Governmental Accounting Overview

Stewardship of the resources in their care.

Main focus providing efficient and effective delivery of services with either public resources or private
resources with no taxGovernmental entities drive revenues from taxes while not-for-profit entities drive revenues from
contributions or fees and are not taxable.
Dual Objectives Operational accountability and fiscal accountability (Timeliness, Consistency, and
Comparability)
Purpose Funds = Legal restrictions
Fund Accounting easy to monitor and report compliance, spending purposes (fund restrictions),
spending limits (budget), and other fiscal accountability objectives.
Governmental Entities use fund accounting internally and externally to demonstrate fiscal accountability.
Non for Profit Entities can use fund accounting internally, but do not use fund accounting for external
reporting.
Governmental Units (cities, states, local organizations such as townships, villages, and special district)
and entities such as hospitals ran by government and schools. Use Governmental accounting and
principles.
Colleges and Universities can either use governmental accounting or not-for-profit and even regular
FASB standards if for profit case.
Health Care Organizations can be organized as governmental, not-for-profit, or commercial entities. If ran
by the government, it can be classified as a component of a governmental entity and use governmental
accounting.
Voluntary Health and Welfare Organizations are funded through contributions Salvation Army and provide
benefits to the health and welfare of the public.
Foundations are private trusts organized for specific benefits to society (ie educational purposes, religious
purposes, or for some charitable purpose.)
Professional and trade organizations other not for profit entities, scientific research organizations, and
religious groups.
Governmental Accounting Principles and Standards (GASB) hierarchy of GASB 55
1.
2.
3.
4.

GASB Statements and Interpretations (most authoritative Category A)

GASB Technical Bulletins
GASB Practice Bulletins
GASB Implementation Guides

The Governmental Finance Officers Association (trade organization) provides optional and
nonauthoritative guidance.

Establishment of Accounting Principles and Standards for Not-for Profit Organizations

1. Financial Accounting Standards Board (FASB)
Government Accountability Office (GAO)
The government accountability office prescribes yellow book standards (Single Audit Act) organizations
who are provided governmental funding need to follow both GASB and Single Audit Standards.
Definition of a Fund is similar to a checkbook. A fund is a sum of money carrying on specific activity in
accordance with specific regulations, restrictions, or limitations, constituting and independent fiscal and
accounting entity.
Each fund is self-balancing similar to a checkbook.
Fund Structure eleven fund types are described in the following three generic categories. (11
governmental funds)
1. Governmental funds
2. Proprietary funds
3. Fiduciary funds
Fund financial statements should be separately presented for governmental, proprietary, and
fiduciary funds to report additional and detailed information about the primary government.

GASB 34 establishes minimum standards for external reporting requirements to be in compliance with
GAAP. Fund Base and Governmental Wide presentations supported by notes to the financial statements
and a variety of required supplementary information.
Reconciliation of Fund financial statements to governmental wide financial statements is also required.
Governmental-wide Presentations Consolidated Financial Statements
Full Accrual accounting (basis of accounting) and economic resources measurement focus
Two classifications: Governmental activities and business activities
Major Fund Financial Statements Like Segment Reporting major funds are presented using the basis
and measurement unique to each fund. Nonmajor funds are displayed in the aggregate.

Governmental Fund Reconciliation Major Fund Financial Statements are reconciled into the
Governmental Wide Financial statements in the governmental activities sections.
Other Fund explanations below:
Enterprise funds = business type activities, in the governmental wide financial statements and no
reconciliation is needed
Internal Service funds merged with governmental activities and displayed in governmental wide FS.
Fiduciary Funds are presented individually as fund financial statements, but are excluded from
governmental wide financial statements.
Supplementary information budget vs actual, managements discussion and analysis, presentation of
nonmajor funds, and modified approaches to presentation of infrastructure.
Funds are generally classified into three major categories (1) GOVERNMENTAL (2) PROPREITARY (3)
FIDUCIARY
Governmental funds No profit motive; follow modified accrual basis on accounting, current financial
resources measurement focus (5 GOVERNMENTAL FUNDS GRASPP) (No FA and LTD). Usually have a
budget focus as they are not set to make a profit and measure the financial position.
Main financial statement of governmental funds The Statement of revenues, expenditures, and changes
in fund balance.
General Fund set up for the operations of the governmental entity current resource measurement
Special Revenue Funds account for revenues from specific taxes set up for specific purposes or
restricted purposes.
Debt Service Funds accumulation of resources and the payment of interest and principal and all other
general obligations. Resources in this fund are restricted, committed, or assigned to specific debt or
obligations.
Capital Projects Funds acquisition or construction of major assets resritcted, committed, or assigned
to project, other than enterprise fund.
Permanent Fund legally restricted to the extent of income, and not principal, may be used for purposes
supporting the reporting governments programs.
Proprietary Funds Treat like a customer/ not a citizen. Full accrual basis of accounting, economic
resources measurement. Proprietary funds are used for business purposes and similar to commercial.
Internal Service Funds fund set up to reimburse other departments (internal customers)
Enterprise Funds
Enterprise funds are set up to account for acquisition and services of facilities where over 50% of the
support is provided by external customers. Over 50% self-supported by external customers. Utilities
(water and sewer,) airports, and transit systems.

Fiduciary (Trust) Funds = Trust accounts. Full accrual basis of accounting, economic resources
measurement focus (PAPI)
Pension (Other Employee Benefit) Trust Funds defined benefit plan, defined contribution, defined post
employee benefit plans, and other long-term employee benefit plans
Agency Trust Funds = set up for temporary custody of governmental units (taxes collected on behalf of
another governmental entity)
Private Purpose Trust Funds principal and interest are in the benefit of individuals, private
organizations, or other governments.
Investment Trust Funds account for external investment pools
Balance Sheet Measurement Focus whether current resources measurement focus or economic
resources measurement
Current Financial Resources- General Fund, Special Revenue Fund, Debt Service Fund, Capital Projects
Fund, Permanent Fund no fixed assets or long-term liability.
Adding FA and subtracting noncurrent liabilities are the most common reconciling items between the
governmental fund and governmental wide FS.
Economic Resources Internal Revenue Fund, Enterprise Fund and Pension Trust Fund, Agency Trust
Funds, Private Purpose Funds, Investment Funds
Full Accrual. Net investment in capital assets, restricted, unrestricted
Income Statement Basis of Accounting
Modified Accrual General Fund, Special Revenue Fund, Debt Service Fund, Capital Projects Fund,
Permanent Fund. Modified accrual basis of accounting revenue is recognized when measurable and
available. Available and measurable within 60 days. Measurable means quantifiable terms. Expenditures
are generally recorded when the related fund liability is incurred with some exceptions.
Full Accrual Proprietary (Internal Service Fund, and Enterprise Fund Fiduciary Pension Trust Funds,
Agency Funds, Private Purpose Trust Funds, and Investment Trust Funds.
Revenue is recognized when earned and expenses are recognized when incurred.
Constraints to modified accrual governmental funds.
1. Nonspendable Fund Balance prepaid expenses and inventories that cannot be spent are
classified as nonspendable.
2. Restricted Fund Balance restricted by external authorities (legislation, grantors, creditors,)
3. Committed Fund Balance resolutions, emcumbered
4. Assigned Fund Balance government intends to obligate (designations) but not formally
committed.
5. Unassigned Fund Balance move to the general fund with should have a positive
unassigned fund balance.
Nonspendable, Unassignable, Committed, Assigned, Restricted

Nonspendable Governmental and Special Revenue Fund

Unassignable Governmental (positive), Special Revenue Fund (Negative), Debt Service Fund
(Negative), Capital Project Fund (Negative), Permanent Fund (Negative)
Committed/Encumbered Governmental, Special Revenue, Debt Service, Capital Project
Assigned General, Debt Service, Capital Projects
Restricted General Fund, Special Revenue Fund, Debt Service Fund, Capital Project, Permanent
Modified Accrual Accounting
General, Special Revenue, Debt Service, Capital Project, Permanent
Current financial resources budget emphasis, budgets, emcumbrance/ committed
Similarities with US GAAP Modified Accrual Basis of Accounting
Double Booking Entries
Periodic balance sheets or statement of financial position (current assets and deferred outflows = current
liabilities and deferred inflows + fund balance)
Both serve to produce operating statements (no income statement in government funds reporting)
statement of revenues, expenditures, and changes in fund balance
Both use historical cost and comply with most GAAP
Safeguarding of assets and providing information that is useful for internal and external users of the
financial statements.
Fund = like a checkbook it is self-balancing.
Differences between Commercial GAAP and Modified Basis of Accounting (Governmental Funds)
US GAAP I/S to Retained Earnings to Balance Sheet to Next Year
Budget Activity Emcumbrances
Funds most comply with both legal statutes and GAAP.
No profit motive with funds, so no income determination.
Each fund is a separate entity; a self-balancing set of accounts
Budgetary accounting is emphasized in order to control spending.
Activity emphasizes the flow of current financial resources
Encumbrance accounting is used to record purchase orders
Revenue: measurable and available
Expenditures: all spending

Assets: expenditure
Encumbrance funds for purchase orders
A balanced budget supports interperiod equity as an objective of public administration and fiscal
accountability. Budget accounting may use cash basis of accounting or modified accrual basis of
accounting but expanded reported is required if budgets are not displaced on accrual basis of accounting
which is U.S. GAAP.
Budgets anticipates revenues and appropriates them current operations.
Revenue from Governmental Funds
-

Taxes, both income and sales

Taxes , both property and real estate
Fines and penalities

Other Financing Needs

-

Debt proceeds (bonds and notes)

Interfund transfers

Budgetary Accounting Journal Entries

-

Budgetary accounts are estimated accounts which are derived from real, proprietary, or actual
accounts.
Budgetary accounts are posted only twice during the year (unless a supplemental appropriation is
made)

-Journal entry
- Estimated Revenue control

2000000

-Estimated other financing sources (transfers in)

85000

Budgetary control (negative/deficit)

Appropriations control = approved spending

1950000

Estimated other financing uses

4000

Budgetary control (positive/surplus)

131000

End of period Journal entry

Appropriations

1950000

Estimated financing uses

40000

Budgetary control
Estimated revenue control

131000
20000000

Estimated other financing sources

85000

Activity revenue measurable and available

Expenditures - all spending
Assets expenditure (not carried/capitalized)
Debts other financing sources (NOT LTD)
Emphasis for activity is on the current financial resources (not on profit and loss). There is no application
of the matching principle.
Revenue usually means the collection period does not exceed 60 days after fiscal year-end.
Non-exchanged revenues
Derived Tax Revenues sales and income tax are measurable when measurable and available.
Imposed Non-exchanged Revenues fines or wealth (property taxes). Receivables are recorded when
enforceable legal claim. Revenue is recognized when their use is required or first permitted.
Government-Mandated Non-exchange Transactions higher government mandates another government
to perform an act. Environmental cleanup. Recognized when eligibility requirements are met and when
they are measurable and available.
Voluntary Non-exchange Transactions
Receives resources for no value in return grant agreements. Revenue is recognized when grant
restrictions are met and when they are measurable and available.
Imposed non-exchange revenues property tax and penalties recognize revenues when billed
Derived Tax revenues income taxes and sales taxes recognize revenue as it is received.
Expenditures operating and capital transactions. In addition, principal payments on debt is considered
a debt service expenditure. Capital purchases, debt service payments, and operating expenditures are
considered spending funds and are treated as current year expenditures.
Police cars and police officers salaries are both considered expenditures in the current year. No capital
accounts are set up on the books of governmental funds or depreciation taken.
Expenditure cash outlay
Cash vouchers payable
There is no matching principal.
Expenditure Debt service
Cash

25,000
25,000

Post expenditure journal entry when voucher payable is recorded.

Two different methods for accounting for expenditures for the governmental funds (1) Purchase method
and (2) Consumption method
Under the purchase method expenditure current assets when purchased such as supplies, prepaids,
and inventory reverse set up as a current asset if not used in the current year.
Expenditure supplies
Vouchers payable
Consumption method set up the asset as a current asset when purchased.
I.
II.
III.

Supplies
Inventories
Prepaid expense

Supplies Inventory
Vouchers Payable
Start expenditure on the item when the item is in use.
Expenditure Supplies
Supplies Inventory

On hand at year-end with the purchase method under the purchase method if an item is on hand at year
end record journal entry.
Supplies Inventory
Nonspendable fund balance inventory (General Fund and Special Revenue Fund)
Transfers between funds
Transfers out represent use of fund - move money you are not spending not expenditure
Other financing uses debt service fund
Cash (from the general fund)

The interfund transfer to the debt service fund is closed to the restricted fund balance at the end of the
period.
Classification of Governmental Expenditures Function program, organization unit, and activity
Function Program (PUBLIC SAFETY), Organization Unit (Police/Fire), Activity (Drugs, Highway)
Public program, organizational unit, activity

Public safety, police fire, drugs/highway

Function Program
Organization
Activity
Functional or Program
Major services offered by governmental unit. Program groups activities of governmental unit. Public
Safety, Health and Welfare, Education, Highway
Organizational Unit responsible for carrying out several programs. Police and Fire department help with
public safety. Organizational groups roll up into the functional group.
Activity serves as a basis for budget preparation and cost basis. how efficiencies measured.
Character current expenditures, capital outlays, debt service, and intergovernmental
Current expenditures benefit the current fiscal period prepaid expenses
Capital outlays which are presumed to benefit the current and future periods.
Debt Service which benefits prior fiscal periods as well as current and future periods. Payoff long term
debt.
Intergovernmental transfers one resource to the other governmental unit. It is a transfer of assets from
the general fund to debt service fund.
Object classes chart of accounts classification by the item purchased or the service obtained.
Fixed Assets are either purchased, constructed, or considered leased.
They are not expected to produce future revenues. Therefore, it is not capitalized on the funds books. It
is considered as an expenditure to the fund or a capital outlay from the Capital Projects fund. It is
reported on the governmental wide financial statement.
Timing of expenditure when liability is incurred (voucher payable)
Not when cash payment is made!
Expenditure capital outlay
Voucher payable
Debts (long term) or considered as other financing resources
Classified in governmental funds as other financing resources. The governmental funds do not carry the
long-term debt it is recorded on the governmental-wide financial statements.

Entry to record other financing resources:

Cash

1000000

Other financing sources bonds issued

Expenditure Principal

125000

Expenditure Interest

100000

Cash

1000000

225000

The debt service fund pays for principal and interest payments / expenditures benefit of the past, current,
and future periods.
Encumbrances commit funds for purchase orders.
Made to prevent overspending of appropriations and better for budget purposes.
Encumbrances

90000

Budget Control
Budgetary Control

90000
45000

Encumbrances
Expenditures

45000
44000

Vouchers payable or cash

44000

Encumbrances used often times in the general funds and special revenue funds
Journal entry to close outstanding encumbrances at year-end
Budgetary Control

45000

Encumbrances
Unassigned Fund balance (year-end surplus)
Fund balance, Committed

45000
45000
45000

Emcumbrances future purchase orders monitor the degree to which appropriations have been used.
Government-Wide Statement of Net Position
Assets + Deferred Outflows - Liabilities + Deferred Inflows = Net Position
Governmental Fund Balance Sheet = General, Special Revenue, Debt Service, Capital Asset, Permanent
Assets + Deferred Outflows = Liabilities + Deferred Inflows + Fund Balance
Total Liabilities, Deferred Inflows from Resources, and Fund Balance

Proprietory and Fiduciary (Internal Service, Enterprise)

Similar to governmental wide financial statements
Assets + deferred outflows = liabilities + deferred inflows
Service Concession Arrangements
Service concession arrangements include payments by an operator (often a private vendor) to a
government (transferor) for the right to operate and collect user fees from third parties on infrastructure or
other public assets. Revenue sharing between government and service concession arrangement (third
party). Third parties pay toll fee (the road company would be the operator and the people crossing the toll
fees would be the third parties).
Criteria for qualifying for deferred outflow or deferred inflow treatment
Transferor conveys to the operator the right to use the infrasture of public assets for either the following
1.
2.
3.
4.

Upfront payments
Installment payments
A new facility or improvements to the existing facility
The operator collects and is compensated by fees from third parties (the operator is the collector
of the fees from the third party)
5. The transferor determines or has the ability to modify or approve what rights the operator has in
respect to the agreement.
6. The transferor is entitled to significant residual interest get to keep the facility or improved
facility at the end of the agreement.
Transferor accounting (government who owns the infrastructure or public assets)
1. Transferor shows the infrastructure or public asset as a capital asset.
2. The transferor displays for significant contractual obligations.
3. Upfront or installment payments are displayed as an asset at their present value along with a
deferred inflow of resources.
4. Deferred inflow should be recognized in a rational and systematic manner.
State journal entry for letting Toll Company use assets
Cash

100000

Deferred Inflow of Resources

1000000

Derivatives Instruments and Hedge Accounting

Derivative instruments are used by state and local government entities to manage specific risks or to
make investments. manage certain risks and make overall investments.
1.
2.
3.
4.
5.
6.

Interest rate and commodity swaps

Interest rate locks
Options
Swaptions (embedded derivatives)
Forward contracts
Future contracts

Derivatives are reported at fair value.

Changes in value of derivatives used as investments are displayed within the investment revenue
classification.
Changes in value of derivatives used in hedging activities are reported as deferred inflows or deferred
outflows.
Derivative dislosures include objectives, terms of risk of hedging derivative instruments, summary of
investment activity, location of fair value amount reported in the financial statements.
Change in derivative activities are reported as either deferred inflows or deferred outflows.
Changes in investment activities are reported in earnings.
Termination of hedge accounting occurs when:
1.
2.
3.
4.

Hedging instruments are no longer effective.

Expected transactions (to be held) are no longer probable.
Hedged transactions are executed.
Hedged assets or liabilities are removed from the balance sheet.

Deferred Interest Rate Swap

40000

Deferred inflows of resources

Deferred outflows of resources
Future contract

40000
40000
40000

Imposed Non-exchange Revenue Transactions (sales and income taxes) any receivable should be
reported as deferred inflows of resources. Billed in December but not received until January.
Refunding of Debt
The difference between the reacquisition price and the net carrying value of the old debt should be
deported as deferred outflow (loss) or deferred inflow gain and recognized as a component of interest
enxpense over the remaining life of the old or new debt, whichever is shorter.
Sales and Intra-entity Transfers of Future Revenues should be reported as deferred inflows of resouces.
Debt Issuance Costs are immediately expensed in governmental wide financial statements similar to
proprietary and fiduciary fund statements.
Leases gains or losses resulting from the sale and leaseback transactions result in deferred inflows or
outflow or resources and are recognized systematically over the life of the lease.
Regulated Operations
Increase of Rate would be accounted for as an asset and a deferred inflow.
When the unavailable funds of a government fund are measureable but not available within 60 days after
fiscal year-end the amount should be recorded as a deferred inflow of resources.

Accounting and Financial Reporting for Pensions

Uses the concepts of deferred outflows and inflows to changes in the governments pension liability.
Changes in pension liability are accounted for in two different ways expensed or deferred outflows (SIR)
and deferred inflow of resources (AGE)
Expensed
Similar to commercial accounting changes that result from
1. Current Service Costs
2. Interest net return on plan assets (interest net return on plan assets)
Deferred Outflows of Resources and Deferred Inflows of Resources
1. Actuarial assumption changes
2. Differences between expected and actual results
3. Prior service costs are accounted for s deferred outflows and deferred inflows (Prior service
costs already earned are expensed)

Governmental Funds general funds, special revenue funds, debt service funds, capital project funds,
and permanent funds.
NU CAR Nonspendable General, Special Revenue Funds
Unassigned +General all other funds are negative
Committed General, Special Revenue, Debt Service, and Capital Projects
Assignable - General, Debt Service, Capital Projects
Restricted General, Special Revenue, Debt Service, Capital Project, and Permanent
The general fund is created for operations of the entity governmental unit (created at the beginning
stage of the governmental unit and lasts until it closes). General activities that are not accounted for in
any other fund.
Administrative and general services of the government salaries.
Revenue Sources Taxes income and state, property and real estate taxes, fines and penalties.
Taxes revenue for property taxes are recorded when billed and owed. Property taxes as the primary
revenue source.
Public Safety and Regulation fees and fines from police officers and inspections, offices, ect.
Intergovernmental shared or grant revenues from other governments may appear in the general fund.
Charges for services
Other revenues include investment earnings as well as other miscellaneous earnings.

Expenditure Types the general fund has the largest source of expenditures in the governmental funds.
General Government administrative expenses, finance, ect.
Public safety police department, fire department, jail, and building inspectations
Culture and Recreation parks, libraries,
Fixed Asset Accounting current resource measurements; thus fixed assets are expenditure and are only
reported on the governmental wide statements.
Modified Accrual accounting and Budgetary Accounting Focus
BAE budget, activity, encumbrance
Major Fund Status There is only one general fund per reporting entity and it is always reported as the
major fund.
Internal Financing
1. Make a loan to the special revenue fund for financing a special assessment
2. Making a contribution of equity or revenue from the general fund to the debt service fund.
3. Making up a deficit in the enterprise fund (which is a proprietary fund).
Default Classification major and misc. revenues, and major and misc. expenditures
Financial Statements of the general Fund
Balance Sheet = Assets and deferred outflows = liabilities and deferred inflows + fund balance
Required Supplementary Schedule of the general fund
Budgetary Comparison Schedule
Fund Balances Nonspendable, Unassigned, Committed, Assigned, Restricted
Statement of Revenues, Expenditures, and Changes in Fund Balance
Revenues Property Taxes, Fees and penalties, interest earnings
Expenditures General government, public safety, culture and recreation, other functional classifications
Excess (Deficiency) revenues over expenditures
Other Financing Sources (Uses) Transfers In and Transfers out transfers and bond proceeds
Special Items
Net Changes in Fund Balances _______________-Fund Balanced Beginning
Fund Balances Ending _______________--

Special Revenue Fund special revenue funds that are legally restricted or committed for specific
purposes other than debt service of capital projects.
Examples Special Revenue Fund
1. Sales Tax Fund (operate park and tourist facility)
2. Gasoline Tax Fund (operate and maintain street)
3. Funds to account for specific fees
A. Special fees (operate a school program)
B. Admission fees (operate a museum)
C. Parking fees (operate traffic court)
4. Grant Funds Expendable trust
A. State grants (state juveniles for rehabbing the youth of America)
B. Federal grant funds (federal financial assistance) Perkins Grant
Revenue Sources
Revenues are either classified as intergovernmental revenues or fees legally restricted revenues
intergovernmental revenues or fees.
Intergovernmental Revenues specific taxes and shared taxes or grants
Fees
1. Fees collected
2. Other earmarked revenue sources
Expenditures
The character of the special revenue fund expenditures include:
A. Current operating expenditures ex. Street maintenance
B. Capital Outlays highway construction not special assessment )
C. Both current operating expenses and capital outlays
Modified Accrual accounting current financial resource
Donations when donation is received by an expendable trust, cash or current asset is debited and
revenue account is credited. Donations may be
1. Donor/grant restricted (principal and interest);
2. Government restricted.
a. Forfeiture act illegal activities
Grants
When a grant is received, the recipient government monitors and determines eligibility.
Monitoring grant = special revenue fund
Non-monitoring grant = agency trust
Financial Statements
Statement of Revenues, Expenditures, and Changes in Fund Balance

Special Revenue Fund

Revenues
a. Intergovernmental
b. Interest earnings
Expenditures
a. Culture and recreation operating expenses
b. Current Capital Outlays
Excess (deficiency) of revenues over expenditures
Other Financing Sources (Uses)
Transfers Out
Net Change in Fund balance
Service Debt Fund
The purpose of the service debt fund is to pay for the accumulation of resources (cash and investments)
and the payment of currently due interest and principal on long-term debt which is generally a serial
bond. Serial bonds mature in several installments. Setting aside cash and cash equivalents to pay debt as
its due.
The debt service fund pays off debt of the general, special revenue, debt service, capital project, and
permanent funds.
The debt service fund does not pay the debt of the internal service fund, enterprise fund, pension trust
fund, agency trust fund, private project trust fund, or investment trust fund.
Revenues are derived from allocations of taxes and transfers from the general fund or other funds.
Refinanced debt usually results in proceeds from general obligation refunding bonds (9ncluding
premiums) approved by taxpayers.
Cash

10000

Interfund transfer general fund

10000

Mandatory Transfer (other financing sources)

Cash

80,000

Interfund transfer from capital projects fund

Journalizing Investment Income

Cash

36000

80000

Revenue investment income

36000

Expenditure
Expenditures

10000

Cash (matured interest payable)

10000

Encumbrance accounts are not used in the debt service fund. Interest payments are considered
expenditures.
Journalizing Principal Expenditures
Expenditures

250000

Cash (matured principal payable)

250000

Expenditure timing principal and interest payments should be recorded based on the bond indenture.
There is no profit motive thus, no need for matching principle.
Treatment of Premiums and Discounts
Bond premiums and discounts are treated as a component of bond proceeds at the time of bond issuance
There is no amortization of bond premium of discount
Legal Mandate requirement for payments to be made or for outstanding interest and principal
payments.
Repayment of Other Governmental Debt
The general fund may pay interest and principal payments directly to bondholders instead of transfers to
the debt service fund, unless the use of the debt service fund is mandated. legally mandated general
fund can make interest and principal payments unless legally mandated.
Asset Balances
Similar to sinking fund buys investments, earns interest, and pays of debt with accumulated investments
Balance Sheet
Assets
A.
B.
C.
D.

Cash and Cash Equivalents

Due from Capital Projects and Other Funds (Receivable)
Investments
Interest Receivable on Investments

Liabilities
A. Matured Bond Payable
B. Matured Interest Payable

Fund Balance
A. Restricted Service Debt Retirement
Total Liabilities and Fund Balance
Closing out Fund Balance for the Debt Service Fund
Budgetary Control

6000

Appropriations

30000

Estimated Revenue Control

36000

Activity is Closed at Year-End

Journal Entry to Close Actual Amount
Transfers from the capital projects fund

80000

Transfers from the special revenue fund

25000

Transfers from the capital projects fund

40000

Other Revenues

36000

Expenditures, restricted for debt service

126000

Expenditures, matured interest payments

30000

Expenditures, matured principal payments

250000

Capital Projects Fund Purchasing Department

For the construction, purchase of assets, or leases. The life of the capital project fund is short and limited
to the life of the construction period 1 to 3 years.
-1 to 3 years is the life of the capital projects fund.
Examples:
1.
2.
3.
4.

Conventional Center Construction Fund

Municipal Stadium Construction Fund
County Courthouse Construction Fund
Construction Fund Accounting for Special Projects such as streets and street lights benefiting
only those property owners who will pay for them.

Revenues and Other Financing Sources

Generally are funded by bond proceeds that are used to complete a construction project from 1 to 3 years
under construction. Specific tax revenues or grants. Investment earnings may also appear in the fund.
Immediately transferred to bondholders or debt service fund.

Investment Earnings Unexpended capital projects resources are typically invested. Earnings recorded
are handled in manner that is prescribed by the law. \
Tax Revenues
Capital Grants received advance are often recorded as liabilities and displayed as earned as they are
expended. Government grants may be restricted and reported as revenues when earned
Journal Entry to record unrestricted governmental grant:
Cash

1000000
Revenue

1000000

Journal entry to recorded restricted government grant:

Cash
Revenue collected in advance (deferred revenue) recognize the revenue when earned.
Journal entries to recognize revenue restricted (when spent) by a cost reimbursement contract:
Expenditure

25000

Vouchers payable/cash

Revenues collected in advance

25000

25000

Revenues

25000

Journal entry to record a special revenue transfer:

Cash (Due from Special Revenue Fund)

15000000

Other financing sources (transfers in)

1500000

Special Assessments are defined as taxes or fees levied against property owners who will directly benefit
from the project sidewalks, streetlights, and so on.
Primarily or Potentially Liable account for the capital project and debt related transcations through
appropriate governmental or proprietary fund.
Not primarily or potentially liable for the special assessment transactions should be reported by the
agency fund.
Assets and liabilities should be excluded from governmental wide financial statements
Bond Issuance Proceeds other financing sources IS
The amount of net bond issue proceeds is reported on the statement of revenues, expenditures, and
changes in fund balance as other financing sources bond proceeds other financing sources
Bond par value bond proceeds other financing sources

Bond premium (SR > MR) separating applied as financing sources.

Bond Discount (MR >SR) separately applied as financing uses.
Other bond issuance costs are displayed as debt service expenditures when they are incurred.
Cash

2080000

Other financing sources bond premium

80000

Other financing sources bond issue proceeds

2000000

If premium the premium amount is immediately transferred to the debt service fund
Interfund transfer debt service

80000

Cash

80000

Investment in CD

2000000

Cash
Cash

2000000
40000

Interest Income
Interfund transfer to debt service fund
Cash
Encumbrances

40000
40000
4000
11000000

Budget Control
Budget Control

11000000
11000000

Encumbrances

1100000

Expenditures

600000

Cash (or vouchers payable)

Expenditures
Other financing sources

600000
60000
60000

Above entry is capital lease capital lease credit other financing sources.
Governmental Wide Financial Statements- Capitalize at lower of cost of market
Purchase Cost to buy
Construction Cost to construct
Capital lease PV of lease payments

Donated FMV
Forfeiture Lower cost (to acquire) or market
Bond Liability = Report on governmental-wide financial statements. A bond liability is not reported on the
capital project fund financial statements.

Journal entry to close the budget

Appropriations

2000000

Estimated Financing Sources (Transfers In)

2000000

Actual Activity is Closed YE

Encumbrances are closed at year end restricted fund balance at year end outstanding encumbrances
at year-end should be carried forward as a component of the fund balance. The entire amount is
presumed to be restricted for capital outlay.
Permanent Fund Permanent funds used to report resource that are legally restricted to the extent that
only earnings, not principal, may be used. Only interest may be used on permanent fund. Benefit the
public.
Examples of permanent funds equivalent of a nonexpendable trust fund.
Revenues from permanent funds are from investment earnings from trust.
Expenditures related to the operations of the permanent fund (park maintenance)
Two types of governmental funds that do not use encumbrances (1) Debt Service Fund (2) Permanent
Fund
Public Interest Funds
Special Revenue fund available for public spending both principal and interest
Permanent fund available for public spending is only interest.
Proprietary Funds Internal Service Fund and Enterprise Fund. Full Accrual basis, and economic
resource measurement. Statement of Net Position, Statement of Revenues and Expenses, Statement of
Cash Flows, and Footnotes
Internal Service Fund Customer / not citizen Cost reimbursement basis provide for cost
reimbursement of supplies and services for other governmental unit.
Central janitorial department, central garages and motor pools, self insurance
Revenue Sources
Restricted grant revenues are recognized when revenues are earned.
Operating Revenues (Bills for Services) are recognized when the operating revenue is eared

Cash (or due from other Fund)

Billings to other departments (operating revenue)
Operating expenses are related to the delivery of services appear in the internal service funds.
Recognize expenses as incurred.
Accrual accounting
Recording long-term liabilities and fixed assets are recorded in the internal service fund.
Depreciation is recorded fixed assets capitalized
Budgetary accountants and encumbrances not available
Net Position = displays three categories Restricted, Unrestricted, Net Investment
RUN Restricted, Unrestricted, and Net Investment
Contributions from other funds
Cash

100

Interfund transfers

100

Sale of general obligation bonds or capital leases

Cash

100

Long term bond payable

100

Cash
Due to other fund
Self insurance funds = internal service funds
Net Position
Net investment in capital assets
Restricted for debt services
Unrestricted
Net position in IE PAPI
Reconciling Items (Government and Proprietary Funds)
Enterprise Fund Customer/ not citizen
Public utilities, public hospitals, public universities although government models may be used not
private as those are not-for-profit.

Public transportation systems

Activity is financed with debt solely by a pledge of net revenue from fees and charges.
Off-street parking lots and garages, public benefit corporations, airports, golf courses and swimming
pools, lotteries
Revenue sources classified between operating and non-operating revenues.
Operating Revenues
Charges for services water and sewer billings
Miscellaneous Operating Revenues
Shared Revenues is a non-operating revenue collected by one government and shared on a
predetermined basis with another local government. They are nonoperating revenues of the local
government.
Operating Expenses are classified into (1) personal services (2) utilities (3) depreciation
Nonoperating expenses most commonly include interest expense
Equity = Net Position Net investment in capital assets, Restricted (for purpose), Unrestricted
The proprietary funds do not have budgets or encumbrances.
Contributed capital accounts arise from contributions from governmental funds to proprietary funds.
Contributed capital is not shown on the face on the balance sheet.
Enterprise funds are used when revenues are expected to be > than 50% from the general public or selfsupported by user charge.