
To record establishment of the fund
200,000
120,000
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Accounting for an
Internal Service Fund
The village constructs a building for $100,000,
purchases equipment for $50,000,
and acquires supplies for $20,000.
What is the entry?
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Accounting for an
Internal Service Fund
Building
100,000
Equipment
50,000
Supplies on Hand
20,000
Cash
170,000
To record purchase of building, equipment,
and supplies
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Accounting for an
Internal Service Fund
When ISF bills user funds, individual funds
will record entries at the selling price.
Collection of the user charges triggers
entries in the funds involved.
Adjusting and closing entries are similar
to those in commercial enterprises.
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Reporting Internal
Service Funds
Included with proprietary funds
Never considered a major fund
Aggregated into a single column
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Reporting Internal
Service Funds
Reported with government activities
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Enterprise Funds
Enterprise funds (EF) are proprietary
funds that a government uses to account
for activities that are financed and operated
similarly to those of private business enterprises.
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Enterprise Funds
(1) are financed with debt secured
solely by net revenue from fees
and charges to external users,…
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Enterprise Funds
(2) operate under laws requiring costs
be recovered with fees and charges,
or (3) have prices established by
management to cover the costs
of providing services.
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Accounting for an Enterprise Fund
Example of entries related to customer deposits.
Restricted Cash
10,000
Customer Deposits
10,000
To record customer deposits collected
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Learning Objective 2
Introduce the differences
between a proprietary
fund statement of cash
flows and its commercial
business counterpart.
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Statement of Cash Flows
GASB 34 makes the direct method
mandatory for statement presentation.
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Statement of Cash Flows
Operating activities
Noncapital financing activities
Capital financing activities
Investing activities
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Cash Flows from
Operating Activities
Receipts from sales of goods or services,
and interfund reimbursements.
Payments to suppliers and employees.
Payments to other governments as
grants for operating activities.
Payments for taxes and in lieu of taxes.
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Cash Inflows from Noncapital
Financing Activities
Proceeds from bonds not clearly issued
specifically to finance capital assets
Receipts from grants and subsidies
not restricted for capital purposes
or operating activities
Receipts from taxes collected for the
government enterprise
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Cash Outflows from Noncapital
Financing Activities
Repayments other than those related to
acquiring or constructing capital assets
Payments for grants and subsidies
(except those for specific operating
activities of the grantor government)
Cash paid to other funds except
for interfund services used
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Cash Flows from Capital and Related
Financing Activities
Inflows:
Capital grants
Sale or disposal of fixed assets
Outflows:
Acquisition, construction, or improvement
of capital assets
Repayments and interest related to capital assets
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Cash Flows from Investing Activities
Inflows:
Collections of loans
Sales of investment securities
Receipt of interest and dividends
Outflows:
Making loans
Payments to acquire investment securities
Other than cash equivalents
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Learning Objective 3
Prepare journal entries and
fund financial statements
for fiduciary funds.
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Fiduciary Funds
Governmental units use these funds to account
for assets held in a trustee or agency capacity.
Resources cannot be used for the benefit
of the government’s own programs.
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Fiduciary Funds
Agency
Trust
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Fiduciary Funds
Trust Funds
Privatepurpose
Investment
Pension
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Fiduciary Funds
Agency funds are used to account for
resources that governments hold in
a custodial or agency capacity.
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Accounting for an Agency Fund
Assume that Morris County collects
$200,000 taxes for its own purpose
as well as for other cities.
Total property taxes levied:
Morris County
$100,000
Other Cities
100,000
Total
$200,000
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Accounting for an Agency Fund
Taxes Receivable for Local
Governmental Units
200,000
Liability to Morris County
Liability to Other Cities
To record tax levy
100,000
100,000
$180,000 is collected, and $160,000 remitted.
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Accounting for an Agency Fund
Cash
180,000
Taxes Receivable for Local
Governmental Units
To record collection of taxes receivable
180,000
Liability to Other Cities
900
Due to GF of Morris County
900
To charge cities a 1% fee for taxes collected
for them
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Accounting for an Agency Fund
Due to GF of Morris County
800
Liability to Morris County
80,000
Liability to Other Cities
79,200
Cash
To record remittance of taxes collected
net of 1% fee
160,000
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Trust Funds
Investment trust funds are used to account for
multi-government external investment pools
sponsored by the governmental entity.
Private-purpose trust funds are used to account
for resources that are held for the benefit of
parties outside the governmental entity.
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Trust Funds
Pension trust funds are used when
a government acts as a trustee.
Defined
Benefit
Defined
Contribution
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Financial Statements
for the Trust Fund
Trust Fund
Statement
of Fiduciary
Net Assets
Statement
of Changes in
Fiduciary
Net Assets
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Learning Objective 4
Learn about GASB guidance
for pension fund accounting.
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Accounting for a Pension Trust Fund
Pension trust fund accounting and
financial requirements are set forth
primarily in GASB Statement No. 25.
“Financial Reporting for Defined Benefit
Pension Plans and Note Disclosures for
Defined Contribution Plans”
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GASB Statement No. 25
This statement outlines the information that
should be reported about each pension plan.
Statement of plan net assets
Statement of changes in plan net assets
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GASB Statement No. 25
Two schedules must be presented as RSI.
1. A schedule of funding progress
2. A schedule of employer contributions
Information is included for 6 years.
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GASB Statement No. 25
GASB Statement No. 25 also provides
disclosure requirements for
defined contribution pension.
Plan description
Summary of accounting policies
Fair value of net assets
Identification of investment concentrations
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GASB Statement No. 27
This statement establishes standards for…
– pension cost recognition
– disclosures
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GASB Statement No. 27
Pension obligation is the cumulative
difference between annual pension
cost and the employer’s contribution
to the plan, including the pension
liability, or assets in transition, if any.
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GASB Statements No. 25 and 27
25
Reporting framework
Parameters
Disclosure
27
Recognition of
pension costs
Disclosures
Plan net assets
Changes in net
assets
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Learning Objective 5
Become familiar with the
differences among
governmental, proprietary,
and fiduciary funds.
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Preparing the Government-Wide
Financial Statements
The government-wide statements include
a column for business-type activities.
This column includes enterprise
fund amounts only.
Conversion is not necessary.
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Preparing the Government-Wide
Financial Statements
Governments must either eliminate internal
balances or report them as interfund
balances in the asset section of the
statement of net assets.
Government-wide statements report internal
service funds with governmental activities.
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Required Proprietary Fund
Note Disclosures
If an enterprise fund issues debt that is
backed by its revenue generating activity,
the government must present certain
detailed segment information in the notes
to the financial statements.
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End of Chapter 20
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