Unique Aspects of Accounting - State and Local Governments: Week 12

Week 12: Unique Aspects of
Accounting – State and Local

Governments
Public Health Accounting and Budgeting
Lili Elkins-Thompson
2
Review of Understanding Financial

Statements
Financial Decision Making and Financial
Equilibrium
• Financial Decision Making
▫ Should be consistent with an institution’s established
priorities
▫ Without such priorities, determining the appropriate trade
offs is difficult as an institution tries to move closer to
financial equilibrium
• Financial Equilibrium
▫ An institution is in financial equilibrium when it has
achieved a balance between its short and long term financial
needs
▫ Financial equilibrium and strategic planning are long range
tools that complement each other
Five concepts underlie the financial
equilibrium model
• Current revenues should equal or exceed current
expenses
• Revenues should grow at least as fast as expenditures
• The value of an institution’s endowment – its
investment capital – should be at a minimum
preserved, and at best increased
• The value of an institution’s physical plant – its
facilities capital – should be at a minimum preserved,
and at best increased
• Appropriate investments (i.e. competitive salary and
benefits packages) should be made in an institution’s
faculty and staff – its human capital
Opinion Letter – Yellow Flags
• First Sentence
▫ "We have compiled or reviewed the financial statements . . .
▫ An audit is the highest level of assurance possible. All but the
smallest of nonprofits should have a yearly audit. A review or
compilation does not offer a proper degree of accountability.
•Third Paragraph or Later
▫ "Except . . . “
▫ Auditors expect their opinion to hold true for the entire set of
financial statements. If they exclude a part by a phrase
beginning in this way, they are alerting you to an area of the
document which is not as reliable as the rest.
Opinion Letter – Red Flags
•Third Paragraph or Later
▫ " . . . question its ability to continue as a going concern.“
▫ Auditors and financial personnel always assume that an entity
will continue to exist indefinitely. But if serious financial
problems raise doubt for them, they will note this in the
opinion letter. STOP! Get solid answers to your questions
before proceeding.
Elapsed time between dates
•Yellow Flag
▫ The difference between the end of the fiscal year and the date of
the opinion letter is more than 90-120 days
▫ The agency may not have been ready for its yearly audit due to
mild internal disorganization in its accounting or other
functions.
•Red Flag
▫ The difference between the end of the fiscal year and the date of
the opinion letter is more than 120 days
▫ The agency almost surely had such organizational problems that
it could not prepare for an audit on time. The results are out of
date as soon as they are released.
Using a Balance Sheet to Determine
Financial Health
• Have funds been advanced and reserved for future

activities?
▫ If so they’ll be noted in the liabilities section as either
deferred revenue or refundable advance
▫ Both terms refer to earned or contributed funds that have
been received but must be returned if either the contract or
the grant cannot be performed
▫ It is not uncommon to see large deferred revenue liabilities
on a non-profit’s balance sheet without corresponding cash
assets – this may be a sign that to make ends meet, the
organization must rob Peter to pay Paul
Using a Balance Sheet to Determine
Financial Health
• Start with the big picture – are assets greater than liabilities
• Compare cash on hand to current liabilities – in other words,
compare the amount of cash to the amount of bills due but not
paid
• Is the nonprofit building rich but cash poor – too much reliance
on bricks and mortar can make it difficult to pay bills and can
cause cash flow problems (the tighter the economy the more
important cash flow becomes)
• Does the organization have a payroll tax problem
▫ If yes it will be in the liabilities section of the balance sheet
▫ Failure to pay payroll taxes is the easiest but most dangerous way for
a nonprofit to fall behind
▫ IRS can collect with seizure of grant funds for back debt
Balance Sheet: Largest Asset
•Find the largest single asset on the balance sheet.

▫ Learn who in the organization controls that asset.
▫ Controlling the largest single asset in any organization gives a person or
department a great deal of influence over the future of the organization.
•Accounts Receivable
▫ If the largest asset is accounts receivable, the organization's future
financial health is dangerously concentrated in an outside entity.
▫ If that entity does not eventually pay all of the receivables, the agency
will experience financial problems.
Other Balance Sheet Issues
•Significant Tax Liability

▫ If the organization shows a significant tax liability (look under
under current liabilities) this is a yellow flag.
▫ Any organization showing a significant liability for payroll taxes
(more than 1% of yearly payroll) may have missed a payroll tax
payment and therefore owes the IRS money.
▫ This may indicate a chronic cash flow shortage.
•Negative Net Assets
▫ Negative total net assets (a number in parentheses) is a Red Flag
▫ Negative total net assets means the organization is close to
bankruptcy. This indicator should be taken seriously.
What you should be able to tell from the
Statement of Activities
• Did the nonprofit bring in enough money to cover its
expenses?
▫ All unconditional grants and pledges are recognized as income
in the year the grant or pledge is made
▫ Conditional grants or pledges are not recorded
▫ For example:
 A 3 year foundation grant is recognized as income in the first year
of the award even though its paid out over multiple years
 This income recognition method may lead to an impression that
the organization has more money than it does
 Organizations can sometimes avoid this because Some
foundations promise multiple year awards verbally but only
contract one year at a time
▫ To get a true picture of the annual income and expenses of an
organization, read the “unrestricted” column or category only
▫ For the most part, future income will be classified as “temporary
restricted”
• What is the mix of money coming into the organization?
▫ Nonprofit income falls into two general types: support
(contributions) and revenue (contract or fee income)
▫ Understanding the organization’s income mix is more important
than ever as government funding shrinks and non-profits must
replace it
• If the organization shows a deficit in the unrestricted
category, why did it occur?
▫ Be sure you are only looking at the unrestricted category (new
language requirements may make statements appear as if a
deficit exists in other categories when, in fact, it does not)
▫ You should learn why the deficit occurred, if it exists, and
determine if you should cut expenses or increase revenues
• What in-kind support does the organization receive from the
community?
• After expenses, what was the “take home pay” from special events for
fundraisers?
• What were the earnings from temporarily restricted or permanently
restricted net assets?
▫ FASB requires nonprofits to reallocate investment earnings from either of
these net asset classes, as well as their realized and unrealized gains and
losses, as “unrestricted” income unless otherwise specified by donor or law
▫ Although investment earnings and capital appreciation are accounted for
now as unrestricted income, don’t assume the nonprofit has “cashed out”
such assets for use as annual income
▫ More likely, the nonprofits will continue their prior investment practices,
especially with permanent funds
• What percentage of total expenses was spent on program,
administrative and fundraising activities?
▫ Program expenses should represent at least 70% of the total expense
Statement of Revenue and Expenses
•Negative Change in Net Assets:
▫ A negative change in net assets means that the organization lost
money that year.
▫ A change in net assets of less than about -5% should prompt
further investigation of the organization, its programs and
services, its funders, and its stability.
▫ A change in net assets of more than about -5% should prompt
serious investigation of the organization, and its future stability.
Such significant losses cannot be sustained indefinitely.
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Rules Specific to Governments

Basis of Accounting
• Cash Basis
▫ Records changes when cash is paid in or out
▫ Places emphasis on inflow and outflow
▫ Used by most individuals
• Accrual Basis
▫ Records revenues in period earned, assets in the period
purchased, liabilities in period incurred
▫ Places emphasis on earning and the point where resources are
consumed
▫ Widely practiced in private sector and proprietary non-profits
▫ GAAP Standards Require the Use of Accrual Basis
Basis of Accounting (cont.)
• Modified Accrual Basis
▫ Accrued interest on general long term debt, inventory and
disbursements may be recorded at the time of purchase or when
used.
▫ Prepaid expenses are normally recorded or recognized on the
accrual basis at the time the liability in incurred
▫ Revenues are recorded when received and those that are
measurable and available for expenditure are accrued to properly
reflect the taxes levied and the revenues earned
▫ Permits expenditures to be fully stated (or perhaps overstated)
while the reverse is true for revenue
▫ Enhances the possibility for creating a surplus and
reduces the chances for generating a deficit
Advantages and Disadvantages: Modified
Accrual Basis
• Compromise between the extremes
• Advantage:
▫ Increases the accuracy of accounts without all the additional
costs associated with the accrual system
• Disadvantage:
▫ Requires additional personnel because of complicated
bookkeeping
A Third Basis of Accounting: Modified Accrual
 Cash Accounting recognizes revenues when cash is received and
expenses when bills are paid (focus on cash movement).
 Accrual Accounting recognizes revenue when goods or services have been provided and recognizes expenses when resources have been used (focus on
when revenues are earned or resources are consumed).
 Governmental funds use Modified Accrual Accounting. Expenditures are recognized when resources are received. Revenues are recognized when
they are measurable and available within the accounting period or shortly afterward (focus on financial resources).
– Financial resources are cash or assets that can be translated
to cash, less current liabilities.
Financial Management for Public, Health, and Not-for-Profit Organizations, 4th Ed. © Pearson Education 2013
Inflow (Revenue) Recognition
Measurable Earned Collected
and Available
Payment has been Service has Payment has

received or will be been provided. been received.
received soon.
Accrual Cash
Modified Basis
Accrual Basis Basis
Note: Governmental resource inflows are available if they are deemed to be

collectable during or shortly after the end of the accounting period. This may
happen before cash is received.
Note: It is possible to collect revenue before it is earned (i.e. deferred revenues)
Outflow (Expense or Expenditure)
Recognition
Encumbrance
Delivery Payment
Use
Appropriation
Authorization Order has Order has Payment is Item is

to spend money. been placed. made. consumed.
been received
by buyer.
Cash Accrual
No expense No expense Modified Basis
at this time at this time— Accrual Basis
—any basis. any basis. Basis— Expense Expense
Expenditure now. now.
now.
Note: The order or events may also be different with resource outflows. For example, a
resource might
Financialbe used before
Management it Health,
for Public, is paid andfor.
Not-for-Profit Organizations, 4th Ed. © Pearson Education 2013
An Important Note on Definitions
• Expenditures – Used in Modified Accrual Accounting
rather than Expense
▫ In Cash Accounting an expense is incurred when cash is paid
▫ In accrual accounting an expense is incurred when a resource
has been consumed in the process of generating revenue
 In accrual accounting an expenditure occurs as soon as the
organization becomes legally obligated to pay for a resource
 An expenditure is recognized when resources are acquired, while
expenses are recognized when resources are consumed.
▫ In modified accrual accounting:
 Upon ordering an encumbrance would be recorded (reminder of
money being earmarked)
 When the item arrives and the organization is legally
required to pay the expenditure is recorded.
An example:
Event Cash Basis Accrual Basis Modified
Accrual
Basis
5/1 Order is No transaction No transaction is No transaction
Placed is recorded recorded is recorded
6/15 Item arrives No transaction No expense Expenditure is
is recorded transaction is recorded recorded
(you would record
another transaction, i.e.
inventory)
7/4 Item is used No transaction Expense is recorded No transaction
is recorded is recorded
8/15 Payment is Expense is No transaction is No transaction
made recorded recorded is recorded
Additional Implications of Modified Accrual
Accounting
 No long-term assets.
- Long-term acquisitions such as buildings and equipment are recognized as expenditures when acquired.
- There is no recognition of depreciation.
 No long-term liabilities.
- Principal (repayment of debt) and interest are recognized
as expenditures when paid.
 Proceeds from borrowing are treated as a nonrevenue source of fund balance rather than as a liability.
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Long Term Liabilities

• When an organization borrows money on a long term
basis, a liability is not created in modified accrual
accounting. The table below illustrates the transaction
Assets = Liabilities + Fund Balance
Cash Increase = Other Financing
Sources Increase
• This is viewed as controversial

▫ The loan has the same impact on the fund balance as revenue
▫ Additionally the government is borrowing money without
recording any obligation to pay it back
• This is in large part due to government’s focus on current
year cash flows
Fixed Assets
• All expenditures are accounted for in the current
year – there are no long term assets
▫ This includes buildings and other infrastructure
▫ In other words the full$100m building is expensed as soon as it is
acquired.
▫ The value of the building can’t be overstated on the balance sheet,
so no depreciation is needed
• Additional Issues
▫ If the building is financed, the interest on the long term debt due
after the year end is not normally accrued under modified accrual
accounting
▫ Some other expenses (i.e. accrued salaries) would be accrued.
Summary of Differences Between Bases of
Accounting
Accrual Modified Accrual
Outflows When resource When resource is acquired,

(Expenses or Expenditures) is used legal obligation to pay exists
and payment will come from
available resources
Inflows When resource When resource is legally

(Revenues) is earned owed, measurable and
available
Assets Current and long Current
term
Liabilities Current and Current
long term
Exceptions allowable under
Modified Accrual Accounting
• Materials and supplies may be recorded based
on either a purchases or consumption method
• Prepayments can be recorded as an expenditures
using either a purchases or consumption
approach.
Governments and Fund Accounting
 Governments generally don’t have to match specific sources of revenues to expenses
 Governments use funds to account for separate sub-entities.
 Governments have three major classes of funds:
- Governmental funds account for the operating activities

of governments (Modified Accrual Accounting).
- Proprietary funds account for activities that are run on

a business-like basis (Accrual Accounting).
- Fiduciary funds account for the government’s activities

as trustee and agent (Accrual Accounting).
The Governmental Funds
 Governmental funds include:
- General Fund used for the bulk of the day-to-day revenues

and expenditures of the government.
- Special Revenue Funds for the revenues and expenditures
of specific activities that are subject to legal or management-imposed restrictions.
- Capital Project Funds to account for major acquisitions of
plant or equipment.
- Debt Service Funds to account for the accumulation of
resources to pay for principal and interest on long-term debt.
- Permanent Funds, which are similar to endowment funds.
Proprietary Funds
 Proprietary Funds are used for activities that are run on a
business-like basis. Revenues come from fees, tolls, and
other charges:
- Internal Service Funds are established to account for

elements of the government that provide services to other governmental units.
- Enterprise Funds are established to track the activities of governmental units which provide goods and services to
individuals and organizations outside of the government.
 What are some examples of each type of fund?
Fiduciary Funds
 Fiduciary funds are held for another. They are not the
resources of the government.
- Trust Funds are established whenever money is given to

a government under the terms of a trust agreement such as
for an employee pension plan or an unemployment
compensation fund.
- Agency Funds are used to account for money that a

government is holding for some other operating entity such as a volunteer fire department or another level of government.
Modified Accrual Transactions
 The Town of Millbridge buys and receives some fireworks on January 15th that it intends to use on July 4th. It receives a bill from the manufacturer for $50,000. How
would the transaction be recorded by the Town under modified accrual accounting?
Modified accrual accounting (purchase approach)

No Change = A/P + $50,000 - Expenditure $50,000
 Governments generally record transactions using modified accrual, but have the option of using modified accrual or accrual for prepayments, materials, and supplies.
Property Tax Transactions
 Millbridge issues $611,000 in property tax bills this year. Total collections for
the year are $600,000 made up of $575,000 of this year’s taxes and $25,000 from
last year’s tax bills. The remaining $36,000 from this year is expected to be collected within 60 days of year-end. It is “available”. How would these financial events be recorded?
Recording the property taxes billed this year
Taxes Tax
Receivable + $611,000 = No Change + Revenue $611,000
Recording the receipt of $600,000 in collected taxes
Cash + $600,000
Taxes Receivable - $600,000 = No Change + No Change
 Where are the $25,000 in last year’s collected taxes and the $36,000 in uncollected taxes from this year in these transactions?
Long-Term Liabilities
 When a government borrows money on a long-term basis:
- No liability is created on the balance sheet.
- Cash is increased and the fund balance is increased.
 This is how a $1,000,000 loan would be recorded:

Other Financing
Cash + $1,000,000 = No Change + Sources $1,000,000
 Note that the increase in the fund balance is not referred

to as revenue.
An Interfund Transaction
During the fiscal year the general fund was legally required to transfer
$100,000 to the debt service fund. Only $97,000 was transferred.
How would this transaction be recorded?

General Fund
Due to Other Financing Use
Cash - $97,000 = DSF + $3,000 - Transfer to DSF
$100,000
Debt Service Fund
Cash + $97,000 No Other Financing Source
Due from GF + $3,000 = Change + Transfer from GF $100,000
Debt Repayment Transaction
 The interest and principal due on Millbridge’s debt during the year were $15,000 and $50,000, respectively. Payments were made from the debt service fund. How were the payments recorded?
Interest Principal
Cash = No - expenditure - expenditure
- $65,000 Change $15,000 $50,000
 Both the interest and the principal were recorded as expenditures. Would the transaction have been recorded in the same way under accrual accounting?
 Why was there no change in any liability account?
Acquiring a Building
 Assume that a building is purchased for $270,000, with full payment in cash.
 The acquisition of the building resulted in an asset decrease and an expenditure of $270,000. How would the acquisition of the building have been treated
under accrual accounting?
 What if the Town issued a bond for $270,000 to pay for the building? The proceeds of the bond issue were recorded as an increase in cash and an increase in
the fund balance of the Town. How would the proceeds have been treated under accrual accounting?
40
Transactions for Acquiring a Building

Capital Projects Fund
Acquisition Using Available Cash Building acquisition
Cash - $270,000 = No Change - expenditure $270,000
Purchase of the Building by Issuing Bond

Other sources of
Cash + $270,000 = No Change + financing $270,000 Building acquisition
Cash - $270,000 = No Change - expenditure $270,000
Budgetary Accounting
 Government budgets are recorded in their

accounting systems.
 Aids compliance with legal spending
restrictions.
 Aids budget control.
 Uses system of appropriations and
encumbrances.
Budgetary Accounting Example
Appropriation $ 130,000
Less: Expenditures 0
Less: Encumbrances 0
Amount Available for Spending $ 130,000
Supply order for $60,000 is placed. If someone wanted to

place another order they would find that the balance available to
spend is:
Less: Expenditures 0
Less: Encumbrances 60,000
Budgetary Accounting Example, cont.
When the supplies are received, the encumbrance transaction

is reversed, and an expenditure transaction is recorded:
Less: Expenditures 60,000
Less: Encumbrances 0
Suppose another order is now placed for $50,000 of supplies.
The supplies account would be encumbered, and the new
balance available to spend would be $20,000, as follows:
Less: Expenditures 60,000
Less: Encumbrances 50,000
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Governmental Reporting
• Governed by GASB – considered to be the
generally accepted accounting principles for
government
• Reporting rules apply to governments, and
public colleges and universities
An Overview of Governmental Reporting
Focus of Government Reporting

Keep government accountable.

Compare actual results to budgets.

Make sure of compliance with laws.

Monitor inter-period equity.

Provide information for decision making.

Allow analysis of the financial condition of the government.
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Management Discussionand Analysis

•
Presented before the financial statement
•
Provides an objective and easily understandable analysis
•
Compares this year to last year and explains changes
•
Provides an analysis of the overall condition of the government
•
Discusses material events and their potential impact on financial condition
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Government-Wide Financial Statements

•
Prepared using Accrual Accounting
•
The Financial Statements
• Statement of Net Position
• Statement of Activities
•
Both statements include a breakdown of:
• Primary-Government units with columns for:
• Governmental Activities
• Business-type Activities
• Total
• Component units (legally separate entities)
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Statement of Net Position

•
Shows Columns for:
• Primary Government (Governmental and Business Units)
• Component Units
•
Assets and Liabilities are in order of Relative Liquidity
•
Encouraged, but not required
•
Deferred Outflows and Inflows of Resources are Reported
Separately
•
Capital Assets
• Normally presented net of accumulated depreciation
• Network Infrastructure may be presented at cost if it is
maintained at some predetermined level
•
Net Position
• Net invested in capital assets (i.e., net of related debt)
• Restricted by creditors, grantors, donors, law, or regulation
• Unrestricted
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Assets + Deferred Outflows of Resources –

Liabilities – Deferred Inflows of Resources
= Net Position
51

Primary Gov’t Primary Gov’t Primary
Governmental Business-type Government Component
Activities Activities Total Units
Assets:
Cash and Cash Equivalents $375,050 $149,344 $524,394 $450,000
Receivables 743,343 25,118 768,461 199,456
Inventories 120,872 83,280 204,152 23,958
Capital Assets Net of Accumulated Depreciation 8,750,000 4,326,876 13,076,876 34,345,769
Total Assets $9,989,265 $4,584,618 $14,573,883 $35,019,183
Deferred Outflows of Resources $- $- $- $-
Liabilities
Accounts Payable $825,443 $75,431 $900,874 $387,158
Deferred Revenue 380,000 18,500 398,500 34,946
Noncurrent—Due Beyond One Year 650,000 70,000 720,000 2,945,639
Total Liabilities $9,155,443 $3,763,931 $12,919,374 $28,513,091
Deferred Inflows of Resources $7,300,000 $3,600,000 $10,900,000 $25,145,348
Net Position
Net Investment in Capital Assets $800,000 $656,876 $1,456,876 $6,148,390
Restricted For:
Capital Projects 15,000 15,000
Debt Service 18,000 18,000
Unrestricted 822 163,811 164,633 357,702
Total Net Position $833,822 $820,687 $1,654,509 $6,506,092
• Includes Line Items and Summary Columns for:
• Primary Government including
• Each Governmental Activity
• Each Business-Type Activity
• Each Component Unit
• Shows details of:

• Expenses (Area B),
• Dedicated Revenues [excluding taxes] (Area C), and
• Net Expenses or Revenues (Area D).
• Provides an indication of self-sufficiency or required
• subsidy
Revenues Not Related to Activities
•
Includes (E):
• Taxes by type (property, sales, income, school, etc.)
• Unrestricted Contributions
• Special (one shot) Items
• Transfers
•
Columns Summarizing Changes in Net Position (F) for:
•
Total Government Activities
- Total Business-Type Activities
- Total Primary Government Activities, and
- Total Component Units
Governmental Fund Statements
•
Required Statements
• Balance Sheet
• Statement of Revenues, Expenditures, and Changes in Fund Balances
•
Statements Show
• The general fund
• Other major funds (separate column for each)
• Smaller funds may be aggregated in an other-funds column
• Total of all Governmental Funds
Governmental Funds Balance Sheet
•
Under Modified Accrual Accounting there are no long-
term assets or long-term liabilities.
•
Deferred outflows and inflows of resources are not
separately reported.
•
Fund Balances are divided into nonspendable, restricted,
committed, assigned, and unassigned amounts.
•
Reasons for restrictions and assignments are shown.
•
Unassigned funds are specified by type of governmental
fund.
Governmental Funds Balance Sheet General New Town Other Governmental Total Governmental
Hall Project Fund Funds Funds
Assets and Deferred Outflows:
Cash $ 43,978 $ 5,000 $ 23,965 $ 72,943
Investments 832,190 128,345 67,000 1,027,535
Receivables, net 746,330 32,548 778,878
Due from other funds 186,000 25,000 211,000
Receivables from other governments 458,400 50,000 72,000 580,400
Total Assets $2,266,898 $183,345 $220,513 $2,670,756
Liabilities, Deferred Inflows and Fund Balances:
Liabilities:
Accounts payable $ 28,988 $ 42,385 $ 71,373
Due to other funds 75,000 75,000
Payable to other governments 12,000 35,089 47,089
Total Liabilities $ 115,988 $ 77,474 $ 193,462
Fund Balances
Restricted for:
Encumbrances $ 45,000 $ 45,000
Debt service 1,500,000 1,500,000
Unassigned, reported in
General fund 605,910 605,910
Special revenue fund $ 78,344 78,344
Capital Projects fund $183,345 64,695 248,040
Total Fund Balances $2,150,910 $183,345 $143,039 $2,477,294
Total Liabilities, Deferred Inflows and Fund $2,266,898 $183,345 $220,513 $2,670,756
Statement of Revenues, Expenditures,
and Changes in Fund Balances
• Interest, principal, and capital outlays are all shown as expenditures.
• Proceeds from long-term debt are shown as a source of funds.

• No depreciation.
Statement of Revenues, Expenditures, and Changes in Fund Balance General Town Hall Other Funds Total Funds
Revenues: Property taxes $ 8,435,674 --- $ 1,232,476 $ 9,668,150
Fees 1,234,746 --- 343,321 1,578,067
Permits 894,035 --- 43,984 938,019
Intergovernmental 2,089,994 --- 434,598 2,524,592
Charges for Services 1,542,959 --- 2,324,659 3,867,618
Investment Earnings 354,222 --- 390,712 744,934
Total Revenues $ 14,551,630 --- $ 4,769,750 $ 19,321,380
Expenditures
Current:
General Government $ 7,535,980 --- $ 340,576 $ 7,876,556
Public Safety 3,999,745 --- 1,239,435 5,239,180
Sanitation 2,453,909 --- 784,445 3,238,354
Debt Service
Principal 250,000 --- 2,000,000 2,250,000
Interest and Other Charges 15,000 --- 120,000 135,000
Capital Outlay: 2,150,000 --- 270,395 2,420,395
Total Expenditures $ 16,404,634 --- $ 4,754,851 $ 21,159,485
Excess of Revenues Over Expenditures $ (1,853,004) --- $ 14,899 $ (1,838,105)
Other Financing Sources (Uses)
Proceeds from Long-Term Capital Related Debt $ 2,000,000 $ 2,000,000
Transfers In 200,000 $ 45,000 $ 10,000 255,000
Transfers Out (85,000) (25,000) (110,000)
Total Other Financing Sources & Uses $ 2,115,000 $ 45,000 $ (15,000) $ 2,145,000
Net Change in Fund Balance $ 261,996 $ 45,000 $ (101) $ 306,895
Fund Balances—Beginning 2,004,902 138,345 220,614 2,363,861
Fund Balances—Ending $ 2,266,898 $183,345 $ 220,513 $ 2,670,756
Proprietary Fund Statements
 Accrual Basis Accounting
 Statements (activities in columns)
- Statement of Net Position
- Statement of Revenues, Expenses, and Changes in Fund
Net Position
- Statement of Cash Flows
– Uses Direct Method
– Statement structure includes cash flows from:
 Operating activities
 Non-capital financing activities
 Capital and related financing activities
 Investing activities
Financial Statements of Fiduciary Funds
•
Financial Statements
• Statement of Fiduciary Net Position
• Statement of Changes in Fiduciary
• Net Position
•
Prepared on an accrual basis
Other Required Supplemental Information
• Budgetary Comparison
• Line Items show:
• resource inflows by source of funds and
• resource outflows by activity.
• Columns show:
• original budget,
• final budget—including legal changes authorized
• over the year,
• actual amounts expended on a budgetary basis, and
• variance from final budget (optional).
• Prepared on the same basis as the budget which varies by governmental unit.

Unique Aspects of Accounting - State and Local Governments: Week 12

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Unique Aspects of Accounting - State and Local Governments: Week 12

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Week 12: Unique Aspects of

Accounting – State and Local

Review of Understanding Financial

• Have funds been advanced and reserved for future

•Find the largest single asset on the balance sheet.

•Significant Tax Liability

Rules Specific to Governments

to cash, less current liabilities.

Payment has been Service has Payment has

Note: Governmental resource inflows are available if they are deemed to be

Authorization Order has Order has Payment is Item is

Long Term Liabilities

• This is viewed as controversial

Outflows When resource When resource is acquired,

Inflows When resource When resource is legally

 Governments have three major classes of funds:

- Governmental funds account for the operating activities

- Proprietary funds account for activities that are run on

- Fiduciary funds account for the government’s activities

- General Fund used for the bulk of the day-to-day revenues

- Internal Service Funds are established to account for

 What are some examples of each type of fund?

- Trust Funds are established whenever money is given to

- Agency Funds are used to account for money that a

Modified accrual accounting (purchase approach)

 This is how a $1,000,000 loan would be recorded:

Assets = Liabilities + Fund Balance

 Note that the increase in the fund balance is not referred

Assets = Liabilities + Fund Balance

 Why was there no change in any liability account?

Transactions for Acquiring a Building

Purchase of the Building by Issuing Bond

 Government budgets are recorded in their

Supply order for $60,000 is placed. If someone wanted to

When the supplies are received, the encumbrance transaction

Management Discussionand Analysis

Government-Wide Financial Statements

Statement of Net Position

Statement of Net Position

Assets + Deferred Outflows of Resources –

Statement of Net Position

Governmental Business-type Government Component

Activities Activities Total Units

• Shows details of:

• Proceeds from long-term debt are shown as a source of funds.

 Non-capital financing activities

 Capital and related financing activities

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