Beams10e_Ch18 Accounting for State and Local Government

7/23/2019 Beams10e_Ch18 Accounting for State and Local Government

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2009 Pearson Education, Inc. publishing as 18-1

Chapter 18: An Introduction to

Accounting for State and Local

Governmental Units

by Jeanne M. David, Ph.D., Univ. of Detroit Mercy

to accompany

Advanced Accounting, 1thedition

!y "loyd A# $eams, %o!in Clement,'oseph (# Anthony, and Su)anne Lo*ensohn


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Governmental: +!ectives

1. Learn about thehistorical development of

accounting principles for state and local

governmental units.

2. Understand the need for fund accountingand its

basic premises.

. Perform transaction analysis using proprietary

and governmental accounting models.!. "ecogni#e various fund categories, as $ell as

their measurement focus and basis of accounting.


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+!ectives %cont.&

'. "evie$ basic governmental accounting

principles.

(. Learn about the contents of a governmental

entity)s comprehensive annual financial report#


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2009 Pearson Education, Inc. publishing as 18-

1: (istory1: (istory

*n +ntroduction to *ccounting for tate and Local

-overnmental Units


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2009 Pearson Education, Inc. publishing as 18-!

Governmental -ntity

&opular election of officers or appointment !y

officials of one or more state or local

governments

&otential for unilateral dissolution !y

government

.et assets revert to government

&o*er to enact or enforce a ta/


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2009 Pearson Education, Inc. publishing as 18-"

0eveloping Standards

unicipal "inance +fficers Association Governmental Accounting, Auditing and Financial

Reporting, 1968

AIC&A Audits of State and Local Governmental Units, 1974 .ational Council on Governmental Accounting

Governmental Accounting and Financial Reporting

Principles (beginning 1979)

Governmental Accounting Standards $oard GASB Statements (beginning 1984) Codification(1985, updated continually)


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(ierarchy of GAA&

GAA& for local and state governmental

accounting:

1# GAS$ Statements and Interpretations

2# GAS$ 3echnical $ulletins

4# Consensus positions of GAS$5s -merging

Issues 3as6 "orce

7# Implementation Guides# +ther accounting literature


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2: "und Accounting2: "und Accounting


-overnmental Units



Accounting for Governments

"ocus on continuing a!ility to fund and provide

goods and services

.ot profit

3ypes of activities

1# $usiness type activities

Provide services or goods to users for fees

2# General governmental activities

Provide services or goods to citizens

witout regard for a!ilit" to pa"



"und %def.&

9a fiscal or accounting entity *ith a self !alancing

set of accounts recording cash and other

!alances, and changes therein, *hich are

segregated for the purpose of carrying on

specific activities9 -*/ 0odification

Groups of funds:

&roprietary fundsGovernmental funds

"iduciary funds


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"und Accounting

-ach fund has

Accounting e;uation

'ournals, ledgers and other records "inancial statements

A single governmental unit, e#g#, one city, has

multiple funds each *ith their o*n financial

statements# 3here is a comprehensive report#


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&roprietary "und odel

Current assets

< noncurrent assets

- current lia!ilities

= noncurrent lia!ilities

> net assets

CA < .CA ? CL ? .CL > .et assets

Accounting is similar to !usiness enterprises#


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Governmental "und odel

Current assets

? current lia!ilities

> fund !alance

CA ? CL > "und $alance

Accounting focuses on current financial resources#

-/penditures reflect the use of *or6ing capital, insteadof e/penses *hich focus on consumption of resources#


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General "A and L30

General fi/ed assets @"A are not recorded in

governmental funds#

General fi/ed asset and depreciation records

are maintained separately

General long term de!t @L30 is not recorded in

governmental funds#

Separate records are also 6ept

$oth are reported in the government=*ide

statements


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2009 Pearson Education, Inc. publishing as 18-1!

4: 3ransaction Analysis4: 3ransaction Analysis


-overnmental Units


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2009 Pearson Education, Inc. publishing as 18-1"

3ransactions

1# $orro*ed B !y issuing a 4=year note#

2# &urchased e;uipment costing B4 for cash#

4# Sold a fully depreciated truc6 costing B8, *ith

a residual value of B1 for B8 cash#

7# Computed current depreciation as B1#

# $orro*ed B4 on a si/ month note#


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2009 Pearson Education, Inc. publishing as 18-1#

Using &roprietary "und odel

odel: CA < .CA ? CL ? .CL > .et Assets

CA NCA C NCNet

A!!et!

1 "o##o$ed long te#% 75 75

& "oug't euip%ent (*) *

+old t#uc 8 (1*) (&)

4 ep#eciation (15) (15)5 "o##o$ed !'o#t te#% * *


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Using Governmental "und odel

3he long term !orro*ing is a source of current financialresources, as is the sale of the truc6#

Ac;uisition of e;uipment uses current financial resources

odel: CA ? CL > "und !alance

CA C.und

balance

1 "o##o$ed long te#% 75 75

& "oug't euip%ent (*) (*)

+old t#uc 8 8

4 ep#eciation

5 "o##o$ed !'o#t te#% * *


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7: "und Categories7: "und Categories


-overnmental Units


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&roprietary "und 3ypes1# Internal service funds

&rovide goods or services on a !usiness type

!asis primarily for internal customers

For departments and agencies of tat

government

#otor pools, central printing

2# -nterprise funds

&rovide goods or services on a !usiness type

!asis primarily for e/ternal customers

For citizens and oters

Utilities, tras service, mass transit


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Governmental "und 3ypes

1# Special revenue funds

General governmental financial resources

restricted for specific purposes

2# &ermanent funds

%esources are restricted !ut earnings !enefit

government or citi)ens

4# Capital proects funds

%esources used to construct or ac;uire

maor governmental fi/ed assets


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Governmental "unds %cont.&

7# 0e!t service funds

%esources to !e used to pay principle,

interest and charges on long term de!t

# General fund

Dor6ing capital availa!le for general

governmental use

Governmental offices, police, fire, li!rar"


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"iduciary "und 3ypes

$asic proprietary model:

CA < .CA ? CL ? .CL > .et Assets

1# &ension trust funds

2# Investment trust funds

4# &rivate purpose trust funds

An a!!reviated model:

CA > CL

7# Agency funds


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Apply odel to Specific "unds

1# Issued general o!ligation !onds, par value of B4,, at 11to finance construction of a government office !uilding#

2# 3ransferred the premium on the !onds to the fund used toaccount for payment of principal and interest on the !onds#

4# Incurred and paid construction costs of B12 on the!uilding#7# Levied and collected sales ta/es restricted to use for

economic development, BE## &aid general governmental employeesF salaries, B7#

Another B of salaries accrued !ut has not !een paid#

E# $orro*ed B, on a si/=month note to finance generaloperating costs of the government#


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odel: CA ? CL > "und !alance

+peci/ic .und0 CA C.und

balance

1Capital p#oect! /und ,** ,**

&a Capital p#oect! /und (*) (*)

&b ebt !e#2ice /und * *

Capital p#oect! /und (1&5) (1&5)

4 +pecial #e2enue /und 6* 6*

5 3ene#al /und (45*) 5* (5**)

6 3ene#al /und 1,5** 1,5**

3ransactions in Governmental

3ype "unds


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$ases of Accounting

Governmental type funds odified accrual !asis of accounting "ocus on flo* of current financial resources

%ecord e/penditures

&roprietary fiduciary type funds Accrual !asis of accounting "ocus on economic resources

%ecord e/penses


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: Governmental Accounting: Governmental Accounting&rinciples&rinciples


-overnmental Units


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%evenue %ecognition

-/change or e/change=li6e transactions .one/change transactions

0erived ta/ revenues %sales or income ta& Imposed none/change %property ta& Government mandated none/change%federal

mandates& Holuntary none/change %donations&

%ecogni)e revenue in governmental funds

3ransaction is su!stantially complete"unds are measura!le and availa!le

$ot more tan %& da"s .et revenue approach %net of uncollectibles&


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-/penditures and -/penses

-/penses

Cost of assets or services used

%ecogni)e in period incurred

-/pendituresCost of goods or service ac;uired, *hether or

not consumed

aturing of long term de!t principal%ecogni)ed in period current lia!ility isincurred'(cept) interest on long term de!t is

recognized wen due


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Interfund Activity

Interfund loans Interfund transfers

+perating or residual e;uity

1# .onreciprocal Government funds

*ter financing sources and uses &roprietary funds

$onoperating revenues or e(penses2# %eciprocal

Seller as revenues Purcaser as e(pense or e(penditure


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$udget

Dhen approved !y the legislative !ody, the !udget

for e/penditures !ecomes a spending ordinance

that has the force of la*# An approved revenue

plan also has the force of la*#

Appropriations

Approved or authori)ed e/penditures

AllotmentAppropriation for a specific time period


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"inancial %eporting -ntity

&rimary governmentCity, to*n, state

Special purpose government

Dater district, hospital, transit authority3reated as primary government

Separatel" elected !od", legall" separate,

fiscall" independent Component unitLegall" separate, !ut primar" government is

financiall" accounta!le


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E: Comprehensive Annual "inancialE: Comprehensive Annual "inancial%eport @CA"%%eport @CA"%


-overnmental Units


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&rimary Government %eporting

Annual report called Comprehensive Annual

"inancial %eport @CA"%

Includes primary government and !lended

component unitsGASB Statement $o+ -

Government *ide financial statements

"und financial statements


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CA"% ? Introductory Section

3a!le of contents Letter of transmittal &rincipal officers

+rgani)ational chart


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CA"% ? "inancial Section

anagement5s 0iscussion Analysis Auditor5s report Government=*ide financial statements

Statement of .et AssetsStatement of Activities

"und financial statements @detailed later .otes and re;uired supplementary information


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Statement of .et Assets


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St t t f


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Statement of

Activities


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"und "inancial Statements

$alance sheet ? Governmental funds @G" Statement of revenues, e/penditures, and changes

in fund !alance ? G"

Statement of net assets ? &roprietary funds @&" Statement of revenues, e/penses and changes in

net assets ? &" and similar trust funds

Statement of cash flo*s ? &" and similar trust

funds

Statement of fiduciary net assets Statement of fund changes in fiduciary net assets


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CA"% ? Statistical Section

Includessocial and economic data"inancial trends

"iscal capacity Comparative, multi=period Accounting and non=accounting data


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Beams10e_Ch18 Accounting for State and Local Government