CHAPTER 11 ACCOUNTING FOR STATE & LOCAL GOVERNMENTS, I

CHAPTER 11

ACCOUNTING FOR STATE &

LOCAL GOVERNMENTS, I

OBJECTIVES OF GOV. REPORTING• SGAC 1

• Government financial reports should respond to needs of the citizenry, their representatives, and investors and creditors involved in the lending process

• Four uses of financial reports 1.Compare actual financial results with the

legally adopted budget2.Assess financial condition and results of

operations3.Determine compliance with finance-related

laws, rules and regulations4.Evaluate efficiency and effectiveness 2

Stresses accountability

GOVERNMENT’S ACCOUNTABILITY

Fiscal Accountability: to justify that its actions comply with public decisions about obtaining and expending public resources in current year.

Operational Accountability: to report how efficiently and effectively it achieves its objectives using available resources.

Interperiod equity: Whether financial resources are sufficient for the services rendered in each period. current tax payers’ vs future tax payers’ obligation available for economic, political, and social decision-making

CORPORATE AND GOVERNMENTAL ACCOUNTING SYSTEMS

Corporate Accounting• 1 reporting entity, 1 accounting entity• Accrual accounting system• Measuring economic resources

Governmental Accounting• 1 reporting entity, many accounting entities

• GASB No.14: Primary government and its component units• Primary Government: separately elected body, legally

separated, and fiscally independent

• Fund accounting system• Measuring flow of financial resources

Profit Motive

Revenue & cost of providing services, Inflow & outflow of all resources

GASB STATEMENT NO. 34 (1999)

Requires the production of two sets of financial statements:

Government-wide Financial Statements

Report all revenues and costs with a long term focus. Of interest to

creditors, to assess the likelihood of being paid.

Fund Financial Statements

Show restrictions on the use of resources, and

report current revenues and expenditures from

certain activities.

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IMPORTANT DIFFERENCES

Government-wide Financial Statements

• a whole.• operating accountability• all economic resources.• accrual accounting.• Help users evaluate

government’s financial decisions and its long-term stability.

Fund Financial Statements

• individual activities. • current financial

resources• fiscal accountability

in raising and utilizing money.

• modified-accrual accounting.

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Governmental Funds

Accounting for activities related to

serving the public.

Proprietary Funds

Accounting for business-type

activities.

Accounting for financial

resources held for others as

trustee.

FUND ACCOUNTING CLASSIFICATION

11-7

Fiduciary Funds

VARIOUS FUND TYPES.

Governmental Funds

Proprietary Funds

Fiduciary Funds

General Fund Enterprise Fund

Pension Trust Fund

Capital Project Fund

Internal Service Fund

Investment Trust Fund

Special Revenue Fund

Private-purpose Fund

Debt Service Fund

Agency Fund

Permanent Fund

FUND STRUCTUREFund Resources from Resources for

General Income tax, fees administration

Special Revenue

Gov. grants, special taxes

Particular operation specified by rules

Capital Project Specific project proceeds

acquisition of infra structure

Debt Service Other funds, interest earned on investment

Payment for interest and principal

Permanent Earnings from trust, legal agreements

As specified by trust agreement

Enterprise Revenues from customers

Business activities

Internal service Charges to other city department

Operating expense, capital expenditure….

GOVERNMENT-WIDE F/S

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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STATEMENT OF NET ASSETS

Governmental Activities

Business-Type Activities Total

ASSETS: Cash 100$ 130$ 230$ Other Current Assets 1,580 430 2,010$ Capital Assets 2,950 2,750 5,700$ Total Assets 4,630$ 3,310$ 7,940$

LIABILITIES: A/P 750$ 230$ 980$ Noncurrent Liabilities - Due within one year 400 180 580$ - Due in more than one year 1,800 700 2,500$ Total Liabilities 2,950$ 1,110$ 4,060$

NET ASSETS:Invested in Capital Assets, Net of Debt 1,410$ 2,110$ 3,520$ Restricted for: Capital Projects 50 - 50$ Debt Service 140 60 200$ Unrestricted 80 30 110$ Total Net Assets 1,680$ 2,200$ 3,880$

Note: The Statement of

Net Assets reports


separate from the Business-

Type Activities.

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STATEMENT OF NET ASSETS


Business-Type Activities Total

ASSETS: Cash 100$ 130$ 230$ Other Current Assets 1,580 430 2,010$ Capital Assets 2,950 2,750 5,700$ Total Assets 4,630$ 3,310$ 7,940$

LIABILITIES: A/P 750$ 230$ 980$ Noncurrent Liabilities - Due within one year 400 180 580$ - Due in more than one year 1,800 700 2,500$ Total Liabilities 2,950$ 1,110$ 4,060$

NET ASSETS:Invested in Capital Assets, Net of Debt 1,410$ 2,110$ 3,520$ Restricted for: Capital Projects 50 - 50$ Debt Service 140 60 200$ Unrestricted 80 30 110$ Total Net Assets 1,680$ 2,200$ 3,880$

Also note this statement

does not give information

about Fiduciary

Funds.

This is consistent with the “economic resources

management focus” -- only include assets and

liabilities that are available to use for

governmental purposes.

This is consistent with the “economic resources

management focus” -- only include assets and

liabilities that are available to use for

governmental purposes.11-12

STATEMENT OF ACTIVITIES

Function ExpensesProgram

RevenuesGovernmental

ActivitiesBusiness-Type

Activities Total

Governmental Activities: - General Government 3,200$ 1,400$ (1,800)$ (1,800)$ - Public Safety 9,700 880 (8,820) (8,820) - Public Works 2,600 600 (2,000) (2,000) - Education 8,400 300 (8,100) (8,100) Total Gov't Activities 23,900$ 3,180$ (20,720)$ -$ (20,720)$

Business-Type Activities: - Water 3,600 4,030 430 430 - Sewer 4,920 5,610 690 690 - Airport 2,300 3,120 820 820 Total Business-Type Activities $ 10,820 $ 12,760 $ - $ 1,940 $ 1,940 Total Government 34,720$ 15,940$ (20,720)$ 1,940$ (18,780)$

Net (Expense) Revenue

On the Statement of

Activities, the net for a

given function is determined horizontally,

while the totals for

expenses and revenues are determined vertically.

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Continued

Function ExpensesProgram

RevenuesGovernmental

ActivitiesBusiness-Type

Activities Total

Total Government 34,720$ 15,940$ (20,720)$ 1,940$ (18,780)$

General Revenues: - Property Taxes 20,400$ 20,400$ - Investment Earnings 420 70 490 - Transfers 600 (600) - Total Gen'l Revenues 21,420$ (530)$ 20,890$

Change in Net Assets 700$ 1,410$ 2,110$ Beginning Net Assets 980 790 1,770 Ending Net Assets 1,680$ 2,200$ 3,880$

Net (Expense) Revenue

STATEMENT OF ACTIVITIES

The general

revenues are shown separately

at the bottom of

the statement.

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FUND FINANCIAL STATEMENTS

Fund-Based statements will include information on fiduciary funds.

Two statements are required:1)Balance Sheet2)Statement of Revenues, Expenditures, and

Changes in Fund Balance

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FUND FINANCIAL STATEMENTS

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.

These statements will differ from the Government-Wide

financial statements for three reasons.

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FUND ACCOUNTING – BALANCE SHEET EXAMPLE

General FundLibrary

ProgramOther Gov't

FundsTotal Gov't

Funds

ASSETS: Cash 40$ 10$ 50$ 100$ Investments 580 120 200 900 Receivables 120 200 210 530 Supplies & Materials 10 10 10 30 Total Assets 750$ 340$ 470$ 1,560$

LIABILITIES: A/P 230$ 170$ 110$ 510$ Notes Payable-Current 300 - 100 400 Total Liabilities 530$ 170$ 210$ 910$

FUND BALANCESReserved for:

Nonspendable 10$ 10$ 10$ 30$ Restricted 100 90 60 250 Committed 30 50 100 180 Assigned 20 20 90 130 Unassigned 60 - - 60

Total Fund Balances 220$ 170$ 260$ 650$ Total Liabilities and Fund Balances 750$ 340$ 470$ 1,560$

Separate column for

each “major”

fund (where a fund total > 10% of all funds in the

same category, or > 5% of all

funds).

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STATEMENT OF REVENUES, EXPENDITURES, & CHANGES IN FB

General FundLibrary

ProgramOther Gov't

FundsTotal Gov't

Funds

Revenues - Property Taxes 17,200$ 900$ 2,300$ 20,400$ - Investment Earnings 100 200 180 480 - Program Revenues 500 100 2,500 3,100 Total Revenues 17,800$ 1,200$ 4,980$ 23,980$

ExpendituresCurrent: General Government 3,400$ -$ 100$ 3,500$ Public Safety 5,100 - 400 5,500 Education 6,700 800 - 7,500 Debt Service: - Principal - - 1,000 1,000 Interest - - 600 600 Capital Outlay 1,100 300 3,300 4,700 Total Expenditures 16,300$ 1,100$ 5,400$ 22,800$ Excess(deficiency) of revenues 1,500$ 1,100$ (420)$ 1,180$ over expenditures

Also reports each

“major” fund (where

a fund total > 10% of all

funds in the same

category, or > 5% of all funds) in separate columns.

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STATEMENT OF REVENUES, EXPENDITURES, & CHANGES IN

FB

General FundLibrary

ProgramOther Gov't

FundsTotal Gov't

Funds

Other Financing Sources (Uses):Bond Proceeds -$ -$ 1,000$ 1,000$ Transfers In - 20 580 600 Transfers Out (1,300) - (1,000) (2,300) Total Other Financing Sources and Uses $ (1,300) $ 20 $ 580 $ (700)

Change in Fund Balance 200$ 120$ 160$ 480$ Fund Balances - Beginning 20 50 100 170 Fund Balances - Ending 220$ 170$ 260$ 650$

Statement continued. . .

11-19

1. Issued general obligation bonds, par value of $300 at101 to finance a Gov. office construction

Fund ? CA = CL + FB

2. Transferred the premium to the fund for repaying liability.

Fund ? CA = CL + FB

GOVERNMENTAL ACTIVITIES

CPF 303 303

CPF -3 - 3

DSF +3 +3

3. Incurred and paid construction costs of $100 on the building (10yr life, residual

val=0) Fund ? CA = CL + Fund

Balance

4. Received $100, a federal grant for the building construction.

Fund ? CA = CL + Fund Balance

CPF -100 -100

CPF +100 +100


5. Paid general government employees’ salaries,

$45. Another $5 of salaries accrued but has not been paid Fund ? CA = CL + Fund

Balance

6. Borrowed $75 on a six-month note to finance

general operating costs of the government. Fund ? CA = CL + Fund

Balance

GF - 45 +5 -50

GF 75 75


GOVERNMENT ACCTG CYCLE

Budgetary EntryEstimated Revenues <-->Appropriation

ExecutionTaxes Receivable Taxes Revenues, & Allowance

Encumbrances Reserved for Encumbrances

Cash Taxes Receivable

Expenditure Vouchers Payable or Cash

Reserved for Encumbrances Encumbrances….Closing

Appropriation<--> Estimated RevenuesRevenues <--> Expenditures & Encumbrances

A town enacts a motel excise tax to promote tourism and conventions. For 2013, the tax is expected to generate $490 in Special Revenues. The city council authorizes expenditures of

$420 including $200 for salaries, $30 for utilities, $110 for supplies, and $80 for advertising.

PROCEDURES – RECORDING BUDGETARY ENTRIES

Date Description Debit CreditEstimated Revenues - Tax Levy 490 Appropriations - Salaries 200 Appropriations - Utilities 30 Appropriations - Advertising 80 Appropriations - Supplies 110 Budgetary Fund Balance 70

11-24

PROCEDURES –ENCUMBRANCES

For Fund-Based Financial Statements:An entry is required to record the

encumbrance.An entry is required when the bill is received.

For Government-Wide Financial Statements:No entry is required to record the

encumbrance.An entry is required when the bill is received.

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General Fund - Police DepartmentDescription Debit Credit

Encumbrances Control 18 Fund Balance - Reserve 18 To record an equipment order


Assume a city’s police department ordered $18 worth of equipment. This amount has

been committed even though no formal liability exists until the equipment is received.

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General Fund - Police DepartmentDescription Debit Credit

Expenditures -Equipment 19 Vouchers Payable 19 To record equipment received

Fund Balance - Reserve For Encumbrances 18 Encumbrance Control 18 To remove encumbrance

General Fund - Police DepartmentGeneral Fund - Police Department

The equipment arrives with an invoice for $19. Sales tax, price adjustments, and other costs may cause the actual invoice to differ from the estimated amount.


The account

title typically used in place of

Accounts Payable.

General Fund – Police Department

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PROCEDURES – FIXED ASSETS

The expenditure for fixed assets is recorded in the General Fund for fund-based statements.

But, depreciation is not recorded in the governmental fund, since net income is not a concept relevant to governmental units.

However, GASB requires a record of ALL capital assets in the Statement of Net Assets in government-wide statements.

And, depreciation expense is recorded.

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PROCEDURES –RECOGING REVENUES

ClassificationsDerived Tax Revenues

Imposed Nonexchange RevenuesGovernment-mandated Nonexchange Transactions

Voluntary Nonexchange Transactions

For Government-Wide Statements, record the

revenues when “eligibility requirements have been

met”.

For Fund Statements, record the revenues when they become

“available for recognition”.

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Capital Projects Fund - School BuildingDate Description Debit Credit

Cash 9,000 Other Financing Source - 9,000 Bond Proceeds

PROCEDURES –ISSUANCE OF BONDS

The town of Ruark issues $9,000 in bonds for the construction of new school building.

The following journal entry is prepared to reflect the sale of the bonds.

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PAY FOR LONG-TERM LIABILITY

Government-Wide Financial StatementsRecord principal and

interest as with GAAP.

Fund-Based Financial Statements

Record expenditures in the Debt Service

Fund.

The town makes a $500 bond payment and pays 3 months of interest amounting to $10.

Date Description Debit Credit

Bond Payable 500 Interest Expense 10 Cash 510

Expenditure - Bond Principal 500

Expenditure - Interest 10 Cash 510

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SPECIAL ASSESSMENTS

Governments may provide improvements or services that benefit particular properties.

They may assess the costs, in total or in part, to the property owners.

Examples• Paving• Curbing• Sidewalks• Sewers and drains• Water lines

Usually financed by debt issuance and liens on the benefited property (to ensure reimbursement).

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SPECIAL ASSESSMENTS - ACCTG

Government-wide financial statements• Debt and subsequent construction handled

as for-profit enterprises do• Asset recorded at cost• Taxes assessed and collected• Tax receipts used to settle debt

Fund-based financial statements• Infrastructure not recorded• Debt not recorded• Reported in Capital Projects Fund and Debt

Service Fund (tagged as special assessment in both)

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INTERFUND TRANSACTIONS

Commonly used, particularly monetary transfers from the General Fund

Normally reported as “other financing source” and “other financing use” within the fund-based financial records

Many of these are not reported in the government-wide financial statements because they create no net impact (intra-activity transactions)

Interactivity transactions occur between governmental and enterprise funds and are reported on government-wide financial statements

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Documents

CHAPTER 11 ACCOUNTING FOR STATE & LOCAL GOVERNMENTS, I