20 - 1 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for State and Local Governmental Units

20 - 1©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Accounting for State and LocalGovernmental Units –

Proprietary and Fiduciary Funds

Chapter 20


Learning Objective 1

Review the appropriate

accounting and financial

reporting for proprietary funds.


Proprietary Funds

The objective of proprietary funds is tomaintain capital or produce income, or both.

Full accrual accounting procedures apply.


Proprietary Funds

CurrentAssets

+Noncurrent

Assets–

CurrentLiabilities

–NoncurrentLiabilities

=Net

Assets


Financial Statements

Statement of revenues, expenses,and changes in net assets

Statement of net assets

Statement of cash flows


Types of Funds

EnterpriseEnterpriseInternalservice

Internalservice


Internal Service Funds

Internal service funds (ISF) are proprietaryfunds that a government uses to accountfor governmental activities that providegoods and services to other departments

or agencies of the governmental unit,or to other governmental units.


Sources of Financing

Nonreciprocal contributions

Loans


Accounting for anInternal Service Fund

The village of Tara creates a central motorpool fund with a cash contribution of$200,000 from the general fund and

a contribution of motor vehicleswith a book value of $120,000.



Cash 200,000Motor Vehicles 120,000

Nonreciprocal Transfer from GF 200,000Contributed Capital from Municipality 120,000

To record establishment of the fund



The village constructs a building for $100,000,purchases equipment for $50,000,and acquires supplies for $20,000.

What is the entry?



Building 100,000Equipment 50,000Supplies on Hand 20,000

Cash 170,000To record purchase of building, equipment,and supplies



When ISF bills user funds, individual fundswill record entries at the selling price.

Collection of the user charges triggersentries in the funds involved.

Adjusting and closing entries are similarto those in commercial enterprises.


Reporting InternalService Funds

Included with proprietary funds

Never considered a major fund

Aggregated into a single column


Reporting InternalService Funds

Reported with government activities


Enterprise Funds

Enterprise funds (EF) are proprietaryfunds that a government uses to account

for activities that are financed and operatedsimilarly to those of private business enterprises.


Enterprise Funds

(1) are financed with debt securedsolely by net revenue from feesand charges to external users,…


Enterprise Funds

(2) operate under laws requiring costsbe recovered with fees and charges,

or (3) have prices established bymanagement to cover the costs

of providing services.


Accounting for an Enterprise Fund

Example of entries related to customer deposits.

Restricted Cash 10,000Customer Deposits 10,000

To record customer deposits collected



Introduce the differences

between a proprietary

fund statement of cash

flows and its commercial

business counterpart.


Statement of Cash Flows

GASB 34 makes the direct methodmandatory for statement presentation.


Statement of Cash Flows

Operating activities

Noncapital financing activities

Capital financing activities

Investing activities


Cash Flows fromOperating Activities

Receipts from sales of goods or services,and interfund reimbursements.

Payments to suppliers and employees.

Payments to other governments asgrants for operating activities.

Payments for taxes and in lieu of taxes.


Cash Inflows from NoncapitalFinancing Activities

Proceeds from bonds not clearly issuedspecifically to finance capital assets

Receipts from grants and subsidiesnot restricted for capital purposes

or operating activities

Receipts from taxes collected for thegovernment enterprise


Cash Outflows from NoncapitalFinancing Activities

Repayments other than those related toacquiring or constructing capital assets

Payments for grants and subsidies(except those for specific operating

activities of the grantor government)

Cash paid to other funds exceptfor interfund services used


Cash Flows from Capital and Related

Financing Activities

Inflows:Capital grants

Sale or disposal of fixed assets

Outflows:Acquisition, construction, or improvement

of capital assetsRepayments and interest related to capital assets


Cash Flows from Investing Activities

Inflows:Collections of loans

Sales of investment securitiesReceipt of interest and dividends

Outflows:Making loans

Payments to acquire investment securitiesOther than cash equivalents



Prepare journal entries and

fund financial statements

for fiduciary funds.


Fiduciary Funds

Governmental units use these funds to accountfor assets held in a trustee or agency capacity.

Resources cannot be used for the benefitof the government’s own programs.


Fiduciary Funds

AgencyAgency TrustTrust


Fiduciary Funds

Trust Funds

Private-purpose Investment Pension


Fiduciary Funds

Agency funds are used to account forresources that governments hold in

a custodial or agency capacity.


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 $100,000Other Cities 100,000Total $200,000



Taxes Receivable for Local Governmental Units 200,000

Liability to Morris County 100,000Liability to Other Cities 100,000

To record tax levy

$180,000 is collected, and $160,000 remitted.



Cash 180,000Taxes Receivable for Local Governmental Units 180,000

To record collection of taxes receivable

Liability to Other Cities 900Due to GF of Morris County 900

To charge cities a 1% fee for taxes collectedfor them



Due to GF of Morris County 800Liability to Morris County 80,000Liability to Other Cities 79,200

Cash 160,000To record remittance of taxes collectednet of 1% fee


Trust Funds

Investment trust funds are used to account formulti-government external investment pools

sponsored by the governmental entity.

Private-purpose trust funds are used to accountfor resources that are held for the benefit of

parties outside the governmental entity.


Trust Funds

Pension trust funds are used whena government acts as a trustee.

DefinedBenefit

DefinedContribution


Financial Statementsfor the Trust Fund

Trust Fund

Statementof FiduciaryNet Assets

Statementof Changes in

FiduciaryNet Assets



Learn about GASB guidance

for pension fund accounting.


Accounting for a Pension Trust Fund

Pension trust fund accounting andfinancial requirements are set forth

primarily in GASB Statement No. 25.

“Financial Reporting for Defined BenefitPension Plans and Note Disclosures for

Defined Contribution Plans”


GASB Statement No. 25

This statement outlines the information thatshould be reported about each pension plan.

Statement of plan net assets

Statement of changes in plan net assets



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.



GASB Statement No. 25 also providesdisclosure requirements for

defined contribution pension.

Plan description

Summary of accounting policies

Fair value of net assets

Identification of investment concentrations



This statement establishes standards for…

– pension cost recognition

– disclosures



Pension obligation is the cumulativedifference between annual pension

cost and the employer’s contributionto the plan, including the pension

liability, or assets in transition, if any.


GASB Statements No. 25 and 27

27

25Reporting framework

ParametersDisclosure

Plan net assetsChanges in net

assets

Recognition ofpension costsDisclosures



Become familiar with the

differences among

governmental, proprietary,

and fiduciary funds.


Preparing the Government-WideFinancial Statements

The government-wide statements includea column for business-type activities.

This column includes enterprisefund amounts only.

Conversion is not necessary.


Preparing the Government-WideFinancial Statements

Governments must either eliminate internalbalances or report them as interfundbalances in the asset section of the

statement of net assets.

Government-wide statements report internalservice funds with governmental activities.


Required Proprietary FundNote Disclosures

If an enterprise fund issues debt that isbacked by its revenue generating activity,

the government must present certaindetailed segment information in the notes

to the financial statements.


End of Chapter 20

Documents

20 - 1 ©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for State and Local Governmental Units