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CPA > FAR - Becker F8 > Flashcards

FAR - Becker F8 Flashcards

1
Q

Financial statements for governmental accounting and not-for-profit organization’s consist of what objectives:

A
  1. Timeliness
  2. consistency
  3. comparability
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2
Q

Foundational to governmental and not-for-profit organization accounting is the concept of:

A

Fund accounting

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3
Q

What is the purpose of fund accounting?

A

Fund accounting enabled service and mission driven organizations to easily monitor and report compliance with spending purposes (fund restrictions), spending limits (budget), and other fiscal accountability objectives

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4
Q

Governmental accounting uses what body of establishment?

Not for profit?

A

Governmental = GASB

not for profit = FASB

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5
Q

What does GAO do?

Government accountability office

A

GAO prescribes government auditing standards (yellow book standard) for audits of governmental organizations and federal assistance programs, activities, and functions

SINGLE AUDIT ACT

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6
Q

Definition of a fund:

A

A fund is a sum of money or other resource segregated for the purpose of caring on a specific activity or attaining certain objectives in accordance with specific regulations, restrictions, or limitations, constituting an independent fiscal and accounting entity. Each fund is a self balancing set up accounts

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7
Q

GASB 34: Government accounting has 11 fund types that are classified in the following three generic categories:

A
  1. Governmental funds
  2. proprietary funds
  3. fiduciary funds
  • fund financial statements should be separately presented for governmental, proprietary and fiduciary funds to report additional and detailed information about the primary government
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8
Q

Governmental accounting external reporting is:

A

Reporting requirements include fund based and government wide presentation supported by notes to the financial statements and a variety of require supplementary information

Presentation of a reconciliation of fund financial statements to government wide financial statements to fully integrate reporting objectives is also required

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9
Q

Government wide presentations = consolidated financial statements

A

Government wide financial statements convert disaggregated fund based financial statements using multiple measurement focuses and basis of accounting to a single consolidate a set of financial statements which you use the full “accrual basis of accounting” and the “economic resource measurement focus”. Financial activity of the primary government is classified in the following two ways:

  1. Governmental activities
  2. Business type activities
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10
Q

Major fund financial statements = like segment reporting

A

Major fund are presented using the basis of accounting and measurement focus unique to each category of fund. Only major funds are presented. Non major funds are displayed in the aggregate

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11
Q

Governmental funds:

  • modified accrual accounting (no profit motive)
  • current financial resources measurement focus( current only (no FA or LTD))
A

Governmental funds often have a budgetary focus, and seek to measure financial position and the changes there in.

The main financial statement: the statement of revenues, expenditures, and changes in fun balance

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12
Q

GRaSPP funds mnemonics for governmental funds are:

A

G- General fund: set up to account for the ordinary operations of a governmental unit which is finance from taxes and other general revenues

Ra - special revenue fund: special revenue funds are set up to account for revenues from specific taxes or other earmarked sources that by law are restricted or committed to finance particular activities of government

S- debt service funds : debt service funds are set up to account for the accumulation of resources and the payment of interest and principal on all general obligation debt , Other then that service by enterprise funds or buy special assessments in another fund. Resources of the fun are restricted, committed or assigned to debt service expenditures

P- capital projects funds : set up to account for resources restricted, committed or assigned for the acquisition or construction of major capital assets by a governmental unit, except those projects financed by an enterprise fund

P- permanent fund: are used to report resources that are legally restricted to the extent income, and not principal, may be used for purposes of supporting the reporting government’s programs

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13
Q

Proprietary funds

  • full accrual accounting
  • economic resources measurement focus (include everything)
A

Proprietary funds account for business type activities and their accounting is similar to commercial accounting. Proprietary funds use full accrual basis accounting and should be reported using the economic resources measurement focus

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14
Q

Funds in proprietary funds:

A
  1. Internal service funds - are set up to account for goods and services provided by designated departments on a cost reimbursement fee basis to other departments and agencies within a single governmental unit or two other governmental units. Customers of the internal service fund are primarily internal
  2. Enterprise funds -are set up to account for the acquisition and operation of governmental facilities and services that are intended to be primarily self supported by user charges. Customers of the enterprise fund are primarily

Enterprise funds are required when 1 of 3 criteria is met:

  1. The activity of the fund is financed by debt secured by a pledge a fee revenue
  2. Laws record collection fees adequate to recover costs
  3. Pricing policies are established to produce fees to recover costs
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15
Q

Fiduciary (trust) funds

  • Full accrual accounting
  • economic resources management focus
A

Fiduciary funds account for assets received where the government ask in the capacity of a trust or agency fun. Financial statements of fiduciary funds should be reported using the economic resources management focus and the full accrual basis of accounting, except for certain pension liabilities and postemployment healthcare plans

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16
Q

Fiduciary funds include:

PAPI

A

P- pension (and other employment benefits) trust funds: account for resources of defined benefit plans, defined contribution plans, postemployment benefit plans, and other longterm employee benefit plans

A- Agency trust funds: account for resources in the temporary custody of a governmental unit

P- private purpose trust funds: are the designated funds for all other trust fund arrangements under which principal and income are for the benefit of specific individuals, private organizations, or other governments. Often, the government will need to record escheat(property that has been forfeited as a) result of the passage of time or process of law property in a private purpose
trust fund

I- investment trust funds: account for external investment pools

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17
Q

Governmental accounting and not-for-profit accounting has dual objectives which means:

A

In accounting for public funds, both governments and not-for-profit organization’s seek to demonstrate their “operational accountability” for the entity taken as a whole and their “fiscal accountability” for specific funding

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18
Q

Classification of government to fund balances for GR a SPP:

GASB 54 establishes five categories of fund balances to fully report various levels of constraint associated with fund equity

NU CAR

A
  1. Non-spendable fun balance: current equity in the FundBalance is generally comprised of available, spendable resources. To the extent that the equity of a governmental fund is represented by current assets that cannot be spent (prepaid expenses, inventories), the fund balance should be displayed as non-spendable
  2. Restricted fund balance: resources associated with assets restricted by external authorities are classified as restricted
  3. Committed FundBalance: resources associated with assess obligated by formal action of the government highest decision-making authority (resolutions, encumbered appropriations) . Encumbered appropriation are not specifically identified on the face of the governments financial statements
  4. Assigned fund balance: resources associated with assets to government intends to obligate but has not formally committed
  5. Unassigned FundBalance: resources associated with spendable assets in either restricted, committed Nor assigned. Unassigned FundBalance is a residual equity classification for the general fund. Only the general fund should have a positive unassigned fund balance. Other governmental funds might have negative unassigned fund balances if expenditures incurred for specific purposes exceed the amount restricted or committed to those purposes
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19
Q

Level of constraints for GRaSPP

A
  1. Non-spendable – practical: monies have been spent, assets are either maturing or expiring
  2. Restricted – external: legislation, grantor, or creditor requirement must be satisfied (Bond covenants)
  3. Committed – internal: highest governing Authority establishes limits
  4. Assigned – internal: intention without formal commitment
  5. Unassigned: no constraint as to use ( general fund = positive)
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20
Q

Separate fun financial statements should be presented for governmental and proprietary funds to report:

A

Additional and detailed information about the primary government

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21
Q

Budget comparisons are presented as required supplement information not in the fund financial statements

T/f?

A

True

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22
Q

Internal service funds are presented in summary in the fun financial statements?

T/f?

A

True

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23
Q

Prioritization of general revenue distributions is displayed in the statement of activities in the:

A

Government wide financial statements

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24
Q

Measurement focus for a governmental fun, contemplates measurement of the flow of:

A

Current financial resources and resulting financial position

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25
Q

Inventories are considered to be non-spendable within a fund balance

T/f?

A

True

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26
Q

If expenditures incurred for specific purposes exceed the amounts restricted, committed or assigned to those purposes, it may be necessary to report:

A

A negative unassigned fund balance

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27
Q

Similarities of governmental accounting (modified accrual accounting) with commercial GAAP:

A
  1. Both can use double entry bookkeeping
  2. Both serve to produce periodic “balance sheets” or statement of financial position
    (current assets and debt for outflows of resources = current liabilities and deferred inflows of resources + “FundBalance”)
  3. Both serve to produce periodic “operating statements” (no income statements in governmental fund reporting)
  4. Both use historical cost and comply with most GAAP
  5. Terminology is similar however there are additional terms you need to modify accrual
  6. Both are concerned with safeguarding assets and providing information for internal and external use
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28
Q

Differences of governmental accounting(modified accrual) compared to GAAP

A
  1. Funds must comply with both legal statutes and GAAP
  2. there’s no profit motive it in a governmental fund thus there is no income determination
  3. Each fund is a separate entity, a self balancing set of account
  4. “Budgetary” accounting is emphasize in order to control spending
  5. “Activity” emphasizes flow of current financial resources
  6. “Encumbrance” accounting is used to record purchase orders
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29
Q

Governmental modified accrual accounting closes

BAE

  • budget
  • activity
  • encumbrance

To?

A

Balance sheet

Then moved to next year

Then! A new budget, activity, and encumbrance will be open

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30
Q

Sources of governmental resources:

A

Revenue:

  1. Taxes – income and sales
  2. taxes – property and real estate 3. fines and penalties

Other financing sources

  1. debt proceeds bonds and notes
  2. Interfund transfers
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31
Q

Budgetary accounting

The journal entry that records the budgeted amount for estimated revenue and approve expenditures (appropriations) is posted on the opposite side of the T account compared to actual amounts

A

DR- estimated revenue control
DR- estimated other financing sources [transfers from other funds (transfer in)]
DR- budgetary control (negative/deficit)
CR- appropriations control(approved spend)
CR- estimated other financing uses [transfers to other funds (transfer out)]
CR- budgetary control (positive/surplus)

NOTE: always reverse the EXACT SAME amount to close the books

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32
Q

Governmental (modified accrual accounting)

  • ACTIVITY:

Revenue
Expenditures
Assets
Debts

A

Revenue - measures and available
Expenditures - all spending
Assets - expenditured (not carried/capitalized)
Debts - other financing sources (not LTD)

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33
Q

Governmental modified accrual accounting- ACTIVITY

Revenue is measurable within?

A

Not exceeding 60 days after the end of the fiscal year

Current year + (Jan & feb items outstanding)

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34
Q

The following items are accrued as receivable and revenue at the time the related event occurs, subject to the measurable and available collected within 60 days of year and criteria:

For activity under governmental modified accrual accounting

A

Billed/recorded = IMPOSED NON EXCHANGE REVENUES
1. Real estate taxes (due)
2fines and penalties

Received (DERIVED REVENUE)

  1. Income taxes
  2. sales taxes

Earned

  1. Revenue collected in advance, unearned when collected
  2. real estate taxes paid in advance (unearned) 3. restricted grants (earned when spent) 4. deferred inflows of resources are recognized in some instances where assets are recorded but related revenues are not eligible for recognition (not available)
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35
Q

Journal entry to record accrual of real property taxes levied and provided for the estimated amount of uncollectible accounts:

(Revenue when billed)

A

Dr- Real property taxes receivable – current
CR- revenues – property taxes
CR- allowance for uncollectible taxes receivable – current

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36
Q

Journal entry to record the collection of property taxes Coleman

A

DR – cash

CR- Real property taxes receivable – current

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37
Q

Journal entry to reclassify receivables to delinquent

A

DR – property taxes receivable – delinquent

CR-property taxes receivable – current

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38
Q

Journal entry to reclassify current allowance for uncollectible taxes to delinquent and I just revenues to accrue available amounts

A

DR – revenues – property taxes.
Dr- allowance for uncollectible taxes – current
CR-allowance for uncollectible taxes – delinquent

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39
Q

Governmental modified accrual accounting- ACTIVITY

expenditures is:

A

Operating and capital transactions are considered expenditures in governmental fund types. In addition, principal payment on debt is considered a debt service expenditure. Capital purchases, debt service payments, and operating expenditures are consider spending the funds and are treated as current year expenditures

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40
Q

Encumbrance- commit funds for purchase orders.

A

In order for governmental managers to effectively monitor the degree to which they have used a budgetary operations, governmental accounting systems must reflect not only the expenditures but also the obligations to spend (purchase orders)

41
Q

An encumbrance should not be viewed as a GAAP expenditure. Similarly, the budgetary control account that offsets the encumbrance is not a liability. The budgetary control acts as a:

A

Limitation or constraints that reduces the available fund balance

Dr- encumbrance
CR- budgetary control

42
Q

Journal entry to reverse estimated encumbrances in budgetary accounts

A

DR-budgetary control

CR- encumbrances

43
Q

Journal entry to record the actual expenditures

  • ENCUMBRANCE
A

DR – expenditures

CR- vouchers payable or cash

44
Q

Encumbrances are off the record for spending/appropriations control purposes, especially in the general and special revenue funds. In conferences are not generally use for recurring expenses, such as sellers. They are more commonly use for purchases, requiring the use of:

A

Requiring the use of a purchase order by the government’s policy

45
Q

If it encumbrance is still outstanding year end and appropriations do not lapse, reverse the journal entry and include outstanding encumbrances inappropriate FundBalance classification. Usually encumbrances would be included in:

A

Fund balance, committed

or

fund balance, assigned

46
Q

Journal entry to close outstanding encumbrances at year end and reserve the FundBalance

A

DR – budgetary control

 CR- encumbrances
47
Q

Journal entry to close budgetary accounts related to outstanding purchase orders.

A

Dr- unassigned fund balance (year end surplus)

CR- fund balance, committed

48
Q

Vouchers accounts payable is already included in:

A

Expenditures

49
Q

GASB 63 requires that certain transactions that do not qualify for treatment at either assets or liabilities be accounted for and reported as deferred outflows of resources or deferred inflows of resources.

A

A deferred outflow of resources is a consumption of net assets that is applicable to a future reporting period.

Deferred outflows of resources have a positive effect on net position and are reported following assets but before liabilities

A deferred inflow of resources is an acquisition of net assets does applicable to a future reporting.

Deferred inflows of resources have a negative effect on that position and are reported following liabilities but before equity

50
Q

Government wide statement of net position

A 
Assets + deferred outflows of resources 
-
Liabilities + Deferred inflows of resources 
=
Net position
51
Q

Government fund balance sheet

GRaSPP

A

Governmental funds should present financial position in a balance sheet format that displays assets plus deferred outflows of resources equal to liabilities plus different inflow the resources plus FundBalance

Assets + deferred outflows of resources 
=
Liabilities + deferred inflows of resources 
\+
Fund balance
52
Q

Types of transactions classified as deferred outflows of resources and for inflows of resources:

A
  1. “Service concession arrangements” (GASB 60) - Service concession arrangements include payments by an operator (often a private vendor) to a government (transferor) for the ride to operate and collect use your fees from third parties on infrastructure or other public assets. SCA may provide for revenue sharing between the government and the operator during the term of the arrangement
  2. Criteria for qualifying for deferred outflow or deferred inflow treatment
    a. The transferor conveys to the operator the right and related obligation to provide public services through the use in operation of a capital asset in exchange for significant consideration such as:
    1) an upfront payment
    2) installment payments
    3) a new facility or improvements to an existing facility

b. The operator collect and is compensated by fees from third-party
c. The transferor determined or has ability to modified or approve what services the operator is required to provide, the population to be served, and the prices or rate that can be charge for the services
d. The transferor is entitled to significant residual interest in the service utility of the facility at the end of the arrangement

  1. Transferor accounting:
    a. The transferor continues to show the manage facility as a capital asset
    b. The transferor displays a liability for significant contractual obligation
    c. Upfront or installment payments are displayed as an asset at their present value along with the deferred inflow of resource
    d. Deferred inflows should be recognized in a systematic and rational manner
53
Q

Derivatives instruments and hedge accounting (GASB 53 & 64):

A

Derivative instruments are used by state and local government’s to manage specific risk or to make investments. Common types of derivative instruments used by governments include the following:

  1. Interest rate and commodities swaps
  2. Interest rate locks
  3. options
  4. swaptions (embedded derivatives)
  5. forward contracts
  6. future contracts
54
Q

Derivatives instruments and hedge accounting (GASB 53 & 64):

Accounting treatment:

A
  1. Derivatives are reported at fair value
  2. Changes in value of derivative used as investments are display within the investment revenue classification
  3. Changes in value of the derivative
    use for hedging activities are reported as either deferred outflows or deferred inflows resources
55
Q

Changes in hedge accounting:

A
  1. effective derivatives instruments are reported as if they were affected from the inception
  2. Ineffective derivatives instruments are evaluated as of the end of the prior reporting.
  3. Termination of hedge accounting occurs when:
    1) hedging instruments are no longer effective 2) expected transaction (to be head) are no longer probable
    3) head transactions are executed
    4) hedge assets or liabilities are removed from the balance sheet
  4. Termination of hedge accounting eliminates the use of deferral classifications and result in recognition of changes in derivative values in income
56
Q

Other deferred outflows/inflows of resources (GASB 65):

A

GASB 65, items previously reported as assets and liabilities, revise is the treatment of a variety of transactions previously reported as either assets or liabilities on the statement of financial position to classification as either a deferred outflows/inflows of resources or recognition as revenue or expense

  1. “Imposing non exchange revenue transactions - are reported as receivable prior to their formal levy or transactions recorded as a receivable prior to that period when resources are required to be used should be reported as deferred inflows
  2. Refunding of debt – the difference between the reacquisition price and the net carrying value of the old debt should be reported as deferred outflow (lost) or deferred inflow (gain) and recognized as a component of interest expense over the remaining life of the old or new debt, whichever is shorter
  3. Sales and intra-entity transfers of future revenues - should generally be reported as deferred inflows of resources. Government that factor their receivables initially record the proceeds from the sale as a deferred inflow that is recognized over time
  4. Leases - gains or losses arising from sale and leaseback transactions result in a deferred inflow or deferred outflow of resources that are recognized systematically over the life of the lease
  5. Assess associate it with unavailable revenues – when an asset is recorded in governmental fund financial statements, but the revenue is not available (measurable but not collected until more than 60 days after year end), the government should report a deferred inflow of resources
57
Q

Accounting and financial reporting for pensions (GASB 68):

A
  1. GASB 68, accounting and financial reporting for pensions, uses the concepts of deferred outflows and inflows to account for changes in a government’s pension liabilities
  2. Changes in a government pension liability are accounted for in one of two ways in the sponsoring fund’s financial statements and in the government-wide financial statements.
    a. Expensed - similar to commercial accounting, changes in the government’s pension ability that result from current service costs and interest net of return of plan assess are expensed (SIR)
    b. Deferred outflows and deferred inflows- changes in a governments picture liability that result from changes in actual assumptions, differences between expected an actual return on plan assets, and some prior service costs are accounted for as differed outflows and deferred inflows. Prior to service cost already earned by employees are expensed (AGE)
58
Q

The format for the presentation of the statement of financial position for a fiduciary fund adheres to the following equation:

A

Assets and deferred outflows of resources MINUS liabilities and deferred inflows of resources EQUAL net position

59
Q

Governmental accounting (governmental funds)

General fund
Purpose:

A

The general fund is crated at the beginning of the governmental unit, and it exist throughout the life of that unit. The general fund accounts for the general activities of a government that are not accounted for by any other fund

“MOST POWERFUL
FUND”

60
Q

Revenue sources of general fund

A
  1. Taxes – “property taxes” as a primary revenue source. Franchise and public-service taxes are often recorded in the general fund (REVENUE WHEN RECORDED/BILLED (AND OWED))
  2. Public Safety and regulation – include fees and fines (Police Department, building inspectors, fine individuals for infractions, charge fees for inspections). General fund revenues also include license and permit revenues (police and fire or building department license for buildings and permits for activities)
  3. Intergovernmental – shared or Grant revenues from other governments may appear in the general fund
  4. Charge for services – exchange revenues that support general fund activities may appear in the general fund. The government may elect to use a government model instead of proprietary funds for services primarily supported by charges.
  5. Other revenue - investment earnings as well
    As miscellaneous earnings
61
Q

Expenditures types for General fund:

A
  1. General government – activities often include the administrative functions of the government such as the city manager, finance, etc.
  2. Public safety – activities often include the police department, fire department, jail, and building inspections department
  3. Culture and re-creation – activities include parks, libraries, etc
62
Q

Governmental funds

Special revenue fund Purpose:

A

Special revenue funds account for revenues and expenditures that are “legally restricted or committed” for specific purposes other than debt service or capital projects. The life of the special revenue fund may be limited or unlimited but resources are “expendable”

EXAMPLES:
1. Sales tax fund- (operate park and tourist facilities)

  1. Gasoline tax fund - (to operate and maintain streets)
  2. Funds to account for specific fees:
    1) special fees (to operate school programs)
    2) admission fees (to operate museums)
    3) Parking fees (to operate traffic court)
  3. Grant funds(expendable trust)
    1) State grants (state juvenile rehabilitation fund to operate a youth center)
    2) Federal grant funds (federal financial assistance programs)
63
Q

Special revenue funds

Expendable trust activities:

A

Expendable trust activities represent funding whose principal and income may be expended in the course of their designated operation so
That they are depleted by the end of their designated lives. GASB 34 states that expendable trust activity should be accounted for in a special revenue fund

64
Q

Special revenue fund

Grants:

A

When I grant is received, there is a big government monitors and determines eligibility

Recognize revenues and expenditures equally based on the payments of the grantor

Monitoring = special revenue fund
Non-monitoring = agency trust fund
65
Q

Governmental funds

Service Debt funds
Purpose:

NO ENCUMBRANCES

A

The debt service fund is created to account for the cumulation of resources (cash and investments) and the payment of currently do interest and principal on “long-term general obligation that” (which is generally “serial bond debt”) by setting aside cash and cash equivalents

  1. The debt service funds pays off the debt of the GRaSPP funds -and not SE-PAPI

EXAMPLE:

  1. Central city development debt device fund
  2. community redevelopment debt service fund
  3. convention center development Bond debt service fund
  4. general revenue bond debt service fund
66
Q

Debt service fund:

Journalizing interest Expenditures

A

A debt service fun makes actual expenditures associate it with the principal and interest on general obligation long-term debt. When the interest payment is legally due, the debt service fund recognizes principal and interest expenditures

Journal entry to record payment of interest:
DR – expenditures
CR – cash (matured interest payable)

Note: encumbrances ARE NOT USED

67
Q

Debt service fund:

Journalizing principal Expenditures

A

When the face amount of the bonds is due, the debt service fund would make the entry below using the cash that has been transferred from other funds, especially the general fund and the capital projects fund

Journal entry to record the payment of principal on the bonds:

DR – expenditures
CR – cash (matured principal payable)

Note: to debt service fund both interest payments and principal payments are consider expenditures

68
Q

Governmental funds

Capital projects fund (aka. Purchasing department
Purpose:

A

Capital project funds are established for the construction or purchase or leasing of significant fixed assets (used by government funds only, not by proprietary or fiduciary fund). The life of the capital project fund is short and is limited to a construction period of 1 to 3 years

EXAMPLES:

  1. Convention center construction fund
  2. Municipal Stadium construction fund
  3. County Courthouse construction fund
  4. construction fund accounting for a special assessment project (such as streets and streetlights benefiting only those certain property owners who would pay for them)
69
Q

Governmental funds

Capital projects fund (aka. Purchasing department

Revenues and other financing sources:

A

Capital project funds are generally funded by bond proceeds that are to be used to complete a particular project. The project may also be purely funded by a transfer from another fund, specific tax revenues or capital gains. Investment earnings may also appear in this fund, although the disposition of those earnings may be either to retain them in the fund for the benefit of the project or to immediately transfer them to a debt service fund for the benefit of the bondholders

  1. Investment earnings
  2. Tax revenues
70
Q

Governmental funds

Capital projects fund (aka. Purchasing department

Capital grants:

A

Capital grants received in advance are often recorded as a liability and displayed as earned as they are expensive. Government grants may be restricted and are reported as revenues when earned or maybe unrestricted and recognized immediately

Journal entry to record “unrestricted” government grant: (REVENUE NOW)
DR – cash
CR – revenue

Journal entry to record restricted government grants (revenue when spent) (DEFERRED)
DR – cash
CR – revenue collected in advance

Journal entries to recognize revenue restricted (when spent) by a cost reimbursement contract (SPEND IT)
DR – expenditure
CR – vouchers payable/cash

AND (EARN IT)

DR – revenue collected in advance
CR – revenue

Journal entry to record a general or a special revenue fund transfer
DR – cash (or due from other fund)
CR – other financing sources (transfers in)

71
Q

Governmental funds

Permanent funds
Purpose:

NO ENCUMBRANCES

A

Permanent funds should be used to report resources that are “legally restricted” to the extent that only earnings, and “not principal”, may be used for the purposes that support the reporting government’s programs (INTEREST ONLY)

EXAMPLES:
A public cemetery perpetual care fund. These funds are the equivalent of nonexpendable trust and may also be used for endowments that are governed by a formal trust agreement with the donor

72
Q

Proprietary funds

Internal service funds
Purpose:

A

Internal service fund are established to finance and account for services and supplies provided exclusively to other departments within a government unit or to other governmental units, typically on a cost reimbursement basis

EXAMPLES:

  1. Central janitorial departments
  2. central garages and motor pool
  3. Central painting and duplicating services
  4. Central purchasing and storage departments
  5. Central repair shops
  6. Central computer processing department
  7. Self insurance
73
Q

Proprietary funds

Internal service funds

Revenue sources:

A
  1. Restricted Grant revenues – are recognized as revenues in the year monies are spent
  2. Operating revenues – are recognize when earned

Journal entry to record billings for services rendered to other funds
DR – cash (or due from other fund)
CR – Billings to other departments (operating revenue)

  1. Non-operating revenues – such as interest earnings, are segregated from operating revenues for financial statement display
74
Q

Proprietary funds

Internal service funds
NO BUDGET ACCOUNTS(appropriations) and ENCUMBRANCES

Net position:

A

Net position is classified in a manner consistent with other proprietary funds and displays three categories of equity: unrestricted, restricted (for purpose), and net investment in capital assets

RUN - restricted, unrestricted, net investment in capital assets

75
Q

Proprietary funds

  • Internal service funds
  • Enterprise funds
A
  1. Balance sheet - statement of net position
  2. Income statement- statement of revenues and expenses
  3. Statement of Cash flow
  4. Footnotes
76
Q

Proprietary funds

ENTERPRISE FUNDS
Purposes:

NO BUDGETS AND ENCUMBRANCES

A

Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business enterprise. Activities are required to be reported as enterprise funds if anyone of the following criteria are met:

  1. The activity is finance with debt that is secured solely by a pledge of the net revenue from fees and charges
  2. Laws and regulations require that the cost of providing services be recovered through fees
  3. The pricing policies of the activity established fees and charges designed to recover its cost
77
Q

Proprietary funds

ENTERPRISE FUNDS
Examples:

A
  1. Public utilities (water company and electric companies)
  2. Public hospitals (although governmental models may also be used)
  3. Public universities (although governmental models may also be used)
  4. Other commercial activities such as:
    1) public transportation systems
    2) airports
    3) public benefit corporations
    4) dock and wharf facilities
    5) off street parking lots and garages
    6) public housing
    7) golf courses and swimming pools
    8) lotteries
78
Q

Proprietary funds

ENTERPRISE FUNDS

Revenue sources:

A

Revenues for enterprise (and all proprietary funds) must be presented by major source and distinguish between operating and non-operating. Classification of transactions as operating or not should be consistent with transaction classification in the statement of cash flows

  1. Operating revenues – are defined by the main purposes of the fund. Examples of operating revenues include:
    1) charges for services: water and sewer Billings (in a public utility), greens fees (in golf course)
    2) miscellaneous operating revenues
  2. Non-operating revenues – or earnings or non exchange transactions (such as taxes and certain fees and charges) and interest
    1) “shared revenues” (non-operating revenue) our revenues (from gasoline or sales taxes) collected by one government(state) and shared on a predetermined bases with another government(local). They are not operating revenues of the local government
    2) “interest and investment income” – transfers in our other financial sources that will affect the results of operations. The accounting for revenues is the same as in commercial accounting (GAAP)
79
Q

Proprietary funds

ENTERPRISE FUNDS

Expense types:

A
  1. Operating expenses – are generally classified by object, to include such major categories as personal services, utilities, and appreciation
  2. Non-operating expenses – mostly commonly include interest expense
80
Q

Order of presentation of line items on a proprietary fund statement of revenue, expenses, and changes in fund net position

INCASET

A 
Income (operating
Nonoperating inc and expense
Capital contributions
Additions to endowments
Special items (unusual or infrequent)
Extraordinary items
Transfers
81
Q

Enterprise funds

  • capital contributions
  • long term debts
A

Capital contributions will be reported as a separate category of revenue reported below the non-operating revenue and expense section of the operating statement. Capital contributions are not identified as a separate component of net position

Journal entry to record contributions
DR – capital assets
CR – capital contributions

Long term debt (or capital lease) - The enterprise fund will carry long-term debt, which is backed by the proprietary fund or paid with revenues

Journal entry to issue of general obligation bonds to be paid from proprietary fund revenues

DR – cash
CR – long-term bonds payable

82
Q

Municipal landfills (the dump) governed by:

A

Accounting for Municipal solid waste landfill closure (MSWLF)

and

post closure care costs (GASB 18)

83
Q

GASB 18 refers to:

A

Refers to environmental protection agency rules and establishes dangers of accounting and reporting for MSWLF closure and post closure cost required to be incurred by federal, state, or local laws or regulations as a condition for the right to operate in the current period

84
Q

Municipal landfill

Cost components:

A

The estimated total current cost of an MSWLF closure and post closure care, based upon applicable federal state or local laws or regulations, should include the:

1) cost of equipment expected to be installed at the facilities expected to be constructed near or after the date that the MSWLF stop excepting solid waste and during the post closure period. This equipment should be limited to items that, what is start or constructed, will be exclusively used for the MSWLF
2) cost of a gas monitoring and collection system
3) cost of final cover (capping) expected to be a pioneer or after the date that the MSWLF stops accepting solid waste
4) this estimate should be adjusted annually. Under proprietary fun reporting, a portion of this estimated cost is recognized as an expense and as a liability, based on usage, each period the MSWLF is operating. All costs are recognized as of the date of closure

85
Q

Proprietary funds statement of cash flows has “switched order”

A

Operating activities

Noncapital financing activities

Capital and related financing activities

Investing activities

NOTE: reconcile to operating income and NOT net income

86
Q

Fiduciary funds (trust funds) has:

A

Full accrual

Balance sheet - statement of plan net position

Income statement- statement of changes in plan net position

Foot notes

87
Q

Fiduciary funds (trust funds)

Pension Trust
Purpose:

NO BUDGETS AND ENCUMBRANCESS

A

Pension (and other employee benefit) trust funds account for government-sponsored defined-benefit and defined contribution plans and other employee benefits such as post retirement health care benefits

EXAMPLES:

  1. Employee retirement plan
  2. Deferred compensation plan
88
Q

Fiduciary funds (trust funds)

Pension Trust

Revenue sources:

A
  1. Employer and employee contributions – restricted account – resources received are credited to the account “employee contributions – restricted” this account appears in the net assets section of the pension trust fund balance sheet and is disclose in the footnotes

DR – cash.
CR – additions: employer contribution – restricted

  1. Other fund transferring money to this fund

Journal entry of a GR a S PP fund, which uses modified accrual

DR – expenditures
CR – cash

Journal entry of a SP – PA PI fund, which uses full accrual

DR – expenses
CR – cash

89
Q

Fiduciary funds (trust funds)

Pension Trust

Expense types:

A

Expenses of pension trust funds frequently include benefits payment, refunds and administrative expense

90
Q

Fiduciary funds (trust funds)

Agency Trust fund (mailman)
Purpose:

FUND MAKES
NO DECISION!!

No statement of cash flows
No income statements
No net position

A

I need to see fun collect cash to be held temporarily for an authorized recipient to whom it will be later disbursed. This recipient may be another fund or some individual or firm or even government outside of the government

EXAMPLES:

  1. Tax collection fund
  2. Clearance funds
  3. Special assessments
91
Q

Fiduciary funds (trust funds)

Pension Trust

Revenue sources
Expense type

A

Revenues and expenses are NOT recognized in agency funds

92
Q

Fiduciary funds (trust funds)

Agency funds

Tax collection funds:

A

Text collecting funds exist when one local government collects a tax for an overlapping governmental unit and remits the amount collected, less administrative charges, to the recipient unit

  1. Sales tax agency fund
  2. Payroll withholding agency fund
  3. Real estate taxes agency fund

Journal entry to record the county collections and retaining of a fee

DR – cash
CR – due to other units
CR – due to county general fund

93
Q

Fiduciary funds (trust funds)

Agency fund

Clearance funds:

A

Clearance funds are used to accumulate a variety of revenues from different sources and apportion them into various operating funds in accordance with a statutory formula or procedure

  1. Cash conduit arrangements (no monitoring)
    1) pass through grants
    2) food stamps
    3) traffic citations
    4) alimony, child support and other court ordered payments
94
Q

Fiduciary funds (trust funds)

Agency fund

Special assessment:

A

When the government unit “is not otherwise obligated” for the debt (not primarily or potentially liable), the receivables and debt service transactions are appropriately accounted for in the agency fund

NOTE: if a governmental unit has a liability, accounting is made through the capital projects and debt service funds

95
Q

Fiduciary funds (trust funds)

Private purpose trust (NOT PUBLIC USE)

Purpose:

Balance sheet - statement of fiduciary net position
Income statement- statement of changes in fiduciary net position
Foot notes

No statement of cash flows

A

The private purpose trust fund is the designated fund for reporting all of the trust arrangements under which principal and income for the benefit of one of the following:

  1. Specific individuals
  2. Private organizations
  3. Other government

EXAMPLES:

  1. Escheat property fund
  2. Other trusts (inmate commissary/general store
  3. Public employee retirement system 4. investment pools held on behalf of other governments
96
Q

Fiduciary funds (trust funds)

Private purpose trust (NOT PUBLIC USE)

J/E

A

Journal entry to record obligation to transfer income to general fund
DR – interfund transfer to the general fund
CR – due to the general fund

Journal entry to record transfer of funds to the general fund

DR – due to the general fund
CR – cash

97
Q

Fiduciary funds (trust funds)

Private purpose trust (NOT PUBLIC USE)

Expense types:

A
  1. Expenses - relate to the specific purpose of the trust and may relate to benefit or administrative charges
  2. Capital gains/losses – Are recorded as adjustments to fund principal and not to income, unless the grantor specified otherwise
98
Q

To determine the correct fund to count for restricted funds, use the following chart:

A

FUND- Special revenue fund
USE - Public
SPENDING -Interest & principal (expendable)

FUND - permanent fund
USE- Public
SPENDING - interest only (nonexpendable)

FUND - private purpose trust
USE - private
SPENDING - interest and/or principal (expendable)

99
Q

Fiduciary funds (trust funds)

Investment trust

Purpose:

Balance sheet - statement of fiduciary net position
Income statement- statement of changes in fiduciary net position
Foot notes

No statement of cash flows

A

Accounting and financial reporting for certain investments and for external investment pools (GASB 31) establish that a government entity that sponsors one or more external investment pools (sponsoring government) should report the external portion of each pool as a separate investment trust fund.

CPA (15 decks)

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