What are the two types of governments?
-General Purpose: Offer a variety of services, state/city
-Special Purpose: Offer a special (1 or limited) services, school, water/sanitation, fire protection, MSCD, etc.
Non-governmental Not-for-Profit, legally separate entities, are often corporations
How do gov'ts and NGNFPs differ from businesses?
-No profit motive
-No private ownership, therefore no transferability of ownership
-Resource providers don't expect a commensurate return
How do gov'ts and NGNFPs differ from eachother?
-Who they're accountable to
-Govts have taxation power, NGNFPs have to ask for money
Who sets the accounting standards for the federal government? State and local?
-FASAB: Federal Acctg Standard Advising Board
-GASB: Gov'tal Accounting Standards Board
*FAF: Financial Accounting Foundation oversees FASB & GASB
What is a government's emphasis and objectives in financial reporting?
Emphasis: Stewardship & Accountability
-Assess financial condition & results of operations
-Compare results with legally adopted budgets
-Determine compliance with laws & regulations
-Assess operational efficiency & effectiveness
What are the objectives in financial reporting for a NGNFP?
-Assess economic resources, obligations, net resources, & changes in net resources
-Make resource allocation decisions
-Assess services & our ability to provide them
-Assess management stewardship & performance
-Mgmt reviews in order to make decisions
-The cornerstone of all financial reporting in government
-Arises from the citizenry's right to know
-Duty is imposed upon govt officials to be accountable (b/c elected by the citizens)
How does the fund accounting model regard funds?
funds are separate entities & have their own self balancing set of accountings
GASB Statement #1
Sets out the requirements for "general purpose" external financial reporting based in the concept of accountability:
1. Govt wide financial statements (new)
2. Fund-based financial statements (old)
What is a CAFR? What are its three sections?
-Comprehensive Annual Financial Report - is prepared by state and local governments as a matter of public record
2. Financial (Includes the GASBS 34 requirements)
Sets out minimum requirements for general purpose financial reporting:
1. MD&A (Management's Discussion and Analysis): required supplementary information (RSI) in narrative form
2. Govt Wide Financial Statements
3. Fund Financial Statements
4. Other RSI (e.g. schedule of comparison of budget to major special rev funds)
How are expenses and revenues handled for Government-Wide Reporting?
-uses accrual basis
-Expenses: reported by either function or program and are either direct or indirect
-Revenues: reported as program or general
-Program revenues are reported with direct expenses, shows Net Expense/Revenue from programs
-General revenues: taxes, extraordinary/special items of income
Extraordinary / Special items:
-Extraordinary: both unusual and infrequent and beyond management's control
-Special: Either unusual or infrequent and within management's control
Change in net assets:
+/- from beginning net assets to ending net assets
What are the basic financial statements?
1. GOVT WIDE FINANCIAL STATEMENTS:
a) Statement of Net Assets
b) Statement of Activities
2. FUND FINANCIAL STATEMENTS:
a) Balance Sheet (Govtal Funds & Proprietary Funds)
b) Statement of Revenues, Expenses, & Changes in Fund Net Assets (Govtal Funds & Proprietary Funds)
c) Statement of Cash Flows
Whether current-year revenues are sufficient to pay for services provided that year and whether future taxpayers will be required to assume burdens for services previously provided
Govt Wide Financial Statements
Intended to provide an aggregated overview of a govt's net assets and changes in net assets, assist in assessing operational accountability. Similar to for-profit accounting statements, uses accrual basis.
Whether the govt has used its resources efficiently and effectively in meeting operating objectives. Focuses on the flow of economic resources.
What do Fund Financial Statements do/report?
Assist in assessing whether the govt has raised and spent financial resources according to the budget.
-Govtal funds focus on fiscal accountability & ST flow of financial resources
-Proprietary & Fiduciary funds account for the business-type and fiduciary activities of the govt.
-Legally separate organizations for which the elected officials of the primary govt is considered financially accountable
-Are usually discreetly presented in GW funds
-Notes should contain a brief description of the unit
-Used in Fund financial statements
-Revenues are recorded only if they are measurable and available for paying current period obligations.
-Expenditures are recognized only when will be paid from currently available resources
Measure of the cost of services provided (GW funds)
Amount of financial resources used to acquire an asset
Activities done by the govt, often intended to be self supporting in the revenues they collect
When the govt acts in a fiduciary capacity for parties outside the govt
Primary government (GASB definition)
A state or general purpose local government or special purpose govt with a separately elected governing body that is legally separate and fiscally independent of other state and local govts
Where are GW & Fund financial statements integrated?
The total fund balances of govtal funds and changes in fund balances must be reconciled to total net assets and changes in net assets of govtal activities reported in the GW statements
Where are internal service funds reported?
In the proprietary funds category in fund based statements, but are included as part of govtal activities in the GW statements
How are fiduciary activities reported?
In the fund-based statements only. They are not reported in the GW statements b/c the resources cannot support govtal services
Current-period financial position and budgetary compliance reported in fund-type financial statements
separate fiscal entity with its own resources, liabilities, and operating activity for the fiscal period
What are the three fund categories?
Governmental, Proprietary, Fiduciary
What are the types of Governmental funds?
1. GENERAL: Accounted for here unless required to be accounted for elsewhere
2. SPECIAL REVENUE: for revenues or gifts legally restricted for particular operating purposes
3. DEBT SERVICE: accounts for financial resources segregated for the purpose of making principal and interest payments on general long-term debt
4. CAPITAL PROJECTS: to account for revenues or bond proceeds earmarked for a capital project as well as payments for capital projects (buildings, highways, bridges, parks)
5. PERMANENT: when a donor stipulates that principal must be invested and saved, but earnings can be used for public purpose
-Only funds that focus on fiscal accountability
Current financial resources
cash or items such as receivables that will be converted into cash during the current fiscal period or available soon enough after the end of the period to pay current-period liabilities (60 days is common, but varies)
-Taxes must be collected within 60 days to be considered available
Fund balance, or the difference between current assets and current liabilities (or, amt of financial resources and liabilities recorded)
What are the types of Proprietary funds?
1. INTERNAL SERVICE: provide services within the govt on a cost-reimbursement basis
2. ENTERPRISE: A fund established to finance and account for the acquisition, operation, and maintenance of governmental facilities and services that are entirely or predominantly self-supporting by user charges; or for when the governing body of the govt has decided periodic determination of revenues earned, expenses incurred, and/or net income is appropriate. (e.g. Governmentally owned utilities and hospitals)
What are the types of Fiduciary funds?
1. AGENCY FUNDS: Used when the govt holds cash on a custodial basis for an external party, no net assets (e.g. collects taxes for another govt)
2. TRUST FUNDS: differs in the length of time and manner in which held
-Pension trust: assets in trust to provide retirement benefits for employees
-Investment trust: used to report the equity of external participants in a sponsoring govts investment pool
-Private-purpose trust: to benefit private individuals, e.g. scholarships for certain people
What is the general equation for the GW Stmt of Activities?
Expenses - Program Revenues = Net (Expense) Revenue
What are in/direct expenses?
-Direct expenses: those that are specifically associated with a function or program, reported on the line for that function or program (e.g. depreciation)
-Indirect expenses: those that are not directly linked to an identifiable function or program. If general LT liabilities, then has its own separate line item
Compare how program and general revenues are reported.
-Both are reported in the GW Statement of Activities
-Program Revenues: reported in the functions/programs section of the Statement of Activities
-General Revenues: are not directly linked to any specific function or program and thus are reported in a separate section in the lower portion of the statement (taxes are always general revenue)
What are the program revenue types?
-CHARGES FOR SERVICES: Charges to customers for govtal and business-type activities (e.g. licenses, permits, snow removal)
-OPERATING GRANTS & CONTRIB: only if specifically identified in the grant award or application for operating
-CAPITAL GRANTS & CONTRIB: same as above, but for capital
*taxes are always general revenue
Extraordinary v. Special Items:
-Reported as separate line items below General Revenues in the Statement of Activities
-Extraordinary: Are both unusual and infrequent and outside management's control
-Special: Are either unusual or infrequent and within management's control
"Other financing sources" in the General Fund
Transfers into a fund and debt issue proceeds received
How is depreciation expense handled in the General Fund?
-upon purchase, an expenditure is recoreded for the full cost
-the cost is also recorded as a capital asset of govt activities at he GW level with depr expense as an adjusting entry at year-end
Journal: tax levy expected to be collected 60 days after the year end
CR: Deferred Revenues (current liability)
DR: Deferred Revenues
What are some examples of Fund Equity Accounts?
Reserved fund balances, unreserved fund balance, budgetary fund balance
-Operating Statement: Revenues, Expenditures, Other financing sources/uses
-Budgetary Accounts: Estimate revenues, Appropriations, Encumbrances, Est. other financing sources/uses
What are the two points to remember regarding subfund equity temporary accounts?
Operating Statement & Budgetary accounts - used in Govtal Funds
1) Both are closed out to the fund balance at the end of the year;
2) Each operating statement account has a budgetary counterpart (e.g. Revenues and Estimated Revenues, etc.)
Have normal balances that are the opposite of the corresponding operating statement accounts
-e.g. Revenues has normal credit bal, Est Revs has a normal debit bal; Encumbrances & Expenditures both debit
Legal authorization to expend cash or other financial resources for goods, services, and facilities to be used for specified purposes, in amounts not to exceed those authorized for each purpose.
-Is "expended" once used up
How are expenditures classified?
-FUND: Primary classification
-FUNCTION or PROGRAM: a major service activity, e.g. public safety
-ORGANIZATIONAL UNIT: department performing a major service activity, e.g. police
-ACTIVITY: A specific and distinguishable line of work performed by an organization unit
-CHARACTER: based on the fiscal period that benefits from a particular expenditure
-OBJECT: Typically, line items
Two types of taxes:
-AD VALORUM: based on value, e.g. property taxes, b/c based on the value of the property
-SELF ASSESSING: e.g. sales & income, b/c have a choice to buy (sales) and are self reporting (income)
What are the primary revenue sources?
Taxes (Ad Valorum & Self Assessing)
Special assessments (for needs of a group)
Licenses & permits
Fines & forfeits
Charges for services
Misc. (sales proceeds, investment income, etc.)
Valuation process of each parcel of taxable real property
How is the budget for property taxes set?
1) Either value is multiplied by the tax rate
2) Amt assessed is determined by the amount needed and allocated accordingly
When is interest revenue accrued?
At the time the financial statements are prepared.
What is the journal entry for the first transaction made at the beginning of any budgetary period?
-In fund-based statements only.
-Subsidiary ledgers would break down what source we expect revenues to come from as a debit
DR: Estimated Revenues
DR/CR: Budgetary Fun Balance (to balance)
What is the journal entry to record any cash received?
DR: Cash & CR: Revenues - Fines & Fees
DR: Cash & CR: Revenues
**SUBSIDIARY: Break down source as a credit