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Financial 8 (Governmental Accounting)

GOVERNMENTAL ACCOUNTING OVERVIEW Issues Unique to Governmental Accounting A Fund (like a checkbook) a sum of money or other resource segregated for the purpose of carrying on a specific activity in accordance with specific regulations External Reporting 1) Government-wide Presentations (consolidated F/S) o Full accrual accounting (basis of accounting) o Economic Resources Measurement Focus 2) Major Fund F/S (like segment reporting) o Only major funds (defined by GASB) are presented Fund Structures: Categories of Funds A) Governmental Funds = no profit motive (serve the citizens) GRaSPP

B) Proprietary Funds = treat like customer / not like a citizen SE

C) Fiduciary (Trust) Funds = trust accounts PAPI

Measurement Focus and the Basis of Accounting B/S Measurement focus o 1) Current Financial Resources (GRaSPP) Modified Accrual No fixed Assets No non-current liabilities are reported o 2) Economic Resources (SE-PAPI) Full Accrual Fixed Asset are reported Non-current liabilities are reported I/S Basis of Accounting o 1) Modified Accrual (GRaSPP)

Rev is recognized when measure and available (within 60 days after Y/E) 2) Full Accrual (SE-PAPI) Revenue is recognized when earned Expenses are recognized when incurred

NU-CAR

MODIFIED ACCRUAL ACCOUNTING

GRaSPP

Budgetary Accounting: book on opposite side as control J/E that records the budgeted amounts for est. rev and approved expenses (appropriations) is posted on the opposite side of the T account J/E at period end to reverse the budget is always the same dollar amount as the orig. budget

Activity:

Revenue measureable and available (within 60 days after Y/E) o 1) Derived Tax Revenue non-exchange transaction that derives its revenue from exchange transactions such as sales tax (on sales) and income taxes o 2) Imposed Non-Exchange Revenue includes property taxes and fines o 3) Government-mandated Non-Exchange non-exchange transactions that compel the collection of revenues for certain activities (environmental clean up) o 4) Voluntary Non-Exchange non-exchange transactions that effectively represent contributions, such as grants.

Expenditure all spending are expenditures (inventory, fixed assets, prepaid) o 1) Purchase method Expenditure current assets when purchased: supplies, pre-paid (rent), inv. Reverse for items not used during period (still on hand) o 2) Consumption method Set up as current asset when purchased: supplies, pre-paid (rent), inv. Expenditure items as consumed (by periodic physical count)

Transfer between funds Transfers = financial resources o Classification of Governmental Expenditures Functions or Program Public safety Organizational Unit Police Department Activity Drugs or Highway Assets expenditures o Not capitalized on funds books o Expenditure = when liability is incurred (vouchers payable) Debts other financing sources o LT Debts other financing sources Pays the currently due interest and principal Report Cr. Other Financing Sources on I/S (stmt of revenue & expenditures) Encumbrances: Reserve funds for purchases orders Recording the Encumbrance o Reversing budget acct and record actual expenditure

GOVERNMENTAL FUNDS GRaSPP General Fund GRaSPP MAC Purpose o Created at the beg. of the govtal unit, and it exist throughout the life of the unit o Accts for the general activities of a govt that are not accounted for by any other fund Revenue Sources o Taxes (rev when recorded/billed), public and safety regulations, intergovernmental Expenditure Types o General Government (administrative functions city manager, finance, etc.) o Public safety (police department, fire department, jail) o Culture and recreation (parks, libraries, etc.) Financial Statements

o B/S (Current Assets / Current Liabilities / Fund Balance) Current items only o Statement of Revenues, Expenditures, and Changes in Fund Balance Revenue (Special) Fund GRaSPP MAC Purpose o Accounts for revenues and expenditures that are legally restricted or committed for specific purposes other than debt service or capital project Examples o Sales tax fund (to operate park and tourist facility) o Gasoline tax fund (to operate and maintain streets) Revenue Sources o Intergovernmental Revenues o Fees collected Grants received o Monitoring = Special Revenue Fund o Non-Monitoring = Agency Trust Fund Financial Statements o Statement of Revenues, Expenditures, and Changes in Fund Balance Service (Debt) Fund GRaSPP MAC Purpose o Created to account for the accumulation of resources (cash and investments) and the payments of currently due interest and principal on LTD obligation debt Debt service fund pays off debt of the GRaSPP funds Debt service fund does not pay off SE-PAPI funds Revenue Source o Allocated portions of property taxes and transfers from other funds o Refinanced debt proceeds from general obligation refunding bonds

Do not report encumbrances Expenditures o Journalizing Interest Expenditures Assume semi-annual payments ($2,000,000 at 3% x 6/12) o Journalizing Principal Expenditures Payment of principal on the bonds o Note: no accrual, no amortization of a premium or a discount Financial Statements o B/S (Current Assets / Current Liabilities / Fund Balance) o Statement of Revenues, Expenditures, and Changes in Fund Balance Report payments of interest and principal on this statement Capital Projects Fund GRaSPP MAC Purpose o Established for the construction or purchase or leasing of significant fixed assets For GRaSPP use only, not for SE-PAPI use o Life of capital projects fund is short (limited to a period of 1 to 3 years) Revenue Source and Other Financing Sources o Generally funded by bond proceeds that are used to complete a project

Transfer from other funds

Bond Issue Proceeds o Premiums and Discounts are included in bond proceeds

Transfer premiums / interest revenue to debt service fund

Financial Statements B/S (current assets / current liabilities / fund balance) Statement of revenues, expenditures, and changes in fund balance Permanent Funds GRaSPP MAC Purpose o Used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used for the purposes that support the reporting governments programs o Note: two governmental funds (GRaSPP) do not record encumbrances: 1) Debt Service Fund, and 2) Permanent Fund o

Revenue Source May include investment earnings from the trust Expenditure Types Expenditures related to the operating purpose of the fund

PROPRIETARY FUNDS SE Service (Internal) Fund SE Purpose (other dept/fund is customer, not citizen) o Established to finance and account for services and supplies provided exclusively to other departments within a government unit or to other governmental units Typically on a cost-reimbursement basis Revenue Sources o Restricted Grant Revenues recognized as revenues in the year money are spent o Operating Revenues (billings for services provided) Recognized when earned

Expense Types

o Expenses are typically displayed by object o Expenses are recorded when incurred Unique Accounting Issues o Fixed assets & LTD are recorded in the Internal Service Fund o Depr from fixed assets in the Internal Service Fund Net Assets: o 1) Unrestricted 2) Restricted 3) Invested Financial Statements o Statement of Net Assets (ALL assets, ALL liabilities, net assets) o Statement of Revenues, Expenses, and Changes in Net Assets o Statement of Cash Flows Enterprise Fund SE Purpose o Account for operations that are financed and operated in a manner similar to private business enterprise Activity is financed with debt secured solely by a pledge of the net revenue from fees and charges Laws and regulations require cost to be recovered through fees Pricing policies establish fees and charges designed to recover costs o Examples: public transportation, off-street parking, golf courses, lotteries Revenue Sources must distinguish between operating and non operating o Operating Revenue Charge for services green fees (golf course) or water bills (public utility) o Non-operating Revenue Shared Rev Sales tax, collected by State and shared to Local govt Expense Types o Operating expenses Personal services, utilities, and depreciation o Non-operating expenses interest expense Financial Statements o Statement of Net Assets (ALL assets, ALL liabilities, net assets) o Statement of Revenues, Expenses, and Changes in Fund Net Assets o Statement of Cash Flows FIDUCIARY FUNDS PAPI Pension Trust PAPI Purpose o Account for govt sponsored defined benefit and defined contribution plans Post retirement plan, deferred compensation plan Revenue (addition) Sources o Resource received are credited to the account employee contribution restricted Expense (deduction) Type o Benefit payments, refunds, and administrative expenses Financial Statements o Statement of Fiduciary Net Assets (ALL asset, ALL liabilities, Net Assets) o Statement of Changes in Fiduciary Net Assets (additions & deductions) Agency Fund PAPI, like a mailman Purpose

Collects cash to be held temporarily for an authorized recipient to be disbursed later Other recipient maybe another fund, firm, individual Revenues & Expenses are no recognized NO I/S stmt Cash Conduit Arrangements o Monitoring = Special Revenue Fund o Non-Monitoring = Agency Trust Fund (food stamps, traffic citations, alimony) Financial Statements o Statement of Fiduciary Net Assets (current assets = current liabilities) Private Purpose Trust PAPI, not general public use Purpose o Designated fund for reporting all other trust arrangements, principal and income for: A) Specific individuals B) Private organizations C) Other governments Revenue Sources o Principal of a private purpose trust fund is invest, and the income received is transferred to general fund o

Expense Type o Related to the specific purpose of the trust and relate to benefits or admin charges o Capital Gains (Losses) recorded as adjustments to fund principal and not income

Financial Statements o Statement of Fiduciary Net Assets (ALL asset, ALL liabilities, Net Assets) o Statement of Changes in Fiduciary Net Assets (additions & deductions) Investment Trust Funds PAPI Purpose o A govt entity that sponsors one or more external investment pool (sponsoring govt) should report the external portion of each pool as a separate invest trust fund Revenue (addition) Sources o Contributions, net appreciation (or depreciation) of the FV of plan assets, premiums / discounts on debt securities Expense (deduction) Type o Deductions from net assets include payments to beneficiaries and admin expenses Financial Statements o Statement of Fiduciary Net Assets (ALL asset, ALL liabilities, Net Assets) o Statement of Changes in Fiduciary Net Assets (additions & deductions)