SU 2: GOV Fund Accounting

Question 1

Reporting entity

Answer 1

Defines the financial reporting boundaries of a particular entity by describing whose assets, liabilities, expenses, and equities are included in its financial reports

Question 2

Component units

Answer 2

Legally separate entities for which the primary government is financially accountable.

May be reported as part of the primary’s financial statements or separately within the financial statements

Question 3

Fund

Answer 3

A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations

Question 4

Fiscal entity

Answer 4

The separate budgetary nature of an individual fund

Question 5

Accounting entity

Answer 5

The unit treated as an entity for accounting and reporting purposes

Question 6

Fund balance

Answer 6

Aka net position

The difference between assets and liabilities (and deferred inflows of resources) for an entity in the absence of owners ewuity

Question 7

General Fund

Answer 7

Residual fund to account for resources not accounted for in other funds. Also most important fund: from which government appropriates resources for day to day operations

Question 8

Categories of funds

Answer 8

• governmental
• proprietary
• fiduciary

Mirror the broad types of activities the funds perform

Question 9

Governmental-type funds

Answer 9

Used for day to day governmental services

Primarily financed by tax revenue

Use capital assets financed by issuing debt (debt is accounted for in a separate governmental-type fund)

Expenditures controlled by legally adopted budgets (appropriationsL

Question 10

Proprietary type funds

Answer 10

Aka business-type funds

Used to account for govt activities that operate in a similar manner to private sector business. Charge fees for services and measure of revenue covers expenses though may receive transfers from the general Fund.

Cost data may be used to determine fee amounts

Tend to be supporting activities that may receive subsidies, maybe provide govt revenues (lotteries)

Focus on cost recovery so use accounting principles similar to commercial entities

Question 11

Proprietary fund accounting

Answer 11

Used by government business type enterprises that are legally separate from the government

Question 12

Fiduciary type funds

Answer 12

Used to account for resources that governments hold (or transaction they make) in trust or custodial capacity for others.

Cannot be used to support government’s own programs

Report as fiduciary activity only if government controls the assets of that activity (has the ability to direct use)

Assets in fiduciary funds cannot be used to support government’s own programs

Question 13

Governmental-type fund financial statements

Answer 13

• resource inflows and outflows (statement of revenue, expenditures, and changes in fund balance: operating statements)
• financial position (balance sheets)

Question 14

Proprietary type fund financial statements

Answer 14

• Operating statements
• statements of net position
• statements of cash flows

Question 15

Fiduciary type funds financial statements

Answer 15

-statements of net position and changes in net position

Question 16

Government wide financial statements

Answer 16

Consolidate individual funds into two groups:
Governmental vs business type

Starts with funds statements and adjusts them so all activities use same measurement focus and basis of the accounting

Excludes fiduciary funds (they do not support government’s own programs)

Question 17

Measurement focus

Answer 17

What is being expressed and which resources are being measured in the report

Question 18

Governmental accounting measurement focus

Answer 18

Only measures current financial resources: financial assets, short term liabilities, and matured long term liabilities

This tracks the amount of financial resources available for current spending by recording inflows and outflows of financial (or near term) assets

Inflows: revenues/ other financing sources
Outflows: expenditures/ other financing uses

Question 19

Basis of accounting

Answer 19

When the assets, liabilities. Revenues and expenses are recognized (recorded) in financial statements

A timing concept

Question 20

Measurement focus and basis of proprietary and fiduciary funds

Answer 20

Measurement focus: all the economic resources available to the activity (economic resources measurement focus)

Basis: accrual basis

Question 21

Information needs of government budget officer and central budget office

Answer 21

Amount of financial resources available for current spending

Question 22

Basis of accounting for Governmental-type funds

Answer 22

Modified accrual basis

Focuses on flows of current financial resources

No measurement of capital assets or long term liabilities

Only accruals of NEAR-TERM financial resources recorded (inflows and outflows)

Question 23

Five types of governmental funds

Answer 23

General Fund
Special revenue funds
Debt service funds
Capital projects funds
Permanent funds

Question 24

Governmental funds: general

Answer 24

Day to day activities. Anything not accounted for in another fund

Question 25

Governmental funds: special revenue

Answer 25

Proceeds of specific revenue items (taxes and fees) restricted/ limited to spending for specific purposes (other than debt service or capital projects) Generally established by law or contract May be supplemented with funds from the general Fund Provides greater transparency in how dollars collected from specific source are used Financial statements must include purpose of the special revenue fund No unassigned portion of fund balance - all classified restricted

Question 26

Governmental funds: capital projects

Answer 26

Financial resources restricted for the acquisition or construction or capital facilities (inc infrastructure) /other capital assets Not used for outflows financed by proprietary funds or for assets held in trust Used when capital outlays are financed by general obligation bond proceeds (separate funds for separate bonds for transparency) May have transfers from other funds

Question 27

Governmental funds: debt service

Answer 27

Financial resources restricted or otherwise limited to spending for principal and interest on general long term debt May also be used to accumulate resources for paying long-term liabilities (debt-like commitments) Use if legally mandated or if financial resources are being accumulated for principal and interest that comes due in future years (bonds that require a sinking fund) May be different funds for different bonds

Question 28

Governmental funds: permanent

Answer 28

Resources restricted to the extent that only earnings (not principal) may be used for government programs (endowment funds). Do not include private-purpose trust funds (fiduciary type funds) Usually a special revenue fund designated as the beneficiary of the permanent fund to which earnings are transferred and from which they are then used

Question 29

Revenue recognition for modified accrual accounting

Answer 29

Recognition of revenue that is measurable and available (collectable soon enough to pay current period bills) = taxes accrued as revenue Property tax: if collectable within 60 days of the end of the accounting period accrued in that period

Question 30

Expenditure recognition for modified accrual accounting

Answer 30

Three types of expenses in operating statements of governmental type funds - current operating items (liabilities payable shortly after accrual) - capital asset acquisitions (financial resources consumed cannot be spent elsewhere) - debt service (interest and principal on long term borrowing but only when due for payment. Decrease in financial resources) What is accounted for in the current budget

Question 31

Expenses that would be recognized on full accrual accounting left off of modified accural

Answer 31

Long term liabilities are recognized only when they mature (not provided for in the current budget!). This includes payroll accruals of vacation and retirement as well as debt that is not yet mature

Question 32

General obligation bonds

Answer 32

GO bonds Secured by a state or local government's full faith, credit, and taxing power. Government presumed to be able to pay via taxes or other resources

Question 33

Bond proceeds in governmental-type funds

Answer 33

No long term liability reported. Cash inflow from general obligation bonds reported as "other financing source" on operating statement

Question 34

Budgetary basis of government accounting

Answer 34

Set by legislature not standard setting body

Question 35

Government-wide financial reporting of governmental-type funds

Answer 35

Aggregated with other funds and adjusted to the economic resources measurement focus and accrual basis of accounting

Question 36

Governmental-type fund statement of revenues, expenditures, and changes in fund balance

Answer 36

Done for a period (year ending in x) Revenues section Taxes - list of taxes- total taxes List of other revenues Total revenues Expenditures section Split into current (general), debt service, and capital outlay Total expenditure Excess (deficiency) of revenue over expenditures List of other financing sources (uses) - includes intergovernmental transfers that are not changes in revenue or expense but do change fund balance Total other financing sources(uses) Net change in fund balance Fund balance, beginning Fund balance, end

Question 37

Governmental-type funds balance sheet

Answer 37

For position on a specific date ``` Assets section (only current financial) Total assets ``` Liabilities, deferred inflows of resources and fund balance liabilities section Liabilities section Current liabilities Deferred inflows of resources: unavailable revenue Fund balance section Should restricted/assigned/ unassigned amounts Total fund balance Total liabilities, deferred inflows of resources and fund balances

Question 38

Source of general funds

Answer 38

Taxes: real property, sales, personal & corporate income Intergovernmental grants Licenses, fees, and fines

Question 39

Governmental funds operating statements

Answer 39

Show financial resources available for spending Ignores: long term (capital) assets and liabilities Essentially modified cash flow statement Sections: - revenues - expenditures - other financing sources(uses)

Question 40

Other financing sources (uses) section of operating statement

Answer 40

- accommodates financial resources measurement focus | - report interfund transfers

Question 41

Governmental-type fund balance sheet

Answer 41

No capital assets included, just current financial resources including transfers from other fund No longer-term liabilities

Question 42

Due from other funds

Answer 42

When an entity has an asset for short term receivables due from other funds

Question 43

Advances to other funds

Answer 43

Long term loans to other funds

Question 44

Due to other funds

Answer 44

Short term loans from other funds on the liabilities section of the governmental-type funds on a balance sheet

Question 45

Advances from other funds

Answer 45

Long term loans between funds Have special treatment in balance sheet

Question 46

Classifications of fund balwnce

Answer 46

``` Nonspendable Restricted Committed Assigned Unassigned ```

Question 47

Governmental funds accounting equation

Answer 47

Financial assets = short term and matured long term liabilities + fund balance Financial assets: cash, investments, receivables Short-term liabilities: payables (less than the 1-year short term of financial accounting)

Question 48

Discontinuing special revenue designation

Answer 48

When government no longer expects the specific revenue sources to be a substantial portion of the special revenue funds resources

Question 48

Discontinuing special revenue designation

Answer 48

When government no longer expects the specific revenue sources to be a substantial portion of the special revenue funds resources

Question 49

Capital projects funds financial statements

Answer 49

Governmental-type funds Other financing sources: long-term borrowing and transfers from other funds (are not revenues) Revenues: intergovernmental grants Do not show capital assets or the related long-term debt issued to acquire those assets (those go in government-wide statements

Question 50

General long term debt

Answer 50

Debt other than that related to and expected to be paid from proprietary type or fiduciary type funds

Question 51

Debt service fund resource sources

Answer 51

- transfers from the general Fund - income from investment of resources held by the fund - taxes assessed specifically to service the debt - portion of bond proceeds

Question 52

Defeasance

Answer 52

a provision in a contract that voids a bond or loan on a balance sheet when the borrower sets aside cash or bonds sufficient enough to service the debt.

Question 53

Proprietary fund measurement focus and basis

Answer 53

Economic recourses measurement focus Accrual basis of accounting

Question 54

Types of proprietary funds

Answer 54

Enterprise fund Internal service fund

Question 55

Enterprise fund

Answer 55

Resources used to supply goods and services, for a fee, to users who are entirely or primarily external to the government Generally a separate find for each type of activity

Question 56

Internal service fund

Answer 56

Resources used to supply goods or services, based on cost reimbursement, within the government itself and to other governments (Central motor pool, central purchasing) User-charge or cost reimbursement structure Used ONLY if the reporting government is the predominant participant in it's activity (otherwise enterprise fund). Separate funds used for separate activities

Question 57

Criteria for enterprise fund

Answer 57

If one of the following is true enterprise funds must be used: 1) the activity is financed with debt that is secured solely by a pledge of net revenues from the activity's fees and charges Or 2) laws or regulations require that the costs of providing services, including capital costs (depreciation, debt service) be recovered through fees and charges rather than taxes Or 3) the activity's pricing policies set fees and charges that are designed to recover it's costs, including capital costs

Question 58

Revenue bonds

Answer 58

Bonds secured with a pledge of the net revenues from an activity's fees and charges

Question 59

Accounting for public authorities/public benefit organizations

Answer 59

Legally separate from the parent government, so reported separately from the enterprise funds of the parent government Use enterprise type (accrual basis) accounting

Question 60

Reasons to use of internal service funds

Answer 60

Cost savings via: - consolidation of similar support type activities into a single unit - purchasing in volume

Question 61

Accounting system for internal service finfd

Answer 61

- bills other funds receiving goods and services - billed amounts are expenses for other funds and revenues for the internal service fund - provides information on real total cost of goods or services - economic resources measurement focus - full accrual accounting basis - interfund billings eliminated in government wide financial statements

Question 62

Financial statements for proprietary funds

Answer 62

- operating statement (statement of revenues, expenses, and changes in net fund position) - statement of net position - statement of cash flows

Question 63

Operating statement for proprietary type funds

Answer 63

Multistep. ``` Operating revenues (List and total) Operating expenses (List and total) Revenues - expenses = operating income Nonoperating revenues (expenses) (List and total) Add or subtract from operating income to get income before transfers Add capital contributions Add and subtract transfers in or out Extraordinary items = Net change in position Net position beginning of year Net position, end of year ```

Question 64

Proprietary fund statement of net position

Answer 64

Prepared in classified form Assets Current assets Noncurrent assets Total assets ``` Liabilities and net position Liabilities Current liabilities Noncurrent liabilities Total liabilities Net position Total net position Total liabilities and net position ```

Question 64

Proprietary fund statement of net position

Answer 64

Prepared in classified form ``` Assets Current assets Noncurrent assets Total assets Deferred outflows of resources Total Liabilities and net position Liabilities Current liabilities Noncurrent liabilities Total liabilities Deferred inflows of resources Total Net position Net investment in capital assets Unrestricted Total net position Total liabilities and net position ``` Traditionally assets = liabilities + net position Could also be framed: assets - liabilities= net position

Question 65

Proprietary type funds statement of cash flows

Answer 65

Prepared using direct method Bottom section reconciles operating income and changes in net position to cash provided by (used in) operating activities

Question 66

Statement of cash flows direct format

Answer 66

Cash flows from operating activities List Net cash provided by operating activities Cash flows from Noncapital financing activities Net cash used in Noncapital financing activities Cash flows from capital and related financing activities Net cash used in capital and related financing activities Cash flows from investing activities Net cash provided by investing activities Net change in cash and other money market instruments Beginning of the year End of the year Reconciling operating income to net cash provided by operating activities (Indirect statement of cash flows method)

Question 67

Fiduciary

Answer 67

involving trust, especially with regard to the relationship between a trustee and a beneficiary

Question 68

Pension (and other employee benefit) trust fund

Answer 68

Most widely are used/ significant type of fiduciary funds Administered by government for benefit of members and their beneficiaries

Question 69

Requirements for employee benefit trust funds

Answer 69

Must meet all three - contributions to and earnings of the benefit plan are irrevocable - assets in the benefit plan are dedicated to providing benefits for plan members - assets in the benefit plan are legally protected from the creditors of the contributing entities, plan administrators, and plan members of defined benefit plans

Question 70

Types of employee pension plans

Answer 70

Defined benefit plan Vs Defined contribution plan

Question 71

Types of fiduciary type funds

Answer 71

- pension (and other employee benefit) trust - investment trust - private purpose trust - custodia

Question 72

Investment trust funds

Answer 72

Fiduciary type fund An investment pool sponsored by the government in which they invest and managed resources belonging to the sponsoring government and other governments

Question 73

Requirements for an investment trust fund

Answer 73

To be classified as an investment trust fund, assets held must be: - - administered through a trust in which the government itself is not a beneficiary - dedicated to providing benefits in accordance with the benefit terms - legally protected from the government's creditors

Question 74

Reporting for an investment trust fund

Answer 74

Sponsoring governments portion of the pool of investments: reported as assets in funds for which investments were made External portion of pool: reported in investment trust funds

Question 75

Private-purpose trust funds

Answer 75

Used to report all fiduciary activities that - are not required to be reported in pension (or other employee benefit) or investment trust funds And - are held in a trust meeting the criteria of an investment trust fund Ex: escheat property fund (property that reverts to a governmental entity in absence of legal claimant/heirs). Fund holds in case later claim established

Question 76

Custodial funds

Answer 76

Fund for fiduciary activities that are not required to be reported in a pension, investment, or private- purpose trust Ex: state government held clearing account for county sales tax until distribution Only undistributed amounts not belonging to holding government reported in custodial fund. Amounts belonging to the holding government should be reported in their appropriate fund Used to hold deposits by contractors when submitting bids on government construction contracts

Question 77

Financial statements for fiduciary type funds

Answer 77

- statement of changes in fiduciary net position | - statement of fiduciary net position

Question 78

Statement of changes in fiduciary net position

Answer 78

Statement for period ``` Additions Contributions Investment income (changes in value + interest and dividends - investment expense) Total additions Deductions Benefits Withdrawals Admin expenses Total deductions ``` Net increase or decrease in fiduciary net position Net position beginning of year Net position end of year

Question 79

Statement of fiduciary plan net position

Answer 79

Statement on a certain date of assets held in the trust ``` Assets Investments Cash & receivables Total assets Liabilities Accounts payable Refunds payable Net position List restrictions Total net position ``` Does not list liability for total pension promise (so cannot discern if obligation for pension benefits is met). That information is in government-wide financial statements and in notes

Question 80

Financing for general fund

Answer 80

``` Taxes (mostly property, also sales tax, income tax, and taxes on select items) Intergovernmental grants from higher levels of gov Miscellaneous item (license charges, fees, fines, etc..) ```

Question 81

General fund revenue reporting

Answer 81

Aggregated by category for statement purposes but different revenue sources must go to separate accounts

Question 82

General fund operating expenditures

Answer 82

Generally in five to ten broad categories depending on government need Categories may contain different org units with the government