Accy 407 Final Exam
CAFR Statistical Section
-5 categories included: financial trends, revenue capacity, debt capacity, demographic and economic, operating information -most recent 10 years of data should be presented
Special Assessment Debt Service Funds
-Account for debt service for special assessment debt in a debt service fund when government is obligated for debt -If government is not obligated, a custodial fund is used to account for both debt and debt service
Accounting Characteristics of proprietary funds
-Accrual basis: Capital assets and long-term liabilities recorded within funds, depreciation expense and accumulated depreciation are reported -Flexible budget (different outputs) rather than fixed recommended: budgetary accounts not integrated into general ledger (similar to for-profits)
Internal Service Funds Accounting Procedures
-Billings to Departments = revenue (similar to Sales) -revenues/expenses closed at year-end to Excess of Net Billings to Departments over Costs (or Excess of Costs over Net Billings to Departments) rather than to Income Summary
Useful Information
-GASB Concepts Statement 3: where and how to present useful information -recognition in financial statements, disclosures in notes, presentation as required supplementary information, or presentation as supplementary information
General Long-term Liabilities
-LT liabilities that arise from governmental funds (not proprietary/fiduciary) -reported in Governmental Activities column of statement of net position -not reported as liabilities for general fund (current asset focus) -if debt reported in a proprietary or fiduciary fund, also has general obligation ("full faith and credit") backing -contingent liability should be disclosed in notes
GAAP for Nongovernmental NFPs
-NFP audit and accounting guide of the AICPA provides guidance on how to differentiate a governmental from a nongovernmental NFP -FASB = accounting standard setters for non governmental NFPs (FASB ASC Topic 958)
Joint Costs of Fundraising
-NFPs conduct activities that combine program or administrative activity with fundraising -FASB guidelines for allocating joint costs: 1. total cost of activities should be reported as fund-raising costs unless a bona fide program has been conducted in conjunction with appeal for funds 2. joint costs should be allocated between function and fundraising with equitable allocation base 3. criteria of purpose, audience, and content must be met in order to conclude that program/management and general function has been conducted in conjunction with appeal for funds
Reclassification
-Net Assets Released from Restrictions- reclassification of support with donor restrictions to support without donor restrictions when donor stipulations are met -reclassifications may be due to: satisfaction of program/purpose restrictions, satisfaction of equipment acquisition restrictions, and satisfaction of time restrictions (either actual donor or implied restrictions) -expenses decrease net assets without donor restrictions
Net assets classification
-Net Assets with Donor Restrictions: donor imposes restrictions that may be permanent or temporary (permanent restrictions = endowments; temporary restrictions = time, purpose) -Net Assets without Donor Restriction: includes Board designated Net Assets (set aside for specific purposes by governing board, not an external donor)
Investments
-Purchase investments: Acquisition price or fair value -Donated investments: Fair market value on date of donation -Reporting periods (fiscal year end): Fair market value at measurement date -Category classification: Not required -Realized and unrealized gain or loss: Reported on current period's statement of activities, Affects appropriate net asset account (net asset with donor restrictions OR net assets without donor restrictions) -Footnotes: Detailed disclosures
objectives of financial reporting for federal government
-accountability -FASAB standards are for both internal (executive branch) and external users (citizens)
Preparation of government-wide financial statements at year-end requires
-adjusting entries to record depreciation and accrual of interest receivable and payable -entries to close all revenues and expenses -entries to reclassify, as necessary, Net Position—Unrestricted to Net Position—Restricted and Net Position—Net Investment in Capital Assets
Expenses
-all expenses reported as decreases in net assets WITHOUT donor restrictions -use functional classifications: program (goods/services that help achieve the mission of NFP) and support (assist NFP in carrying out its mission- fundraising, management)
Lease Agreements
-all leases are accounted for in same way EXCEPT short-term leases (rent expense) -governmental fund lease payments: expenditures for the period -government-wide: lessees must recognize a lease liability and an intangible right-to-use lease asset
Accounting for term bonds
-amount budgeted for revenues or inter-fund transfers-in: amount needed for interest paid during year + amount budgeted for sinking fund -sinking fund investments reported at fair value at year end and changes in fair value reported as investment earnings
Collections Items
-art, historical treasures, etc. -NFPs can recognize or not recognize collections- selective capitalization not allowed -recognized: record at cost if acquired and at fair value if contributed, depreciation not recorded if estimated useful life is extraordinarily long -not recognized: assets must be held for public exhibition/education/research for public interest; protected, unencumbered, and preserved; proceeds from sale of collection are to be used to acquire other items
Restricted Assets
-assets not available for current operating purposes because donors have limited use to a long-term purpose (capital asset acquisition) are restricted -FASB: restricted assets should be classified separately from current assets on statement of financial position
Enterprise Funds - Restricted Assets
-assets whose use is restricted by contractual agreements or legal requirements -examples: Customer deposits of utilities, assets set aside for repayment of revenue bond principal, reserves for maintenance of plant, and funding of depreciation -although not required by GAAP, ideally liabilities to be paid from restricted assets should be reported separately from liabilities to be paid from unrestricted assets
CAFR Financial Section
-auditor's report -management Discussion & Analysis -basic financial statements (government-wide and fund) -notes to financial statements -required supplementary information other than MD&A (including budgetary comparison schedule) -combining statements and individual fund statements/schedules
NFP Statement of Financial Position
-balance sheet -net assets must be classified as net assets WITHOUT donor restrictions or net assets WITH donor restrictions -flexibility in displaying information is allowed as long as shows total assets, total liabilities, total net assets, and totals for each net asset classifications
Enterprise Funds - Long-term Liabilities
-bonds/other debt repaid from proprietary fund resources are reported as LT debt of fund -bonds whose interest and principal are repaid from revenues of a proprietary fund are called revenue bonds -if bonds primarily or secondarily have general obligation backing, but are being serviced by a proprietary fund, they are treated as revenue bonds, general obligation contingency is disclosed in the notes to the financial statements
Buildings and Improvements Other than Buildings
-building improvements (alterations, renovations, betterments) materially extend useful life or increase value -value of donated land and building established by appraisal
General Capital Assets Financial Statements (Government-wide)
-building: Report in Governmental Activities column of statement of net position as a capital asset, net of accumulated depreciation -long-term liability: Report in Governmental Activities column of statement of net position -depreciation expense: Reported at government-wide level on statement of activities as a pro rata direct expense for each function occupying the building
Support
-category of revenue- receipt of resources in non-exchange transactions where donor derives no tangible benefit from receiver -contributions: support in form of cash, other assets or services (or cancellation of liabilities) -pledges: promise of a contribution
Non-depreciated capital assets
-certain noncapitalized works of art, historical treasures, etc. -eligible infrastructure using the modified approach
Statement of Net Position
-classified statement is prepared (current assets shown in order of liquidity) -net position divided into 3 categories: Net investment in capital assets (value of net capital assets less any outstanding debt related to capital asset acquisitions or construction), restricted (restrictions placed on asset use by external parties through contracts, legal requirements, or donor stipulation), unrestricted (residual after adjusting for the preceding two net position categories)
objectives of financial reporting for state and local governments
-compare actual financials with budgets -assess financial condition and operations -determine compliance with finance-related regulations -assist in evaluating efficiency and effectiveness
Debt margin
-difference between debt limit and amount of debt outstanding subject to the limit -self-supporting debt repaid from user charges (water/sewer) typically are not subject to limit -usually only net debt (debt minus cash available for principal repayment in a debt service fund) is subject to the limit -government may not be able to borrow because they've reached debt limit OR debt limit decreases even if borrowing doesn't change
Gifts in Kind
-donation of materials/services -unconditional gifts in kind: reported at fair value (dr. expense/noncash asset, cr. contribution revenue, ) -donated materials used/consumed in providing services should be reported as part of cost of services
Recognition and Disclosure
-elements that are measurable with sufficient reliability should be recognized in financial statements -elements defined by GASB: Assets, Liabilities, Deferred outflows of resources, Outflows of resources, Deferred inflows of resources, Inflows of resources, Net position -assets + deferred outflows -liabilities -deferred inflows = Net Position -notes should be used to support an item recognized in a financial statement or provide information that is essential to the user's understanding of the item
Capital Projects Funds
-ensure revenues & OFS dedicated to a certain purpose are only used for that purpose -continue to exist until project is completed -record debt incurred to finance project as OFS NOT LT liability -no need for appropriations or estimated revenues, but use of encumbrances is recommended
Financing Sources for General Capital Assets
-expensive acquisitions usually not financed by General/Special revenue fund -financed by tax-supported bonds, grants from other government units (federal/state grants), gifts, special assessment bonds or taxes, capital leases -capital projects fund for money restricted for purchase or construction of capital assets
Debt Service Funds
-financial resources set aside for principal and interest payments -general long-term liabilities -resources may come from Taxes levied by DSF, taxes levied by the GF and transferred to DSF, special assessments -number of DSFs should be held to a minimum (GASB recommends a single DSF for all tax-supported debt serviced by property taxes)
CAFR Introductory Section
-generally not covered by the auditor's report -may present more subjective info (prospective info- forecasts or expectations) -includes Table of contents, Letter of transmittal, Other appropriate material
Retained Percentages
-government holds portion of contractor's fee to cover construction issues (Contracts Payable - Retained Percentage) -payable is reduced when remaining percentage is paid to contractor or used to satisfy construction issues
Project authorization/ preconstruction phase
-included in multiyear capital improvement plan several years before project start -long-term financing -voter approval required for general obligation (tax-supported) bonds or special sales taxes for capital projects (memo entry only for bond/tax authorization) -obtain interim financing (complete architectural and engineering design) -apply for and obtain grants
Enterprise Funds - Plant Construction in Progress
-interest incurred on debt during construction should be capitalized - differs from interest capitalization policy for general capital assets -imputed amount equivalent to interest can be capitalized if a utility's own funds are used for construction- pay this amount for each unit you consume- legislature approves rates that are requested by utilities - may also decline the rates if the service provided isn't good enough
Internal Service Funds External Reporting
-internal service funds are aggregated and reported in separate column in proprietary fund financial statements -NEVER MAJOR FUNDS -government-wide financial statements: reported in Governmental Activities column—interfund activity between internal service funds and governmental funds must be eliminated
disclosures in financial statement notes
-major classes of assets (each class: provide beginning/end of year balances, accumulated depreciation, capital acquisition, sales/disposals, depreciation expense by each function) -general capital assets vs. business-type activities -general policy for capitalizing assets, estimating useful life -disclosure about assets not capitalized
Not-for-Profit Sector
-majority of NFPs are philanthropic and rely on contributions/services of volunteers -some NFPs are designed to serve interest of organizations' members -most are not governments/governmental in nature (minority of NFPs owned/operated by governments)
Popular Reporting
-many groups believe current governmental financial statements are complex and not understandable except to those knowledgeable about governmental accounting -some governments provide simplified, summary reports called "popular reports" -graphical presentation is used to a greater extent than traditional financial statements
Accounting for Debt Service Funds
-modified accrual with exception: interest and principal expenditures recognized in period when legally due -budgetary accounts: no encumbrance- no contracts
Special Assessment Projects
-only specific areas benefit from project -compulsory property tax levies made in specified areas to defray cost of improvements -construction phase of improvement project is accounted for in a CPF -LT debt issued with government commitment for debt = debt service phase is recorded in debt service fund -government is not obligated for special assessment debt issued = receivable recorded in custodial fund
GASB's Recognition and Measurement Attributes Project
-potentially a new concept statement -examines changing from "modified accrual" measurement focus for governmental funds -focus on a "near term" measurement focus
governmental entities
-power rests in hands of the people through election of public officials -empowered by and accountable to a higher level government -taxation powers
Term bonds
-principal matures in lump-sum amount at end -not used as frequently as serial bonds- disadvantages: requires sinking fund (money set aside each year to pay back principal) and investment management, accounting is more complex -bond insurance is unique to municipal bonds
Serial bonds
-principal repayable in equal annual installments over life -resources raised each year approximate debt service requirements - minimal investments, idle cash balances should be invested -self-amortizing: no sinking fund
Pledges
-promises to give an asset -unconditional pledges: depend only on passage of time or demand by promisee for performance- report as support in period the promise is made (after this much time has passed, the asset will be yours) -conditional pledges: depend on occurrence of a specified future/uncertain event to bind promissor (recipient must obtain matching gifts)- do not record these as support until conditions are substantially met
government-wide financial statements
-provide an aggregated overview of a government's net position and change in net position -assess operational accountability -focus on flow of economic resources -accrual basis
Required Supplementary Information (RSI)
-provide information that is essential -place financial statements and related notes in correct context -Examples: MD&A, budget to actual schedules and pension disclosures
Statement of Cash Flows Classifications
-receipt of gifts without donor restrictions = operating -receipt of earnings on net assets restricted for long-term purposes = financing -sale of donated financial asset with no restrictions = operating -acquisition of building/equipment using restricted net assets = investing -noncash/in-kind contributions = NONCASH investing and financing
compared to business organizations
-receive resources from providers who do not expect repayment or proportionate economic benefit back -operating purpose not to generate a profit -absence of defined ownership interests
Construction Work in Progress
-record construction expenditure on projects financed by capital project funds -not depreciated -interest costs incurred during construction not capitalized
Disposition of General Capital Assets
-remove original cost of assets disposed -if only part of a structure is demolished, remove pro-rata share of cost -record in both governmental fund and activities journals
reporting requirements unique to not-for-profits
-report net-assets in two categories (net assets without donor restrictions and net assets with donor restrictions) -report program service expenses separately from supporting service expenses
NFP Statement of Cash Flows
-reported as changes in operating, investing, and financing activities -can use indirect or direct method for operating activities (optional to provide reconciliation of change in total net assets to net cash used for operating activities under direct method)
Reporting Entity
-reporting entity consists of the primary government and all component units for which PG is financially accountable -PG: state government or general purpose local government -Component unit: legally separate organization for which elected officials of PG are financially accountable (not-for-profit organizations, for-profit firms), reported in separate column or by blending component unit's financial information with appropriate fund columns of PG
NFP Statement of Activities
-reports changes in classes of net assets and total net assets for a period of time -changes from revenues, gains, expenses, and losses -within net asset classes additional classifications can be used (operating/nonoperating, earned/unearned) -report expenses by: function (program vs. support) AND natural classification (salaries, rent) on statement of activities or in notes/separate schedule
Operating Statement
-revenues and expenses should be identified as operating or nonoperating (accrual) -operating activities relate to primary functions of proprietary fund -separate subtotals provided for operating information
Other comprehensive basis of accounting (OCBOA)
-some governments maintain internal records on an OCBOA basis -types of OCBOA: cash basis, modified cash basis, and regulatory basis -use of OCBOA does not preclude need to present information similar to that reported under GAAP
Recording Pledges
-unconditional pledges received in less than a year reported at net realizable value (at year end adjust for estimated uncollectible amount) -long-term unconditional pledges- recorded at fair value (determine present fair value of future receipts- difference between pledge amount and fair value is recorded as discount that is amortized as pledges are received)
Other Supplementary Information
-useful but not essential in understanding financial statements and notes. -most found in statistical section of CAFR
Contributions
-voluntary, unconditional, and nonreciprocal transfer of cash/asset to NFP (or settlement/cancellation of liabilities) by another entity -can be unrestricted, time restricted, or purpose restricted -increases net assets with/without donor restriction -contributed services recorded as contributions and asset/expense at fair value if services: create/enhance nonfinancial assets OR specialized skills that would need to be purchased if not donated
capital project grant approval journal entry
-when grant is approved, recognize revenue (no eligibility requirements) dr. Due from Federal Government, cr. Revenues (Program Revenues - Public Works (Capital Grants & Contributions))
Criteria to allocate joint costs (fundraising) met if
ALL 3 MUST BE MET -Purpose: joint activity helps accomplish a program purpose or a management activity -Audience: audience was selected primarily for a program or management purpose rather than ability to make a donation -Content: joint activity motivates audience to action in furtherance of the mission, or meets a management responsibility
Characteristics of useful information
Accountability = responsible Reliability = applies to estimates - should not be BIASED (does not mean that the information is free from error) Relevance = useful to decision making (can confirm that what you believe is right, doesn't necessarily have to change your opinion) Timeliness = happens in same period as current financial events Consistency = comparability over time Comparability = comparing one thing to another Understandability = financial statements should be understandable and accessible by everyone since everyone pays taxes
Accounting for serial bonds
Amount budgeted for revenues or interfund transfers-in: just what is needed that fiscal year for matured principal and interest
Bond Premiums & Discounts
Bond Premium: Government-wide (LT liability, amortized over life of bonds using effective interest method); fund level (premium used to service debt; face value of bonds - OFS in CPF; Premium - transfer to debt service fund: Due to other funds) Bond discount: Government-wide (same as corporate reporting); fund level (Discount - Due from General Fund)
General Capital Assets Financial Statements
Capital Projects Fund: -Major: Include in separate column of governmental funds financial statements -Non-major: "Other Governmental Funds," may also be reported on combining statements—balance sheet; statement of revenues, expenditures, and changes in fund balances
Debt Service Fund Financial Statements
Combining balance sheet Combining statement of revenues, expenditures, and changes in fund balances Note disclosures: future debt service requirements (both for principal and interest) for outstanding debt- Interest to be paid in future periods is not recorded as a liability
types of proprietary funds
Enterprise Funds Internal Service Funds
retained percentage journal entry
Fund & activities: dr. Contracts payable, cr. Cash (95%), cr. Contracts Payable - retained percentage
issuing bonds journal entry
Fund level: dr. Cash, cr. OFS - Proceeds of Bonds dr. OFU - interfund transfer out, cr. Due to debt service fund Activities level: dr. Cash, cr. Bonds Payable, cr. Premium on Bond Payable
receiving bill for capital asset journal entry
Fund level: dr. Encumbrances outstanding, cr. Encumbrances; dr. Construction expenditures, cr. Cash Activities: dr. Construction work in progress, cr. Cash
transfer resources at end of project journal entry
Fund: dr. Fund balance - Restricted, cr. Due to Debt Service fund dr. Due to debt service fund; cr. Cash
major funds
GASB requires separate columns for major funds and a column for "other governmental funds" (general fund, other funds of significant importance, 3-step test: element is >10% of total fund category and 5% of total combined element)
Accounting for General Capital Assets
General & Special Revenue Funds: account for capital expenditures from budget appropriations Capital Projects Fund: account for construction and major capital expenditures Government-wide activities: account for cost and depreciation of general capital assets (capitalize)
types of governmental funds
General Fund Special Revenue Funds Capital Projects Funds Debt Service Funds Permanent Funds
assigned fund balance
INTENT to be used for a specific purpose expressed by governing body or other body with authority (lowest level for all funds besides General Fund)
Accounting for financial resources to service debt
If taxes levied by: -Debt service fund: Record Estimated Revenues in budget entry, use same property tax accounting as for General Fund -General Fund transferred to debt service fund: Record Estimated OFS in budget entry, OFS - Interfund Transfers In for transfer
International Accounting Standards
International Public Sector Accounting Standards (IPSAS) are issued by the International Public Sector Accounting Standards Board (IPSASB)
Direct debt
Obligations that will be repaid by government whose debt is being evaluated
Financial benefit/burden
PG is entitled to organization's resources, is legally obligated to finance organization's deficits, provide financial support to organization, or is obligated in some other manner for organization's debt
Financially Accountable
PG is financially accountable for another organization if: -PG appoints a voting majority of the organization's governing board AND: is able to impose its will on the organization OR Potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. -organization is fiscally dependent on PG: Budget approval by PG, PG levies taxes to fund the organization
Machinery and Equipment
Purchase price and costs to make it ready for use
Enterprise Funds
Reasons for using enterprise fund (if any one of these conditions is met): 1)activity is financed with debt that is secured solely with revenues from activity 2)law/regulation requires that costs of activity, including capital costs, be recovered with revenue from activity, rather than taxes or other revenues 3)Pricing policies are designed to recover costs of the activity, including capital costs -account for services provided to the general public on a user charge basis -When governing body has determined that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes
Statement of Cash Flows
Similarities between GASB and FASB standards: -shows cash flows relating to operating, financing, and investing activities -both sets of standards define cash flows as cash and cash equivalents (time deposits, marketable securities, etc.) Differences between GASB and FASB: -GASB divides financing activities into noncapital, and capital and related financing -acquisition of capital assets is a capital and related financing transaction under GASB rather than an investing activity -interest expense on LT debt is a financing activity under GASB rather than an operating activity -operating activities MUST USE DIRECT METHOD
Financial Statements for NFPs
Statement of financial position, Statement of activities, Statement of cash flows, Notes to financial statements (comparative statements encouraged, not required)
Internal Service Funds Financial Statements
Statement of net position Statement of revenues, expenses, and changes in fund net position Statement of cash flows
Proprietary Fund Financial Statements
Statement of net position (balance sheet) Statement of revenues, expenses, and changes in fund net position (operating statement) Statement of cash flows (differs under GASB)
General Long-term Liabilities Examples
Tax-supported bonds, Long-term warrants, Long-term notes, Capital lease obligations, Unfunded compensated absences: (vacation and sick leave), Unfunded pension obligations, Long-term portion of judgments and claims, Pollution remediation obligations
fund
a separate set of accounts used to account for resources segregated for a particular purpose
internal service fund
account for activities in which goods or services are provided to other departments of the same government for a charge (usually reported with governmental activities in government-wide F/S)
enterprise fund
accounts for activities that involve providing goods or services to the general public for a fee (reported as business type activities)
investment trust fund
accounts for external investment pools in which assets are held for OTHER GOVERNMENTS along with funds of sponsoring government
inflow of resources
acquisition of net assets by the government in current reporting period (like revenues)
deferred inflow of resources
acquisition of net assets that applies to a future reporting period (like deferred revenues)
sinking fund investment journal entry
activities AND fund: dr. investments, cr. cash
serial bond issuance journal entry
activities level: dr. cash, cr. serial bonds payable -bonds usually issued from general fund/capital projects fund
completed building journal entry
activities: dr. Building (construction/architect fees), cr. Construction work-in-progress
property tax revenue
ad valorem (on the value) tax, non-exchange revenue
Land
all costs including taxes and liens assumed and amounts of judgment levied in damages
tax levy
amount billed to taxpayer- maximum % of property value allowed or residual source (expected expenditures - expected other revenue sources = plug- unless > maximum) **amount of revenue needed from taxes / % estimated to collect = amount of taxes to be levied
restricted fund balance
amounts that can be spent only for the specific purposes designated by external providers (creditors, federal government, grant providers), constitutionally, or through enabling legislation (from the state/local legislature)
expenditures flow
appropriations - encumbrances - expenditures - cash disbursement
interperiod equity
are current year revenues sufficient to pay current year benefits or do future taxpayers need to pay for them?
governmental fund financial statements
balance sheet- reconciliation of total fund balances to total net position statement of revenues, expenditures, and changes in fund balances (like income statement)- reconciliation of total changes in fund balances of governmental funds to total changes in net position
costs incurred after acquisition
capitalize costs of additions/betterments (do NOT capitalize replacements/maintenance- unless replacements are partly additions/betterments - prorate cost)
Debt Limit
ceiling on amount of debt that government can borrow that is a statutory % of assessed valuation of taxable property (government sets limit for itself)
encumbrances - if appropriations lapse
close out existing encumbrance accounts and re-establish them next year dr. encumbrances outstanding - 20x1, cr. encumbrances - 20x1 dr. expenditures - 20x1, dr. expenditures - 20x2, cr. cash (show that expenditures have been charged against 20x1 budget)
consumption method
consistent with accrual basis, reports amount of supplies consumed
purchases method
consistent with modified accrual basis, reports total expenditures for supplies purchased during the year, ONLY FOR GOVERNMENTAL FUNDS, typically uses periodic inventory method
committed fund balance
constraints are imposed by highest decision making authority in government (city council committing funds, rainy day/stabilization fund, contractual obligations)
outflow of resources
consumption of net assets by the government in current reporting period (like expenses)
deferred outflow of resources
consumption of net assets that applies to a future reporting period (like prepaid costs)
governmental activities
core governmental services (protection of life and property, public works, parks and recreation, social services) and general administrative support (data processing, finance, personnel)
contributed services journal entry
create/enhance assets: dr. building/equipment, cr. contributions - without donor restriction special skills: dr. salary expense, cr. contributions - without donor restriction
governmental funds common characteristics
current financial resources measurement focus modified accrual basis capital assets and long-term liabilities not recorded
types of fiduciary funds
custodial funds trust funds (pension trust fund, investment trust fund, private purpose trust fund)
program service expenses
directly related to mission of the not-for-profit (should be much greater than supporting service expenses)
grant amount fully received journal entry
dr. Cash, cr. Due from federal government
interfund loan journal entry
dr. Cash, cr. Interfund Loan Payable
interfund loan repayment journal entry
dr. Due to debt service fund, dr. Interfund loan payable - current, cr. Cash
closing temporary accounts journal entry
dr. Revenues, dr. OFS - bond proceeds, dr./cr. Fund balance - RESTRICTED (borrowed money - restrictions from lenders), cr. Construction expenditure, cr. OFU - interfund transfers out
write off uncollectible tax entry
dr. allowance - uncollectible delinquent taxes, cr. taxes receivable - delinquent dr. allowance - uncollectible interest & penalties, cr. interest & penalties receivable on taxes (neither income statement nor balance sheet is impacted by write offs- net effect)
fund serial bond closing journal entries
dr. appropriations, cr. estimated OFS dr. OFS - interfund transfers in, cr. expenditures - bond principal, cr. expenditures - interest
term bond debt service fund closing journal entry
dr. appropriations, dr./cr. budgetary fund balance, cr. estimated OFS, cr. estimated revenues dr. OFS - interfund transfers in, dr. revenues, dr./cr. fund balance - restricted - debt service, cr. expenditures - interest
final term bond budgetary journal entry
dr. budgetary fund balance, cr. appropriations
tax anticipation note journal entry
dr. cash, (dr. expenditures if paying for interest discount), cr. tax anticipation note payable
contribution journal entry
dr. cash, cr. contributions - without/with donor restriction -applies to grants from government
future pledge collection journal entry
dr. contribution/pledge receivable, cr. contributions - with donor restriction, cr. discount on pledge receivable
encumbrance reversal journal entry
dr. encumbrance outstanding, cr. encumbrance dr. expenditures, cr. vouchers payable
encumbrance journal entry
dr. encumbrance, cr. encumbrance outstanding
second year term bond budget journal entry
dr. estimated OFS, dr. estimated revenues (fair value increase), dr./cr. budgetary fund balance, cr. appropriations
term bond debt service fund budget journal entry
dr. estimated OFS, dr./cr. budgetary fund balance, cr. appropriations
inventory purchases method journal entry
dr. expenditures, cr. vouchers payable dr. inventory of supplies, cr. fund balance - nonspendable - inventory of supplies -ONLY GOVERNMENTAL FUND
payroll journal entry
dr. expenditures/expenses, cr. due to federal government cr. due to state government, cr. cash
remaining debt fund transfer to general fund journal entry
dr. fund balance - restricted, cr. due to general fund dr. due to general fund, cr. cash
interest & penalties on tax journal entry
dr. interest & penalties receivable on taxes, cr. allowance - uncollectible interest & penalties, cr. revenue (general revenues - interest & penalties on delinquent assets)
inventory consumption method journal entry
dr. inventory of supplies, cr. vouchers payable fund level: dr. expenditure, cr. inventory dr. fund balance - unassigned, cr. fund balance - nonspendable activities level: dr. expense, cr. inventory
sinking fund fair value entry
dr. investments, cr. revenues (general revenue - restricted for debt service)
reclassification closing journal entry
dr. net assets WITH donor restriction, cr. reclassification FROM net assets with donor restriction dr. reclassification TO net assets without donor restriction, cr. net assets WITHOUT donor restriction
pledge journal entry
dr. pledge/contribution receivable, cr. contributions - with donor restriction dr. cash, cr. contribution/pledge receivable
program expense journal entry
dr. program expense, cr. cash -if a donation can be classified as an expense by the rules: dr. program expense, cr. contributions - without donor restriction
reclassification journal entry
dr. reclassification FROM net assets with donor restriction, cr. reclassification TO net assets without donor restriction
closing operating accounts journal entry
dr. revenues & OFS, dr./cr. fund balance - unassigned, cr. expenses & OFU
tax revenue journal entry
dr. taxes receivable - current, cr. allowance - uncollectible current taxes, cr. revenue (general revenues - property taxes)
delinquent tax journal entry
dr. taxes receivable - delinquent, cr. taxes receivable - current dr. allowance - uncollectible current taxes, cr. allowance - uncollectible delinquent taxes
Proprietary Funds
enhances management of activities in which goods/services are provided on a cost-reimbursement basis to departments of same government or to general public on a user charge basis
budget revisions
error correction (budgets are legally binding), revision of estimates (unexpected circumstances)
encumbrance
estimated amount recorded for purchase orders/contracts chargeable to an appropriation (commitment to make expenditure) **encumbrance outstanding acts as a restriction on the fund balance
Impairment Restoration cost approach
estimated cost to restore asset's utility (physical damage)
impairment deflated depreciated replacement cost approach
estimated current cost of a replacement asset with similar depreciation and adjusted for inflation (change in manner or duration of use)
budgetary accounts
estimated revenues (debit) estimated other financing sources (debit) appropriations (credit) estimated other financing uses (credit) encumbrances (debit) encumbrances outstanding (credit) **only adjusted at the beginning of the year and closed out at the end of the year
budgetary fund balance
estimated revenues + estimated OFS - appropriations - estimated OFU (plug number for difference between estimated inflows and estimated outflows)
governmental fund financial statement focus
fiscal accountability flow of current financial resources modified accrual basis
governmental fund
focus on short-term flow of current financial resources, fiscal accountability, modified accrual basis
general fund transfer journal entry
fund level: dr. cash, cr. OFS - interfund transfer in
sale of general capital assets journal entry
fund level: dr. cash, cr. OFS/revenues - miscellaneous activities level: dr. cash, dr. accumulated depreciation, dr./cr. gain/loss, cr. equipment
serial bond interest and principal payment
fund level: dr. expenditure - interest, dr. expenditure - bond principal, cr. cash activities level: dr. interest expense, dr. serial bonds payable, cr. cash
accounting for leases journal entry
fund level: dr. expenditures, cr. OFS - lease agreements activities level: dr. right-to-use asset, cr. lease obligations payable
acquisition of general capital assets journal entry
fund level: dr. expenditures, cr. cash activities level: dr. equipment, cr. cash
disposal of general capital assets journal entry
fund level: dr. expenditures, cr. cash activities level: dr. loss on disposal, dr. accumulated depreciation, cr. buildings, cr. cash
general fund transfer approval journal entry
fund: dr. estimated OFS, cr. appropriations
interfund loan journal entries
general fund: dr. interfund loan receivable - current, cr. cash IFS: dr. cash, cr. interfund loan payable - current
integrated reporting model for government-wide statements
governmental activities- governmental funds + internal service fund business activities- enterprise funds *NO fiduciary activities
general capital assets at the different levels
governmental activities: capitalized and generally depreciated (may choose to not to capitalize art, historical treasures) governmental fund: debited to Expenditures in appropriate fund
fiduciary activities
governments often act either as an agent or trustee for parties outside the government (only private-purpose custodial and trust relationships) -may be agents that collect taxes for federal government
Asset Impairments
impairments from unexpected circumstances (physical damage, obsolescence, environmental factors) usually considered permanent (can't write it back up)
accountability
imposes a duty on public officials to be accountable to citizens for raising public funds and how they are spent (citizens' right to know) (means responsibility)
nonspendable fund balance
includes amounts that are not in spendable form or legally required to remain intact (inventories, permanent fund)
Revenues
increases in net assets that arise from exchange transactions- party receives direct tangible benefits equal with resources provided (membership dues, program service fees, sales of supplies/services, investment income, some grants)
business-type activities
intended to be self-supporting by charging users for the services they receive (operating subsidies may come from general revenue taxes)
inter-activity transaction
interfund loans/transfers between governmental fund (including internal service fund) and enterprise fund ("internal balances" on government-wide statement of net position, "transfers" on statement of activities)
Intangibles
lack physical substance, non-financial and amortized (easements, water rights)
budgets
legally binding on administrators- integrate budgetary accounts for each operating account into general ledgers of each fund that requires a budget (ONLY EXIST AT FUND LEVEL- not activities level)
not-for-profit organizations
legally separate organizations which are usually exempt from federal, state, and local taxation (private schools, religious groups)
tax anticipation notes
line of credit to meet short-term cash needs of local government (secured by collateral of government's taxing power)
General Capital Assets
long-lived assets used in GOVERNMENTAL FUND activities (does not include proprietary/fiduciary funds)
3 features of government-wide financial statements
measurement of economic resources accrual basis OPERATIONAL accountability
bond interest journal entry
modified accrual: dr. interest expenditure, cr. cash (only record it when actually paid) accrual: dr. interest expense, cr. cash/interest payable
additional costs for rework journal entry
money paid to new contractor for rework OR money sent back to old contractor: dr. Contracts payable - retained percentage, cr. Cash
natural expense
nature like salaries, rent, etc. for not-for-profits
interfund transfers
nonreciprocal activity in which financial resources are transferred between funds with no intention of repayment
types of fund balance
nonspendable restricted committed assigned unassigned
indirect expense
not directly related to a function or program (interest charge)
general revenue
not directly related to a program or function (ALL TAXES ARE GENERAL REVENUE)
budget deficits and surpluses
not poor financial management if it is at a target ratio (10-25%) of cushion to cover shortfalls
Overlapping debt
obligations of other governments that also have the power to tax property located in jurisdiction of government whose debt is being evaluated- obligations supported from same sources as government's direct debt (in a given city property owners might be taxed by the city, a county government, and an independent school district)
federal financial reporting
occurs at government-wide level and for major agencies and departments
general fund
only one per government, most financial transactions related to general government operating activities are recorded here
supporting service expenses
overhead and fundraising expenses
consolidated report
plain language citizen's guide management's discussion & analysis financial statements supplementary information on budgetary and proprietary activities **not audited
impairment service units approach
portion of estimated service utility life lost (environmental factors)
functional expense
program and supporting for not-for-profits
general purpose governments
provide a broad array of services
Objectives of Financial Reporting for NFPs
provide information useful in: -make resource allocation decisions -assess services and ability to provide services -assess management stewardship and performance- are they fulfilling their mission? -assess economic resources, obligations, net resources, and changes in them
fund financial statements
provide more detailed financial information about the government
Comprehensive Annual Financial Report (CAFR)
provides more detail than minimum requirements for general purpose financial reporting- conforms to GASB standards (introductory, financial, statistical)
interfund transfer journal entry
receiving: dr. cash, cr. OFS - interfund transfers in giving: dr. OFU - interfund transfers out, cr. cash
tax revenue (modified accrual)
recognized when LEVIED (fees for permits, fines, forfeits recognized on cash basis) **No matching principle
cost principle
record asset at invoice/historical cost with other necessary and reasonable costs to place asset into use (may include freight, exclude foregone cash discounts and financing charges)
accounting for donated assets
record at fair value on date of the gift- may require appraisal (fair value = book value if traded in liquid market)
accounting for donated interfund transfers
record at lower of book value or fair value
encumbrances - if appropriations do not expire at year end
related encumbrances and encumbrances outstanding accounts stay in existence
proprietary fund
report on business-like activities of the government
fiduciary fund
report on trust and custodial activities of the government
statement of activities
reports expenses and revenues classified by program or function (separate columns for governmental activities, business-type activities, and component units)
statement of net position
reports year end financial position (like balance sheet)
Performance and Accountability Report (PAR)
required by major federal agencies and departments
unassigned fund balance
residual classification for GENERAL fund that includes amounts available for any purpose (other governmental funds only report negative fund balance)
program revenues
revenues linked to a specific function or program (charge for services, operating grants/contributions, capital grants/contributions)
modified accrual basis
revenues recognized when measurable and available for spending and expenditures recognized when obligation is incurred that will be paid from currently available financial resources
general fund transfer to debt service fund journal entry (needed for early in the next year)
right before 12/31/19- dr. cash, cr. OFS- interfund transfers in
Federal Accounting Standards Advisory Board (FASAB)
sets standards for federal government and its agencies/departments
Governmental Accounting Standards Board (GASB)
sets standards for state and local governmental units and governmental non-profits
Enterprise Funds - Special Current Liabilities
special current liability accounts: -Customers Advances for Construction: Usually up-front deposits required to be made by builders to provide all or part of the cost of connecting new structures to utility lines, May or may not be refunded in part upon completion, Retained balance shown as contribution from customers in statement of R,E,C -Customer Deposits: Usually reported as Liabilities Payable from Restricted Assets, Even if not refundable until service is terminated, AICPA guidance defines this as a current liability
fiduciary fund financial statements
statement of fiduciary net position statement of changes in fiduciary net position
not-for-profit financial reporting
statement of financial position (balance sheet) statement of activities (income statement) statement of cash flows **show relationship between functional and natural expenses
Infrastructure
stationary in nature and preserved for longer (can choose not to depreciate if specified conditions met)
direct expense
those associated with a specific function or program
pension fund
to account for financial resources in which the government acts as a trustee for government employees to provide retirement benefits
private-purpose trust fund
to account for financial resources in which the government is acting in a trustee capacity for private individuals, organizations, or other governments (scholarship funds for special groups)
debt service fund
to account for financial resources segregated for making principal and interest payments on general long-term debt
capital project fund
to account for financial resources segregated to pay for purchase or construction of long-lived general capital assets
permanent funds
to account for resources provided by trust for which the principal is not spendable and earnings (interest) on the principal are required to be used for a public purpose (endowment to provide art for public buildings)
Objectives of Government Financial Reporting
to provide information that can be used to assess accountability and to assist users in making economic, social, and political decisions
objectives of financial reporting for non-profits
to provide useful financial information to resource providers such as donors, members, and creditors (resource providers need this info to assess services provided by non-profit and management's stewardship of resources)
government-wide statement of activities
top section: NET EXPENSE or revenue for each function or program (first column is expense, net column is revenue related to that expense) bottom section: general revenues, extraordinary/special/unusual items, transfers
internal exchange transactions
transactions between two funds similar to those involving the government and an external entity (recognize a revenue and an expenditure)
dual track approach
transactions have different effects on governmental funds and activities at government-wide level- each transaction is recorded separately in fund and activities journals
other financing sources
transfers into a fund and the proceeds of debt issues and sales of general government assets (inflow- issuing general long-term debt)
other financing uses
transfers of financial resources from one fund to another fund (outflow)
Modified Approach
used for certain infrastructure assets- asset management system: up-to-date inventory, condition assessments & summary of results on a measurement scale, estimates of annual amount needed to maintain/preserve assets at established condition, documents that assets are preserved at established condition
special revenue fund
used when revenues are restricted or committed for specified operating purposes, such as maintenance of roads and bridges and operation of a library
custodial funds
used when the government oversees cash or other assets for external parties (no net position- assets = liabilities)
special purpose governments
usually provide only one or just a few services (schools, hospitals)
special revenue fund (operating grant) journal entry
when granted: dr. cash, cr. deferred revenue when spent: dr. expenditures, cr. cash when earned: dr. deferred revenue, cr. revenue
operational accountability
whether the government has used resources efficiently and effectively in meeting operating objectives
fiscal accountability
whether the government raised and spent financial resources in accordance with budgetary, legal, and regulatory constraints