Are the foundation of planning, authorizing, controlling, and evaluating activities of governmental funds. It's a measure of the fund liabilities incurred (or expendable financial resources used). Typically classified as operations, capital outlay, or debt service.
When to Recognize Expenditures
In the accounting period in which the fund liability is incurred except for unmatured interest (and principal) on long-term debt, which is recognized when due.
May be recognized using either purchases method or consumption method.
May be allocated over benefited period or accounted for only in current period.
Pension Cost Expenditures
Payments to pension plans, even self-administered ones, qualify as expenditures; most govt's either use defined contribution or defined benefit contribution.
Defined Contribution Plan
Government obligation is limited to making contributions required by the plan; retiree benefits dependent upon contributions made and the investment performance of the plan. Government should recognize the expenditure in the year employees earned the benefit -- underpayment is not liability of fund but a noncurrent liability.
Defined Benefit Plan
Government obligation is to pay certain amount to retirees each period. Annual required contribution (ARC) based on many actuarial assumptions.
Consumption Method for Inventory
Supplies represent an expendable current financial resource - it can be used to finance future "expenditures" for supplies.
Purchases Method for Inventory
Already charged to expenditures, so it does not represent a current financial resource.
Consumption Method for Prepayments
The prepayments account balance is reported as an asset.
Purchases Method for Prepayments
The prepayments account balance is not reported as an asset, since the amount has already been charged to expenditures.
Basic classification of these are by this, but it does have other options.
Assets under this are recorded in General Capital Assets with corresponding entry in General Long-Term Liabilities.
An apportionment of an appropriation made by executive branch of a legislative branch appropriation.
Is a periodic release of an appropriation, i.e., a quarterly allotment -- helps keep departments from spending entire budget early in the fiscal year.
Long-term Debt Service
Debt service (principal and interest) not normally accrued at year-end; governments may accrue if 2 conditions are met: 1.) debt service payment occurs early (not more than 30 days) in the next fiscal year AND 2.) dedicated financial resources must have been provided in current fiscal year; if accrual is made, it must be for the full amount.
Short-term Debt Service
Recorded as fund liabilities; accrue interest at year-end; governmental funds borrow like this using tax anticipation notes (TANs), revenue anticipation notes (RANs), bond anticipation notes (BANs), and other similar notes.
Claims are against the government are called this.
This is recorded if it is probable that an asset has been impaired or this has been incurred (as of the date of the financial statements) AND it can be reasonably estimated.
Vacation, sick leave, maternity leave, and other such employee benefits.
Expenditures in the year in which the employees are ill. Accrued only if it is probable that the employees will be paid upon retirement or termination.
Must accrue a liability when BOTH conditions are met: employees' right to receive compensation for future absences are attributable to service already rendered AND it is probable that the employer will compensate the employees through paid time off or with cash payments at termination or retirement.
Change in Accounting Principles
Expenditure not previously measurable may now be considered reasonably estimable; change from one acceptable alternative principle to another; change in method of applying the principle; GASB issues new expenditure recognition criteria that is different than a policy currently in use.
Error Correction Process
1. Recognize the erroneous entry that was recorded, 2.) Determine what the correct entry should be and 3.) Fix the error by essentially combining steps 1 and 2.
This is recorded if it is probable that an asset has been impaired or a this has been incurred (as of date of financial statements) AND the amount can be reasonably estimated.