FAR SEC 19 Flashcards
What do governmental funds emphasize?
Governmental funds emphasize sources, uses, and balances of current financial resources.
For governmental funds, how is the fund balance computed?
In these funds, (a) expendable assets are assigned to funds based on their intended use, (b) current liabilities are assigned to funds from which they will be paid, and (c) the difference is the fund balance.
How does the current financial resources measurement focus relate to governmental funds?
Thus, the governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting
What is the measurement focus and basis of accounting for governmental funds? (3 elements)
1) Governmental funds emphasize sources, uses, and balances of current financial resources.
2) In these funds, (a) expendable assets are assigned to funds based on their intended use, (b) current liabilities are assigned to funds from which they will be paid, and (c) the difference is the fund balance.
3) Thus, the governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting.
For governmental and proprietary fund financial statements, what is the distinction between major vs. nonmajor fund reporting?
Governmental and proprietary fund financial statements emphasize major funds. But major fund reporting does not apply to internal service funds.
Is the main operating fund (the general fund) always a major fund?
Yes.
On the governmental funds financial statement, how is each major fund presented?
Each major fund is presented in a separate column.
On the governmental funds financial statement, how are nonmajor funds presented?
Nonmajor funds are aggregated in one column.
Are combining statements required for nonmajor funds?
No. Combining statements are not required for nonmajor funds.
What are the conditions for recognizing a governmental fund as major? ( 2 elements)
1) Any individual governmental or enterprise fund must be reported as major if
i) Total assets, liabilities, revenues, or expenditures or expenses (excluding extraordinary items) of the fund are at least 10% of the corresponding element total (assets, etc.) for all funds of its category (i.e., all governmental or all enterprise funds), and
ii) An element that met the 10% standard above is at least 5% of the corresponding element total for all governmental and enterprise funds.
2) To determine whether major fund criteria are met,
i) Deferred outflows of resources are combined with assets and
i) Deferred inflows of resources are combined with liabilities.
What is another way that a fund could qualify as major?
Any governmental or enterprise fund believed to be particularly important to users also may be reported in the same way as a major fund.
Any individual governmental or enterprise fund must be reported as major if _______________. (2 elements)
1) Total assets, liabilities, revenues, or expenditures or expenses (excluding extraordinary items) of the fund are at least 10% of the corresponding element total (assets, etc.) for all funds of its category (i.e., all governmental or all enterprise funds), and
2) An element that met the 10% standard above is at least 5% of the corresponding element total for all governmental and enterprise funds.
To determine whether major fund criteria are met___________. (2 elements)
1) Deferred outflows of resources are combined with assets and
2) Deferred inflows of resources are combined with liabilities.
What is the general fund? (2 elements)
1) The general fund accounts for all resources not required to be reported elsewhere.
2) The reporting entity has only one general fund.
What are special revenue funds? (4 elements)
1) Special revenue funds account for restricted or committed proceeds of specific sources of revenue. Expenditure must be for a specified purpose (but not debt service or a capital project).
2)Thus, the basis of the fund is a substantial inflow from restricted or committed revenue sources.
3) Examples of resources accounted for are federal grants, shared revenue, and gasoline taxes.
4) The following are examples of the uses of special revenue funds:
i) Operation of a municipal auditorium
ii) Upkeep of a zoo
iii) Road maintenance
What are three examples of the uses of special revenue funds?
1) Operation of a municipal auditorium
2) Upkeep of a zoo
3) Road maintenance
How are donations to programs treated?
Donations provided for programs to be administered by the government also are accounted for in special revenue funds.
Are special revenue funds used for resources of a trust held as a fiduciary activity?
No, a special revenue fund is not used for the resources of a trust held as a fiduciary activity.
How is the general fund of a blended component unit reported?
The general fund of a blended component unit is reported as a special revenue fund.
Are special revenue funds required?
Special revenue funds are not required unless legally mandated.
What are capital projects funds? (3 elements)
1) Capital projects funds account for financial resources restricted, committed, or assigned to be expended for capital purposes.
-These resources include general obligation bond proceeds to be used to acquire or construct major capital facilities for general government use (e.g., schools, bridges, or tunnels).
2) Capital projects financed by proprietary funds or in trust funds are accounted for in those funds.
3) The assets themselves are not accounted for in these funds.
What are debt service funds? (3 elements)
1) Debt service funds account for resources restricted, committed, or assigned to payment of the principal and interest.
2) They are required if
i) They are legally mandated, or
ii) The resources are for payment of principal and interest due in future years.
3) If the government has no obligation on special assessment debt, the debt service transactions are accounted for in a custodial fund.
What are permanent funds?
1) Permanent funds account for resources that are restricted to the use of earnings for the benefit of the government or its citizens.
i) An example is a perpetual-care fund for a public cemetery.
2) Permanent funds are not private-purpose trust funds.
i) Private-purpose trust funds are reported with the other fiduciary funds.
What is the balance sheet format for governmental funds?
A balance sheet is required for governmental funds. It should be in balance sheet format with a total column.
Balance Sheet Format:
Assets + Deferred outflows of resources = Liabilities + Deferred inflows of resources + Fund balances
What is the balance sheet format equation for governmental funds?
Assets + Deferred outflows of resources = Liabilities + Deferred inflows of resources + Fund balances
How should fund balances be classified? (5 elements)
Fund balances should be classified as
1) nonspendable,
2) restricted,
3) committed,
4) assigned, or
5) unassigned.
Is the Statement of Revenues, Expenditures, and Changes in Fund Balances required?
Yes. This statement is required.
What is the Statement of Revenues, Expenditures, and Changes in Fund Balances?
This statement is required. It reports inflows, outflows, and balances of current financial resources. The focus is on major fund reporting.
For governmental accounting, what are revenues? (2 elements)
1) Revenues are classified in this statement by major source and expenditures by, at a minimum, function.
2) Debt issue costs (e.g., underwriter’s fees) paid from the proceeds are expenditures.
-Issue costs (e.g., rating agency fees) paid from existing resources also are expenditures (but not until the liability is incurred).
For governmental accounting, other financing sources and uses include __________. (6 elements)
1) The face amount of long-term debt,
2) Issuance premium or discount,
3) Some payments to escrow agents for bond refundings,
4) Interfund transfers,
5) Sales of capital assets (unless the sale is a special item), and
6) Debt refundings.
What are special and extraordinary items? (3 elements)
1) Special items are transactions or other events that are (a) within the control of management and (b) either unusual in nature or infrequent in occurrence but not both.
-Significant transactions or other events that are either unusual or infrequent but not within the control of management should be (1) separately identified in the appropriate revenue or expenditure category or (2) disclosed in the notes.
2) Extraordinary items are transactions or other events that are unusual in nature and infrequent in occurrence.
3) If both special items and extraordinary items occur in the same fiscal year, special items are reported before extraordinary items.
What are government-wide financial statements? (3 elements)
1) Government-wide financial statements report information about the government as a whole. Thus, they do not display funds or fund types.
2) Government-wide statements also do not report information about fiduciary activities, including fiduciary component units.
-The assets of a fiduciary fund are held as a fiduciary activity.
2) The primary government is distinguished from its discretely presented component units.
3) The governmental activities and business-type activities of the primary government are separately presented.
i) Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds.
ii) Business-type activities are financed at least in part by fees charged to external parties for goods and services. They are reported in enterprise funds.
What are governmental activities?
Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds.
What are business-type activities?
Business-type activities are financed at least in part by fees charged to external parties for goods and services. They are reported in enterprise funds.
For government-wide financial statements, what is the measurement focus and basis of accounting? (9 elements)
1) The economic resources measurement focus and the accrual basis of accounting are used to measure and report all of the following:
2) Assets (capital and financial)
3) Deferred outflows of resources
4) Liabilities
5) Deferred inflows of resources
6) Revenues
7) Expenses
8) Gains
9) Losses
Do government-wide financial statements display funds or fund types? Why not?
Government-wide financial statements report information about the government as a whole. Thus, they do not display funds or fund types.
For government-wide financial statements, what are reclassifications?
Preparation of the government-wide statements requires that certain interfund activity and fund balances be eliminated or reclassified.
For government-wide financial statements, what are eliminations? (3 elements)
1) Certain interfund amounts, e.g., receivables and payables, are eliminated from the governmental and business-type activities columns of the statement of net position.
2) The exceptions are net residual amounts due between the two types of activities.
3) However, the total primary government column excludes internal balances.
-The statement of net position below is an example of the elimination of internal balances. The statement of activities below is an example of the elimination of transfers.
What are internal service funds? (3 elements)
1) Internal service funds report activities that provide goods or services on a cost-reimbursement basis to (1) other funds or functions of the primary government or (2) other governments.
2) Their activities ordinarily are more governmental (e.g., financing goods or services for other funds) than business-type. Thus, although internal service funds are proprietary funds, they are reported in the governmental activities column in the government-wide statements to the extent they are not eliminated.
3) When the activities of governmental funds and internal service funds are both governmental, the effects of transactions between them must be eliminated.
Are eliminations made in the statement of activities?
Eliminations are not made in the statement of activities for the effects of interfund services provided and used between functions.
-An example is the sale of power by a utility (an enterprise fund) to the general government.
How are flows of resources between the primary government and its blended component units reclassified?
1) Flows of resources between the primary government and its blended component units are reclassified as internal activity based on the requirements for interfund activity.
2) Flows between the primary government and its discretely presented component units (unless they affect the statement of net position only) are treated as external transactions (as revenues and expenses).
How are receivables from or payables to fiduciary funds reclassified?
Receivables from or payables to fiduciary funds are reclassified as receivables from or payables to external parties.
-The reason is that fiduciary funds report only balances held as fiduciary activities.
What is the Statement of Net Position? (4 elements)
1) The statement reports all financial and capital resources.
2) The GASB prefers the following format:
(Assets + Deferred outflows of resources)
–(Liabilities + Deferred inflows of resources)
=Net position
3) Net position, not equity or fund balance, is reported.
4) Presentation of assets and liabilities in order of relative liquidity is encouraged.
-Separate display of current and noncurrent assets and liabilities (a classified statement) also is acceptable.
What are the three components as which net position should be presented? (3 elements)
Net position should be displayed as three components:
1) Net investment in capital assets
2) Restricted net position
3) Unrestricted net position
What is the component of net position known as net investment in capital assets? (3 elements)
1) Net investment in capital assets includes capital assets, net of accumulated depreciation, reduced by outstanding debt related to acquiring, constructing, or improving the assets. Related deferred inflows and outflows of resources also are included.
2) However, significant (1) unspent debt proceeds or (2) deferred inflows of resources may exist at the end of the period. The part of the debt or deferred inflows related to the unspent amount then is excluded from the net investment in capital assets.
3) Accordingly, that part of the debt or deferred inflows should be classified in the same net position component as the unspent amount (restricted or unrestricted).
What is the component of net position known as restricted net position? (3 elements)
1) Restricted net position equals restricted assets minus related liabilities and deferred inflows of resources. The restrictions are imposed by external entities (creditors, grantors, or other governments) or by law (constitutional provisions or enabling legislation).
2) If permanent endowments or permanent fund principal amounts are included, restricted net position should be displayed as expendable and nonexpendable.
3) Nonexpendable means that the restriction is retained in perpetuity.
What is the component of net position known as unrestricted net position? (2 elements)
1) Unrestricted net position is the net of (a) assets, (b) deferred outflows of resources, (c) liabilities, and (d) deferred inflows of revenue not included in the other components of net position. Thus, it is a residual category.
2) Unrestricted net position includes items that may be internally committed or assigned. These commitments and assignments are not reported on the face of the statements.
What are the three items that unrestricted net position is the net of? (4 invoices)
Unrestricted net position is the net of
(a) assets,
(b) deferred outflows of resources,
(c) liabilities, and
(d) deferred inflows of revenue not included in the other components of net position.