Introduction to Governmental and Not-for-Profit … ©2013 Pearson Education, Inc. publishing as Prentice Hall 2-* Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

2-*

Introduction to Governmental and

Not-for-Profit Accounting, 7e

Chapter 2: The Use of Funds in

Governmental Accounting

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Part 2

Fund Accounting

Fund Accounting

Fund Accounting

A- Governmental-Type Funds

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A- Governmental-Type Funds :

Financial Statements

Fund level:

• Balance Sheet

• Statement of Revenues, Expenditures,

and Changes in Fund Balance

– a.k.a. Operating Statement

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Governmental Funds:

Operating Statement Format

Revenues

- Expenditures

= Excess of revenues over expenditures

+/- Other financing sources and uses

+/- Special and extraordinary items

= Net change in fund balance

+ Fund balance at beginning of period

= Fund balance at end of period

Governmental

Type Funds

Grouping

Governmental

Type Funds

Grouping

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Governmental Funds:

A- General Fund

• All general-purpose governments and certain

special-purpose governments, such as school

districts, use a General Fund.

• Used for most basic day-to-day operations

• Used to account for financial resources not

accounted for in another governmental fund

Governmental Funds:

A- General Fund • Inflows from:

– Taxes on real property, sales, and personal or

corporate income

– Intergovernmental grants

– Licenses, fees, forfeitures, and fines

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الغرامات المصادرات

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Governmental Funds:

Basic Accounting Equation

Financial

Assets*

Matured Short-Term

Liabilities** + Fund

Balance*** =

*Some governments may have deferred outflows of resources, which should be

added to assets in the accounting equation.

**Some governments may have deferred inflows of resources, which should be

added to liabilities in the accounting equation.

***GASB S54 classifies Fund Balance by degree of constraint on use of resources.

Governmental Funds:

Basic Accounting Equation • Financial Assets

– Cash, investments, and receivables

• Matured Short-Term Liabilities

– Short-term has a shorter time frame than

“current” in business accounting, which

means payable in a year.

• Accounts payable, salaries payable, and amounts

payable to other funds

• Matured liabilities due for payment and expected to

be paid shortly after the accounting period ends

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Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2-*

Governmental Funds:

2-Special Revenue Funds • Used to account for proceeds of specific

revenue sources that are restricted or

committed to spending for specific

purposes (other than debt service or

capital projects)

– Specific revenue sources must be a

substantial portion of fund’s resources.

• Revenue from dedicated source, such as

a special tax, grant, or fee

– Specific-purpose federal grant proceeds

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Governmental Funds:

3-Special Revenue Funds • Accounting same as general fund

• Governmental entity May have more than

one special revenue fund

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Governmental Funds:

4-Capital Projects Funds

• Used to account for financial resources

restricted or otherwise limited to spending for

capital outlays

– Acquisition or construction of capital facilities or

other capital assets

• NOT for assets of a(n):

– Enterprise fund, internal service fund, trust fund

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Governmental Funds:

4-Capital Projects Funds

• Required to use CPF if capital outlays

financed from general obligation bond

proceeds

– Many capital assets are acquired through the

General Fund when general obligations bonds

are not issued

• Separate fund per project or bond

• No long-term assets or debt reported in CPF

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Governmental Funds:

5-Debt Service Funds • Used to account for financial resources that

are restricted or otherwise limited to spending for principal and interest on general long-term debt – Proprietary fund debt not included

• Resources in debt service funds – Transfers from other funds

– Investment earnings

– Taxes specifically assessed for debt service

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Governmental Funds:

5-Debt Service Funds • Required when

– Legally mandated

– Financial resources being accumulated for principal and interest payments that come due in future years

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Governmental Funds:

B-Permanent Funds

• Only earnings may be used

– Not principal

• To support government or citizens

• Doesn’t include private-purpose trust

funds

• Examples: Library endowment, cemetery

• Same accounting as general fund

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Proprietary Funds:

Types and Statements

• Enterprise Funds

• Internal Service Funds

• Statement of Net Position

• Statement of Revenues, Expenses, and

Changes in Net Position

• Statement of Cash Flows

Proprietary Type Funds:

Measurement Focus • Economic resources measurement focus

• Accrual basis of accounting

– Provides accurate measure of revenues and

expenses to help determine user charges

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Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2-*

Proprietary Funds:

Operating Statement Format Operating revenues - Operating expenses = Operating income (loss) +/- Non-operating revenues and expenses = Income before other revenues, expenses, gains, losses, and transfers + Capital contributions +/- Special and extraordinary items +/- Transfers = Increase (decrease) in net position + Net position at beginning of period = Net position at end of period

Reconciliation

• For products/services sold for a fee

• Primarily to external users

• Typically, separate fund for each activity

• Examples

– Municipal airport

– Municipal electric utility

– Municipal water and sewer utilities

– Toll roads

– Lotteries Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2-*

Proprietary Funds:

1-Enterprise Funds

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Proprietary Funds:

1-Enterprise Funds

• Enterprise funds required if

– Pricing intended to cover costs

– Law requires costs of providing services be

recovered through fees and charges, OR

– Debt secured only by net revenues of activity

(revenue bonds)

• For products/services sold for a fee

– Fee designed to recover cost

• To internal users or other governments

– Reporting government must be predominant

participant

• Established for cost savings

– To consolidate support activities performed by

several agencies

– To obtain bulk discounts

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Proprietary Funds:

2-Internal Service Funds

Proprietary Funds:

2-Internal Service Funds • Separate fund for each activity

• Bill other funds for products/services

– Revenue to Internal Service Fund

– Expenditure/expense to fund receiving

products/services

• Examples

– Motor pool operations

– Data processing

– Printing services

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C-Fiduciary Funds

• Assets held by government in a trust or

agency capacity for others

– Cannot be used to support government’s own

programs

• Economic resources measurement focus

• Accrual basis of accounting

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Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2-*

Fiduciary Funds:

Types and Statements • Pension (and other employee benefit) Trust

Funds

• Investment Trust Funds

• Private-Purpose Trust Funds

• Agency Funds

• Statement of Fiduciary Net Position

• Statement of Changes in Fiduciary Net Position*

*Not used by agency funds

C-Fiduciary Funds

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Fiduciary Funds

• Pension (and other employee benefit)

Trust Funds

– Hold restricted resources

– For pensions, health care, etc.

• Investment Trust Funds

– For investment pools

– External portion only

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Fiduciary Funds

• Private-Purpose Trust Funds

– For all other trust arrangements

– Example: escheat property

• Agency Funds

– For custody arrangements, example: sales

tax collections for other governments

– No “net assets”

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