Flashcards in Governmental Accounting Deck (69):
What are the three major fund categories in governmental accounting?
Governmental, Proprietary, & Fiduciary
Which two accounting bases are used in governmental accounting? What are their respective focuses?
1) Accrual basis - current economic resources focus (revenues recognized when earned)
2) Modified accrual basis - current financial resources focus (revenues recognized when available and measurable)
What are the types of Governmental funds? What method of accounting do they use?
1) General Fund
2) Special Revenue Fund
3) Debt Service Fund
4) Permanent Fund
5) Capital Projects Fund
*Presented using MODIFIED Accrual accounting
What are the types of Proprietary funds? What method of accounting do they use?
a) Internal Service Funds - to serve the needs of other governmental units (i.e. motor pool)
b) Enterprise Funds - provide goods or services to external users (i.e. post office)
*Presented using ACCRUAL accounting
What are the types of Fiduciary Funds? What method of accounting do they use?
a) Pension Trust Fund - Government is a trustee for a pension plan (L-T)
b) Investment Trust Fund - Government is a trustee over a series of investments (L-T)
c) Private Purpose Trust - Trust that benefits various individuals and entities (L-T)
d) Agency Fund - government acts as an agent or custodian (S-T focus)
*Presented using ACCRUAL accounting
What are the balance sheet categories for Agency Funds?
Just Assets and Liabilities. There is NO fund balance!
When is Revenue recorded in Governmental Accounting (modified accrual)?
When it is MEASURABLE and AVAILABLE (to spend).
In Governmental Accounting (modified accrual), when looking at revenue, what does it mean to be "available to spend"?
Collectible in the current period or within 60 days after year end.
In Governmental Accounting (modified accrual), what are funds expected to be received beyond 60 days after year end called?
In Governmental Accounting (modified accrual), what types of revenue might be accrued for (as opposed to upon receipt)?
Property taxes (again, 60 day rule applies) and unrestricted grants. Also for restricted grants, but only once money is spent (correctly)
Distinguish between "exchange" and "non-exchange" transactions?
a) Exchange transactions - goods/services of equal value that are exchanged (as in GAAP). In government, this would be purchasing water or electricity from an enterprise fund.
b) Non-exchange transactions - transactions in which the government gives/receives without necessarily receiving/giving equal value in exchange.
What are the types of "non-exchange" transactions?
a) "Derived" tax revenues - taxes self-assessed on exchange transactions.
b) "Imposed" - assessed on assets or rights of the non-government (think: property taxes, fines, special assessments)
c) "Government-mandated" - i.e. federal grants to lower levels of government. Treated as revenue when eligibility requirements are met.
d) "Voluntary" - i.e. grants and donations
What is Derived Tax Revenue?
Money collected from exchange transactions, ala "people doing things", such as sales tax (buying cars) or income tax (people working)
What is Imposed Tax Revenue?
Tax assessed on assets or rights of non-government entities, ala "just because things exist". Examples include: property tax on a car (even if it's never driven); real estate tax
Recorded as a revenue when BUDGETED.
Estimated uncollectible property tax revenues don't offset revenues; so DON'T net them.
What type of non-exchange transactions are property taxes and fines?
Imposed non-exchange revenue
Distinguish between an expenditure and an expense.
In private sector (accrual accounting), an expense can be related to a corresponding revenue. But under government (modified accrual accounting), government benefits aren't necessarily provided to those that pay for them (ala food stamps, fire department, police department). Accordingly, the focus is on the outflow of financial resources to pay for the good/service rather than the benefits resulting from their costs (no matching principle). As such, the costs are incurred in the period that the obligation arises and no capitalization of assets is necessary.
What are the types of governmental grants? Are they treated as revenue upon receipt by the governmental unit?
1) Unrestricted - Yes, treated as a revenue upon receipt as no restrictions on the funds' use
2) Restricted - Not treated as a revenue until money is SPENT in accordance with the associated terms. If incorrectly spent, money is owed back (a liability).
Are bonds a revenue?
No! They are a source of funds.
What are the types of expenditure categories/classifications? Provide an example for each.
a) Function or Program (WHY/purpose) - health and welfare, education, public safety, defense
b) Organizational Unit (department) - police, fire, parks & recreation
c) Activity (not often used) - police protection function/SWAT teams
d) Character (WHEN) - debt service-past, current services-present salaries & supplies, capital outlay-future (police car, fire trucks, etc.)
e) Object (WHAT) - personnel services, salaries, rent, utilities, supplies
How are expenditures reported on the Statement of Revenues, Expenditures and Changes in Fund Balance?
By Function (why - purpose) within character (when) classifications (function must be presented in either the statement or footnotes)
What is an encumbrance? What are the journal entries used to record them? To close them out?
An open order that is a form of estimated expenditure.
To record (place an order):
Dr. Encumbrances Outstanding
Cr. Reserve for Encumbrances
To close out (order has been filled):
Dr. Reserve for Encumbrances
Cr. Encumbrances Outstanding
What is the general hierarchy for governmental GAAP publications? (Most authoritative to least)
1) GASB Statements
2) GASB Interpretations
3) GASB Technical Bulletins
4) AICPA publications
What is a General Fund?
The operating fund of the governmental unit
Records Significant Revenues: Taxes; Tickets; Fines; Licenses
Records Significant Expenditures: Police; Education; Fire Dept
What is a Special Revenue Fund?
Accounts for revenues restricted for a specific purpose such as a gas tax that finances road repair. Revenue sources are often specific taxes, fees, or other earmarked revenue sources.
What is a Permanent Fund?
Legally restricted "nonexpendable" fund, whose principal must remain intact and not be spent. Only its investment earnings can be used to fund programs. Think of an endowment for a university or for a public library.
What is a Capital Projects Fund?
Used to acquire and build facilities. Revenue sources include special tax revenues, transfers, or proceeds from bonds (or governmental grants).
What is a Debt Service Fund?
Handles principal and interest payments on the tax supported debts of the governmental funds. Property taxes and transfers from other funds are the usual revenue sources.
What is an Internal Service Fund?
Fund that renders services or provides goods to other governmental fund units, such as a maintenance, IT, or supply department.
What is an Enterprise Fund?
Fund financed largely by exchange transactions, such as water utilities, public universities, public recreation centers, or transit systems.
What is a Pension Trust Fund? What additional RSI schedules are required?
Fund that accounts for government employee pensions and other post-retirement benefits. Two RSI schedules are required: Funding progress & employer contributions.
What is an Investment Trust Fund?
Fund that accounts for pooled resources being invested on behalf of multiple government entities for which this specific government entity is trustee
What is a Private Purpose Trust Fund?
Fund that accounts for contributions received under a trust agreement in which the investment income is intended to benefit private persons, organizations, or other governments. Unlike a permanent fund, it can be expendable (spend the principal) or nonexpendible. Examples can be a scholarship fund
What is an Agency Fund?
Think IRS. Fund collects amounts that are subsequently transferred to other funds (or outsiders). No fund balance as assets always equal liabilities.
What are the general purpose financial statements to a governmental entity referred as?
The Comprehensive Financial Report (CAFR)
How many sections are in the CAFR? What are they?
1) Management Discussion & Analysis (MD&A)
2) Government-wide financial statements
3) Fund financial statements
4) Notes to financial statements
5) Required supplementary information (RSI)
What are the "Basic Financial Statements" referring to?
1) Government-wide financial statements
2) Fund financial statements
3) Notes to financial statements
What are the government-wide financial statements? What method of accounting do they use?
1) Statement of Net Position (or Net Assetsﾅsimilar to a Balance Sheet)
2) Statement of Activities (similar to an Income Statement)
They are presented using ACCRUAL accounting
Which fund categories are included on the Statement of Net Position in the government-wide financial statements?
1) Governmental Funds
2) Proprietary Funds
On the Statement of Net Position in the government-wide financial statements, what are the four columns?
1) Governmental activities
2) Business-type activities
4) Component units
On the Statement of Net Position in the government-wide financial statements, what are Governmental activities comprised of?
The 5 governmental funds (General, Special Revenue, Capital Projects, Debt Service, and Permanent) plus the Internal Service fund from Proprietary
On the Statement of Net Position in the government-wide financial statements, what are Business-type activities comprised of?
Just the Enterprise fund (as the Internal Service gets included in the Internal Service fund)
How are Assets & Liabilities presented on the government-wide Statement of Net Position?
Assets (Current & Non-Current)
+ Deferred Outflows of Resources
Liabilities (Current & Non-Current)
- Deferred Inflows of Resources
= Net Position
What are deferred outflows of resources?
Represent the consumption of net assets applicable to a future reporting period. Examples are Prepayments and grant expenditures made in advance. Government accounting makes this distinction and so it technically isn't an asset.
What are deferred inflows of resources?
Represent the acquisition of net assets applicable to a future reporting period. Examples include deferred (unearned) revenue and grant funds received in advance of meeting timing requirements. Government makes this distinction so it technically isn't a liability.
What are the three components of Net Position?
1) Net investment in capital assets (all capital assets net of depreciation and associated liabilities)
2) Restricted net position (related to restricted assets net of associated liabilities)
3) Unrestricted net position (residual)
On the government-wide Statement of Activities, distinguish between program and general revenues.
Program revenues are those directly associated with the functional expense categories and include 1) service charges, 2) operating grants and contributions, and 3) capital grants and contributions*.
*these three are common column headings of the Statement of Activities
General Revenues include taxes levied and other nonexchange revenues not restricted to a particular program or activity.
How are activities presented in a Statement of Activities?
They are divided by function (or program) and are presented under their respective activity type (governmental or business-type)
If the activities of a component are distinguishable from the rest of the governmental entity; then discreet presentation is required
If the activities of the component cannot be identified and separated from the rest of the governmental activities; then blended presentation is warranted.
Note that Component units are reported in the government-wide Financial Statements and NOT the Fund Financial Statements.
How is the government-wide Statement of Activities organized?
Function/Programs are listed in the left column with the associated Expenses in the second column. The associated program revenues are listed in the ensuing columns. A governmental activities column subtotals the net figures. A business type activity column is then presented to subtotal those associated net figures. A total column is then displayed combining the two. Finally a component unit column is displayed if required.
At the bottom of the statement, general revenues are presented below the two subtotal and total columns as well as the component unit column if required. The very last rows present annual change in net position, beginning net position, and finally an ending net position beneath each of these four "total" columns.
What are the financial statements of governmenatal funds?
a) Balance Sheet
b) Statement of Revenues, Expenditures, and Changes in Fund Balance
In order to bring the governmental funds total fund balances into reporting the accrual amounts required for government-wide reporting, what amounts/account types are added/subtracted for reconciliation?
Add Capital and other LT Assets, Add Internal Service Funds (recall the 5+1), and subtract LT Liabilities
What are the Fund Balance classifications on the balance sheets of governmental funds?
1) Restricted - Restricted by Contributor
2) Committed - Restricted by Government
3) Assigned - Intended for a purpose
4) Unassigned - Available to be spent
5) Non-spendable - Not in a spendable state
What are the financial statements of proprietary funds?
1) Statement of Net Position (B/S)
2) Statement of Revenues, Expenses & Changes in Net (Fund) Postion
3) Statement of Cash Flows (Proprietary funds are run like a private business, so must inclue!)
How is the proprietary funds statement of net position organized?
Same as the government-wide! Assets + Deferred Outflows - Liabilities - Deferred Inflows = Net Position (Net Investment in Capital Projects, Restricted, Unrestricted)
What sections are on the statement of cash flows for proprietary funds?
3) Noncapital financing
4) Capital & related financing
How is the operating section of the proprietary funds statement of cash flows organized?
Under the direct method! The indirect method is also required as a separate disclosure.
Where would interest and dividend income be included on the statement of cash flows for proprietary funds?
Investing Activities (similar to IFRS)
Are acquisition and disposal of capital assets included in investing activities under the statement of cash flows for proprietary funds?
No! This is one of the major disparities. They are in a separate category for capital and related financing.
Where would loans made to others be included on the statement of activities for proprietary funds?
Investing Activities (just like normal GAAP)
Where is interest expense included on the statement of activities for proprietary funds?
It depends on whether the interest expense pertains to unsecured loans or secured (capital asset) loans. Unsecured loan interest expense is included as a Noncapital financing Activity, while secured loan interest expense is included as a Capital & related financing activity.
Where are financed purchases and sales of capital assets included on the statement of activities for proprietary funds?
Capital & related financing
What are the financial statements of fiduciary funds?
1) Statement of Fiduciary Net Position
2) Statement of Changes in Fiduciary Net Position
Where might a budgetary comparison schedule (BCS) be found?
In the Required Supplementary Information (RSI) other than MD&A section of the CAFR.
Differentiate between discrete and blended presentation of component units.
A component unit requires discrete (separate) presentation if it has a separate elected governing board, is legally separate and fiscally independent (can issue own debt, determine its own budget)
How is infrastructure reported on a governmental Statement of Net Assets?
2 methods permitted:
1) Preferred approach: Account for assets at historical cost and recognize depreciation (is burdensome for bookkeeping as improvements can render the infrastructure to have indefinite lives)
2) Modified approach: Reported at cost and don't recognize depreciation (on the condition that maintenance costs give them an indefinite life)
What is a budget appropriation?
The highest amount allowed for a particular expenditure under a budget.
What is the opening budgetary entry?
Dr. Estimated Revenues Control
Dr. Estimated other financial sources
Cr. Appropriations Control
Cr. Estimated other financial uses
Dr./Cr. Budgetary Fund Balance (plug)
What is the closing budgetary entry?
Dr. Appropriations Control
Dr. Estimated financial uses
Dr./Cr. Budgetary Fund Balance (plug)
Cr. Estimated financial sources
Cr. Estimated Revenues Control
How would bond issuance be recorded in governmental accounting?
In the general fund:
Cr. Other financial sources
In the debt service fund:
Dr. Other financial uses
Cr. Bonds payable