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Governmental Accounting CH 2
Terms in this set (21)
A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations.
Most funds are established based on specific legal requirements
Three Categories of Funds
Governmental‑type funds definition
-Governmental‑type funds are used to account for most of the day‑to‑day public services provided by state and local governments. (such as, public safety, elementary, secondary education, health, sanitation, etc).
-Governments finance these services primarily by collecting taxes on various revenue bases, such as real property values, general sales and specific types of sales (such as cigarettes and motor fuel), and personal incomes.
-They are controlled by legally adopted budget.
Proprietary type (or business‑type) funds
-Are used to account for governmental activities that operate in a manner similar to that of private‑sector businesses in the sense
that they charge fees for services and measure whether their revenues will cover their expenses. (e.g. municipal hospitals, electric and water utilities, mass transit facilities, parking facilities, and lotteries)
-Financed primarily by user fees or charges that cover both operating and capital costs
Fiduciary type funds
Used to account for resources that governments hold in a trust or custodial capacity for others. "Others" might be individuals, other governments, or private organizations.
Because they are held for others, the resources in fiduciary funds cannot be used to support the government's own programs
Basis of Accounting
Five types of governmental funds are used to account for the day‑to‑day operating services provided by state and local governments:
-The General Fund,
- Special Revenue Funds,
- Debt Service Funds,
- Capital Projects Funds, and
- Permanent Funds.
All governments have a single General Fund; most governments use one or more Special Revenue Funds, Capital Projects Funds, and Debt Service Funds; and some have Permanent Funds
it encompasses government's basic day‑to‑day operations.
-Taxes on real property, sales, and personal or corporate income
-Licenses, fees, forfeitures, and fines
-Long-term borrowing (other financing source)
-Transfers in from other funds (other financing source)
General Fund - Resources used for
-Minor or smaller capital outlays
-Transfers out to other funds (other financing use)
Special Revenue Funds
Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted or committed to spending for specified purposes other than debt service or capital projects.
The source are specific taxes, fees and grants. Need to disclose in the notes to FS the purpose and revenues and other sources.
Capital Projects Funds
-Used to account for financial resources restricted or otherwise limited to spending for capital outlays
*Acquisition or construction of capital facilities or other capital assets
-NOT for capital-related outflows financed by proprietary fund or fiduciary type trust funds
*Enterprise Fund or Internal Service Fund
issue to ensure transparency.
Capital Project funds other facts
-Required to use if capital outlays financed from general obligation bond proceeds
*Many capital assets are acquired through the
General Fund and general obligations bonds are not issued.
-Separate fund per project or bond
-No capital assets or long-term debt reported in CPF
*Proceeds from long-term borrowing reported as an other financing source
Capital Project Funds Common funding sources
-Bond proceeds (other financing source)
-Transfer in from other funds (other financing source)
-Some governments finance part of their capital projects from taxes and fees.
Debt Service Funds
Funds used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest on general long term debt.
Debt Service Fund Required to use when
-Legally mandated, or
-Financial resources being accumulated for principal and interest payments that come due in future years
Used to report resources that are legally restricted so that only the earning, and not principal itself, may be used for purposes that support the government's programs benefiting citizens or the government. Permanent Funds do not include private purpose trust funds, which are Fiduciary type funds.
Two types of Proprietary funds
Enterprise - Resources used to supply goods and services, for a fee, to users who are entirely or
primarily external to the government Examples: Municipal airport, municipal electric utility, mass transit
Internal Service - Resources used to supply goods or services, based on cost reimbursement, within the government itself and to other governments
Examples: Central motor pool, central purchasing function
Internal Service Funds
-Used for activities where goods/services sold for a fee
To reporting government (its agencies, departments, other funds, component units) or other governments
*Reporting government must be predominant participant
*If not predominant participant, use enterprise fund
*Fee designed to recover cost
-Established for cost savings
*To consolidate support activities performed by several agencies
*To obtain bulk discounts
Internal Service Fund
Separate fund for each activity
Bill other funds for products/services
Revenue to Internal Service Fund
Expenditure/expense to fund receiving products/services
Motor pool operations
Supplies acquisition and distribution
Fiduciary Type Funds
Fiduciary type funds are used to account for the resources held and transactions made by a government in a trust or custodial capacity for other individuals, other governments, or private organizations. Governments should report a fiduciary activity only if a government controls
the assets of that activity.
Types of Fiduciary funds
- Pension (and other employee benefit) Trust Resources held in a trust that meets certain criteria, for employee retirement plans and other employee benefit plans Example: Defined benefit pension plan, retiree health benefit plan
- Investment Trust Resources of an external investment pool managed by a sponsoring government and held in a trust that meets certain criteria Example: The portion of an external investment pool that belongs to other
governments. the assets held must be (a) administered through a trust in which the government itself is not a beneficiary, (b) dedicated to providing benefits in accordance with the benefit terms, and (c) legally protected from the government's creditors.
- Private-Purpose Trust Resources of trust arrangements, other than pension and investment trusts, that meet certain criteria Example: Unclaimed (escheat) property, such as bank accounts, investment accounts, and other property held pending claim by rightful owners
- Custodial Fiduciary activities other than those required to be reported in pension, investment, or private-purpose trusts. Examples: Sales or property taxes collected by a government on behalf of another government, Social Security taxes withheld from employees and kept
separately pending distribution to the federal government
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