Flashcards in Governmental Accounting Deck (45):
What is the primary objective of governmental accounting?
To provide information that is useful and benefits a wide range of users including:
Costs of services provided
Sufficiency of revenues to cover costs
Financial position of entity
What are the three major types of funds in governmental accounting?
Which two accounting bases are used in governmental accounting?
Accrual basis - current economic resources focus (revenues recognized when earned)
Modified accrual basis - current financial resources focus (revenues recognized when available and measurable)
What is an encumbrance?
Records purchase (or issuance of purchase order) and reserves it for the encumbrance.
The following journal entry would be made to record the issuance of purchase orders (the initial journal entry):
Cr Reserve for Encumbrances
Once the supplies are received or whatever the entity made the purchase order for, the following journal entry would be made:
Dr Reserve for Encumbrances
Note: In essence, you are just reversing the original journal entry made to record the initial purchase order
Now, what happens if the amount the governmental entity pays for the supplies is LESS or MORE than the amount encumbered? What would the journal entry be?
Dr Expenditures Control
Cr Vouchers Payable
You would debit the expenditures control & credit vouchers payable account for the actual amount paid (invoice amount)
What is a budget appropriation?
The highest amount allowed for a particular expenditure under a budget.
What is the closing budgetary entry?
Cr Estimated Revenues Control
Dr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
Note: When closing entries are made for a governmental unit, Estimated Revenues Control is credited for the same amount that was debited for in the beginning of the period budget/entry
Also, Revenues Control is debited in the amount of recorded revenue for the year
Note: Revenues Control and Estimated Revenues Control are NOT netted in the closing entry
What are the types of governmental funds?
1. General Fund
2. Special Revenue Fund
3. Permanent Fund
4. Capital Projects Fund
5. Debt Service Fund
What is the opening budgetary entry?
Dr Estimated Revenues Control
Cr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
What is a Special Revenue Fund?
Restricted for a specific purpose such as street repair.
Special revenue funds are used to account for the proceeds of specific revenue sources (other than expendable trusts or for major capital projects) that are legally restricted to expenditures for specified purposes
Gasoline taxes to finance road repairs would be accounted for in a special revenue fund
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 Permanent Fund?
Legally restricted fund; where only earnings can be used to fund programs.
Principal remains intact.
What is a Capital Projects Fund?
Used to acquire and build facilities.
What is a Debt Service Fund?
Handles repayment of long-term debt and related interest.
Which fund statements are issued in Governmental Accounting?
Statement of Revenues; Expenditures; and Changes in Fund Balance
What is Derived Tax Revenue?
Money collected from people doing things:
Sales tax (buying cars) or income tax (people working)
Motor fuel taxes
What is Imposed Tax Revenue?
Imposed nonexchange transactions
Tax assessed just because things exist
Example: property tax on a car (even if it's never driven); real estate tax, special assessments, fines and forfeits
Recorded as a revenue when BUDGETED.
Estimated uncollectible property tax revenues don't offset revenues; so don't net them.
Note: Assets from imposed nonexchange transactions should be recognized when an enforceable legal claim exists, or when the resources are received - whichever occurs first
When is Revenue recorded in Governmental Accounting?
When it is BOTH available and measurable; regardless of when it is spent.
What are the Fund Balance Types?
Restricted - Restricted by Contributor
Committed - Restricted by Government
Assigned - Intended for a purpose
Unassigned - Available to be spent
Non-spendable - Not in a spendable state
What are the types of Proprietary Funds?
Internal Service Funds - to serve the needs of other governmental units (i.e. motor pool)
Enterprise Funds - provide goods or services to external users (i.e. post office)
How are Assets & Liabilities presented on the Statement of Net Position?
Assets (Current & Non-Current)
Deferred Outflows of Resources
Liabilities (Current & Non-Current)
Deferred Inflows of Resources
What are the types of Fiduciary Funds?
Agency Fund - government acts as an agent or custodian
Pension Trust Fund - Government is a trustee for a pension plan
Investment Trust Fund - Government is a trustee over a series of investments
Private Purpose Trust - Trust that benefits various individuals and entities
How are Capital Assets shown on a governmental Statement of Net Assets?
They are shown net of debt
Asset Cost - Accumulated Depreciation - Asset Liabilities = Net Assets
How is infrastructure reported on a governmental Statement of Net Assets?
Reported at cost; no accumulated depreciation
How is a Statement of Net Assets divided?
Into Governmental Activities and Business Activities
How are activities presented in a Statement of Activities?
They are divided by function
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.
Component units are reported in the Entity-Wide Financial Statements and not the Fund Financial Statements.
What are GASB Standard 55 hierarchy of sources of GAAP for state and local governments?
The following are GASB 55 hierarchy sources of authority from more to less authoritative:
1. Officially established accounting principles - GASB Statements & Interpretations (highest authority)
2. GASB Technical Bulletins, AICPA Industry Audit & Accounting Guides, & Statements of Position cleared by the GASB
3. AICPA Practice Bulletins cleared by the GASB and consensus positions of groups of accountants organized by the GASB
4. Implementation guides published by the GASB staff & practices that are widely recognized and prevalent (lowest authority)
According to GASB Concepts Statement No. 4, what are the elements of a statement of financial position?
The elements of a statement of financial position are defined as:
1. Assets - resources with present service capacity that the government presently controls
2. Liabilities - present obligations to sacrifice resources that the government has little or no discretion to avoid
3. Deferred outflow resources - a consumption of net assets by the government that is applicable to a future reporting period
4. Deferred inflow of resources - an acquisition of net assets by the government that is applicable to a future reporting period
5. Net position - the residual of all other elements presented in a statement of financial position
According to GASB Concepts Statement No. 4, what are the elements of the resource flows statements?
The elements of the resource flows statements are defined as:
1. Outflow of resources - a consumption of net assets by the government that is applicable to the reporting period
2. Inflow of resources - an acquisition of net assets by the government that is applicable to the reporting period
What is a component unit?
A component unit means that an entity is a legally separate organization for which the elected officials of a primary government are financially accountable
How are component units presented?
Component units can be presented either discretely or blended.
If the component unit is so closely tied to the primary government that the activities seem to be indistinguishable, the presentation should be blended
What are the requirements needed in order for a component unit to be presented on a blended basis?
A unit should be presented on a blended basis if the following exists:
1. The governing body of the component unit is substantially the same as the primary government
a. there is a financial benefit/burden relationship
b. there is a common management
2. The services provided are entirely, or almost entirely to the primary government
3. The component's debt will be repaid entirely or almost entirely by the primary government
Dogwood City's water enterprise fund received interest of $10,000 on long-term investments.
How should this amount be reported on the Statement of Cash Flows?
The interest amount received should be reported in Investing Activities
GASB 9, para. 27, indicates that cash flows from investing activities includes interest received as returns on investments
Note that this is different from SFAS 95, which classifies interest on investments as cash flows from operating activities
What does GASB say about how a sale of future revenue should be recorded?
GASB 48 states that a sale of future revenue should be recorded as deferred revenue and recognized over the life of the agreement
The following information pertains to Pine City's general fund for 2013:
Appropriations Control - 6,500,000
Expenditures Control - 5,000,000
Other Financing Sources Control - 1,500,000
Other Financing Uses Control - 2,000,000
Revenue Control - 8,000,000
After Pine's general fund accounts were closed at the end of the 2013, the fund balance increased by what amount?
The closing of the general fund accounts is done by closing the budgetary accounts against each other and the actual revenue, expenditure and other accounts to the Unreserved Fund Balance
This is done most easily by reversing the beginning of the year budget entry in one entry and then using a separate entry to close the actual accounts to fund balance
The following entry would therefore be made to close the actual accounts to obtain the amount of increase in the fund balance:
Dr Other Financing Sources Control - 1,500,000
Dr Revenues Control - 8,000,000
Cr Expenditures Control - 5,000,000
Cr Other Financing Uses Control - 2,000,000
Cr Fund Balance - Unreserved - 2,500,000
The answer is $2,500,000, which is the plug. The appropriations account would be closed in the reversal of the budget entry and has no effect on fund balance
How should an impaired capital asset that is no longer used by a government be reported in the financial statements?
GASB 42 indicates that the asset should be reported at the lower of carrying value or fair value
Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects that asset's diminished service utility
According to GASB, when should a government entity recognize the impairment of a capital asset?
GASB 42 states that impairment of a capital asset should be recognized when an event or change in circumstance causes a decline in service utility of the asset and
1. The decline is large in magnitude
2. The event or change in circumstance is outside the normal life cycle of the capital asset
According to GASB, how should real estate held as an investment by a government endowment be reported?
According to GASB 52, land and other real estate held by an endowment as an investment should be reported at fair value at each reporting date
When would an enterprise fund be used by a governing body?
An enterprise fund is used to account for operations where the intent of the governing body is to finance the cost of the operations through user charges or where the governing body has decided revenue, expenses and net income information necessary
When would an internal service fund be used by a governing body?
A fund that accounts for the financing of an agency's services to other government departments on a cost-reimbursement basis is an internal service fund
What would the journal entry be for a governmental unit that made a contribution to its pension plan on behalf of its covered employees assuming the plan is accounted for in a pension trust fund for employer contributions?
The entry to record the employer contribution in the Pension Trust Fund would be:
Dr Cash (or a "Due From" account)
Cr Additions - Employer Contributions
The GASB Codification classifies this contribution as an interfund services provided and used transaction that would be treated as an addition if it involved organizations external to the governmental unit. Therefore, the GASB states that it should be accounted for as an addition for the pension trust fund
What would the journal entry be for a governmental unit that made a contribution to its pension plan on behalf of its covered employees assuming a governmental-type fund was used in connection with employer pension contributions?
The journal entry to record the pension contribution for the governmental-type fund would be:
Dr Expenditures Control
Cr Cash (or a "Due To" account)
The employer pension contribution is an interfund services provided and used transaction, one that would be treated as an addition, revenue, expense, or expenditure if it involved organizations external to the governmental unit
What are the 4 requirements for recognizing revenue on grants?
(For governmental entities)
In order for a receivable and revenue to be recognized, 4 types of eligibility requirements must be met:
1. Required characteristics of the recipients - the recipient of resources must have the characteristics required by the provider (i.e. the recipient of certain state funds allocated for road repairs may have to be a county government, a municipality, or a township)
2. Time requirements - must be met if a provider specifies that resources must be expended in a certain future period (i.e. if a state indicates that funds are appropriated for water system improvements for the fiscal year ended 6/30/2013, then neither a receivable nor revenue would be recognized by the local governments receiving the funds until that fiscal year
In the absence of specified time requirements, a receivable and revenue would be recognized when a promise is unconditional
3. Reimbursements - certain grants from one government to another cannot be provided until the receiving government has expended the funds
Reimbursement grant revenues are recognized only when expenditures are recognized
4. Contingency - resources pledged that have a contingency attached are not recognized until the contingency is removed
What is a government-mandated nonexchange transaction?
Government-mandated nonexchange transactions exist when the providing government, such as the federal government or a state government, requires the receiving government to expend funds for a specific purpose
Receiving governments should recognize assets and revenues when all eligibility requirements have been met
This deals with grants where the law requires you to do someting
What is a voluntary nonexchange transaction?
Voluntary nonexchange transactions include grants and entitlements from one government to another where the providing government does not impose specific requirements upon the receiving government
The recognition of assets and revenues would be when all eligibility requirements have been met, just like government-mandated nonexchange transactions
Note: If after a revenue has been recognized by a governmental entity (in a later fiscal year), and those funds must be returned to the provider, then the recipient government must record an expense and liability (or reduction of cash)