6-

Chapter 2

Reporting Entity
A reporting entity consists of: A primary government (including fiduciary funds) and Component units

The Use of Funds in Governmental Accounting

Reporting Entity (Contd)

A primary government can be A state government General purpose local government, or a Special purpose government that has a separately elected governing body, is legally separate, and is fiscally independent of other state or local governments
3

Reporting Entity (Contd)

A component unit Is a legally separate organization for which the elected officials of a primary government are financially accountable Also, report as a component unit if the organizations relationship with a primary government is such that exclusion would cause the reporting entitys financial statements to be misleading
4

The Use of Funds in Gov. Accounting

What is a Fund?
A fund is a separate fiscal and accounting entity
Self-balancing set of accounts Segregates financial resources, liabilities payable from fund resources, and fund equities to attain objectives specified by regulations, restrictions, or limitations

Conceptually, a fund has its own set of books and statements (i.e., chart of accounts, general journal, general ledger, trial balances, and financial statements)
See handout (reporting model.pdf) for a clear version
5 6

6-

Fund Categories
Governmental-type funds
General fund; special revenue funds; debt service funds; capital projects funds; permanent funds

Financial Reporting with the Use of Funds

Government-wide Financial Statements Governmental Funds Statement of Net Assets Reporting Entity Statement of Activities Proprietary Funds Fund Financial Statements
Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance Statement of Net Assets Statement of Revenues, Expenses, and Changes in Fund Net Assets Statement of Cash Flows

Proprietary-type funds
Enterprise funds; internal service funds

Fiduciary-type funds
Agency funds Trust funds: pension trust funds; investment trust funds; private purpose trust funds
Fiduciary Funds

Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets

Measurement Focus
What is being expressed and what resources are being measured? Economic resources measurement focus
Take account of transactions affecting financial and capital resources

Basis of Accounting
When the assets, liabilities, revenues and expenses (or expenditures) are recognized in financial statements Full accrual
Revenues recognized when earned; expenses recognized when incurred

Current resources measurement focus

Focus on the inflows and outflows of current financial resources
9

Modified accrual
Revenues recognized when measurable and available; expenditures recognized when measurable and available resources being used

10

Measurement Focus and Basis of Accounting

M e a su r em en t F o cu s G o v e rn m en t-w id e statem en ts (G A S B 3 4 ) G o v e rn m en ta l fu n d statem en ts P ro p rie ta ry fu n d statem en ts F id u cia ry fu n d statem en ts E c o n o m ic re so u rce s C u rren t fin an c ial re so u rce s E c o n o m ic re so u rce s E c o n o m ic re so u rce s B a sis o f A cc o u n tin g A c c ru a l

Which Funds to Record?

1. 2.

M o d ified ac c ru a l A c c ru a l A c c ru a l

3.

The city made a contribution to the employees retirement fund. Taxes that are dedicated to street repairs were collected. The ordinance establishing the tax requires a separate accounting for these monies. The contractors who were building a bridge were paid.
12

11

6-

Which Funds to Record?

4.

Which Funds to Record?

7.

5. 6.

General governmental revenues were transferred to the fund that accumulates resources to retire general long-term debt. The salary of the chief of police was paid. The central supplies fund sent out bills (covering the cost of the supplies plus overhead) for supplies provides to the Police and Fire departments and to the city airport.
13

8.

9.

The city received a gift from a citizen to be held in perpetuity. The investment income must be used to provide free concerts in city parks. Bonds were issued to finance construction of an office building. The Police Department purchased three police sedans, using general tax revenues. (The purchase was not considered to be a major capital project.)
14

Which Funds to Record?

10.

Which Funds to Record?

11.

Sales taxes were collected by the state Tax Department. One-half of the collections was deposited in the fund that accumulates resources to finance day-today operating activities, and one-half was held for remitting to other governments on whose behalf the state collects tax.
15

12.

13.

The city sold some of its excess office equipment. The proceeds were to be used for general city operations. General obligation bonds were retired, using monies accumulated in a fund used solely for that purpose. The county bus system, accounted for as a separate fund, sold bonds to finance a bus depot.
16

Which Funds to Record?

The city uses a separate fund to account for its central purchasing function. Supplies were purchased by this fund. 15. A citizen donated securities to the city, stipulating that the principal amount must remain intact and the income must be spent to provide free food to the elderly at the city-operated senior citizen centers.
14.
17

Which Funds to Record?

The village treasurer received property tax revenues and deposited them to the credit of a fund dedicated solely to the operation of the village library. 17. The county treasurer distributed to school districts the school districts shares of the earnings from investments made by the county-operated investment pool.
16.
18

6-

Governmental-Type Funds
General Fund (GF)
Only one per government A residual fund Most financial transactions related to general government operating activities are recorded in the GF General activities of city government (e.g., fire, police, parks and recreation)

Governmental-Type Funds
Special Revenue Fund (SPF)
Accounts for financial resources that are restricted or committed (does not include assigned) to expenditure for specific purposes other than debt service or capital projects. Accounting and budgeting are identical to GF Example: City of Fremont has 32 SRF funds for ex. Tri-city elders, HOME grant, traffic congestion, Every child counts grant.
19 20

Governmental-Type Funds
Debt Service Funds (DSF) Used to account for financial resources that are restricted, committed, or assigned to expenditures for principal and interest.

Governmental-Type Funds
Capital Projects Funds (CPF)
Used to account for financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition of capital facilities and other capital assets. Ex. City of Hayward has Route 238 fund, Traffic signal construction fund, etc.

21

22

Governmental-Type Funds
Permanent Funds (PF)
Used to account for resources that are restricted to the extent that only earnings, and not principal may be used for purposes that support the reporting governments program, i.e. for the benefit the government and its citizenry. Example: a perpetual-care public cemetery fund, or an endowment made to a public library, where the endowment must be maintained in perpetuity, and the income generated by the endowment must be used to purchase library 23 books.

Governmental-Type Funds: Current Financial Resources and Modified Accrual Revenues recognition
Revenues recognized when measurable and available
collectible within the current period or soon enough thereafter so it can be used to pay the bills of the current period)

Expenditure recognition
Includes capital asset acquisitions and debt service (payments of debt principal and interest) Expenditure recognized when consume current financial resources

24

6-

Governmental-Type Funds: Current Financial Resources and Modified Accrual Use Expenditures not Expenses Bond proceeds (as other financing sources) and debt repayment (as expenditures)

Governmental-Type Funds: Required Financial Statements Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of total fund balances of governmental funds to total net assets of governmental activities at the governmentwide level Reconciliation of total changes in fund balances of governmental funds to total changes in net assets of governmental activities at the government-wide level
25 26

An Example of Balance Sheet for GF

Assets = Liabilities + Fund Balance Assets could include:
Cash, investments, property taxes receivable, due from other funds, advances to other funds, etc.

An Example of Operating Statement for General Fund

Revenues = Expenditures Excess (deficiency) of revenues over expenditures

Liabilities could include:

Vouchers payable, due to other funds, advance from other funds, etc.

+/ - Other Financing sources and uses, including transfers +/ - Special and extraordinary items = + = Net change in fund balance Fund balance at beginning of period Fund balance at end of period
28

Fund balance (GASB Statement No. 54)

Nonspendable, restricted, committed, assigned and unassigned 27

Proprietary-Type Funds
Enterprise Funds (EF)
Used to account for activities in which goods or services are provided to the general public for a charge Ex. include electric and water utilities, airports, parking garages, transportation systems, and liquor stores EF are reported as business-type activities in the government-wide financial statements. Ex. City of San Francisco has San Francisco International Airport, Hetch Hetchy Water and Power, Municipal Transportation Agency, etc.

Proprietary-Type Funds
Internal Service Funds (ISF)
Used to account for activities in which goods or services are provided to other departments of the same government or to other governments for a charge on a cost reimbursement basis. Examples include central stores, central computing, motor pools, and printing. ISF are reported as governmental activities in the government-wide statements because they primarily benefit the government. (ex. City of Haywards workers compensation insurance, 30 equipment management).

29

6-

Proprietary-Type Funds: Economic Financial Resources and Full Accrual Revenues recognition
Revenues recognized when earned

Proprietary-Type Funds: Required Financial Statements Statement of Net Assets

Report restricted assets and liabilities payable from restricted assets

Expenditure recognition
Expenditure recognized when incurred

Report Expenses not Expenditures Capital assets and long-term liabilities are accounted for in the funds Depreciation expense is reported in the funds.
31

Statement of Revenues, Expenses, and Changes in Fund Net Assets

Include capital contributions

Statement of Cash Flows

Report four classifications of cash flows Use direct method only
32

Fiduciary-Type Funds
Agency Funds (AF)
Account for financial resources for which the government is acting in an agency capacity Accounting is simple: assets = liabilities Since there are no net assets, there are no additions to, or deductions from net assets Examples: tax agency funds and passthrough agency funds
33

Fiduciary-Type Funds
Pension (and Other Employee Benefit) Trust Funds (PTF)
To account for financial resources in which the government (or other designated trustee) is acting in a trustee capacity for the employees of the government to provide retirement benefits

34

Fiduciary-Type Funds
Investment Trust Funds (ITF)
Used to account for external investment pools in which the assets are held for other (external) governments, along with funds of the sponsoring government. Assets, liabilities, net assets, and changes in net assets related to the equity of the external participants are reported in this fiduciary fund

Fiduciary-Type Funds
Private-Purpose Trust Funds (PPTF)
To account for financial resources (expendable or nonexpendable) in which the government is acting in a trustee capacity for private individuals, organizations, or other governments For example, a fund to provide scholarships for the children of firefighters is a type of private-purpose trust funds
36

35

6-

Fiduciary-Type Funds: Economic Resources and Full Accrual

Capital assets and long-term liabilities are recorded in the funds, if applicable Additions (to net assets) and deductions (from net assets) are recorded instead of revenues and expenses Fiduciary activities are reported in two fund financial statements: statement of fiduciary net assets and statement of changes in fiduciary net assets Fiduciary activities are not reported in the government-wide financial statements

37