CHAPTER4Accounting for Governmental Operating

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Accounting for Governmental Operating Activities—Illustrative
Transactions and Financial Statements
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Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written
consent of McGraw-Hill Education.
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Learning Objectives
4-1Analyze typical operating transactions for governmental
activities and prepare appropriate journal entries at both the
government-wide and fund levels.
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Dual-track approach
Different measurement focuses and bases of accounting for
governmental funds and governmental activities at the
government-wide level
Using the dual-track approach each transaction is recorded
separately in the general journals for the governmental fund and
governmental activities

The Dual-Track Approach
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Revenue recognition in
General Funds
General funds
In general, revenue is recognized when measurable and
available.
Property tax revenue is an example of a nonexchange revenue
Revenue is recognized when there is a legal enforcement claim–
that is, when the property taxes are levied.
Revenue is then adjusted if not collected in the current fiscal
year or soon after.
Revenue is recognized again once the collection is completed.

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Recording the property tax levy
1. The general fund has levied 2,653,061 of property tax
revenue of year 2020, 98% of which is expected to be
collectible.
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Collection of current year levied taxes

2. Collection of property taxes levied in 2020 amounts to
$2,350, 408 during the first three months.
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Delinquent Taxes
3.1) All property taxes are legally due before the end of the
fiscal year. The uncollected property taxes becomes delinquent.
Based on its past collection history, the General Fund does not
collect a significant amount of delinquent taxes early (within
first 60 days) in the following year.
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Delinquent Taxes
3. 2) 13,320 of interest and penalty has been levied on
delinquent property taxes of year 2020, of which 10,800 is
expected to be collected.
Based on its past collection history, the General Fund does not
collect a significant amount of interest and penalty early (within
first 60 days) in the following year.
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Collection of delinquent taxes
4. Delinquent taxes of 207,330 are paid, together with 7,200
interest and penalty recorded at the end of prior year.

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Writing off uncollectible delinquent taxes
5. The government approves to write off delinquent taxes
totaling 26,300 and related interest and penalty of 1,215.
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Other Revenue recognition in
General Funds
General funds
In general, revenue is recognized when measurable and
available.
Other revenues: sales taxes, licenses and permits, fines and
forfeits, charges for services

Revenue is recognized
when transaction takes place and cash is received
or if measurable before cash collection and available for current
period or soon after
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Other revenues
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Other Revenue: Interfund ActivityFund financial statements
Government-Wide financial statements
Interfund
Exchange
Recognize revenues, expenditures/expensesIntra-activity
(Between two governmental funds or two enterprise funds): No
effect
Inter-activity (Between a governmental fund (or internal service
fund) and an enterprise fund): record internal balance
Interfund Transfers (Nonexchange)
Recognize other financing source/ use if government funds
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Expenditure Recognition
Expenditure budgeting on a cash or near-cash basis
Expenditure recognized in the period in which the government
incurs the liability and
paid in current period (credit cash) or
shortly after the start of the next year (credit accrued liability

account at time of transaction)
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Tax Anticipation Notes
An analysis of cash receipt and disbursement patterns may
reveal that cash available for payment of expenditures will not
be sufficient at times to make all required payments.
Banks customarily meet the working capital needs of a
government by accepting a tax anticipation note from the
government. These short-term loans are secured by the taxing
authority of the government.

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Special Topics: Correction of Errors
Material errors should be corrected as soon as they are
discovered.
Correction of errors
related to current receivables/ revenue/expenditures: adjust the
affected accounts
related to prior period expenditures: adjust the fund balance.

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Assets—Inventory of Supplies
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Purchases Method
Expenditures equal the total cost of supplies purchased during
the year
Consistent with modified accrual basis

Consumption Method
The expenses/expenditures reflect the amount consumed
Consistent with the accrual basis of accounting
Periodic inventory system
Perpetual inventory system
Expenditures and Inventory of Supplies must be adjusted at year
end
No entry necessary at year end to adjust Expenditures and
Inventory of Supplies

Inventory of Supplies Example
General Fund purchased supplies from external vendors in the
amount of $260,000
Supplies costing $250,000 was consumed during the fiscal year.
At year-end, a physical inventory revealed that inventory of
supplies is $10,000.
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Special Topics: Closing Entries
All temporary accounts, both budgetary and operating, must be
closed to the budgetary fund balance and fund balance accounts.
When closing the operating accounts
Revenues + other financial sources – expenditures- other
—Unassigned

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Special Topics: General Fund Financial Statements
In governmental fund financial statements, the General Fund is
always considered to be a major fund.
Although not required, separate financial statements may be
prepared for the General Fund.
balance sheet
statement of revenues, expenditures and changes in fund
balances
budgetary comparison statement (or schedule) of revenues,
expenditures, and changes in fund balances.
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Special Revenue Funds

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Special revenue funds are needed when a significant revenue
source is restricted or committed for a specific operating
purpose, other than those served by proprietary or fiduciary
funds.
Street Fund
Library Operating Fund
Trust Fund

Permanent Funds
GASB standards require that endowments be accounted for in a
fund called a permanent fund.
Earnings are expendable for specific purposes, but the principal
amount is not expendable
Public-purpose trusts for which both principal and earnings
thereon can be expended for a specified purpose are accounted
for in a special revenue fund.
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Final Assessment
Written assignment DNA Global results
Activity brief
BCO311 – Global Marketing
Online campus
Professor:Sergio M Gil [email protected]

Description Critical comment results
During the course, alumni will develop in groups a
business simulation called DNA Global
As final assignment, the group need to submit a critical
review of the decisions taken and the results of
simulation. They should detail which were the decisions
which lead them to a good result or just the contrary.
Format This activity must meet the following formatting
requirements:
• Font size 12
• Double-spaced
• 1500 words
• Harvard Referencing
System
Goal(s) Apply the simulation knowledge to real world
Understand which are the crucial decisions which
can mean or not a succes of the strategy
Due date Date: 21st July 2021
Time:17:00
Weight towards
final grade
This activity has a weight of 60% towards the
final grade.
Learning
outcomes
• Understanding the complexity of the
international process

•
• Enhance the knowledge about tthe
interdependence of decisions within a company
Assessment
criteria
The grading of the essay will be based on:
- Clear explanation of the decision taken
- Relationship between decison and
success/fail
- Analysis of the global result
mailto:[email protected]
https://www.trinet.com/
Rubric: written assignment
Criteria Accomplished (A) Proficient (B) Partially proficient
(C) Borderline (D) Fail (F)
Problem
identification
The business issue has been
correctly identified, with a
competent and comprehensive
explanation of key driving
forces and considerations.
Impact on company operations
has been correctly identified.

Thorough analysis of the issue
is presented.
The student correctly identified
the issue(s), taking into account
a variety of environmental and
contextual drivers. Key case
information has been identified
and analyzed.
the case (issues), considering
obvious
environmental/contextual
drivers. There is evidence of
analysis, but it lacks depth.
the issue(s) but analysis was
weak. An absence of context –
the work is basically descriptive
with little analysis.
The student failed to correctly
identify the issue(s); analysis
was incorrect or too superficial
to be of use; information was
misinterpreted.
Information
gathering
The student showed skill in
gathering information and
analyzing it for the purposes of
filling the information gaps

identified. Comprehensive and
relevant.
Relevant information gaps were
identified and additional
relevant information was found
to fill them. At least two different
types of sources were used.
The student demonstrates
coherent criteria for selecting
information but needs greater
depth.
at least one information gap
and found relevant information,
but which was limited in scope.
Some evidence of sound
criteria for selecting information
but not consistent throughout.
Needs expansion.
An information gap was
identified and the student found
additional information to fill it.
However, this was limited in
scope. Weak criteria for the
selection of necessary
information.
Information was taken at face
value with no questioning of its
relevance or value. Gaps in the
information were not identified
or were incorrect.

Conclusions The student evaluated,
analyzed, synthesized all
information provided to create a
perceptive set of conclusions to
support the decisions and
solutions.
The student evaluated,
analyzed and synthesized to
create a conclusion(s) which
support decisions and
solutions.
The student reached
conclusions, but they were
limited and provided minimal
direction for decision-making
and solutions.
The conclusion was reasonable
but lacked depth and would not
be a basis for suitable strategy
development.
The student formed a
conclusion, but it was not
reasonable. It was either
unjustified, incorrect or
unrelated to the case in hand.
Solution

s The student used problem
solving techniques to make
thoughtful, justified decisions
about difficult and conflicting
issues. A realistic solution was
chosen which would provide
maximum benefit to the
company. Alternative solutions
were explored and ruled out.
The student used problem
appropriate decisions about
complex issues. Relevant
questions were asked and
answered. A realistic solution
was chosen. Alternatives were
identified, explored and ruled
out.
The student used problem-
appropriate decisions about
simpler issues. The solution
has limited benefit but does

show understanding of
implications of the decision.
Alternatives were mentioned
but not explored.
The student used problem
decisions about simpler issues
but disregarded more complex
issues. Implications of the
decision were not considered.
Alternatives were not offered.
The student formed a
conclusion, but it was not
reasonable. It was either
unjustified, incorrect or
unrelated to the case in hand.
Governmental Operating Statement Accounts; Budgetary

Accounting
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3-1Describe how operating revenues and expenses related to
governmental activities are reported in
the government-wide statement of activities.
Learning Objectives

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Government-wide Financial Statements
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Statement of Net Position
Statement of Activities
Classified by program or function

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Government-wide
Government-wide statement of activities classifies
expenses/revenues by functions and programs.
Functions and programs represent major activities or services of
a government.
Net expense or revenue for each function or program is
reported.
Expenses – Program Revenues = Net (Expense) Revenue

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Expenses: Direct and Indirect Expenses

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Direct Expenses
Indirect Expenses
Expenses specifically linked to a function or program
Reported as a separate line item and not allocated to any
function or program

Reported on the line for a specific function or program
Expenses not directly linked to an identifiable
function/program.
Program and General Revenues

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Program Revenues
General Revenues
Reported in the top section of the statement by
functions/programs
Reported separately in the bottom portion of the statement
This allows user to evaluate whether functions or programs are
self-sufficient or require general revenue to cover net costs.

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Program Revenue Categories
Charges for services
Charges to customers or others
Available for both governmental and business-type activities

For governmental activities: fines & forfeits; licenses &
permits; operating special assessments; charges to other
governments for services
Grants and contributions
Operating grants and contributions: restricted for operating
purposes by resource providers
Capital grants and contributions: restricted for capital
acquisitions
Multipurpose grants
Earnings from endowment
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General Revenue Examples
All taxes, even those specified by law for a particular use
Contributions to permanent funds and transfers between
governmental and business-type activities should be reported
below general revenues
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Reporting Special Items and Certain Transfers
Reported as separate line items below General Revenues:
Special items:
Items within management’s control and are either unusual in
nature or infrequent in occurrence.
E.g. one-time revenue from the sale of a significant government
asset
Extraordinary items:

Items or other events both unusual in nature and infrequent in
occurrence.
Contributions to principal of endowment/permanent fund
Transfers between governmental activities and business-type
activities.
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3-2Distinguish, in governmental funds, between Revenues and
Other Financing Sources and between Expenditures and Other
Financing Uses.
Learning Objectives
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Governmental Fund
Financial Statements
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Governmental Funds

Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund
Balance
Governmental Fund
Operating Statement Accounts
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Revenues
Expenditures:
i.e. operating expenditure, capital expenditure, debt service
expenditure
Other Financing Sources (Other Financing Uses): transfers into
(out of) a fund; the proceeds of debt issues
Expenditure Classification
Function or program: general gov, public safety, public works,
health and welfare, culture and recreation
Organization unit: police dep, fire dep, building safety dep,
street dep, city attorney, city clerk

Activity: specific work performed by organizational units
Character: current expenditure, capital outplays, debt service
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Major Revenue Source Classes
Taxes
Special Assessments
Licenses and Permits
Intergovernmental Revenues
Charges for Services
Fines and Forfeits
Miscellaneous Revenue

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Types of Taxes
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Ad Valorem Property Taxes
Sales Taxes
Gross Receipts Taxes
Death and Gift Taxes
Interest and Penalties on Delinquent Taxes
Income Taxes

Special Assessments
Service-type special assessments
Routine services (e.g. snow plowing, street cleaning) that are
provided outside the normal service area or at a higher rate or
level of quality than available to the general public
Capital improvements special assessments
Capital improvements that benefit only certain property owners
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Licenses and Permits
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Building Permit
Vehicle License
Business License

Animal License
Intergovernmental Revenue
According to GASB, grants and other financial assistance are
transactions in which one government transfers cash or other
items of value to (or incurs a liability for) another government,
an individual, or an organization as a means of sharing program
costs, subsidizing other governments or entities, or otherwise
reallocating resources to the recipients.
Grants and other financial assistance are nonexchange
transactions, and may be government-mandated or voluntary.

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Intergovernmental Revenue Recognition
Intergovernmental revenues are considered for revenue
recognition when all applicable eligibility requirements are met.
Challenges include determination of eligibility requirements
and when those requirements are satisfied including:
Required characteristics of recipients
Time requirements—Period in which grant must be used.
Reimbursements—Expenditures have been made

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Example
A local government has been awarded a state grant $50,000 to
finance a fine arts program, but the state will provide
reimbursement only after the grantee has made expenditures
related to the fine arts program.
Year 1: no qualifying expenditure is incurred.
Year 2: The local government has incurred qualifying
expenditures of $50,000.

How much revenues can be recognized in Year 1 and Year 2?
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Charges for Services

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All are charges for goods and services provided by a
government entity
Court costs
Special police services
Street, sidewalk, and curb repairs
Parking meter receipts
Tuition

Fines and Forfeits
Revenue from fines and forfeits includes:
Fines and penalties for commission of statutory offenses and for
neglect of official duty.
Forfeitures of amounts held as security against loss or damage,
or collections from bonds or sureties placed with the
government for the same purpose.
Penalties of any sort.
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Miscellaneous Revenues

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Interest (except interest on taxes)
Rents and royalties
Escheats
Public enterprise contributions

Private contributions
3-3Discuss budgetary reporting-governmental funds.
Learning Objectives

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Budgets
Restrictions on use of resources in governmental funds lead to
Requirement to prepare budgetary schedule

budget-to-actual comparison schedule
Recording budgetary journal entries
Integrate the budgetary accounts into the general ledgers
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No reproduction or distribution without the prior w ritten
Budgetary and Operating Account RelationshipsBudgetary
AccountsOperating AccountsBudgetary StatusEstimated
Revenues
(Debit)Revenues

(Credit)Estimated Other Financing Sources (Debit)Other
Financing Sources (OFS)
(Credit)Appropriations (Credit)Expenditures
(Debit)Appropriations minus the sum of Expenditures and
Encumbrances indicates remaining or overspent expenditure
authority.Estimated Other Financing Uses (Credit)Other
Financing Uses (OFU)
(Debit)Encumbrances
(Debit)N/AAn encumbrance has a normal debit balance because
it is a commitment to make an expenditure.
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3-5Explain how budgetary accounting contributes to achieving
budgetary control over revenues and expenditures, including
such aspects as

Recording and revising the annual budget.
Accounting for revenues, encumbrances, and expenditures.
Closing budgetary accounts.
Learning Objectives
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1. The legally approved budget for the General Fund of a
government for the fiscal year ending 12/31/2020 shows
1,277,500 estimated revenues: 882,500 is estimated tax
revenues, 200,000 is estimated intergovernmental revenues, and
195,000 is estimated revenues from licenses and permits.
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Estimated Revenues . . . . . . . . . . .1,277,500
Budgetary Fund Balance . . . . .1,277,500
Estimated Revenues Ledger:
Taxes . . . . . . . . . . . . . . . . . . . . . . .882,500
Intergovernmental Revenues . . . . .200,000
Licenses and Permits . . . . . . . . . . .195,000

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The following budget has been legally approved as the budget
for the General Fund of a government for the fiscal year ending
12/31/2020.
Estimated expenditures 1,362,000
Estimated other financing uses 274,500
2. The budget also shows the following information:
Estimated other financing uses 274,500
1,150,000 of the estimated expenditures are intended for the
general government, and 212,000 is intended for public safety.

The 274,500 estimated other financing use is budgeted for
interfund transfer out to other funds.
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Budgetary Fund Balance . . . . . . . . .1,636,500
Appropriations . . . . . . . . . . . . . . . .1,362,000
Estimated Other Financing Uses . .274,500

Appropriations Ledger:
General Government . . . . . . . . . .1,150,000
Public Safety . . . . . . . . . . . . . . . .212,000
Estimated Other Financing Uses Ledger:
Interfund Transfers Out to Other Funds . . . . . . . . . . . . . .
.274,500
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3. The General Fund collected revenues in cash during January
from licenses and permits of 13,200, and intergovernmental
revenues of 61,900.
Cash . . . . . . . . . . . . . . . . . . . . . . . . .75,100
Revenues . . . . . . . . . . . . . . . . . . .75,100
Revenues Ledger:
Licenses and Permits . . . . . . . . . . .13,200
Intergovernmental Revenues . . . . .61,900
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4. Early in January, a total amount of 45,400 of purchase orders
are issued. The purchase orders are for the following functions:
General government 38,000
Public safety 7,400
Encumbrances—2020 . . . . . . . . . . . . .45,400
Encumbrances Outstanding—2020 .45,400
Encumbrances Ledger:
General Government . . . . . . . . . . . . . .38,000
Public Safety . . . . . . . . . . . . . . . . . . . .7,400

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5. The General Fund has partially received the order. The
estimated dollar amount of the partial order is 42,000 (35,000
for General Government and 7,000 for Public Safety). The
General Fund is billed 42,400 for this partial order (35,100 for
the goods for General Government, and 7,300 for Public
Safety).

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Encumbrances Outstanding—202042,000
Encumbrances—2020 . . . . . . . .42,000
Encumbrances Ledger:
General Government . . . . . . . .35,000
Public Safety . . . . . . . . . . . . . . .7,000
.

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Debits Credits
Debits Credits
Expenditures—2020 . . . . . . . . . . . 42,400
Vouchers Payable . . . . . . . . . . .
42,400
Expenditures Ledger:
General Government . . . . . . . . . . 35,100
Public Safety . . . . . . . . . . . . . . . . .7,300

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General Ledger
Debits Credits
Appropriations . . . . . . . . . . . . . . . .1,362,000
Estimated Other Financing Uses . .274,500
Estimated Revenues . . . . . . . .1,277,500
Budgetary Fund Balance . . . . . 359,000
5. At year end, the budgetary accounts are closed.

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Special Topics: Revision of the General Fund Budget
During the fiscal year, comparisons should be made of budgeted
amounts to actual amounts. A review may be necessary to
determine whether the budget appears realistic or whether
changes should be made in light of current information.
If the budget is legally amended, appropriate journal entries
should be made to record the changes.
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Example
The legally approved budget for the General Fund of a

government for the fiscal year ending 12/31/2020 shows:
Estimated revenues 1,377,500
The administrators have determined that the budget should be
legally amended to reflect following changes:
Charges for services are expected to be $15,000 more than
originally budgeted.
There will be a 50,000 decrease in appropriation for public
works and 80,000 increase in appropriation for public safety.
Question: What are the new balances of estimated revenues and
appropriations?
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Special Topic: Receipt of Goods Ordered in Prior Year
Purchase orders and other commitments may be issued in one
year, while the goods and services are received in the following
year. In this case, the encumbrance account is not closed at year
end.
When the goods or services are provided, they are considered an
expenditure of the prior year, to the extent of the amount that
was encumbered and did not lapse.
Any excess over the encumbrance amount is considered an
expenditure of the year in which the goods or services are
received.
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Example
All goods and services for which encumbrances were
outstanding at the end of 2019 are received in 2020 at a total
invoice cost of 127,250. The estimated amount was 127,000.
Question: How much do we charge to expenditure-2019 and
expenditure-2020?
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Principles of Accounting and Financial Reporting for State and
Local Governments
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Government & Not-for-Profit
vs
Business
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They have different purposes in society.
They are financed by resource providers who do not expect
benefits proportional to the resources they provide.
Management has a special duty to be accountable for how
resources are used in providing services.
Not-for-Profit Organizations
Not-for-profit organizations are legally separate organizations
which are usually exempt from federal, state, and local taxation.
Examples?

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Financial Reporting Standards

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Learning Objectives
2-2Explain the nature of the three major activities of a state or
local government: governmental activities, business-type
activities, and fiduciary activities.
Definition of fund. Types of funds in each fund
category.

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Activities of Government
Governmental Activities:
Core services: police, fire protection, public works, culture and
recreation facilities, educational and social services.
General administrative support: data processing, finance, and
personnel.
Business-type Activities:
i.e. Public utilites, transportation systems, toll roads, hospitals,

parking garages etc.
Fiduciary Activities
i.e. Serve as custodian or trustee for parties outside of the
governments.
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All activities are managed in Funds
A fund is a separate fiscal entity
It has its own resources, its own liabilities, and its own
operating activity for the fiscal period.

A fund is a separate accounting entity
It has its own set of accounting records allowing it to prepare
separate financial statements.
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Fund
Types of Funds:
1) Governmental Funds: general activities of the government.

2) Proprietary funds: business-like activities of the
government.
3) Fiduciary funds: fiduciary activities of the government.
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Fund Categories
(1 of 3)

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Governmental Funds
General Fund
main operating fund
Special revenue funds

Debt service funds
Capital projects funds
Permanent funds
Governmental Funds
General Fund (GF)
Only one per government
Most financial transactions related to general government
operating activities
are recorded in the GF

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Governmental Funds (Cont’d)
Special Revenue Funds (SRF)
Are used when revenues are restricted or committed for
specified operating purposes, such as maintenance of roads and
bridges and operation of a library

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Debt Service Funds (DSF)
Account for financial resources segregated to pay principal or
interest on long-term general liabilities
I.O.U.

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Capital Projects Funds (CPF)
Account for financial resources segregated to pay for purchase
or construction of long-lived general capital assets

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Permanent Funds
Account for resources provided by trust for which the principal
is not spendable, but the earnings on the principal are required
to be used for a public purpose
i.e. Endowment to provide art for public buildings

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Practice Problem -- Matching General fund?a) Construction of
public buildingDebt service fund?b) Administrative expenses
of the city manager’s officeCapital projects fund?
c) Gifts in which the principal must be invested and preserved
but the investment earnings can be used for public
purposes.Special revenue fund?d) Principal and interest
payments on general long-term debtPermanent fund?
e) Grant revenues restricted for particular operating purposes.

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Fund Categories
(2 of 3)
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Proprietary Funds
Internal service funds
Enterprise funds
Proprietary Funds
Internal Service funds (ISF)
Account for activities in which goods or services are provided
to other departments of the same government for a charge
Examples: central stores, central computing, motor pools, and
printing

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Proprietary Funds (Cont’d)
Enterprise Funds
Account for activities in which goods or services are provided
to the general public for a charge
Examples: electric and water utilities, airports, parking garages,
transportation systems, and golf courses

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Practice Problem -- Matching Internal service fund ?a) Costs of
operating a municipal swimming poolEnterprise fund?b) Costs
of a central purchasing and warehouse function

2-‹#›
Fund Categories
(3 of 3)
2-‹#›
20

Fiduciary Funds
Custodial funds
Trust funds
Pension trust funds
Investment trust funds
Private-purpose trust funds

Fiduciary Funds
Custodial Funds
Account for financial resources for which the government
is acting in an agency capacity
Examples: tax custodial funds and pass-through custodial funds
2-‹#›
No reproduction or distribution without the prior w ritten
Fiduciary Funds (Cont’d)
Investment Trust Funds
Account for external investment pools in which the assets are
held for other (external) governments, along with funds of the

sponsoring government
2-‹#›
Private-purpose Trust Funds
To account for financial resources (expendable or
nonexpendable) in which the government is acting in a trustee
capacity for private individuals, organizations, or other
governments

2-‹#›
Pension (and other employee benefits)
Trust Funds (one or more)
To account for financial resources in which the government (or
other designated trustee) is acting in a trustee capacity for the
employees of the government to provide retirement benefits

2-‹#›
Practice Problem -- Matching Custodial fund?a) Gifts in which
the principal must be invested and preserved, while the
investment earnings must be used to provide scholarships to
children of police officers who died in the line of
dutyInvestment trust fund?b) Assets held in trust to provide
retirement benefits for municipal workers
Pension (and other employee benefit) fund?c) Taxes collected
on behalf of another government unitPrivate-purpose trust
fund?d) Assets held for external government participants in the
government’s investment pool for the purpose of earnings

investment income
2-‹#›
P2-17

2-‹#›
Learning Objectives
2-3Explain the Governmental Accounting Standards Board’s
(GASB) integrated accounting and financial reporting model,
including
Government-wide financial statements.
Fund financial statements.

2-‹#›
27
2
Financial Reporting Model

2-‹#›
Basic Financial Statements
Government-wide
Fund

State and Local Government Financial Reporting Model
Government-wide financial statements, which provide an
aggregated overview of a government’s net position and change
in net position and
Fund financial statements, which provide more detailed
financial information about a government
2-‹#›

Assist in assessing operational accountability—whether
government has used its resources efficiently and effectively in
meeting service objectives.
ACCRUAL BASIS of ACCOUNTING
ECONOMIC RESOURCES MEASUREMENT FOCUS
2-‹#›
Proprietary funds report on business-like activities of the
government
Fiduciary funds report on fiduciary (trust and agency) activities

of the government
OPERATIONAL ACCOUNTABILITY
ACCRUAL BASIS of ACCOUNTING
ECONOMIC RESOURCES MEASUREMENT FOCUS
Fund Financial Statements
2-‹#›
31

GOVERNMENTAL FUNDS
Assist in assessing FISCAL ACCOUNTABILITY—whether the
government raised and spent financial resources in accordance
with budgetary constraints
Focus on FLOW OF CURRENT FINANCIAL RESOURCES
Current assets and current liabilities only
Inflow can be “revenues” or “other financing sources”
Outflow can be “expenditures” or “other financing uses”
Use the MODIFIED ACCRUAL BASIS of ACCOUNTING—
2-‹#›

32
GOVERNMENTAL FUNDS
Use the MODIFIED ACCRUAL BASIS of ACCOUNTING—
Revenues recognized when
Measurable and
Available for spending within current period or soon enough
thereafter;
Expenditures recognized when an obligation is incurred that
will be paid from currently available financial resources
Current operating items
Capital assets acquisitions
Interest and repayment of principal on long-term borrowing

2-‹#›
2-‹#›

2-‹#›

2-‹#›
2-‹#›

2-‹#›
38

Reports year end financial position
Balance sheet
Reports expenses and revenues
Separate columns for governmental activities, business-type
activities, and component units
Separate columns for governmental activities, business-type
activities, and component units
Income statement

2-‹#›
6/2/2020
39

Statement of
Net PositionAll assets +
Deferred outflows of resources
< All liabilities >
<Deferred inflows of resources>
=
Net Position
2-‹#›

6/2/2020
40
2-‹#›
41
Governmental Funds

Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund
Balance
Statement of Revenues, Expenses, and Changes in Fund Net
Position
Fiduciary Funds
Statement of Fiduciary Net Position
Proprietary Funds
Statement of Cash Flows

Statement of Changes in Fiduciary Net Position
Governmental Funds
2-‹#›

6/2/2020
42
Governmental Funds
2-‹#›

6/2/2020
43
Governmental Fund Balance Sheet Accounts
2-‹#›
Current Assets
+
Deferred Outflows of Resources

Current Liabilities
+
Deferred Inflows of Resources
Fund Balances

2-‹#›
Governmental Fund
Fund Balance Classifications
2-‹#›

Nonspendable
Committed
Unassigned
Assigned
Restricted

Governmental Fund
Nonspendable:
Not in a form that can be spent (e.g. inventory)
Cannot be spent because of law/contracts
Restricted
Restriction designated by external provider (creditors, bond
holders, grant providers), constitutionally
Restriction due to enabling legislation

2-‹#›
Governmental Fund
Committed
Restriction placed by a formal action of the government’s
highest level of authority
Assigned
Intended to be used for specific purposes, but not restricted or
committed
Special revenue, capital project, debt service, or permanent
funds are considered assigned if not restricted or committed
Unassigned
General fund

2-‹#›
Learning Objectives
2-4Discuss the nature of major fund reporting and the criteria
used to determine whether a fund should be reported as a major
fund.

2-‹#›
52
2
Major Fund Reporting
Governments may have many different funds, but users are
likely to be most interested in information about funds with
larger dollar amounts.
GASB requires separate columns for all major funds, while
nonmajor funds may be grouped together and reported in a
single column.

2-‹#›
Determination of Major Funds
General Fund is always a major fund
Any governmental or enterprise fund that a government
considers of significant importance can be designated as a major
fund

2-‹#›
Major Fund Determination
2-‹#›

Major Funds include the General Fund and any fund meeting
both of the following:
Total assets, liabilities, revenues, or expenditures/expenses of
that fund are at least 10 percent of the corresponding element
total for all funds of that category or type.
The same element that met the 10 percent criterion is at least 5
percent of the corresponding element total for all governmental
and enterprise funds combined.

2-‹#›
State and Local Government Financial Reporting Model

2-‹#›
6/2/2020
57
M, D, and A
Management's Discussion and Analysis
Provides an overview and analysis of the government's annual
performance, financial position, and financial operations.

2-‹#›
M, D, and A
Provides an overview of how the government-wide financial
statements are reconciled with the governmental fund
statements.
Provides an overall summary of the government's revenues and
expenditures that often includes budgetary highlights such as
major increases or decreases in fund balances throughout the
reporting period and the reasons for the change.
Provides an economic conditions and outlook section.

2-‹#›
6/2/2020
59
M, D, and A

2-‹#›
6/2/2020
60
GOVERNMENTAL REPORTING SUMMARY
Governmental Funds
Proprietary Funds
Fiduciary Funds

G
R
S
P
P
S
E
P
A
P
I
Fund Structure

G
ENERAL
R
EVENUE
(
SPECIAL
)
S
ERVICE
(
DEBT
)
P
ROJECTS
(
CAPITAL

)
P
ERMANENT
S
ERVICE
(
INTERNAL
)
E
NTERPRISE
P
ENSION
A
GENCY
P
RIVATE P
URPOSE
I

NVESTMENT
Fund accounting
Basis of accounting
:
M
easurement focus
:
S
pecialized accounting
:
Modified Accrual
Current Financial Resource
No
Fi
xed
A
ssets or
Long

-
term Debt
Budget / Activity / Encumbrances
Full Accrual
Economic Resources
N
one
Full Accrual
Economic Resources
None
GOVERNMENTAL REPORTING SUMMARY
Governmental Funds
Proprietary Funds
Fiduciary Funds

G
R
S
P
P
S
E
P
A
P
I
Fund Structure
General
Revenue (special)
Service (debt)
Projects (capital)
Permanent
Service (internal)
Enterprise
Pension
Agency
Private purpose
Investment
Fund accounting

Basis of accounting:Measurement focus:
Specialized accounting:
Modified Accrual
Current Financial Resource
No Fixed Assets or Long-term Debt
Budget / Activity / Encumbrances
Full Accrual
Economic Resources
None
Full Accrual
Economic Resources
None

Management's discussion
and analysis
(MD&A)
Government
-
wide
Fund financial
financial statements
statements
Notes to the financial statements
Required supplementary
information (other than MD&A)

Management's discussion and analysis (MD&A)
Government-wideFund financial
financial statementsstatements
Notes to the financial statements
Required supplementary information (other than MD&A)

CHAPTER4Accounting for Governmental Operating

CHAPTER4Accounting for Governmental Operating

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