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Chapter Eleven

Accounting for Accounting for State and Local State and Local Governments, Governments,

Part IPart I

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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Government-wide Financial Statements

GASB Statement No. 34

Requires the production of two sets of statements:

Fund-Based Financial Statements

Report all revenues and costs of providing

services each year and all resources available to the

governmental unit.

Show restrictions on the use of resources, and measures, in the short term, revenues

and expenditures from certain activities.

Important Difference in Focus

Fund-based financial statementsFocus on specific activities Primary measurement focus is on flow

and amount of current resourcesUtilize modified accrual accountingAssess fiscal accountability

Government-wide financial statementsReport on activities as a wholeAssess operational accountabilityFocus on all economic resourcesUtilize accrual accountingComparable to ‘corporate’ accounting

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Governmental Funds

Accounting for activities

related to serving the

public.

Proprietary Funds

Accounting for business-

type activities.

Fiduciary Funds

Accounting for financial resources

held for others as trustee.

Fund Accounting Classification

All funds fall into one of three broad classifications.

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Governmental Funds - General Fund

Used to account for all financial resources except those accounted for in other funds.

In 2008, 58% of Baltimore’s governmental funds (over $1.2 Billion) were accounted for in the General Fund.

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Governmental Funds - Special Revenue Fund

Expenditures are legally restricted.

Resources must be spent for specific purposes.

St. Paul, Minnesota, requires that receipts from charitable gambling must be used to support youth athletics or “otherwise as legally determined.”

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Governmental Funds - Capital Projects Fund

Accounts for costs incurred to acquire or build major governmental facilities.

The actual asset is not recorded in this account, but the money to finance its purchase or construction is.

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Governmental Funds - Debt Service Funds

Record financial resources accumulated to pay long-term liabilities and interest when due.

Does not account for the actual debt

In 2008, Birmingham, Alabama, reported paying out $16 million in principal payments and $17 million in interest payments from its debt service funds.

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Governmental Funds - Permanent Funds (Endowments)

Account for assets donated to the government by external donors with stipulation that the principal cannot be spent.

In 2008, Dallas, Texas reported nearly $9 million in funds to maintain four different parks.

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Proprietary Funds - Enterprise Funds

May be used to account for any government activity that is financed, at least in part, by user charges.

An activity MUST be accounted for here if, any one of the conditions below are met . . . Costs are recovered from user fees Fees are set high enough to recover costs Net revenues generated by the activity

provide the sole security for the activity’s debts

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Proprietary Funds - Internal Service Funds

Account for any operation that provides services to OTHER governmental departments.

Inter-departmental fees are charged on a cost-reimbursement basis.

Accounted for similar to for-profit operations in the private sector.

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Fiduciary Funds

Investment TrustInvestments held on behalf of others

Private-Purpose TrustPrincipal and interest are both for the benefit of parties outside the government

Pension TrustEmployee retirement

Agency FundsAny resources held by the government as an agent for others (some taxes and tolls fall into this category)

Account for assets that are held in a

Trustee Capacity for External Users

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11-13 Government-Wide Financial Statements

Two statements are required:1)Statement of Net Assets2)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).

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Fund-Based Financial Statements

Fund-Based statements will

include information on fiduciary funds.

Two statements are required:1)Balance Sheet

2)Statement of Revenues, Expenditures, and Changes in

Fund Balance

Fund-Based Financial Statements

These statements will differ from the Government-Wide financial statements for three reasons.

The Internal Service Funds are included in separate statements for Proprietary Funds.

The current financial resources measurement basis is used.

The modified accrual accounting approach is used.

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Procedures –Importance of Budgets The budget serves several purposes:

Expresses public policy Expresses financial intentProvides spending limitsCompares actual results to the budget

as a means of evaluating performanceIndicates proposed deficits

The budget is recorded in the books as a DEBIT to estimated revenues, and a CREDIT to each “appropriation” approved.

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Budget Encumbrance Actual

Procedures – Encumbrances

In a governmental unit, purchase commitments and contracts are recorded, even though they may not yet represent liabilities.

A recorded commitment or contract is called an “encumbrance.”

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