© The McGraw-Hill Companies, Inc., 2004 lide 7-1 McGraw-Hill/Irwin Chapter Seventeen Accounting Accounting for State and for State and Local Local Governments Governments (Part 2) (Part 2)
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© The McGraw-Hill Companies, Inc., 2004
Slide 17-1
McGraw-Hill/Irwin
Chapter Seventeen
Accounting for Accounting for State and Local State and Local Governments Governments
(Part 2)(Part 2)
© The McGraw-Hill Companies, Inc., 2004
Slide 17-2
McGraw-Hill/Irwin
Accounting for Leases
The lease transfers ownership at the end of the lease term.
The lease contains a bargain purchase options.
The lease transfers ownership at the end of the lease term.
The lease contains a bargain purchase options.
For accounting purposes, leases must be identified as either Capital or Operating.
Use the same 4 criteria as identified in FASB Statement No. 13 to identify a capital lease.
For accounting purposes, leases must be identified as either Capital or Operating.
Use the same 4 criteria as identified in FASB Statement No. 13 to identify a capital lease.
The lease term = or > 75% of the asset’s estimated useful life.
The minimum lease payments > 90% of the PV of the asset.
The lease term = or > 75% of the asset’s estimated useful life.
The minimum lease payments > 90% of the PV of the asset.
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Accounting for Operating Leases
Government-Wide Financial Statements:
Do not record an encumbrance. Record an expense when the
lease payment is made.
Fund-Based Financial Statements:
Record the encumbrance. Record an expenditure when
the lease payment is made.
Government-Wide Financial Statements:
Do not record an encumbrance. Record an expense when the
lease payment is made.
Fund-Based Financial Statements:
Record the encumbrance. Record an expenditure when
the lease payment is made.
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McGraw-Hill/Irwin
Prepare the journal entry to record the lease agreement for government-wide statements.
Prepare the journal entry to record the lease agreement for government-wide statements.
Accounting for Capital Leases
Government-Wide Financial StatementsRecord the asset and the lease obligation.
Government-Wide Financial StatementsRecord the asset and the lease obligation.
On 1/1/04, Good City signs a 10-year capital lease for a $50,000 dump truck with an implied interest rate of 8%.
On 1/1/04, Good City signs a 10-year capital lease for a $50,000 dump truck with an implied interest rate of 8%.
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McGraw-Hill/Irwin
Prepare the journal entry to record the lease payment for government-wide statements.
Prepare the journal entry to record the lease payment for government-wide statements.
Accounting for Capital Leases
Government-Wide Financial StatementsRecord interest expense & reduce the obligation.
Government-Wide Financial StatementsRecord interest expense & reduce the obligation.
At 12/31/04, Good City made a $7,452 payment that included interest of $4,000.
At 12/31/04, Good City made a $7,452 payment that included interest of $4,000.
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An entry does have to made to record the other financing source.
An entry does have to made to record the other financing source.
Accounting for Capital Leases
Fund-Based Financial Statements
Generally, neither the asset, or the obligation, is recorded, because it does not fall within
the definition of current financial resources.
Fund-Based Financial Statements
Generally, neither the asset, or the obligation, is recorded, because it does not fall within
the definition of current financial resources.
On 1/1/04, Good City signs a 10-year capital lease for a $50,000 dump truck with an implied interest rate of 8%.
On 1/1/04, Good City signs a 10-year capital lease for a $50,000 dump truck with an implied interest rate of 8%.
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Prepare the journal entry to record the lease payment for fund-based statements.
Prepare the journal entry to record the lease payment for fund-based statements.
Accounting for Capital Leases
Fund-Based Financial StatementsRecord the lease payments as
expenditures in the General Fund.
Fund-Based Financial StatementsRecord the lease payments as
expenditures in the General Fund.
At 12/31/04, Good City made a $7,452 payment that included interest of $4,000.
At 12/31/04, Good City made a $7,452 payment that included interest of $4,000.
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Fund-Based Fund-Based Financial Financial StatementsStatements
Make no entry to record a Make no entry to record a liability. Record cash liability. Record cash
payments made to fund payments made to fund the future obligation as the future obligation as
“expenditures”.“expenditures”.
Fund-Based Fund-Based Financial Financial StatementsStatements
Make no entry to record a Make no entry to record a liability. Record cash liability. Record cash
payments made to fund payments made to fund the future obligation as the future obligation as
“expenditures”.“expenditures”.
Government-Wide Government-Wide Financial StatementsFinancial Statements
Record a pro-rated Record a pro-rated portion of the expected portion of the expected closing costs (as a % of closing costs (as a % of used capacity) each year used capacity) each year
as an expense and a as an expense and a liability.liability.
Government-Wide Government-Wide Financial StatementsFinancial Statements
Record a pro-rated Record a pro-rated portion of the expected portion of the expected closing costs (as a % of closing costs (as a % of used capacity) each year used capacity) each year
as an expense and a as an expense and a liability.liability.
Solid Waste Landfill
The operation of a solid waste landfill creates long-term liabilities. The EPA imposes
requirements that will require large outlays of resources to close that landfill in the future.
The operation of a solid waste landfill creates long-term liabilities. The EPA imposes
requirements that will require large outlays of resources to close that landfill in the future.
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Fund-Based Fund-Based Financial Financial StatementsStatements
Make an entry only for the Make an entry only for the portion of the liability that portion of the liability that
is expected to be paid is expected to be paid from current resources.from current resources.
Fund-Based Fund-Based Financial Financial StatementsStatements
Make an entry only for the Make an entry only for the portion of the liability that portion of the liability that
is expected to be paid is expected to be paid from current resources.from current resources.
Government-Wide Government-Wide Financial StatementsFinancial Statements
Accrue the expense and a Accrue the expense and a liability related to liability related to
unused/accrued vacation unused/accrued vacation and sick leave.and sick leave.
Government-Wide Government-Wide Financial StatementsFinancial Statements
Accrue the expense and a Accrue the expense and a liability related to liability related to
unused/accrued vacation unused/accrued vacation and sick leave.and sick leave.
Compensated Absences
Employees accrue vacation and sick leave at a predetermined rate. Unused/accrued vacation and sick leave are payable upon termination or
retirement, creating a liability.
Employees accrue vacation and sick leave at a predetermined rate. Unused/accrued vacation and sick leave are payable upon termination or
retirement, creating a liability.
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Works of Art and Historical Treasures
GASB No. 34 says governments “should capitalize works of art, historical treasures, and
similar assets at their historical cost or fair value at date of donation.”
GASB No. 34 says governments “should capitalize works of art, historical treasures, and
similar assets at their historical cost or fair value at date of donation.”
Fund-Based Fund-Based Financial Financial StatementsStatements
Record an expenditure Record an expenditure and the cash payment (if and the cash payment (if purchased). No entry is purchased). No entry is
made if the item is made if the item is donated.donated.
Fund-Based Fund-Based Financial Financial StatementsStatements
Record an expenditure Record an expenditure and the cash payment (if and the cash payment (if purchased). No entry is purchased). No entry is
made if the item is made if the item is donated.donated.
Government-Wide Government-Wide Financial StatementsFinancial Statements
Record the asset and the Record the asset and the payment (if purchased) or payment (if purchased) or
revenue (if donated).revenue (if donated).
Government-Wide Government-Wide Financial StatementsFinancial Statements
Record the asset and the Record the asset and the payment (if purchased) or payment (if purchased) or
revenue (if donated).revenue (if donated).
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Infrastructure Assets and Depreciation
Government-Wide Financial Statements: Record all newly acquired assets. Show approximate cost for all previously acquired
major assets that• Were acquired after June 30, 1980, or that• Had major renovations, restorations, or
improvements since that date.
Fund-Based Financial Statements: Record the acquisition as an expenditure.
Government-Wide Financial Statements: Record all newly acquired assets. Show approximate cost for all previously acquired
major assets that• Were acquired after June 30, 1980, or that• Had major renovations, restorations, or
improvements since that date.
Fund-Based Financial Statements: Record the acquisition as an expenditure.
DepreciationFor government-wide financial statements,
depreciation is recorded for all assets except land, art works, and historical treasures that are inexhaustible.
DepreciationFor government-wide financial statements,
depreciation is recorded for all assets except land, art works, and historical treasures that are inexhaustible.
© The McGraw-Hill Companies, Inc., 2004
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GASB Statement 34General Purpose Statements
Three distinct sections:Three distinct sections:
1.1. MD&AMD&A
2.2. Financial StatementsFinancial Statements Government-wide Government-wide
Financial StatementsFinancial Statements Fund-based Financial Fund-based Financial
StatementsStatements Notes to the Financial Notes to the Financial
StatementsStatements
3.3. Required Required Supplemental Supplemental InformationInformation
Three distinct sections:Three distinct sections:
1.1. MD&AMD&A
2.2. Financial StatementsFinancial Statements Government-wide Government-wide
Financial StatementsFinancial Statements Fund-based Financial Fund-based Financial
StatementsStatements Notes to the Financial Notes to the Financial
StatementsStatements
3.3. Required Required Supplemental Supplemental InformationInformation
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Management’s Discussion & Analysis
State and Local governments must file an MD&A with their financial
statements.
State and Local governments must file an MD&A with their financial
statements.
1. A brief discussion of the basic
financial statements.
1. A brief discussion of the basic
financial statements.
2. Condensed financial
information.
2. Condensed financial
information.
3. An analysis of overall financial
position and results of operations.
3. An analysis of overall financial
position and results of operations.
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Management’s Discussion & Analysis
4. An analysis of balances and
transactions of individual funds.
4. An analysis of balances and
transactions of individual funds.
6. A description of
significant capital asset
activity.
6. A description of
significant capital asset
activity.
5. An analysis of variations between
original and final budgets.
5. An analysis of variations between
original and final budgets.
State and Local governments must file an MD&A with their financial
statements.
State and Local governments must file an MD&A with their financial
statements.
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Management’s Discussion & Analysis
7. If the modified approach for depreciation is used, provide
info about its application.
7. If the modified approach for depreciation is used, provide
info about its application.
8. A description of currently know facts or decisions that are expected to impact the financial statements.
8. A description of currently know facts or decisions that are expected to impact the financial statements.
State and Local governments must file an MD&A with their financial
statements.
State and Local governments must file an MD&A with their financial
statements.
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Governments prepare a Comprehensive Annual Financial Report (CAFR).
The CAFR includes: Introductory Section General purpose
financial statements. Auditor’s Report Schedules and
statistical tables.
Governments prepare a Comprehensive Annual Financial Report (CAFR).
The CAFR includes: Introductory Section General purpose
financial statements. Auditor’s Report Schedules and
statistical tables.
External Reporting Process
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Must be included in general purpose financial statements.
Can be discretely presented on the fund-based statements or “blended” with the funds of the primary government.
Must be included in general purpose financial statements.
Can be discretely presented on the fund-based statements or “blended” with the funds of the primary government.
Safety Commission
Component Units
Includes any unit that is legally separate from the primary government, but where financial accountability still exists.
Includes any unit that is legally separate from the primary government, but where financial accountability still exists.
© The McGraw-Hill Companies, Inc., 2004
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Government-Wide StatementsStatement of Net Assets
Include all assets, capital assets, and liabilities (current and long-term).
Report capital assets net of accumulated depreciation.
Divide the primary government into governmental activities and business-type activities.
Show all offsetting internal balances resulting from interactivity transactions.
Include all assets, capital assets, and liabilities (current and long-term).
Report capital assets net of accumulated depreciation.
Divide the primary government into governmental activities and business-type activities.
Show all offsetting internal balances resulting from interactivity transactions.
Report Investments at fair market value.
Group all discrete component units and show separately from the primary government figures.
Assets – Liabilities = Net Assets (not equity)
Show restrictions. Capital Assets less related
debt is reported separately within Net Assets.
Report Investments at fair market value.
Group all discrete component units and show separately from the primary government figures.
Assets – Liabilities = Net Assets (not equity)
Show restrictions. Capital Assets less related
debt is reported separately within Net Assets.
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Government-Wide StatementsStatement of Activities
Expenses are shown by Expenses are shown by function.function.
Interest on general long-term Interest on general long-term debt is normally an indirect debt is normally an indirect expense. Frequently shown expense. Frequently shown as a separate “function”.as a separate “function”.
Related program revenues Related program revenues should be shown for each should be shown for each “function”.“function”.
Show the net revenue figure Show the net revenue figure for each function.for each function.
General revenues are shown General revenues are shown at the bottom of the at the bottom of the statement.statement.
Expenses are shown by Expenses are shown by function.function.
Interest on general long-term Interest on general long-term debt is normally an indirect debt is normally an indirect expense. Frequently shown expense. Frequently shown as a separate “function”.as a separate “function”.
Related program revenues Related program revenues should be shown for each should be shown for each “function”.“function”.
Show the net revenue figure Show the net revenue figure for each function.for each function.
General revenues are shown General revenues are shown at the bottom of the at the bottom of the statement.statement.
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Fund-Based Financial StatementsGovernmental Funds
Balance SheetBalance Sheet Does not include proprietary Does not include proprietary
funds, component units, or funds, component units, or internal service funds.internal service funds.
No capital assets or long-No capital assets or long-term liabilities are reported.term liabilities are reported.
Separate columns for the Separate columns for the General Fund and each major General Fund and each major fund.fund.
In the Fund Balance section, In the Fund Balance section, identify both the “reserved” identify both the “reserved” and “designated” amounts. and “designated” amounts.
Balance SheetBalance Sheet Does not include proprietary Does not include proprietary
funds, component units, or funds, component units, or internal service funds.internal service funds.
No capital assets or long-No capital assets or long-term liabilities are reported.term liabilities are reported.
Separate columns for the Separate columns for the General Fund and each major General Fund and each major fund.fund.
In the Fund Balance section, In the Fund Balance section, identify both the “reserved” identify both the “reserved” and “designated” amounts. and “designated” amounts.
Statement of Revenues, Expenditures, & Changes
in Fund Balances Net revenues are not identified
for specific functions. Report Expenditures rather
than expenses. Other financing sources and
uses are shown to reflect long-term debt, sale of property, and transfers between funds.
Reconcile the ending fund balance and the ending change in net assets.
Statement of Revenues, Expenditures, & Changes
in Fund Balances Net revenues are not identified
for specific functions. Report Expenditures rather
than expenses. Other financing sources and
uses are shown to reflect long-term debt, sale of property, and transfers between funds.
Reconcile the ending fund balance and the ending change in net assets.
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Fund-Based Financial StatementsProprietary Funds
Statement of Net AssetsStatement of Net Assets Show the combined internal Show the combined internal
service funds.service funds. Assets and liabilities are Assets and liabilities are
classified as current and classified as current and noncurrent.noncurrent.
Statement of Net AssetsStatement of Net Assets Show the combined internal Show the combined internal
service funds.service funds. Assets and liabilities are Assets and liabilities are
classified as current and classified as current and noncurrent.noncurrent.
Statement of Revenues, Expenditures, & Changes
in Fund Net Assets Same rules as for
governmental funds. Capital contributions and
transfers are reported here.
Statement of Revenues, Expenditures, & Changes
in Fund Net Assets Same rules as for
governmental funds. Capital contributions and
transfers are reported here.
Statement of Cash FlowsStatement of Cash FlowsThere are Four categories: There are Four categories:
1.1. Operating ActivitiesOperating Activities2.2. Noncapital Financing ActivitiesNoncapital Financing Activities3.3. Capital and Related Financing Capital and Related Financing
ActivitiesActivities4.4. Investing Activities.Investing Activities.
Statement of Cash FlowsStatement of Cash FlowsThere are Four categories: There are Four categories:
1.1. Operating ActivitiesOperating Activities2.2. Noncapital Financing ActivitiesNoncapital Financing Activities3.3. Capital and Related Financing Capital and Related Financing
ActivitiesActivities4.4. Investing Activities.Investing Activities.
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Fiduciary Funds
Separate Separate general general purpose purpose financial financial
statements statements are prepared are prepared
for the for the fiduciary fiduciary
funds.funds.
Separate Separate general general purpose purpose financial financial
statements statements are prepared are prepared
for the for the fiduciary fiduciary
funds.funds.
Investm entTrust Funds
Private PurposeTrust Funds
PensionTrust Funds
AgencyFunds
Fiduciary Funds(O nly used for funds
held for external parties)
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Public Colleges and Universities
Public colleges and Public colleges and universities must universities must follow the same follow the same
guidelines as state guidelines as state and local and local
governments.governments.Their statements will Their statements will differ from those of differ from those of
private colleges and private colleges and universities.universities.
Public colleges and Public colleges and universities must universities must follow the same follow the same
guidelines as state guidelines as state and local and local
governments.governments.Their statements will Their statements will differ from those of differ from those of
private colleges and private colleges and universities.universities.
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. . . and if elected, I promise to make the financial reports so
confusing, no one will be able to figure out
what I am doing!
End of Chapter 17
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