Governmental Accounting--Exam #1

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Expenditures

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.

Inventory Expenditures

May be recognized using either purchases method or consumption method.

Prepayment Expenditures

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.

Fund

Basic classification of these are by this, but it does have other options.

Capital Leases

Assets under this are recorded in General Capital Assets with corresponding entry in General Long-Term Liabilities.

Allocation

An apportionment of an appropriation made by executive branch of a legislative branch appropriation.

Allotment

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.

Contingencies

Claims are against the government are called this.

Liability

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.

Compensated Absences

Vacation, sick leave, maternity leave, and other such employee benefits.

Sick Leave

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.

Vacation Leave

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.

Liability

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.Capital Projects Funds Used to account for financial resources that are used to construct/acquire major, long-lived general capital facilities; examples are buildings, highways and bridges, and storm water drainage systems.

Bond Anticipation Notes (BANs)

These are used when there is a time lag in issuing an approved bond issue when cash is needed immediately to start the project; interest rates on the decline, so postponing issuing bonds will save the government money.

Arbitrage

The difference in the amount earned on investing bond proceeds and amount paid in interest on the bonds -- since most governments issue tax-exempt debt, this amount can be significant.Debt Service Funds To account for the accumulation of resources for, and the payment of, general long-term debt principle and interest; required only if legally mandated or financial resources are being accumulated for principle and interest payments in future years.

Time Warrants

A fancy name for post-dating a check

Notes

Typically less formal than bonds, but similar.

Warrants

Promises to pay.

Fiscal Agents

The people that do all of the administrative duties associated with bonds, such as processing interest and principle payments.

Funded Reserves

Highest year's principle and interest; this gives bondholders additional assurance of prompt payment.

Debt Service Payments

A feature of bonds that tries to limit fluctuations.

Bond Ratings

Aid in determining interest rates and reserves; may assist in issuance of bonds.

Bond Insurance

Helps lower interest rates and reserves; may assist in issuance of bonds.

Interest

This is not accrued in the debt service fund at year end UNLESS resources for payment have been received by year-end AND payment is due within the first month of the year.

Callable Bonds

Provision in outstanding bonds to retire bonds early.

Refunding Bonds

Using new bonds to substitute for old bonds.

GASB Definition for "Refunding"

Issuing new debt whose proceeds are used to repay previously issued "old" debt.

Current Refunding

New debt proceeds used to repay old debt immediately.

Advance Refunding

New debt proceeds placed with escrow agent and invested until used to pay old debt principle and interest in the future.

Certificates of Participation (CoPs)

Divide leases into shares that are sold to investors. (can take a capital lease and divide it into shares)

Fund Financial Statements

Detailed presentations of fund financial position, operating results, and (for proprietary funds) cash flows.

Government-Wide Financial Statements

Condensed consolidating overview presentations of the SLG's net assets and activities.

Management's Discussion and Analysis (MD&A)

A brief analysis and discussion by the SLG's management of, for example, its financial statements, its schedules, and any known event or situation that is expected to impact the SLG in the near future.

Other Required Supplementary Information (RSI)

Such as actuarial information related to the SLGs defined benefit pension plan other postretirement benefits.

Principle 1(Accounting and Reporting Capabilities)

A governmental accounting system must make it possible both (a) to present fairly and with full disclosure the funds and activities of the governmental unit in conformity with GAAP and (b) to determine and demonstrate compliance with finance-related legal and contractual provisions.

Financial Assets

In governmental funds, this refers primarily to cash, investments, and receivables.

Related Liabilities

In governmental funds, this refers primarily to general government liabilities that are related to the current year and are normally paid from available expendable financial asset.

Fund Balance

In governmental funds, this refers to the net financial assets of the fund--the difference between its financial assets (FA) and related liabilities (RL).

General Capital Assets and General Long-Term Liabilities

Nonfund Accounts

"General Government"

The governmental funds and the nonfund accounts are referred to collectively as this.

Proprietary Funds

Are used to account for a government's continuing business-type organizations and activities. All assets, liabilities, equities, revenues, expenses, and transfers pertaining to these business (and business-like) organizations and activities are accounted for these funds. Most of the GAAP are applicable to these funds.

Fiduciary Funds

Are used to account for the assets held by a government in a trustee or agency capacity for the benefit of others, whether individuals, private organizations, or other governmental units. These are not used to report assets held for the benefit of a government's own programs or activities.

The General Fund

One of the 11 types of funds used to account for all financial resources except those required to be accounted for in another fund.

Special Revenue Funds

One of the 11 types of funds used to account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are legally restricted to expenditure for specific purposes.

Capital Projects Funds

One of the 11 types of funds used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary or trust funds). Capital outlays financed from general obligation bond proceeds should be accounted for through this fund.

Debt Service Funds

One of the 11 types of funds used to account for the accumulation of resources for, and the payment of, general long-term debt principle and interest.

Permanent Funds

One of the 11 types of funds used to report resources that are legally restricted to the extent that only earnings, not principle, may be used for principles that support the reporting government's programs--that is, for the benefit of the government or its citizenry.

Proprietary Funds

Are used to account for a government's continuing business-type organizations and activities. All assets, liabilities, equities, revenues, expenses, and transfers pertaining to these business (and business-like) organizations and activities are accounted for these funds. Most of the GAAP are applicable to these funds.

Enterprise Funds

One of the 11 types of funds that may be used to report any activity for which a fee is charged to external users for goods and services.

Internal Service Funds

One of the 11 types of funds used to account for the financing of goods and services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost-reimbursement basis.

Fiduciary Funds

Are used to account for the assets held by a government in a trustee or agency capacity for the benefit of others, whether individuals, private organizations, or other governmental units. These are not used to report assets held for the benefit of a government's own programs or activities.

Pension (and other employee benefit) Trust Funds

One of the 11 types of funds used to account for resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other post-employment benefit plans, or other employee benefit plans.

Investment Trust Funds

One of the 11 types of funds used to account for the external portion of investment pools reported by the sponsoring government.

Agency Funds

One of the 11 types of funds used to report resources held by the reporting government in a purely custodial capacity (assets equal liabilities). These typically involve only one receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments.Measurement Focus (MF) Is on current financial resources--what is expendable

Statement of Revenues, Expenditures, and Changes in Fund Balance

May also be referred to as the operating statement. The format is specified by the GASB.

Current Assets = Current Liabilities + Fund Balance

What is the standard report format (equation) for a governmental & not-for-profit balance sheet?

Reserved and Unreserved

The fund balance of the balance sheet should be divided into what 2 sections?

Unreserved Fund Balance

The part of the fund balance on the balance sheet which may be further divided into Designated and Undesignated funds

Reserved Fund Balance

The part of the fund balance on the balance sheet that indicates that some amounts are not available for appropriation or expenditure. The creation of this requires action by governing council. Examples: encumbrances, petty cash, inventories, advances.

Operating Statement Format

Revenues - Expenditures = Excess (Deficiency) of Revenues Over (Under) Expenditures +- Other Financing Sources (Uses), including Transfers (detailed) +- Special and Extraordinary Items (detailed) = Net Change in Fund Balances +- Fund Balances at Beginning of Period = Fund Balance at End of Period

Extraordinary Items

Unusual AND infrequent; major casualty losses, expropriations, prohibitions, and gains and losses on early retirement of debt.

Special Items

Unusual OR infrequent AND under the control of management.

The Budgetary Schedule (Statement)

Financial statement where must show the original budget, the final budget, the actual on a budgetary basis (difference between budgetary and GAAP basis must be explained on face, in notes, or with statement). Most also include a variance column. Alternate format allowed if government does not budget on a fund basis.

Balance Sheet, Operating Statement, and Budgetary Statement

What are the three major financial statements?

Fund Balance

Means "Net Financial Assets," that is, fund Financial Assets (FA)--Cash, investments, receivables, and other financial assets less any fund related liabilities. This is the proper context of the terms "current assets" and "current liabilities" in governmental fund accounting and financial reporting.

The General Fund

Is used to account for all financial resources that are not restricted to specific purposes or otherwise required to be accounted for in another fund. This is established at the inception of the government and exists throughout the government's life.

Special Revenue Funds

Are established to account for general government financial resources that are restricted by law or contractual agreement to specific purposes. These exist as long as the government has resources dedicated to specific purposes.

Encumbrances

Are recorded when purchase orders are issued or contracts signed for goods and services. When the actual expenditure occurs, this entry is reversed and the actual expenditure is recorded.Susceptible to Accrual Recognize only revenues that are ________; recognize others on a cash-basis.

Susceptible to Accrual

To be this, it must be BOTH objectively measureable AND legally available (usable) to finance current period expenses.

Licenses and Permits

Has two categories: 1.) Business (alcoholic beverages, health corporations, utilities, professional, occupational, and amusements) and 2.) Non-business (building, vehicles, driver licenses, hunting and fishing, marriage, burial, and animal. Rates are established by ordinance and adjusted periodically.

Capital Grants

Solely for capital purposes; airport improvements, buses, subway systems, wastewater treatment plants.

Operating Grants

All grants besides capital grants; ex: operation of social welfare programs.

Grants

At some point are going to become revenues. Main thing to look for with these is whether or not there are restrictions.

Entitlements

Portions of appropriations allocated among governments based on relative populations (or some other measure)

Shared Revenues

Varies in amount each period (depending on collections) and allocated based on some formula or underlying transaction.

Charges for Services

Result from goods and services provided to the public, or other departments or other governments. When dealing with other departments, must distinguish between reimbursements and interfund service transactions. Recognize this when it is provided.

Fines and Forfeits

Usually not that big of a source of revenue. Revenue usually recognized on a cash basis. Large fines may be accrued.

Payments in Lieu of Tax

What does PILOTs stand for?

Escheats

State law indicates when property of people dying intestate (means they did not prepare a will), in active checking and other accounts, or other property must pass to the state. Property so received is a revenue to the state. Capital assets should be recorded in General Capital Assets at fair value.

Prospective

Affects only the current and subsequent years.

Retroactive

Requires restatement of prior years or computation of cumulative affect.

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