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Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #1
CHAPTER
1010Governmental Accounting:The General Fund and the
Account Groups(including Other Governmental Funds, Proprietary Funds and
Fiduciary Funds) Fundamentals of Advanced Accounting
1st Edition
Fischer, Taylor, and Cheng
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #2
Accounting Standards
Separate standard setting boards for government and business enterprises
• Financial Accounting Standards Board (FASB) – Business enterprises
• Government Accounting Standards Board (GASB) – Government – Objectives of Financial Reporting Concept # 1
• Accountability• Interperiod equity
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #3
Measurement Focus and Basis of Accounting
• Measurement focus – what resources are measured
• Basis of Accounting – traditional measurement & financial resources– When transactions should be recognized for financial
reporting purposes
• Prepare two separate (related sets of financial statements– Fund financial statements– Government wide statements
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #4
Structure of Funds
• Variety of funds to record events• Small government might have 1 general fund• Larger government units use special funds
– Establish minimum number of funds for legal requirements
• Each fund is an accounting entity• Each fund has self balancing set of accounts
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #5
Fund Types and Account Groups
• 3 fund types– Governmental funds– Proprietary funds– Fiduciary funds
• 2 account groups – General capital assets account group - GCAAG– General long term debt account group - GLTCAG
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #6
Governmental Funds
• Accounts for activities that provide citizens with services
• Financed by taxes and inter-governmental grants• Working capital focus• Only include current assets and current liabilities
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #7
5 Governmental Funds
• General Fund– Resources have no specific restrictions
• Special Revenue Fund– Resources legally restricted to specific purpose
• Capital Projects Fund– Resources used for construction/acquisition of capital facilities
• Debt Service Fund– Resources used for payment of general long-term debt and
interest
• Permanent Fund– Resources legally restricted in that only earnings (not
principal) can be used for operations
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #8
Accounting for Transactions of Government Funds
• Modified accrual method• Revenue recorded when
– Measurable– Available to finance expenditures in current fiscal period
• Expenditures recognized where liabilities are– Measurable– incurred
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #9
Revenues
• Increase in resource from internal parties that are not repaid
• Non-exchange transactions– Government is paid but gives nothing directly in return
• Exchange transactions– Government provides goods/services for fees
• Modified accrual basis– Some revenues recognized on accrual basis– Some recognized on cash basis
• Generally amount not know before collection
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #10
Timing of Revenues Recognized
• Property taxes When levied• Taxes on Income When sales tax return filed• Licenses & permits When received• Charges for svcs. When billed• Investment income Accrued as earned• Grants & other inter- governmental revenues
– Restricted grants Expenditure driven– Unrestricted grants Upon award– Entitlements Upon award
• Fines When received• Donations When received
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #11
Other Financing Sources
• Other inflows of financial resources– Issue general long term debt (LTD)– Record present value of capital lease obligation– Sale of capital assets– Receipt of transfers from other government funds
• Other financing sources– This classification avoids duplication of recognizing
revenue
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #12
Expenditures
• Decrease in resources from transactions with external parties– Expenditure…NOT expenses
• Recognized– in period measurable and incurred– If related liability is paid from current year resources– Recorded simultaneously with cash payments
• Results from– Operating activities– Acquiring capital assets– Payment of debt: principal & interest
• Journal entryDR ExpenditureCR Cash
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #13
Expenditures – Employee Related Liabilities
• State and federal withholdings recorded at same time as expenditure for salaries– DR Expenditures– CR Cash– CR Liability for State & Federal Withholding
• Vacations & holidays tracked in account groups - GLTDAG– DR Amount to be provided in future periods– CR Liability for compensated absences
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #14
Expenditures – Employee Related LiabilitiesContinued
• Pension expenditures– Actuarial calculations required– Portion paid from current resources
• DR Expenditures• CR Current pension liability
– Portion paid from future resources – GLTDAG• DR Amount to be provided in future periods• CR Unfunded pension liability
• Post-retirement benefits– Similar accounting to pension
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #15
Expenditures - Prepayments
• Cash paid or liabilities recorded for purchase of goods/services before used– Examples: prepaid rent, supplies inventory
• Recorded as financial resources (assets)– DR Prepaid Item– CR Cash
• Expenditure recorded when resources are consumed– DR Expenditure– DR Prepaid Item
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #16
Expenditures – Other Financing Uses
• Inter-fund operating transfers to other government units
• Prevents duplication of reporting expenditures
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #17
Expenditures – Operating Debt
Government may issue short/long term debt to finance operating activities
• Short term– Not for capital assets acquisition– Accounts payable and tax anticipation notes
• Long term– Bonds– Long term vendor financing
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #18
Expenditure – Tax Anticipation Notes
• Cash borrowed using tax to be collected as security
• Short term financing• Recorded in general fund
– DR Cash– CR Tax anticipation note payable
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #19
Expenditures – Principle & Interest on Long Term Capital Debt
• General long term capital debt – financing for capital asset acquisitions
• Accounted for in capital project funds• Face amount of debt accounted for in GLTDAG• Principle and interest expenditures accounted for
in debt service funds
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #20
Expenditures – Special and Extraordinary Items
• Extraordinary – infrequent occurrence & unusual in nature– Example: natural disaster
• Special items – come from transactions within control of management– Infrequent and unusual– Example: sale of government asset as a result of civil
riot
• Must be reported separately– Inform citizens of unusual practices
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #21
Use of Budgetary Accounting
• Budgets are submitted to legislative body for authorization– Authorized expenditures are called appropriations
• Executive leader approves budget or returns to legislature
• Final approved budget is recorded in general ledger– Summarized in control accounts– Subsidiary ledger in detail
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #22
Use of Budgetary Accounting - continued
• Budgetary totals for the following are recorded in the general ledger– Appropriations– Estimated revenues– Other financing sources– Other financing uses
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #23
Accounting for the General Fund – Trial Balance
Trial balance includes• Assets (including allowances on receivables)• Liabilities• Fund balance = Assets less liabilities
– Reserved• Obligations or legal restrictions for resources• Committed & unavailable resources
– Unreserved• Not legally restricted• Designated: Intends to be used• Undesignated: Free for unrestricted use
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #24
Recording the Budget - Example
City Council & Mayor approve city’s budgetEstimated revenues $1,350,000Appropriations 1,300,000Estimated transfer to debt service fund30,000
Journal entry:Estimated revenues 1,350,000
Appropriations 1,300,000Estimated other financing uses 30,000Budgetary fund balance – unrestricted 20,000
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #25
Recording Revenues & Transfers - Example
• Detailed example in textbook• Includes 16 transactions
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Recording Encumbrances and Actual Expenditures
• Government uses encumbrance system• Encumbrance is an expected expenditure
– Contra account to fund balance
• Recorded when purchase order is approved– DR Encumbrances– CR Fund balance – reserve for encumbrances
• Recorded when invoice is received– DR Fund balance – reserve for encumbrances– CR Encumbrances– DR Expenditure– CR Voucher payable
• Encumbrances closed to fund balance at year-end
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #27
Prior Period Encumbrances
• Prior year encumbrances– Closing entry is reversed– After reversal, accounted for in normal manner in the
next year
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #28
Encumbrances – Year 1
Commit to future expenditureEncumbrance xx
Fund Balance – Reserve for Encumbrances xx
When invoice is receivedFund Balance – Reserve for Encumbrances xx
Encumbrance xxExpenditures xx
Vouchers Payable xx
At year endFund Balance xx
Encumbrance xxExpenditures xx
Leave Reserve for Encumbrances open as an equity account on the balance sheet.
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #29
Encumbrances – Year 2
At beginning of the yearreinstate encumbrancesEncumbrances xx
Fund Balance xx
When invoice is receivedFund Balance – Reserve for Encumbrances xx
Encumbrances xxExpenditures xx
Vouchers payable xx
At year endFund Balance xx
Encumbrance xxExpenditures xx
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #30
Other transactions
• Correction of prior year errors made directly to Unreserved, Undesignated Fund Balance
• Reimbursement of expenditures credited to expenditures
• Investments – adjustment required at report date to fair value– Use account “Net Increase/Decrease in Fair Value of
Investment”
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #31
Year-end Closing Entries
• Reverse budgetary entriesClose the budget
Appropriations xxBudgetary Fund Balance xx
Estimated Revenues xx• Close revenue and expenditure amounts into “Fund
Balance – Unreserved, Undesignated”
Close the actual accountsRevenues xx
Expenditures xx Encumbrances xx Fund Balance xx
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #32
Account Groups
• Government used account groups to keep control of– Capital assets – General Fixed Asset Account Group
• GFAAG
– Long term debt – General Long Term Debt Account Group
• GLTDAG
• Account groups are not reported on financial statements
• Account groups information disclosed in notes to financial statements
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #33
GFAAG
• Accounts for general capital assets not related to specific fiduciary/proprietary fund
• Tracks fixed assets and assigns responsibility for– Custody– Proper use
• Categories– Land– Buildings– Other improvements– Machinery & equipment– Construction in progress– Major infrastructure assets
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #34
Accounting for CFAAG
• Purchased asset is recorded at cost• Donated asset recorded at FMV at time of receipt• Expenditure for capital asset is recorded in the
fund making the purchase• An entry is also recorded in GFAAG
– DR Specific asset account– CR Original funding source of capital
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #35
Accounting for CFAAG - Example
City purchases building for $200,000
Gen Fun Expenditure 200,000
Voucher payable200,000
GFAAG Building 200,000
Investment in General Fixed
Assets – General Fund
Revenues200,000
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #36
Capital Assets – Subsequent Expenditures
• Maintenance expenditures accounted for separately
• Does not increase book value of capital asset
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #37
Capital Assets – Depreciation
• No depreciation recorded in the general fund– This would mix the two difference concepts of expense
and expenditure
• Depreciation is reported in government-wide statements
• Accumulated depreciation is recorded in GFAAG– DR Investment in GFA – General Fund Revenue– CR Accumulated depreciation
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #38
Capital Assets - Disposal
• Original cost minus accumulated depreciation is removed from the GFAAG– DR Investment in GFA – General fund revenue– CR Specific asset
• If sold – proceeds recorded in general fund– DR Cash– DR Other financing sources
• If traded– Additional expenditure is recorded in general fund– New asset is recorded in GFAA
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #39
General Long Term Debt Group
• Accounts for general long term debt– Not related to specific fiduciary/proprietary funds
• Record of all general LT obligations of the governmental unit
• “General” means principle and interest paid by levied taxes
• This group does not account for interest– Principle only
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #40
GLTD Examples
• General government bond issue• General government special assessment debt• General government long-term notes• General government claims and judgments• General government compensated absences• General government capital lease liabilities• General government unfunded pension contributions• General government unfunded landfill closure and
postclosure care
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #41
GLTDAG Accounting Equation
3 phases:When incurred
Amount to be provided = long-term obligationWhile debt is outstanding
Amount available+ Amount to be provided= Long-term obligation
When debt maturesReverse accounts from the account group
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #42
Record General LTD
DR Amount to be provided for payment of specific liabilityCR Liability accountExample: Government issues $1,000,000 of term bondsAmount to be provided for payment of term bonds 1,000,000
Term bonds payable 1,000,000(discount/premium is ignored)Amount available in Debt Service Funds- Term bonds 80,000
Amount to be provided for payment of term bonds 80,000(debt service fund receives annual appropriation for eventual retirement)Term bonds payable 1,000,000
Amount available in debt service fund – term bonds 1,000,000(bonds are paid at maturity)
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #43
Purchase of Capital Asset (Leased Machine) with LTD - Example
GF Expenditures 50,000
Other financing sources 50,000(record present value of capital lease in general fund)
GFAAG Leased machine 50,000
Investment in GFA –
General Funds 50,000(record present value of capital lease in GFAAG)
GLTDAG Amount to be provided 50,000
Lease Obligations 50,000
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #44
Other Governmental Funds
• Special revenue fund– Revenue collected for special purpose
• Permanent fund– Trust set up for specific public use– Principle is not expended
• Capital projects fund– Major capital asset acquired
• Debt service fund– Accounts for debt recorded in GLTDAG
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #45
Special Revenue Fund
• Revenue from specific sources is restricted by law or donor and used for– Specific operating purpose– Acquisition of minor fixed asset
• Governmental unit may have one, many or none• Uses modified accrual basis of accounting
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #46
Examples Of Special Revenue Funds
• Nonexchange transactions• Fed & state grant proceeds restricted fro
community development expenditures• Gasoline tax revenue for highway maintenance• Fed/State funds for education• Resources for food stamp programs• Expendable public trust fund
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #47
Permanent Fund
• Accounts for public purpose fund• Earnings of trusts are for specific purpose• Principle cannot be used• Often referred to as endowment• Example: earnings of resource received will be
use for maintenance of government parks
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #48
Capital Projects Fund (CPF)
• The acquisition of major general fixed assets through:– Purchase– Construction– Capital lease
• Same basic accounting and reporting model as general fund or special revenue funds
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #49
CPF: Funding Sources
• Interfund operating transfers (credit OFS)• Long-term borrowing (credit OFS)
– General obligation term or serial bonds
• Intergovernmental grants (credit revenue)• Special assessments (credit revenue)
– Levied against property owners or other beneficiaries
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #50
Resources From Bond Issue
• Record face amount of bond issue– Premium/discount recorded separately
• Bond issue costs recorded as expenditures• Bond issued at premium
– Premium and payment received for interest is transferred to DSF
• Bond issue at discount– Project authorization is reduced by bond discount
unless additional resources are transferred in
• Proceeds temporarily invested until needed– Interest recorded as revenue and transferred to DSF
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #51
CPF – Annual Budgets
• Expenditures continue through project completion by authority of annual budgets
• Closing entries recorded at year-end even if project is incomplete– Credit to expenditures is recorded as construction in
progress in GFAAG
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #52
CPF: Year End
Project Complete• Close revenues and
expenditures to Fund Balance and transfer any residual fund equity to source(s)
Project Incomplete• Close revenues & OFS,
expenditures, and OFU to the Fund Balance
• Close open encumbrances against Fund Balance; leave Fund Balance – Reserve for Encumbrance
• Reestablish at beginning of next year:
Encumbrance xxFund Balance xx
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #53
Capital Project Cost – Actual Vs. Estimate
• Actual cost may be different that estimated cost• Actual > estimate
– Usually covered by transfer from general fund
• Actual < estimate– May be returned to general fund– May be transferred to DSF
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #54
Capital Project Completion
• Customary to withhold part of payment until final inspection and approval– Liability recorded in “contracts payable – retained
percentage”
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #55
Debt Service Fund - DSF
• Accounts for financial resources accumulated to cover principle and interest payments on general government obligations– Term bonds– Serial bonds– Notes that mature in more than one year– Periodic payments on capital leases
• Uses modified accrual basis
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #56
DSF: Expenditure Recognition
• Modified accrual– Report principal and interest expenditures when
legally payable (i.e., do not accrue unmatured principal or interest)
• Accrual permitted, but not required, if:– Resources for debt service accumulated in fund by
year end and payment due early next year– Accrual option is used; must accrue entire debt
service payment due early next year
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #57
DSF – Serial Bonds As Resource
• Most popular form of financing• Redeemed in series of installments• No large cash amounts in sinking funds• Annual budget provides for interest and principle
reductions
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #58
DSF - Resources
• Credit to revenues– Portion of property tax levied– Net amount of taxes estimated to be collected
• Credit to other financing sources– Transfers from other funds
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #59
DSF: Refunding Defined
• Issuance of new debt to finance payment of interest and principal of existing debt– Current refunding – Use refunding proceeds
to retire debt immediately– Advance refunding – Place proceeds in
escrow and use to pay interest and principal in future (in-substance defeasance)
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #60
DFS: Reporting Refunding and Defeasances
• DSF entry:Cash xx
OFS – Proceeds of Refunding Bonds xx
• Refunding issue is reported in GLTDAG• Defeased (retired) debt is removed from
GLTDAG
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #61
Special Assessments
• Capital improvements/services for benefit of specific group of property owners
• Paid partially/totally by property owners• Service type and capital improvements
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #62
Special Assessment – Service Type
• Covers operational activities• No increases to fixed assets• Usually single charge added to property tax bill• Accounted for in fund type that best reflects nature
of transaction
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #63
Special Assessment – Capital Improvements
• Additions/improvements to fixed assets• Accounted for in
– Enterprise fund OR– GFAAG
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #64
Proprietary Funds
• Accounts for business type activity• Focus in capital maintenance• Measures whether revenues are sufficient to
cover expenses of fiscal period• Types
– Enterprise – goods or services provided to the general public
– Internal service – goods or services provided inter- or intra-governmental unit
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #65
Proprietary Funds: Accounting Principles
• Similar to for-profit enterprises• Apply GAAP except where it has been specifically
overridden by a GASB pronouncement• GASB #20 (Sept ‘93):
– Must apply all pertinent GAAP (ARBs, APBs, SFASs, etc.) through SFAS 102 unless conflict
– May apply GAAP from SFAS 103 to present• Apply ALL, unless conflict or• Apply NONE, unless adopted by GASB
...continued...
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #66
Proprietary Funds: Financial Statements
• Balance sheet– Fund balance = Net assets
• Statement of revenues, expenses, and changes in net assets
• Statement of cash flows
• Plus:– Combining statements– Segment information
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #67
Enterprise Fund
• Operating efficiency may be monitored by the fund’s net income or loss
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #68
Enterprise Fund: Funding Sources
• Issue of LTD• Interfund transfer in• Loans/advances from government unit• Revenues
– Internal (other gov’t. funds)– External (customers, other gov’ts.
• Non-operating revenues
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #69
Enterprise Funds: Nonoperating Revenues
• Capital contributions• Operating transfers• Loans• Others
– Grants– Tap fees– Impact fees– Internal and external subsidies– Debt forgiveness from general government
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #70
Enterprise Funds
•Use is optional as long as fee is charged to external users•Use is mandatory (including capital assets) if:
– Activity is financed only with revenues from specific activity
– Laws/regulations require activity cost of providing services to be financed by fees rather than general tax
– Pricing policy of activity establishes fees to cover its own costs
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #71
Enterprise Fund – Restricted Cash
• Cash and cash equivalents available only for designated purposes– Customer deposits subject to refund– Proceeds of LTD for construction– Cash set aside for bond interest/principle reductions
• Common when fund is used to account for a utility
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #72
Enterprise Fund – Cash Flow Statement
• GASB Statement No. 9 requires Statement of Cash Flows to show movement of restricted and unrestricted cash in four categories– Cash flow from operating activities– Cash flow from non-capital financing activities– Cash flow from capital and related financing activities– Cash flow from investing activities
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #73
Government Units Operate More Than One Enterprise Fund
• Combined statements required• Different, identifiable activities presented
separately– Different – product, program or service generated by
different activities– Identifiable – specific revenue stream and related
expenses
• Example – natural gas, water and electricity service accounted for as one utility enterprise fund
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #74
Internal Service Fund
• Services to other departments/governments
• Self sustaining
• Cost-reimbursement basis
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #75
Internal Service Fund – Continued
• No restricted assets• Must recover costs (including depreciation) or be
subsidized• Maintain record of capital assets• Use accrual basis of accounting• Budgetary accounts not used
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #76
Internal Service Fund – Net Income
• Sufficient to allow for– Replacement of capital assets– Payment of risk-related losses
• Should not be too large– Allow balance to stay in other funds– Billing rates impact expenditures of other funds
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #77
Trust And Agency Funds
• Used to account for assets received and held by government acting as trustee or custodian for individuals, organizations, businesses, or other governments
• Difference – Duration of the fiduciary responsibility– Agency fund: short-term fiduciary responsibility– Trust funds: long-term fiduciary responsibility
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #78
Types Of Trust Funds
• Private purpose trust• Investment trust• Pension trust
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #79
Private Purpose Trust Fund
• Holds – performance deposits of licenses– Scholarship funds to external individuals– Endowments to benefit needy employees– IRS Section 457 deferred compensation plan– Funds used to account for escheat property
• Accounted for just as proprietary fund
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #80
Investment Trust Funds
• Used to account for – assets, – liabilities, – net assets and – changes in net assets
of external participants in an investment pool managed by government for other governments and not-for-profit organizations
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #81
Pension Trust Funds
• Accounts for public employees’ retirement system funds
• Actuaries estimate required funding• Use full accrual basis of accounting
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #82
Agency Funds
• Used when cash collected or withheld from gov’t employees must be forwarded to a proper destination– Example: deductions from gov’t employee salaries for
social security
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.Chapter 10, Slide #83
Government Accounting –Interactions Among Funds
• Each fund is a separate accounting entity– Records only limited phase of event
• Complete recording involves more than one fund• Transactions among funds are frequent