Professional Documents
Culture Documents
Chapter 3
Learning Objectives
Discuss differences & similarities between GF and SRFs Explain MFBA used for these funds Analyze common journal entries for transactions, including interfund activity Prepare adjusting & closing entries Define special items and extraordinary items Understand fund balance reporting classifications Prepare GF and SRF financial statements
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General Fund
Used to account for and report all financial resources not accounted for and reported in another fund. Only fund that all general purpose governments have.
Used to account for and report specific revenue sources that are restricted or committed to expenditure for specified purposes. Exist as long as the government has resources dedicated to specific purposes.
MFBA
Measurement Focus (MF) is on current financial resources what is expendable Basis of Accounting (BA) is modified accrual recognition occurs for
Revenues when measurable & available Expenditures when underlying liability is incurred, except for long-term debt principal and interest payments (when due)
+
Deferred Outflows
+
Deferred Inflows
Fund Balance
Transactions do not address budgetary accounting, reporting, & control issues Accounts maintained on GAAP basis during the year
Second assumption rarely holds in practice, but makes instruction easier and more uniform
Illustrative Entries
Property tax levy Other revenues Orders and contracts Salary expenditures Interfund activity Short-term borrowing Extraordinary and special items Other transactions and events
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No bad debts expense remember, a governmental fund does not use expenses Records revenue at the amount government expects to collect
This form of entry assumes net amount will be available other options discussed in Chapter 5
2013 Pearson Education, Inc. All rights reserved.
Other Revenues
Some revenues will be accrued when services are provided Other revenues may be recognized only when cash is received no allowance necessary since all of revenue received
Salary Expenditures
Comprise about 75% of city General Fund expenditures and 85% of school board General Fund expenditures Effective control over these expenditures is essential
Interfund Activity
Nonreciprocal transactions
Reciprocal transactions
Interfund Reimbursements
Underlying event:
Transaction initially recorded in one fund Should have been accounted for and reported in a different fund
May also be used to distribute costs from one from to others Will not separately reported in financial statements
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Accounting requires:
Removing expenditure or expense from the accounts of fund in which it was initially recorded Recording expenditure or expense in the reimbursing fund(s)
Interfund Transfers
Usually involve moving assets (cash or inventory) from one fund to another Do not involve requirement or expectation or subsequent repayment May also result from one fund providing services to another without charging for those services (rare)
Common examples
GF resources transferred to DSF for principal and interest payments GF resources transferred to CPF to pay for governments portion of capital project SRF resources transferred to GF to finance expenditures for which SRF resources are restricted GF resources transferred to EF to provide initial permanent financing Residual assets of CPF or DSF transferred upon completion of purpose of fund EF resources transferred to other funds to subsidize operations
Interfund Services
Defined as sales and purchases of goods and services between funds for a price approximating their external market value Accounting:
Seller fund sells goods or services to external party (recognizes revenues) Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)
Interfund Loans
One fund loans cash to another Transaction does not change Fund Balance Reporting
Lender Fund
Short-term loan Due from Long-term loan Advance to (will require separate reporting in Fund Balance) Short-term loan Due to Long-term loan Advance from
Receiving Fund
Usually made with banks Receipt of loan and principal repayment do not affect Fund Balance; however, payment of interest does affect Fund Balance
Extraordinary item
Used by FASB & GASB Event is not under control of management and is both (1) unusual in nature and (2) infrequent in occurrence Unique to GASB Event is under control of management and is either unusual or infrequent
Special Item
Year-End Adjustments
Revenue Adjustments
Interest on investments and delinquent taxes Unbilled charges for services Unrestricted intergovernmental grants that are due but havent been received Interest on short-term debt Accrued payroll
Expenditure Adjustments
Close the operating accounts and update Fund Balance Close subsidiary revenue and expenditure accounts
Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance ___ Revenues, Expenditures, and Changes in Fund Balance Budget-to-Actual
Statement of . . ., if part of the Basic Financial Statements Schedule of . . ., if placed in Required Supplementary Information (RSI)
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Balance Sheet:
Standard Report Format
Assets Liabilities
+
Deferred Outflows
+
Deferred Inflows
Fund Balance
Inventory and prepaid items Long-term receivables and loans Property acquired for sale
Amount in this classification should be determined before other classifications may limit reporting in other classifications
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Unassigned
May be positive or negative
May be referred to as the operating statement Format specified by the GASB (there had been optional formats prior to 1999)
Classification of Expenditures
Function Organizational Unit (including Department and Subunit) Activity Object Class Character