Test Bank for Essentials of Accounting for Governmental_4 doc

Three financial statements are required for proprietary funds: a Statement of Net Assets or Balance Sheet; a Statement of Revenues, Expenses, and Changes in Fund Net Assets; and a Statem

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ILLUSTRATION 6–1 Summary of Proprietary Funds

Fund Name Accrual Basis Economic Resour

✓ ✓ Funds used to report activities that provide goods

and services to other funds, departments, or agencies on a cost-reimbursement basis They are used when the government is the predominant user of the goods or services.

Indefinite life Internal service funds are created

by the government and exist at the discretion of the government.

Enterprise Fund

✓ ✓ Funds used to report activities in which users are

charged a fee for goods or services They are appropriate when individuals or businesses external to the government are the predominant users.

Indefinite life Enterprise funds must be tained if debt is secured solely by user charges, laws require that costs be recovered through user charges, or government policy requires setting charges to cover the costs of providing the goods or service.

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Because revenues and expenses (not expenditures) are recognized on the accrual

basis, financial statements of proprietary funds are similar in many respects to those

of business organizations Fixed assets used in fund operations and long-term debt

serviced from fund revenues are recorded in the accounts of each proprietary fund

Depreciation on fixed assets is recognized as an expense, and other accruals and

de-ferrals common to business accounting are recorded in proprietary funds Budgets

should be prepared for proprietary funds to facilitate management of fund

activi-ties, but GASB standards do not require or encourage budget-actual reporting

The use of accrual accounting permits financial statement users to observe

whether proprietary funds are operated at a profit or a loss The accrual basis of

accounting requires revenues to be recognized when earned and expenses to be

recognized when goods and services are used

Two types of funds are classified as proprietary funds: internal service funds and

enterprise funds Internal service funds provide, on a user charge basis, services to

other government departments Enterprise funds provide, on a user charge basis,

services to the public Three financial statements are required for proprietary funds:

a Statement of Net Assets (or Balance Sheet); a Statement of Revenues, Expenses,

and Changes in Fund Net Assets; and a Statement of Cash Flows As is true for

governmental funds, enterprise funds are reported by major fund, with nonmajor

funds presented in a separate column However, internal service funds are reported

in a single column These statements will be discussed in more detail and illustrated

later in this chapter

GASB Statement No 20 provides guidance regarding the application of private

sector accounting pronouncements to the accounting and reporting for proprietary

funds All FASB Statements and Interpretations, Accounting Principles Board

Opin-ions, and Accounting Research Bulletins issued on or before November 30, 1989,

that do not contradict GASB pronouncements are presumed to apply In addition,

for enterprise funds (but not for internal service funds), governments have the

op-tion to apply (or not apply) FASB Statements and Interpretaop-tions that are issued after

November 30, 1989, and that apply to business organizations (FASB statements and

interpretations applicable only to not-for-profit organizations do not apply to

gov-ernments) The option chosen must be disclosed in the notes

INTERNAL SERVICE FUNDS

As governments become more complex, efficiency can be improved if services used

by several departments or funds or even by several governmental units are combined

in a single department Purchasing, computer services, garages, janitorial services,

and risk management activities are common examples Activities that produce goods

or services to be provided to other departments or other governmental units on a

cost-reimbursement basis are accounted for by internal service funds

Internal service funds recognize revenues and expenses on the accrual basis

They account for fixed assets used in their operations and for long-term debt to be

serviced from revenues generated from their operations, as well as for all current

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assets and current liabilities Net assets (fund equity) are to be reported in three

categories: (1) invested in capital assets, net of related debt; (2) restricted; and

(3) unrestricted

Establishment and Operation of Internal Service Funds

The establishment of an internal service fund is normally subject to legislative

approval The original allocation of resources to the fund may be derived from a

transfer of assets of another fund, such as the General Fund or an enterprise fund,

intended as a transfer not to be repaid or as a loan that is in the nature of a

long-term advance to be repaid by the internal service fund over a period of years

Because internal service funds are established to improve the management of

resources, they should be operated and accounted for on a business basis For example,

assume that administrators request the establishment of a fund for the purchasing,

warehousing, and issuing of supplies used by a number of funds and departments

A budget should be prepared for the internal service fund (but not recorded in the

accounts) to demonstrate that fund management has realistic plans to generate

suf-ficient revenues to cover the cost of goods issued and such other expenses, including

depreciation, that the governing body intends fund operations to recover

Departments and units expected to purchase goods and services from internal

service funds should include in their budgets the anticipated outlays for goods

and services During the year, as supplies are issued or services are rendered, the

internal service fund records operating revenues (Charges for Services is an account

title commonly used instead of Sales) Since the customer is another department

of the government, a journal entry to record the purchase is recorded at the same

time the internal service fund records revenue If the other fund is a governmental

fund, the purchase is recorded as an expenditure Periodically and at year-end, an

operating statement should be prepared for each internal service fund to compare

revenues and related expenses; these operating statements, called Statements of

Revenues, Expenses, and Changes in Fund Net Assets, are similar to income

state-ments prepared for investor-owned businesses

Illustrative Case—Supplies Fund

Assume that the administrators of the Village of Elizabeth obtain approval from

the Village Council in early 2012 to centralize the purchasing, storing, and issuing

functions and to administer and account for these functions in a Supplies Fund A

payment of $596,000 cash is made from the General Fund which is not to be repaid

by the Supplies Fund Of the $596,000, $290,000 is to finance capital acquisitions

and $306,000 is to finance noncapital acquisitions Additionally, a long-term

ad-vance of $200,000 is made from the Water Utility Fund for the purpose of acquiring

capital assets The advance is to be repaid in 20 equal annual installments, with no

interest The receipt of the transfer in and the liability to the Water Utility Fund

would be recorded in the Supplies Fund accounts in the following manner 1

1 The corresponding entry in the General Fund is entry 22 in Chapter 4 The corresponding entry in the

Water Utility Fund is entry 5 in the “Illustrative Case—Water Utility Fund” section later in this chapter.

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1 Cash 796,000

Transfers In 596,000

Advance from Water Utility Fund 200,000

To provide some revenue on funds not needed currently, $50,000 is invested in

marketable securities:

2 Investments 50,000

Cash 50,000

Assume that early in 2012, a satisfactory warehouse building is purchased for

$350,000; $80,000 of the purchase price is considered as the cost of the land

Nec-essary warehouse machinery and equipment is purchased for $100,000 Delivery

equipment is purchased for $40,000 If the purchases are made for cash, the

acquisi-tion of the assets would be recorded in the books of the Supplies Fund as follows:

Supplies are ordered to maintain inventories at a level commensurate with

expected usage No entry is needed because proprietary funds are not required to

record encumbrances During 2012, it is assumed that supplies are received and

related invoices are approved for payment in the amount of $523,500; the entry

needed to record the asset and the liability is as follows:

4 Inventory of Supplies 523,500

Accounts Payable 523,500

The Supplies Fund, accounts for its inventories on the perpetual inventory basis

because the information is needed for proper performance of its primary function

Accordingly, when supplies are issued, the Inventory Account must be credited for

the cost of the supplies issued Because the using fund will be charged an amount

in excess of the inventory carrying value, the Receivable and Revenue accounts

reflect the selling price The markup above cost should be determined on the basis

of budgeted expenses and other items to be financed from net income If the budget

for the Village of Elizabeth’s Supplies Fund indicates that a markup of 30 percent

on cost is needed, issues to General Fund departments of supplies costing $290,000

would be recorded by the following entries:

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5a Operating Expenses—Cost of Sales and Services 290,000

Inventory of Supplies 290,000 5b Due from General Fund 377,000

Operating Revenues—Charges for Sales and Services ($290,000 * 130%) 377,000

During the year, it is assumed that purchasing expenses totaling $19,000,

warehousing expenses totaling $12,000, delivery expenses totaling $13,000, and

administrative expenses totaling $11,000 are incurred The government has chosen

to separate operating expenses into three categories: (1) costs of sales and services,

(2) administration, and (3) depreciation If all liabilities are vouchered before

pay-ment, the entry would be as follows:

6 Operating Expenses—Costs of Sales and Services 44,000

Operating Expenses—Administration 11,000

If collections from the General Fund during 2012 total $322,000, the entry

would be as follows (see Chapter 4, entries 20a and 20b for General Fund entries

corresponding to entries 5b and 7):

7 Cash 322,000

Due from General Fund 322,000

Assuming that payment of vouchers during the year totals the $567,500, the

following entry is made:

8 Accounts Payable 567,500

Cash 567,500

The advance from the Water Utility Fund is to be repaid in 20 equal annual

installments; repayment of one installment at the end of 2012 is recorded as follows:

9 Advance from Water Utility Fund 10,000

Cash 10,000

At the time depreciable assets are acquired, the warehouse building has an estimated

useful life of 20 years; the warehouse machinery and equipment have an estimated

use-ful life of 10 years; the delivery equipment has an estimated useuse-ful life of 10 years; and

none of the assets is expected to have any salvage value at the expiration of its useful life

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Under these assumptions, straight-line depreciation of the building would be $13,500 per

year; depreciation of machinery and equipment, $10,000 per year; and depreciation of

delivery equipment, $4,000 per year (Since governmental units are not subject to income

taxes, there is no incentive to use any depreciation method other than straight-line.)

Organizations that keep perpetual inventory records must adjust the records

periodically to reflect shortages, overages, and out-of-condition stock disclosed by

physical inventories Adjustments to the Inventory account are also considered to be

adjustments to the warehousing expenses of the period In this illustrative case, it is

assumed that no adjustments are found to be necessary at year-end

Interest income is earned and received in cash on the investments purchased at

the beginning of the year:

11 Cash 3,000

Nonoperating Revenues—Interest 3,000

Assuming that all revenues, expenses, and transfers applicable to 2012 have been

properly recorded by the entries illustrated, the nominal accounts should be closed

Recall that the net position of governmental funds is termed Fund Balance and

is classified within five categories In contrast, the excess of assets over liabilities of

proprietary funds is termed Net Assets and classified within three categories:

Net Assets Invested in Capital Assets, Net of Related Debt

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Net Assets Invested in Capital Assets, Net of Related Debt is computed

as capital assets less accumulated depreciation minus the balance of any debt

associated with the acquisition of capital assets Restricted Net Assets are defined

as net resources whose use is restricted by external parties (creditors, grantors, or

other governments) or by internally imposed laws Unrestricted Net Assets is the

residual account for any net resources that are not classified in either of the other two

categories For the Village of Elizabeth example, the net asset balances to be reported

in the December 31, 2012, Statement of Net Assets are calculated as follows:

Invested in Capital Assets, Net of Debt Restricted Unrestricted Total

Invested in Capital Assets Net of Debt

Capital Assets

Less Accumulated Depreciation

Less Advance to Enterprise Fund

Restricted

Unrestricted (plug)

Total Net Assets

$ 490,000 (27,500) (190,000)

$ 272,500

-0-

-0-$331,000

$331,000

$ 490,000 (27,500) (190,000) -0- 331,000

$ 603,500

The category Invested in Capital Assets, Net of Related Debt is calculated

using end of period balances in capital assets, accumulated depreciation, and debt

Borrowings for operations (if any) would not be subtracted here In most cases,

internal service funds will not have Restricted Net Assets Unrestricted Net Assets

is the residual balance calculated after the other two categories Similar to fund

balances, some governments choose to allocate these amounts to individual net asset

accounts through journal entry Our approach will be to determine the components

of net assets in the aforementioned manner and present the totals directly in the

Statement of Net Assets In this way we reduce the number of accounts necessary to

record changes in overall fund net position These amounts appear only in the

State-ment of Net Assets (Illustration 6–3, presented later in the chapter) In addition to

the Statement of Net Assets, internal service funds report a Statement of Revenues,

Expenses, and Changes in Fund Net Assets (Illustration 6–4) and a Statement of

Cash Flows (Illustration 6–5)

OTHER ISSUES INVOLVING INTERNAL SERVICE FUNDS

Risk Management Activities

In recent years, governments have been turning to self-insurance for part or all of

their risk financing activities If a government decides to use a single fund to

accu-mulate funds and make payments for claims, it must use either the General Fund or

an internal service fund Many use the internal service fund type

When using internal service self-insurance funds, interfund premiums are

treated as interfund services provided and used Thus, revenues are recognized in

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the internal service fund for interfund charges, and an expenditure or expense, as

appropriate, is recognized in the contributing fund When claims are paid or

ac-crued, an operating expense is recorded in the internal service fund

Charges should be based on anticipated claims or on a long-range plan to break

even over time, such as an actuarial method Payments by contributing funds in

excess of the amount required to break even are recorded as transfers If an internal

service fund has a material deficit at year-end, that deficit should be made up over

a reasonable period of time and should be disclosed in the notes to the financial

statements

Implications for Other Funds

The operation of internal service funds has important implications for other funds

As we have seen, charges for services (i.e., revenues) of the internal service fund

are recorded as expenditures in the governmental fund purchasing the services

(or expenses if enterprise funds are the purchaser) Since the internal service fund

records the costs of providing services as operating expenses, the costs of these

ser-vices are recorded in two funds in the same set of fund-basis financial statements

Additional problems arise if the internal service fund has significant positive

(or negative) operating income Operating income is the excess of service revenues

over the costs of providing the service (i.e., operating expenses) Consider the case

of an internal service fund servicing police, fire, and other vehicles used in

depart-ments reported in the General Fund If the internal service fund has positive

operat-ing income, the expenditures reported in the General Fund exceed the true cost of

operating the government If these amounts are significant over periods of time,

some of the accumulated surplus (fund balance) of the General Fund is effectively

shifted to the internal service fund (net assets) The opposite is true if internal

ser-vice funds have negative operating income: the General Fund understates the true

cost of operating the government and net assets are effectively shifted from the

internal service fund to the fund balance of the General Fund

Compounding these problems is the fact that GASB Standards do not require

the use of internal service funds Some governments choose to use internal

ser-vice funds and others choose to account for the same activities in other funds This

makes comparisons between governments difficult The problems that internal

ser-vice funds create in the fund-basis financial statements were a major consideration

when the GASB designed the government-wide financial statements As we will

see in detail in Chapter 8, the problems of duplicate recording of costs, potential

over- or understatement of governmental expenditures, and lack of comparability

between governments are resolved in the government-wide financial statements

ENTERPRISE FUNDS

Enterprise funds are used by governments to account for services provided to the

general public on a user-charge basis Under GASB Statement 34, enterprise funds

must be used in the following circumstances:

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including capital costs, be recovered through fees or charges

When a government has a policy to establish fees and charges to cover the cost

•

of providing services for an activity

The most common examples of governmental enterprises are public utilities,

notably water and sewer utilities Electric and gas utilities, transportation systems,

airports, landfills, hospitals, toll bridges, municipal golf courses, parking lots,

park-ing garages, lotteries, municipal sports stadiums, and public houspark-ing projects are

other examples

Enterprise funds are to be reported using the economic resources measurement

focus and accrual basis of accounting Fixed assets and long-term debt are included

in the accounts As indicated earlier in this chapter, enterprise funds are to use

accounting and reporting standards provided for business enterprises issued on or

before November 30, 1989 (unless that guidance conflicts with GASB guidance)

and may use standards issued by the FASB for businesses issued after that date As

a result, accounting is similar to that for business enterprises and includes

deprecia-tion, accrual of interest payable, amortization of discounts and premiums on debt,

and so on

Governmental enterprises often issue debt, called revenue bonds, that is

pay-able solely from the revenues of the enterprise These bonds are recorded directly

in the accounts of the enterprise fund On the other hand, general obligation

bonds are sometimes issued for governmental enterprises, in order to provide

greater security by pledging the full faith and credit of the government in addition

to enterprise revenues If payment is to be paid from enterprise revenues, these

gen-eral obligation bonds would also be reflected in the accounts of enterprise funds

Budgetary accounts are used only if required by law Debt service and

construc-tion activities of a governmental enterprise are accounted for within an enterprise

fund, rather than by separate debt service and capital project funds Thus, the

re-ports of enterprise funds are self-contained; and creditors, legislators, or the general

public can evaluate the performance of a governmental enterprise by the same

crite-ria used to evaluate commercial businesses in the same industry

Unlike internal service funds, it is frequently desirable for enterprise funds to

operate at a profit (increase in net assets) Like commercial businesses, operating

profits are necessary to establish adequate working capital, provide for expansion

of physical facilities, and retire debt Additionally, governments may find it

desir-able to use enterprise fund profits to support general government expenditures that

would otherwise require increased taxes State lotteries, for example, are

estab-lished with the intent to operate at significant profits The profits are then typically

transferred from the lottery (enterprise fund) to the state General Fund in support

of public education

By far the most numerous and important enterprise services rendered by local

governments are public utilities In this chapter we examine typical transactions of

a water utility fund

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Illustrative Case—Water Utility Fund

It is assumed that the Village of Elizabeth is located in a state that permits enterprise

funds to operate without formal legal approval of their budgets Accordingly, the

budget is not recorded in enterprise accounts

Assume that as of December 31, 2011, the accountants for the Village of

Elizabeth prepared the postclosing trial balance shown here:

VILLAGE OF ELIZABETH Water Utility Fund Postclosing Trial Balance December 31, 2011

It is common for governmental enterprises, especially utilities, to report “restricted

assets.” In this example, the restricted assets include $55,000 set aside for future

debt service payments as required by a revenue bond indenture agreement

When utility customers are billed during the year, appropriate revenue

ac-counts are credited Assuming that during 2012 the total bills to nongovernmental

customers amounted to $975,300, bills to the Village of Elizabeth General Fund

amounted to $80,000, and all revenue was from sales of water, the following entry

summarizes the results: (see entry 19 in Chapter 4 for the corresponding entry in

the General Fund)

1 Customer Accounts Receivable 975,300

Due from General Fund 80,000

Operating Revenues—Charges for Sales and Services 1,055,300

Assume collections from nongovernmental customers totaled $968,500 for water

billings:

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2 Cash 968,500

Customer Accounts Receivable 968,500

Customers owing bills totaling $1,980 left the Village and could not be located

The unpaid balances of their accounts receivable were written off to the allowance

for uncollectible accounts as follows:

3 Allowance for Uncollectible Accounts 1,980

Customer Accounts Receivable 1,980

Governments commonly impose impact fees on developers or builders to pay for

capital improvements, such as increased water and sewer facilities, that are

neces-sary to service new developments Increasingly, governments are using impact fees

to limit sprawl and to create incentives for developers to refurbish existing

commer-cial properties rather than create new ones Assume the Village of Elizabeth imposes

impact fees on commercial developers in the amount of $12,500 and that these fees

are not associated with specific projects or improvements

4 Cash 12,500

Capital Contributions 12,500

Note that Capital Contributions is a nominal account that will increase Net Assets

but is reported separately in the Statement of Revenues, Expenses, and Changes in

Fund Net Assets (see Illustration 6–4) Hook up fees for new customers are not

capital contributions but are exchange transactions and are included in operating

revenues If the impact fees had been restricted to a specific project, the cash would

have been reported as a restricted asset

During 2012, the Village of Elizabeth established a Supplies Fund, and the Water

Utility Fund advanced $200,000 to the Supplies Fund as a long-term receivable

The entry by the Supplies Fund is illustrated in entry 1 in the “Illustrative Case—

Supplies Fund” section of this chapter The following entry should be made by the

Water Utility Fund:

5 Long-Term Advance to Supplies Fund 200,000

Cash 200,000

Materials and supplies in the amount of $291,500 were purchased during the year

by the Water Utility Fund, and vouchers in that amount were recorded as a liability:

6 Materials and Supplies 291,500

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When materials and supplies are issued to the departments of the Water Utility

Fund, operating expenses are charged for the cost of materials and supplies

Materi-als and supplies issued for use for construction projects are capitalized temporarily

as Construction Work in Progress (Entry 11 illustrates the entry required when a

capital project is completed.)

Construction Work in Progress 127,600

Materials and Supplies 298,000

Payrolls for the year were chargeable to the accounts in the following entry

Taxes were accrued and withheld in the amount of $90,200, and the remainder was

paid in cash

Operating Expenses—Selling 17,200

Payroll Taxes Payable 90,200

Cash 332,400

Bond interest in the amount of $189,000 was paid:

9 Nonoperating Expenses—Interest 189,000

Cash 189,000

Included in the amount above was bond interest in the amount of $17,800 that

was considered to be properly charged to construction:

10 Construction Work in Progress 17,800

Nonoperating Expenses—Interest 17,800

Construction projects on which costs totaled $529,300 were completed and the

assets placed in service Utility Plant in Service summarizes the investment in fixed

assets used for utility purposes

11 Utility Plant in Service 529,300

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Near the end of 2012, the Water Utility Fund received $10,000 cash from the

Supplies Fund as partial payment of the long-term advance (see Supplies Fund,

entry 9)

13 Cash 10,000

Long-Term Advance to Supplies Fund 10,000

During the year, the Water Utility Fund made a transfer of $200,000 to the Fire

Station Addition Capital Projects Fund (see entries 2 and 7 in Chapter 5):

Accumulated Depreciation of Utility Plant 122,800

Provision is made for bad debts from utility customers Consistent with guidance

provided by a Question and Answer Guide issued by GASB, the bad debt provision

is a revenue reduction not an expense:

16 Operating Revenues—Charges for Sales and Services 2,200

Allowance for Uncollectible Accounts 2,200

Following a provision in the revenue bond indenture, $55,000 was transferred

from operating cash to the Restricted Assets category

17 Restricted Assets 55,000

Cash 55,000

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Illustration 6–2 presents the general ledger account balances after posting the

Water Utility Fund journal entries

Revenue, expense, transfers, and capital contributions accounts for the year were

closed to the Net Assets account:

After posting the closing entry, Net Assets has a balance of $1,600,520 ($1,563,020

beginning balance plus $37,500 from the closing entry) The net asset balances to be

reported in the December 31, 2012, Statement of Net Assets are calculated as follows:

Invested in Capital Assets, Net of Debt Restricted Unrestricted Total

Invested in Capital Assets Net of Debt:

Construction Work in Process

Utility Plant in Service

Less Accumulated Depreciation

Less Revenue Bonds Payable

Restricted: Restricted Assets

Unrestricted (plug)

Total Net Assets

$ 143,125 4,654,440 (1,009,300) (2,700,000)

$1,600,520

Note that the capital assets included in Invested in Capital Assets, Net of Related

Debt is comprised of both the Utility Plant in Service and the Construction Work in

Process Restricted Net Assets equals the balance of the Restricted Assets that are

required to be maintained by debt covenant Unrestricted Net Assets is the residual,

computed as total net assets less the balance in the other two net asset categories

($1,600,520 ⫺ 1,088,265 ⫺ 110,000 ⫽ $402,255)

PROPRIETARY FUND FINANCIAL STATEMENTS

Governments are required to report the following proprietary fund financial

state-ments: (1) Statement of Net Assets (or Balance Sheet), (2) Statement of Revenues,

Expenses, and Changes in Fund Net Assets, and (3) Statement of Cash Flows As was

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Due from General Fund

Construction Work in Process

73,700 bb 2,700,000 bb 1,563,020 bb

12 275,600 291,500 6 12 81,200 90,200 8 16 2,200 1,055,300 1

89,600 9,000 2,700,000 1,563,020 1,053,100

Cost of Sales & Services

Administrative

Nonoperating Expenses Interest

* bb denotes beginning balance

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true for governmental funds, major enterprise funds are to be presented, along with

columns for nonmajor funds and total enterprise funds, where appropriate On the

other hand, a single column is to include all internal service funds Illustra tions 6–3,

6–4 and 6–5 reflect the proprietary funds statements for the Village of Elizabeth,

which is assumed to have only one enterprise fund and one internal service fund

Statement of Net Assets

The Statement of Net Assets for the proprietary funds for the Village of Elizabeth

is presented as Illustration 6–3 GASB permits either this statement (Assets ⫺

Liabilities ⫽ Net Assets) or a Balance Sheet where Assets ⫽ Liabilities ⫹ Net Assets

GASB requires a classified format, where current assets, noncurrent assets, current

liabilities, and noncurrent liabilities are presented separately Net assets (fund equity

accounts) are segregated into the same three categories used for the

government-wide Statement of Net Assets In the Village of Elizabeth example, the various fixed

asset and accumulated depreciation accounts were combined to present a single net

figure for each fund It was assumed that all long-term debt was for capital assets

Net assets that are restricted are presented separately According to GASB

State-ment 34, restricted net assets are those that are the result of constraints either:

Externally imposed by creditors (such as through debt covenants), grantors,

1

contributors, or laws or regulations of other governments

Imposed by law through constitutional provisions or enabling legislation

2

In the water utility fund of the Village of Elizabeth, it is assumed that the $110,000

was restricted through a bond covenant GASB prohibits the display of designated,

unrestricted net assets

Statement of Revenues, Expenses, and Changes

in Fund Net Assets

The Statement of Revenues, Expenses, and Changes in Fund Net Assets for the

proprietary funds of the Village of Elizabeth is presented as Illustration 6–4 GASB

requires that operating revenues and operating expenses be shown separately from

and prior to nonoperating revenues and expenses Operating income must be

dis-played Operating revenues should be displayed by source Operating expenses may

be reported by function, as shown in Illustration 6–4, or may be reported by object

classification, such as personal services, supplies, travel, and so forth

Capital contributions, extraordinary and special items, and transfers should be

shown separately, after nonoperating revenues and expenses GASB requires the

all-inclusive format, which reconciles to the ending net assets Note that the ending

net asset figure shown in Illustration 6–4 is the same as the total net assets shown in

the Statement of Net Assets (Illustration 6–3)

Statement of Cash Flows

The Statement of Cash Flows for the proprietary funds for the Village of Elizabeth

is presented as Illustration 6–5 Note that the figure for cash and cash equivalents

includes the restricted assets, as is customary in practice From Illustration 6–3,

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