19 - 1 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for State and Local Governmental Units

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


Objective 1

Prepare journal entries for

governmental funds.


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



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



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



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


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


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.


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.



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.



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.


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?


Derived Tax Revenues

Accounts Receivable 150,000Revenue 100,000Deferred Revenue 50,000

To record sales tax activity


Recording Expenditures

Under modified accrual accounting, governmentalfunds normally recognize expenditures when

they incur the related liability.


Objective 2

Learn about accounting methods

unique to governmental

accounting – budgetary issues,

encumbrance accounting,

interfund transactions.


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?



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?



Reserve for Encumbrances 150,000Encumbrances 150,000

To reverse the encumbrance entry for snow-removalequipment

Expenditures 140,000Vouchers Payable 140,000

To record expenditures


Consumption MethodConsumption Method

Supplies

Purchases MethodPurchases Method


Supplies

The town orders suppliesexpected to cost $60,000.

What is the journal entry underthe consumption method?


To record the purchase order for operatingsupplies


Supplies


To reverse the encumbrance entry upon receiptof the operating supplies

Inventory of Supplies 60,000Vouchers Payable 60,000

To record receipt of operating supplies


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?


Expenditures (capital outlay) 50,000Cash 5,000Other Financing Sources – Capital Lease 45,000

Capital Lease


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


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


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


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.


Objective 3

Determine the appropriate

governmental fund

to be used.


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.


Special Revenue Funds: Grants

Governments often receive grants fromother governments or private sources.

Grant revenues can be recognized when alleligibility requirements have been met.


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.


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.


Sources of Financing

Proceeds ofbond issues

Transfers fromother funds

Grants andshared revenues

Contributionsfrom property

owners


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



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



Planning and architect’s fees are paid.

Expenditures 40,000Cash 40,000

To record payments for planning andarchitect’s fees



A contract is awarded for $950,000.


To record encumbrances for the amount of thecontract



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.



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.



Construction is certified to be 50% complete anda bill for $475,000 is received from the contractor.


To reverse half of the amount encumbered



Expenditures 475,000Contracts Payable 427,500Retained Percentage 47,500

To record expenditures and a 10% retainedpercentage on the construction



Contracts payable 427,500Cash 427,500

To record partial payment to the contractor

Contracts payable, less a 10%Retained percentage, is paid.



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.



Intergovernmental revenue

Due from Federal Government 400,000Revenue 400,000

To recognize revenue from the federal grant


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


Other Items

Special assessmentactivities

Debt servicefunds


Objective 4

Prepare governmental

fund financial statements.


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


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.


Objective 5

Convert fund financial

statements to government-wide

financial statements.


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


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.


End of Chapter 19

Documents

19 - 1 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for State and Local Governmental Units