Accy 407 Exam 2

Statement of Net Position

- A classified statement is prepared, with current assets shown in the order of liquidity - Net position divided into three categories: Net investment in capital assets—calculated as the value of net capital assets less any outstanding debt related to capital asset acquisitions or construction, restricted—restrictions are placed on asset use by external parties through contracts, legal requirements, or donor stipulation, unrestricted—the residual after adjusting for the preceding two net position categories

Contributions

- A voluntary, unconditional, and nonreciprocal transfer of cash or other asset to the NFP (or a settlement or cancellation of its liabilities) by an entity external to the NFP. - Can be unrestricted, restricted as to time, or restricted as to purpose - Increases net assets without donor restriction if no restriction on use - Increases net assets with donor restriction if donor imposes restriction on use - Contributed services should be recorded as contributions and asset/expense (salaries expense) at fair value if the services: Create or enhance nonfinancial assets (e.g., a carpenter constructing a building), OR Provided by individuals possessing specialized skills that typically would need to be purchased if not provided by donation (e.g., accountants or nurses)

Special Assessment Debt Service Funds

- Account for debt service for special assessment debt in a debt service fund when the government is obligated in some manner for the debt - If the government is not obligated in some manner, a custodial fund is used to account for both the debt and the debt service

Debt Service Funds

- Account for financial resources set aside for principal and/or interest and their payments - On general long-term liabilities - Resources may come from Taxes levied by DSF, taxes levied by the GF and transferred to DSF, special assessments - The number of DSFs should be held to a minimum (GASB recommends a single DSF for all tax-supported debt serviced by property taxes)

Accounting Characteristics of proprietary funds

- Accrual basis (NOT modified accrual): Capital assets and long-term liabilities recorded within the funds, depreciation expense and accumulated depreciation are recorded and reported - Flexible (budget for different outputs) rather than fixed budgets recommended: generally budgetary accounts are not integrated into the general ledger, for accounting guidance look to accounting procedures used by similar type private enterprises

Preparation of the government-wide financial statements at year-end requires

- Adjusting entries to record items such as annual depreciation and accrual of interest receivable and payable - Entries to close all program and general revenues and expenses - Entries to reclassify, as necessary, Net Position—Unrestricted to Net Position—Restricted (various purposes) and Net Position—Net Investment in Capital Assets

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 - Changes in fair value are reported as investment earnings

Recognition and Disclosure

- An item of information that meets the definition of an element and is measurable with sufficient reliability should be recognized in the financial statements. - Elements defined by GASB: Assets, Liabilities, Deferred outflows of resources, Outflows of resources, Deferred inflows of resources, Inflows of resources, Net position - Accounting Equation: Assets + deferred outflows -liabilities -deferred inflows = Net Position - A note 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.

Collections Items

- Art, historical treasures, etc. - NFPs can recognize or not recognize collections: selective capitalization not allowed - If recognized: Record at cost if acquired and at fair value if contributed, Depreciation is not recorded if the economic benefit of the collection is used so slowly the estimated useful life is extraordinarily long - To not recognize assets in a collection the assets must be held for public exhibition, education, or research in furtherance of public interest; Protected, kept unencumbered, cared for, and preserved; Proceeds from sale of collection items are to be used to acquire other items for the collection

Enterprise Funds Journal

- As indicated previously, there are many types of enterprise funds, thus accounting procedures vary greatly - Generally, the same account titles are used as those recommended by the utility regulatory body - Accounting is essentially business accounting.

capital project grant approval journal entry

- As soon as grant is approved, they can recognize revenue (no eligibility requirements) Fund level: dr. Due from Federal Government, cr. Revenues Activities level: dr. Due from Federal Government, cr. Program Revenues - Public Works (Capital Grants & Contributions)

International Accounting Standards

- As with FASB, GASB has an international counterpart - International Public Sector Accounting Standards (IPSAS) are issued by the International Public Sector Accounting Standards Board (IPSASB) - IPSASB are used by many countries

Restricted Assets

- Assets that are not available for current operating purposes because donors have limited their use to a long-term purpose (e.g., capital asset acquisition) are considered restricted. - FASB indicates that such assets should be classified separately from current assets on the face of the statement of financial position.

Enterprise Funds - Restricted Assets

- Assets whose use is restricted by contractual agreements or legal requirements - Typical 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

Enterprise Funds - Long-term Liabilities

- Bonds or other debt that are repaid from proprietary fund resources are reported as long-term debt of the fund - Bonds whose interest and principal are repaid from the 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. The 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

NFP Statement of Financial Position

- Can also be called a balance sheet - Net assets (the difference between assets and liabilities) must be classified into two classes: Net assets without donor restrictions; Net assets with donor restrictions. - Flexibility in displaying information, including fund-based data, is allowed as long as it provides amounts for total assets, total liabilities, total net assets, and the totals for each of the net asset classifications.

costs incurred after acquisition

- Capitalize costs of additions/betterments - Do NOT capitalize replacements/maintenance (unless replacements are partly additions/betterments - prorate cost) - Requires judgment to determine enhancement

Support

- Category of revenue that arises from receipt of resources in non-exchange transactions in which the donor derives no tangible benefit from the receiver - Contributions - support in the form of cash, other assets or services (or cancellation of liabilities) - Pledges - the promise of a contribution

Governmental Financial Reports

- Citizens and others (e.g., creditors and legislators) have a need for periodic reports on the sources of the government's resources and how the resources were used - Interim financial reports are needed as well as annual reports for sound internal management and legislative oversight

Financial Statements/Schedules

- Combining balance sheet - Combining statement of revenues, expenditures, and changes in fund balances - Note disclosures showing all future debt service requirements (both for principal and interest) for all outstanding debt - Note: Interest to be paid in future periods is not recorded as a liability of the government

Useful Information

- Communicating the information in a manner that is helpful to the user is an important part of making information useful. - GASB Concepts Statement 3 provides guidance on where and how to present information for it to be useful. - Per CON 3 the areas are: recognition in the financial statements, disclosures in the notes to the financial statements, presentation as required supplementary information, or presentation as supplementary information.

General Long-term Liabilities

- Debt & LT liabilities that arise from activities of governmental funds (not liabilities of proprietary/fiduciary fund) - Reported as liabilities in Governmental Activities column of government-wide statement of net position - Not reported as liabilities of 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 the notes to the financial statements

Gifts in Kind

- Donation of materials or services - Unconditional gifts in kind - reported at fair value (entry includes both contribution revenue and an expense/noncash asset) - Donated materials used or consumed in providing services should be reported as part of cost of services

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 the project as OFS NOT LT liability - No need for appropriations or estimated revenues, but use of encumbrances is recommended

Government-wide financial statements

- Entity-wide perspective - Long-term focus on operational accountability - All governmental and business-type activities of the government as a whole are reported on the accrual basis—essentially the same as for-profit entities - Operational accountability - accrual basis for financial statements

Impairment Restoration cost approach

- Estimated cost to restore the asset's utility - Impairments from physical damage

impairment deflated depreciated replacement cost approach

- Estimated current cost of a replacement asset with similar depreciation and adjusted for inflation - Impairment from change in the manner or duration of use

Special assessment (private benefit) capital projects

- Examples: street improvements, curbs, sidewalks, street lighting, sewage, etc. - Deemed to benefit citizens in a specified benefit district

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 - Capital project funds end when project ends while general/SRF are year-to-year

CAFR Statistical Sections

- Five categories defined by the GASB that should be included in the statistical section. - The most recent 10 years of data should be presented for each. - Financial trends information - Revenue capacity information - Debt capacity information - Demographic and economic information - Operating information (idea of where to see major expenditures)

Operating Statement

- GASB requires that revenues and expenses be identified as operating or nonoperating (Accrual basis) - Operating activities relate to the primary functions of the proprietary fund - Separate subtotals are to be provided for operating information

General Long-term Liabilities Accounting

- General long-term liabilities are reported in the Governmental Activities column of the statement of net position; not reported as liabilities of governmental funds - Debt service fund (a governmental fund) established to account for principal and interest payments on general long-term liabilities

CAFR Introductory Section

- Generally not covered by the auditor's report, - May present information of a more subjective nature, including prospective information such as forecasts or expectations. - This section includes: Table of contents, Letter of transmittal, Other material deemed appropriate by management

Internal Service Funds - Accounting Procedures

- Generally, use the same accounting procedures that a similar for-profit entity would use. - Billings to Departments is a revenue account, similar to Sales in a for-profit entity - Revenues and expenses are 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

Retained Percentages

- Government holds portion of contractor's fee to cover construction issues that may arise (Contracts Payable - Retained Percentage) - Payable is reduced when remaining percentage is either paid to contractor or used to satisfy construction issues

Asset Impairments

- Impairments from unexpected circumstances (physical damage, obsolescence, environmental factors) - Usually impairments should be considered permanent (can't write it back up)

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

Non-depreciated capital assets

- Inexhaustible assets such as land, artwork - Certain noncapitalized works of art, historical treasures, or similar assets - Eligible infrastructure using the modified approach

Enterprise Funds - Plant—Construction in Progress

- Interest incurred on debt during construction should be capitalized - this policy differs from the interest capitalization policy for self-constructed general capital assets - Imputed amount equivalent to interest can be capitalized if a utility's own funds are used for construction - you 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 a separate column in the proprietary fund financial statements - Internal service funds are NEVER MAJOR FUNDS - In the government-wide financial statements, internal service funds are reported as a part of the Governmental Activities column—interfund activity between internal service funds and governmental funds must be eliminated

Popular Reporting

- Many accounting professionals, politicians, and others believe current governmental financial statements are excessively 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: Expenditures for interest and principal are recognized in period in which they are legally due - Budgetary accounting used: No encumbrance- debt service fund does not order goods/enter contracts for services

Joint Costs of Fund-raising

- NFP often conduct activities that combine a program or administrative activity with fund-raising. - FASB guidelines for allocating joint costs of these activities are as follows: 1. The total cost of these activities should be reported as fund-raising costs unless a bona fide program or management and general function has been conducted in conjunction with the appeal for funds. 2. The joint costs should be allocated between the bona-fide function and fund-raising using an equitable allocation base. 3. Criteria of purpose, audience, and content must be met in order to conclude that a bona fide program or management and general function has been conducted in conjunction with the appeal for funds.

NFP Statement of Cash Flows

- NFP organizations follow the same standard as for-profit entities when preparing the statement of cash flows - Cash flows are reported as changes in operating, investing, and financing activities - The indirect method or direct method may be used for reporting cash flows from operating activities (Optional to provide a reconciliation of change in total net assets to net cash used for operating activities when using direct method)

Reclassification

- Net Assets Released from Restrictions" indicates the reclassification of support with donor restrictions to support without donor restrictions when donor stipulations were met. - This Reclassifications may be due to: 1.satisfaction of program or purpose restrictions, 2.satisfaction of equipment acquisition restrictions, and 3.satisfaction of time restrictions, either actual donor or implied restrictions. - All expenses decrease net assets without donor restrictions

Other comprehensive basis of accounting (OCBOA)

- Not all governments maintain internal records on a GAAP basis, many use OCBOA - Types of OCBOA most commonly used by governments include—cash basis, modified cash basis, and regulatory basis - Use of OCBOA does not preclude the need to present information similar to that reported under GAAP

Overlapping debt

- Obligations of other governments that also have the power to tax property located in the jurisdiction of the government whose debt is being evaluated. - Represents obligations that are supported from the same sources as the government's direct debt. - In a given city property owners might be taxed by the city, a county government, and an independent school district

Special Assessment Projects

- Only specific areas benefit from project - Compulsory property tax levies made in those areas to defray cost of specific improvements - Construction phase of the 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

Other Supplementary Information

- Other supplementary information is used to provide information that is useful. - Useful but not essential in understanding the financial statements and related notes. - Much of it found in the statistical section of the comprehensive annual financial report (CAFR).

Intangibles

- Patents, easements, water rights - Lack physical substance, non-financial - Amortized

impairment service units approach

- Portion of estimated service utility life lost - Impairment due to environmental factors

GASB's Recognition and Measurement Attributes Project

- Potentially a new concept statement - Examines changing from "modified accrual" measurement focus for governmental funds - The focus is on a "near term" measurement focus

Serial bonds

- Principal matures in annual installments - Regular 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

Term bonds

- Principal matures in lump-sum amount at end - Not used as frequently as serial bonds - Disadvantages of term bonds: 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

Investments

- Purchase investments: Acquisition price or fair value - Donated investments: Fair market value on date of donation - Reporting periods, such as 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

Expenses

- Recognized on the accrual basis of accounting - All expenses are reported as decreases in net assets without donor restrictions. - Report depreciation expense for all capital assets, except art and historical collections - Use functional classifications: - Program: Provision of goods and services that help achieve the major purpose or mission of the NFP - Support: Assist the NFP in carrying out its mission (Fund raising, Management)

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 governmental activities journals

NFP Statement of Activities

- Reports on changes in both classes of net assets and total net assets for a period of time - Changes take the form of revenues, gains, expenses, and losses - Within net asset classes additional classifications can be used. E.g. operating and nonoperating, expendable and nonexpendable, earned and unearned etc. - Report expenses by: Function-program vs support; AND Natural Classification-Salaries, Rent etc.; On the face of statement of activities or in the notes or separate schedule

Required Supplementary Information (RSI)

- Required supplementary information is used to provide information that is essential. - To place financial statements and related notes in the correct context. - Examples of RSI include the management discussion and analysis, budget to actual schedules and several pension disclosures.

Revenues, Gains, and Support

- Revenues: Increases in net assets arising from exchange transactions in which the other party to the transaction is presumed to receive direct tangible benefits commensurate with the resources provided - Gains: Increases in net assets that relate to peripheral or incidental transactions of the entity and often are beyond the control of management - Support: A category of revenues arising from contributions of resources or nonexchange transactions and includes only amounts for which the donor derives no tangible benefits from the recipient agency (NON-EXCHANGE TRANSACTION - person giving the assets do not receive any tangible benefit from non-profit)

Fund financial statements

- Short-term focus on fiscal accountability (ONLY governmental funds - modified accrual basis) - Most activities of the government are reported on the modified accrual basis; - Proprietary funds and fiduciary funds are reported essentially the same as for-profit entities - Preparation of the fund financial statements at year-end also requires that information on the governmental fund financial statements be reconciled to information reported in the Governmental Activities column on the government-wide statements (convert modified accrual to accrual)

Infrastructure (e.g., roads, streets, bridges)

- Stationary in nature and preserved for longer - Choose not to depreciate if specified conditions met

GAAP for Nongovernmental NFPs

- The not-for-profit audit and accounting guide of the AICPA provides guidance on how to differentiate a governmental from a nongovernmental NFP. - FASB is the accounting standard setters for non governmental NFPs: Not GASB, Unless otherwise indicated, all FASB standards apply to NFP organizations, FASB Accounting Standards Codification (ASC) Topic 958 apply specifically to NFPs

Reporting Entity

- The reporting entity consists of the primary government and all component units for which the primary government is financially accountable - Primary government is a state government or general purpose local government - Component unit is a legally separate organization for which the elected officials of the primary government are financially accountable:E.G.: not-for-profit organizations, for-profit firms, Component units are reported by discrete (separate column) presentation, or by blending the component unit's financial information with the appropriate fund columns of the primary government

Revenues

- Traditionally defined as increases in net assets that arise from exchange transactions in which the other party receives direct tangible benefits commensurate with the resources provided - Examples include: Membership dues, Program service fees, Sales of supplies and services, Investment income, Some grants

Concepts of Financial Reporting

- Two primary objectives of government financial reports: To provide information that can be used to assess accountability & To assist users in making economic, social, and political decisions - Characteristics of useful information are understandability, reliability, relevance, timeliness, consistency, and comparability

Recording Pledges

- Unconditional pledges received in less than a year can be reported at net realizable value (at year end adjust for any estimated uncollectible amount) - Long-term unconditional pledges are generally recorded at fair value (Apply fair value criteria to determine the present fair value of future receipts, The difference between the pledge amount and the fair value amount is recorded as a discount that is amortized as the pledges are received)

Modified Approach

- Used for certain infrastructure assets - Asset management system: up-to-date inventory of assets, condition assessments of assets + summary of results on a measurement scale, yearly estimates of annual amount needed to maintain/preserve assets at established condition level, government documents that assets are being preserved at established condition

Not-for-Profit Categories

- Voluntary health and welfare organizations - Other nonprofit organizations - Colleges and universities - Health care entities

Common Types of Enterprise Funds

- Water and sewer - Gas and electric utilities - Transportation systems - Airports - Ports - Toll roads and bridges - Parking garages and lots - Golf courses - Hospitals - Liquor stores

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: GASB requires lessees to recognize a lease liability and an intangible right-to-use lease asset

Debt Limit

- ceiling on amount of debt - statutory percentage of assessed valuation or other valuation of taxable property - maximum amount government is allowed to borrow (% of taxable property) - government sets this limit for itself because they have the power to tax - For companies, limit is set by lenders who will not lend more if financials are bad

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 - self-supporting debt excluded from debt limit margin (A government may not be able to borrow because they've reached debt limit OR debt limit decreases even if borrowing doesn't change - debt limit may decrease - valuation of taxable property moves down = debt margin goes down)

disclosures in financial statement notes - government-wide

- 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

Criteria to allocate joint costs (fundraising) met if

ALL 3 MUST BE MET - Purpose: The joint activity helps accomplish a program purpose or a management activity - Audience: The audience was selected primarily for a program or management purpose rather than ability to make a donation - Content: The joint activity motivates the 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 (same as corporate reporting - LT liability, amortized over the 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 (Governmental Fund)

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

General (public benefit) capital projects

Examples: public buildings; roads, highways and bridges; park improvements; etc.

Objectives of Financial Reporting for NFPs

FASB's objectives of financial reporting for not-for-profit organizations are to provide information useful in: - Making resource allocation decisions. - Assessing services and ability to provide services- in the future will they be able to provide these services? - Assessing management stewardship and performance- are they fulfilling their mission? - Assessing economic resources, obligations, net resources, and changes in them.

grant amount fully received journal entry

Fund & activities level: dr. Cash, cr. Due from federal government

retained percentage journal entry

Fund & activities levels: dr. Contracts payable, cr. Cash (95%), cr. Contracts Payable - retained percentage

interfund loan journal entry

Fund level: dr. Cash, cr. Interfund Loan Payable Activities level: no entry

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

interfund loan repayment journal entry

Fund level: dr. Due to debt service fund, dr. Interfund loan payable - current, cr. Cash Activities level: no entry

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

encumbrance journal entry

Fund level: dr. Encumbrances, cr. Encumbrances outstanding Activities level: no entry- no budget accounts

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 - Debt service fund would record as OFS - interfund transfers in Activities: No entry

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)

Accounting for financial resources to service debt

If taxes levied by the: - Debt service fund: Record Estimated Revenues in the budget entry, Use the same property tax accounting as for the General Fund - General Fund and transferred to the debt service fund: Record Estimated Other Financing Sources in the budget entry, Interfund Transfers In (an Other Financing Sources account) for the transfer

Enterprise Funds - Special Current Liabilities

In addition to the usual Accounts Payable and Accrued Expenses, two special current liability accounts are: - 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

Net assets classification

Net Assets with Donor Restrictions - Result from contributions on which the donor imposes restrictions that may be permanent or temporary in nature - Permanent donor restrictions: Endowments vTemporary donor restrictions: - Time: When the asset can be used - Purpose: How the asset may be used Net Assets without Donor Restrictions - Includes Board designated Net Assets: Set aside for specific purposes by the governing board and not an external donor.

Direct debt

Obligations that will be repaid by the government whose debt is being evaluated

Financial benefit/burden

PG is entitled to the organization's resources, is legally obligated to finance the organization's deficits, or provide financial support to the organization, OR is obligated in some other manner for the 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. - The organization is fiscally dependent on PG: Budget approval by PG, PG levies taxes to fund the organization

The Governmental Reporting Entity

Primary government - special districts - other agencies - commissions - boards

Machinery and Equipment

Purchase price and costs to make it ready for use

Proprietary Funds

Reasons for use: - Enhances management of activities in which goods or services are provided on a cost-reimbursement basis to departments of the same government or to the general public on a user charge basis - To compare benefits and costs of the business-type activities of a government

Enterprise Funds

Reasons for using enterprise fund: - Required by GASB if any one of these conditions is met: 1)An activity is financed with debt that is secured solely with revenues from the activity 2)Law or regulation requires that the costs of the activity, including capital costs, be recovered with revenue from the activity, rather than taxes or other revenues 3)Pricing policies are designed to recover the costs of the activity, including capital costs - To account for services provided to the general public on a user charge basis - When the 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 Classifications

Receipt of gifts without donor restrictions - Operating activities Receipt of and earnings on net assets restricted for long-term purposes - Financing activities Sale of donated financial asset with no restrictions - Operating activities Acquisition of a building or equipment using restricted net assets - Investing activities Noncash or in-kind contributions - Noncash investing and financing activities

Required Financial Statements - Proprietary Funds

Similar to those of a for-profit entity: - Statement of net position (or balance sheet) - Statement of revenues, expenses, and changes in fund net position (operating statement) - Statement of cash flows (differs under GASB)

Statement of Cash Flows

Similarities between GASB and FASB standards: - Cash flows statement shows cash inflows/outflows relating to operating, financing, and investing activities - Both sets of standards define cash flows as cash and cash equivalents - Cash equivalents: time deposits, marketable securities, and other items readily convertible to cash Differences between GASB and FASB standards: - GASB cash flow statement 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 long-term debt is a financing activity under GASB rather than an operating activity - Cash flows from operating activities MUST USE DIRECT METHOD

Financial Statements for NFPs

Statement of financial position Statement of activities Statement of cash flows Notes to the financial statements Comparative statements are 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

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

CAFR Financial Section

The minimum content for the financial section of a CAFR includes - Auditor's report - Management Discussion & Analysis - Basic financial statements - Government-wide financial statements - Fund financial statements - Notes to the financial statements - Required supplementary information other than MD&A, including, but not limited to, the budgetary comparison schedule - Combining statements and individual fund statements and schedules

Not-for-Profit Sector

The not-for-profit sector of the U.S. economy is very diverse, consisting of many different kinds of organizations - The majority of NFPs are philanthropic and quite often rely on contributions and the services of volunteers - Some NFPs are designed to serve the interest of the organizations' members - Most are not governments or governmental in nature - A minority of NFPs are owned or operated by governments - E.G: Red Cross, United Way, Nature Conservancy

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 debt service fund: NO ENTRY (bonds usually issued from general fund/capital projects fund)

Land

all costs including taxes and liens assumed and amounts of judgment levied in damages

contributed services journal entry

create/enhance assets: dr. building/equipment/etc., cr. contributions - without donor restriction special skills: dr. salary expense, cr. contributions - without donor restriction

closing temporary accounts journal entry

dr. Revenues, dr. OFS - bond proceeds, dr./cr. Fund balance - RESTRICTED (borrowed the money - restrictions put on by lenders), cr. Construction expenditure, cr. OFU - interfund transfers out

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 entry

dr. appropriations, dr./cr. budgetary fund balance, cr. estimated OFS dr. OFS - interfund transfers in, dr./cr. fund balance - restricted, cr. expenditure - bond 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

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

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

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

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

general fund transfer journal entry

fund level: dr. cash, cr. OFS - interfund transfer in activities: no entry

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

general fund transfer approval journal entry

fund level: dr. estimated OFS, cr. appropriations activities: no entry

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

completed building journal entry

fund level: no entry activities level: dr. Building (construction + architect fees); cr. Construction work-in-progress - Capitalize new asset - construction work-in-progress can't be capitalized but building will

sinking fund fair value entry

fund: dr. investments, cr. revenues activities: dr. investments, cr. general revenue - restricted for debt service

general capital assets at the different levels

governmental activities: capitalized and generally depreciated (may choose to not capitalize art, historical treasures) governmental fund: debited to Expenditures in appropriate fund

General Capital Assets

long-lived assets used in GOVERNMENTAL FUND activities (does not include proprietary/fiduciary funds)

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 sent to new contractor for rework - Fund & activities: dr. Contracts payable - retained percentage, cr. Cash money is being sent back to old contractor: dr. Contracts payable - retained percentage, cr. Cash

Pledges

promises to give an asset - Unconditional pledges depend only on the passage of time or demand by the promisee for performance- report these as support in the period the promise is made (after this much time has passed, the asset will be yours) - Conditional pledges depend on the occurrence of a specified future and uncertain event to bind the promissor, such as obtaining matching gifts by the recipient- do not record these as support until the conditions are substantially met (only will happen if the organization fulfills a certain promise)

cost principle

record asset at invoice/historical cost with all other necessary and reasonable costs to place the 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

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