47 terms

Governmental Accounting

F8
STUDY
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Name the primary authoritative body for GAAP for governmental entities.
Governmental Accounting Standards Board (GASB)
What are the three accounting themes addressed by governmental accounting?
-Fund structure
-Fund accounting
-External reporting
Identify the major categories of funds used by state and local governmental units.
-Governmental
-Proprietary
-Fiduciary
What are the elements of fund accounting?
-Measurement focus
-Basis of accounting
what are the elements of external reporting?
-Operational accountability
-Fiscal accountability
What types of external reports meet the accountability objectives of government?
-Operational accountability: Government-wide financial statements
-Fiscal accountability: Fund financial statements
Name each governmental fund type
G General fund
R special Revenue funds
a
S debt Service funds
P capital Projects funds
P Permanent funds
What are the fund accounting principles applicable to governmental funds
basis of accounting: Modified Accrual
measurement focus: Current financial resources
What specialized accounting practices are followed by the governmental funds?
Budgetary Accounting
Activity (Actual) Accounting
Encumbrance Accounting
Name and define the five classifications of fund balances used by governmental fund types.
Nonspendable: Resources that are not available to be spent (e.g. inventories)

Restricted: Resources that are constitutionally, legislatively or otherwise externally limited as to use.

Committed: Resources that are internally limited as to use by the governments highest level of decision making authority.

Assigned: Resources intended to be used by the government for specific purposes whose constraints do not rise to the level of restricted or committed.

Unassigned: Residual classification of equity that represents resources that are least limited as to use.
Name each proprietary fund type.
internal Service funds
Enterprise funds
What are the fund accounting principles applicable to proprietary funds?
Basis of accounting: full accrual
Measurement focus: economic resources
Name each fiduciary fund type.
Pension (and other employee benefit) trust funds
Agency funds
Private-purpose trust funds
Investment trust funds
What are the fund accounting principles applicable to fiduciary funds?
Basis of accounting: full accrual
Measurement focus: economic resources
Distinguish between alternative measurement focuses.
Current Financial Resources (GRaSPP)
-No fixed assets are recorded,, capital outlays desplayed as expenditures
-No depreciation
-No non-current liabilities are recorded, debt proceeds displayed as resources inflows
-Principal payments displayed as an expenditure
-Premiums and discounts on debt are not amortized, they are included as an increase or decrease of debt proceeds
Economic resources (SE PAPI)
-Fixed assets are recorded
-Non-current liabilities are recorded
Define modified accrual and list the funds that use it as a basis of accounting.
Define: Revenues should be recognized when measurable and available; expenditures recognized when fund liability is incurred.

Funds using modified accrual basis:
General fund
special Revenue funds
a
debt Service funds
capital Project funds
Permanent funds
What do the terms "measurable" and "available" mean in the context of the modified accrual basis of revenue accounting?
Measurable means reasonably estimable or of a known determined amount.

Available means collectible within (generally) 60 days of year end.
When are revenues recorded in governmental funds?
Governmental funds record revenues when measurable and available. This concept applies to accrual of different types of revenues depending on their character.

Accrue when:
Billed/Recorded (imposed non-exchange transactions)
Reals estate taxes (due)
Received (Derived non-exchange transactions)
income taxes
sales taxes
Earned (government mandated and voluntary non-exchange transactions)
Real estate taxes paid in advance
Restricted grants
Define the different classifications of expenditures.
Expenditure classifications include:
-Function (e.g., public safety)
-Organizational unit (e.g., police department, fire department, etc.)
-Activity (e.g., drug enforcement, highway safety patrol)
-Character (e.g., current, capital outlay, debt service, intergovernmental)
-Object (e.g., personal services, building occupancy, insurance)
What is the journal entry to record the annual budget?
DR Estimated revenues
CR Appropriations
CR Unreserved fund balance

Actual expenditures have a natural debit balance. Appropriations to which those expenditures are compared have a natural Credit balance. Computation of unexpended appropriations is a pure arithmetic sum of these two accounts.
Define encumbrance and give the journal entry to recognize a purchase order on supplies.
Definition: A commitment related to an unperformed contract for goods or services. (Generally an open purchase order.)

DR Encumbrance
CR Reserve for encumbrance

Encumbrances have a natural debit balance. Appropriations, to which those encumbrances are compared, have a natural credit balance. Computation of unencumbered appropriations is a pure arithmetic sum of these two accounts. Computation of unexpended and unencumbered appropriations is the sum of the three accounts: Appropriations (credit), Expenditures (debit) and Encumbrances (debit).
What journal entries are made to record the liabilities incurred associated with previously encumbered funds?
DR Expenditure
CR Accounts Payable
DR Reserve for Encumbrance
CR Encumbrance

The entries serve to reverse the full effect of the encumbrance entry and record the full amount of the expenditure. (BAE-BAE)
When the budgetary, actual or encumbrance entries combined?
NEVER

Budgetary, actual and encumbrance transactions are always segregated on the books. Do not net

B B
A A
E E

At the beginning of year: Book Budget
Throughout the year: Book Actuals, book Encumbrances
At year end: Close the Budget, Close the Actuals
close the Encumbrances
What are the closing budget, activity and encumbrance journal entries?
DR Revenues
DR Unreserved fund balance Activity
CR Expenditures
DR Appropriations
CR Estimated revenues Budget (Deficit)
CR Budgetary fund Balance
DR Reserve for encumbrance Encumbrance
CR Encumbrances

At the beginning of the next year, the above encumbrance entry is reversed. The entry will keep the Reserve for Encumbrance intact in order to account for resources spent in the next year that would have been budgeted in the current year.
Journal entry to recognize supplies remaining at year end.
Purchase method:

DR Supplies on hand inventory
CR Fund balance, non-spendable

This journal entry indicates that these supplies are not available spendable resources.

Consumption method:

No entry may be needed as supplies were debited to inventory and then recognized as expenditures as they were used. A corresponding entry changing the related non-spendable classification of fund balance should have been done as each use of inventory was recorded.
What is the purpose of the general fund?
The general fund is created at the beginning of the governmental unit and it exists throughout the life of that unit. The general fund accounts for the general activities of a governmental unit that are not accounted for by any other fund.

The general fund is always a major fund.
What are the typical revenue sources of the general fund?
-taxes
-public safety and regulations (fines, inspection fees, etc.)
-Intergovernmental (shared revenues)
-Charges for services
-other revenues (interest income)
What is the purpose of the special revenue fund?
Special revenue funds account for revenues and expenditures that are restricted or committed for specific purposes. The life of a special revenue fund may be limited or unlimited.
What are the typical revenue sources of a special revenue fund?
-Intergovernmental revenues (e.g., sales taxes or gasoline taxes restricted for use)
-Intergovernmental revenues (e.g., grants and other financial assistance provided for a specific purpose)
-Specific fees (e.g., parking fees, museum admission fees, etc.)
-Seizure of assets surrendered as a result of illegal acts (e.g., Forfeiture Act)
What is the purpose of the debt service fund?
-The debt service fund is created to account for the accumulation of restricted, committed or assigned resources (cash and investments) for the payment of currently due interest and principal on long-term general obligation debt.
-Debt service funds pay GRaSPP debt
-Debt service funds do not pay SE PAPI debt
What are the typical components of revenue and other financing source classification for debt service funds?
Revenues
-Investment income
-Taxes levied specifically for debt repayment
Other financing sources
-Transfers from other funds to meet bond indenture requirements
-Debt proceeds associated with refunding debt
What is the purpose of the capital project fund?
Capital project funds are established to account for resources restricted, committed or assigned for the construction or purchase or leasingof significant fixed assets used by the governmental (GRaSPP) funds. Capital projects funds are not used for propprietary (SE) or fiduciary (PAPI) funds.
What are typical components of revenue and other financing source classifications for capital project funds?
Revenues
-Investment earnings
-Tax revenues specifically levied to fund capital improvement
Other financing sources
-Debt proceeds used to fund construction
-Transfers from other funds
What is the purpose of the permanent fund?
Permanent funds are used to report resources that are legally restricted to the extent that only earnings and not principal may be used for the purposes that support the reporting government's programs.
What is the purpose of the internal service fund?
Internal service funds are established to finance and account for services and supplies provided exclusively to other departments within a governmental unit or to other governmental units, typically on a cost-reimbursement basis.

Major fund reporting requirements do not apply to internal service funds.
What are typical revenue sources for internal service funds?
Operating Revenues
Charges for services provided to other funds. (These charges are NOT transfers or other financing sources.)
Nonoperating Revenues
-investment income
-Grant revenues
What is the purpose of the enterprise fund?
Enterprise funds are used for operations that are financed and operated in a manner similar to private business enterprises. Activities should be reported in enterprise funds if the activity is funded by debt secured by a pledge of net revenue from fees and charges, laws require that activity fees be recovered through fees, or fees are designed to recover costs.
What are typical revenue sources for enterprise funds?
Operating Revenues
Charges for services (utility fees, patient fees, tuition, other exchange type fees)

Non operating Revenues
Shared/grant revenues
Investment income
What is the purpose of the pension trust fund?
Pension (and other employee benefit) trust funds account for government sponsored defined benefit and defined contribution plans and other employee benefits such as post retirement health care benefits.
What are the unique note disclosure and required supplemental information reporting associated with pension funds?
Note Disclosures
Plan description
Contributions and reserves
Risk concentrations
Required Supplementary Information
Schedule of funding progress (last 6 years)
Schedule of employer contributions (last 6 years)
Notes to support the schedules
What is the purpose of the agency trust funds?
An agency fund collects cash to be held temporarily for an authorized recipient to whom it will be later disbursed. This recipient may be another fund or some individual or fund or even government outside of the reporting government.
What is unique about agency fund revenues and expenses?
Agency funds do not report revenues and expenses, only assets and liabilities.
What is the purpose of the private purpose trust fund?
The private purpose trust fund is the designated fund for reporting all other trust arrangements under which principal and income are for the benefit of one of the following: specific individuals, private organizations and other governments.
What is the purpose of the investment trust funds?
Investment trust funds account for external investment pools sponsored by a governmental entity.

Example: A state may act as the investment agent for counties and cities. The investments "external" to state government, those administered on behalf of the counties and cities, are reported in an investment trust fund.
What are the required fund financial statements for the individual governmental fund types?
GRaSPP Funds require:

Balance Sheet
Statement of Revenues, Expenditures and Changes in Fund Balance
What are the required fun financial statements for the individual proprietary fund types?
SE funds require:
-Statement of Net Asset
-Statement of Revenues, Expenses and Changes in Fund Net Assets
-Statement of Cash Flows
What are the required fund financial statements for the individual fiduciary fund types?
Most PAPI funds required:
-Statement of Fiduciary Net Assets
-Statement of changes in Fiduciary net Assets (Note: Agency funds (the "A" in PAPI) do not require this statement)
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