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19 - 1©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for State and LocalGovernmental Units –Governmental Funds
Chapter 19
19 - 2©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Objective 1
Prepare journal entries for
governmental funds.
19 - 3©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for the General Fund
Grantville TownPost-Closing Trial Balance
June 30, 2001
DebitsCash $310,000Taxes receivable-delinquent 150,000Accounts receivable 30,000Supplies inventory 60,000Total debits $550,000
19 - 4©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for the General Fund
CreditsAllowances for uncollectible taxes – delinquent $ 10,000Vouchers payable 140,000Note payable (short-term) 150,000Reserve for encumbrances 90,000Unreserved fund balance 160,000Total credits $550,000
19 - 5©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for the General Fund
General Fund Budget SummaryFor Fiscal Year 7/1/01 to 6/30/02
Revenue SourcesTaxes $2,075,000Licenses and permits 205,000Other 1,220,000
$3,500,000
19 - 6©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for the General Fund
ExpendituresCurrent services
General government $ 477,500Public safety 897,750Other 1,945,000
Total appropriations $3,320,250Other financing sources (uses) 115,000Budgeted increase in fund balance $ 64,750
19 - 7©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Recording the Budget
Estimated Revenues 3,500,000Appropriations 3,320,250
Estimated Other Financing Uses – Transfers Out 115,000
Unreserved Fund Balance 64,750To record the budget for the year July 1, 2001,to June 30, 2002
19 - 8©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Ledgers
Recording estimated revenues for individualitems as debits in the subsidiary revenue ledgerand recording actual revenue items as credits
allows the outstanding subsidiary accountbalances during the year to reveal differences.
19 - 9©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Property Taxes
Taxes Receivable – Current 2,000,000Allowance for Uncollectible Taxes – Current 20,000
Revenue 1,980,000To record the property tax levy
$2,000,000 tax bills are mailed.
19 - 10©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Property Taxes
Cash 1,900,000Taxes Receivable – Current 1,760,000Taxes Receivable – Delinquent 140,000
To record collection of property taxes
The town records collection of $1,760,000 currentproperty taxes and past-due taxes of $140,000.
19 - 11©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Property Taxes
Allowance for Uncollectible Taxes – Delinquent $10,000
Taxes Receivable – Delinquent 10,000To record write-off of uncollectible account
Specific tax bills totaling $10,000 weredetermined to be uncollectible.
19 - 12©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Derived Tax Revenues
Governments recognize sales tax revenue whentax returns are received from merchants and the
taxes are expected to be remitted to the governmentby year end (or within 60 days thereafter).
What is the entry to record $150,000 in salestaxes, of which three equal payments are
required by 7/15, 8/15, and 9/15?
19 - 13©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Derived Tax Revenues
Accounts Receivable 150,000Revenue 100,000Deferred Revenue 50,000
To record sales tax activity
19 - 14©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Recording Expenditures
Under modified accrual accounting, governmentalfunds normally recognize expenditures when
they incur the related liability.
19 - 15©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Objective 2
Learn about accounting methods
unique to governmental
accounting – budgetary issues,
encumbrance accounting,
interfund transactions.
19 - 16©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Encumbrances
During the year, the town orders snow-removalequipment expected to cost $150,000.
What is the journal entry?
Encumbrances 150,000Reserve for Encumbrances 150,000
To record a purchase order for equipment
What is the unencumbered balanceof the appropriations?
19 - 17©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Encumbrances
Appropriations $3,320,250Less encumbrances 150,000Unencumbered appropriations $3,170,250
Assume that the actual cost of theequipment purchased is $140,000.
What are the journal entries?
19 - 18©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Encumbrances
Reserve for Encumbrances 150,000Encumbrances 150,000
To reverse the encumbrance entry for snow-removalequipment
Expenditures 140,000Vouchers Payable 140,000
To record expenditures
19 - 19©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Consumption MethodConsumption Method
Supplies
Purchases MethodPurchases Method
19 - 20©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Supplies
The town orders suppliesexpected to cost $60,000.
What is the journal entry underthe consumption method?
Encumbrances 60,000Reserve for Encumbrances 60,000
To record the purchase order for operatingsupplies
19 - 21©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Supplies
Reserve for Encumbrances 60,000Encumbrances 60,000
To reverse the encumbrance entry upon receiptof the operating supplies
Inventory of Supplies 60,000Vouchers Payable 60,000
To record receipt of operating supplies
19 - 22©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Capital Lease
The Town of Grantville enters into a generalgovernment capital lease agreement with
a down payment of $5,000.
The present value of the lease is $50,000.
What is the entry at the inception of the lease?
19 - 23©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Expenditures (capital outlay) 50,000Cash 5,000Other Financing Sources – Capital Lease 45,000
Capital Lease
19 - 24©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Interfund Transactions
Other Financing Uses – Nonreciprocal Transfer to CPF 100,000Other Financing Uses – Reciprocal Transfer to SRF 50,000Other Financing Uses – Nonreciprocal Transfer to DSF 14,250
Cash 164,250To record transfers to CPF, SRF, and DSF
19 - 25©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Supplies inventory of $90,000are on hand at year end.
Year-End Procedures
$60,000 BI + Purchases $60,000 = $120,000$120,000 – $90,000 = $30,000
19 - 26©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Year-End Procedures
The $240,000 uncollected taxes are past due.
Taxes Receivable – Delinquent 240,000Allowance for Uncollectible Taxes – Current 20,000
Taxes Receivable – Current 240,000Allowance for Uncollectible Taxes – Delinquent 20,000
19 - 27©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Closing Entries
Dr.AppropriationsEstimated Other Financing SourcesRevenues
Cr.Estimated RevenuesExpendituresEncumbrancesOther Financing Uses
The budgeted and actual Unreserved FundBalance can be either a debit or credit.
19 - 28©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Objective 3
Determine the appropriate
governmental fund
to be used.
19 - 29©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Special Revenue Funds
A SRF is the entity that a government usesto account for the proceeds of
specific revenue sources.
Typically, all or part ofresources are restricted.
19 - 30©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Special Revenue Funds: Grants
Governments often receive grants fromother governments or private sources.
Grant revenues can be recognized when alleligibility requirements have been met.
19 - 31©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Permanent Funds
They account for contributions for whichthe grantor specifies that a principalamount must be maintained but for
which interest accumulation orasset appreciation or both are tobe used for a specified purpose.
19 - 32©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Capital Projects Funds
The purpose of capital projects funds(CPF) is to account for resources thatare used to acquire major long-livedgeneral government capital facilities.
19 - 33©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Sources of Financing
Proceeds ofbond issues
Transfers fromother funds
Grants andshared revenues
Contributionsfrom property
owners
19 - 34©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
On 9/1/2001, the Town of Grantvilleauthorized the construction of a new
town hall expected to cost $1,000,000.
Sources of financing:Bond issue proceeds $ 500,000Federal grant 400,000Transfer from GF 100,000
Total $1,000,000
19 - 35©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Creation of the CPF requires a memorandum entry.
The town transfers $100,000 from thegeneral fund to the CPF.
Cash 100,000Other Financing Sources – Nonreciprocal Transfer 100,000
To record receipt of funds from the GF
19 - 36©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Planning and architect’s fees are paid.
Expenditures 40,000Cash 40,000
To record payments for planning andarchitect’s fees
19 - 37©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
A contract is awarded for $950,000.
Encumbrances 950,000Reserve for Encumbrances 950,000
To record encumbrances for the amount of thecontract
19 - 38©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Cash 502,000Other Financing Sources –Proceeds from Bond Issue 502,000
To record sale of bonds
Bonds were issued at a premium of $2,000.
19 - 39©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Other Financing Uses – Nonreciprocal Transfer to DSF 2,000
Cash 2,000To transfer the premium to DSF
Premium is transferred to the debt service fund.
19 - 40©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Construction is certified to be 50% complete anda bill for $475,000 is received from the contractor.
Reserve for Encumbrances 475,000Encumbrances 475,000
To reverse half of the amount encumbered
19 - 41©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Expenditures 475,000Contracts Payable 427,500Retained Percentage 47,500
To record expenditures and a 10% retainedpercentage on the construction
19 - 42©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Contracts payable 427,500Cash 427,500
To record partial payment to the contractor
Contracts payable, less a 10%Retained percentage, is paid.
19 - 43©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
The town hall construction project has notbeen completed and the statements for the
CPF are interim statements from thestandpoint of the project.
At the end of the year the CPF books are closed.
19 - 44©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for a CapitalProject Fund
Intergovernmental revenue
Due from Federal Government 400,000Revenue 400,000
To recognize revenue from the federal grant
19 - 45©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Closing Entries
Revenues – federal grant 400,000OFS – nonreciprocal transfer from general fund 100,000OFS – bond proceeds 502,000
Expenditures 515,000OFU – nonreciprocal transfer to DSF 2,000Encumbrances 475,000Unreserved fund balance 10,000
To close the books at the end of 2001
19 - 46©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Other Items
Special assessmentactivities
Debt servicefunds
19 - 47©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Objective 4
Prepare governmental
fund financial statements.
19 - 48©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Governmental Fund Statements
Statement of net assets or balance sheet
Statement of revenues, expenditures, andchanges in fund balance (GAAP basis)
Statement of revenues, expenditures, andchanges in fund balance – budget and actual
19 - 49©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Governmental Fund Statements
An original budget column is required aswell as the final revised budget column.
Budgetary comparisons are required forthe general fund and for each annuallybudgeted major special revenue fund.
19 - 50©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Objective 5
Convert fund financial
statements to government-wide
financial statements.
19 - 51©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Preparing the Government-WideFinancial Statements
– Fund basis– Financial resources measurement focus– Modified accrual
– Fund basis– Financial resources measurement focus– Modified accrual
– Aggregate basis– Economic resources measurement focus– Accrual accounting
– Aggregate basis– Economic resources measurement focus– Accrual accounting
19 - 52©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Conversion ofGovernmental Activities
Statement 34 requires a reconciliation betweenthe changes in fund balance reported on the
fund statement of changes in revenues,expenditures, and changes in fund balanceand the changes in net assets reported in
the statement of activities.
19 - 53©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
End of Chapter 19
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