advanced accounting 6e by jeter chaney chapter 17

Advanced Accounting Jeter ● Chaney Introduction to Fund Accounting Prepared by Sheila Ammons, Austin Community College Learning Objectives • • • Distinguish between a nonbusiness organization and a profit-oriented enterprise • • Understand the classification of revenues and other resource inflows for fund accounting Explain the role of fund accounting Distinguish among the concepts of revenues, expenses, and expenditures as used in profitoriented entities and as used for expendable fund entities Understand the classification of expenditures and other resource outflows for fund accounting Copyright © 2015 John Wiley & Sons, Inc All rights reserved Learning Objectives • • • • Describe the critical events in the use of financial resources of an expendable fund Explain how capital expenditures are recorded in an expendable fund Understand the role of a general fund Contrast the consumption and the purchases methods of accounting for inventories (and other prepaid items) Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Fund Accounting Accounting for nonbusiness organizations Nonbusiness Organizations Economic Entities Provide socially desirable service without regard to financial gain Business Enterprises    Earn a return on investment Operate in a competitive market Face liquidity concerns Copyright © 2015 John Wiley & Sons, Inc All rights reserved Classification of Nonbusiness Organizations Five Major Classifications – Governmental units – Hospitals and other health care providers – Colleges and universities – Voluntary health and welfare organizations – Other nonbusiness organizations (trade associations, professional associations, museums, religious organizations, etc.) Copyright © 2015 John Wiley & Sons, Inc All rights reserved Distinctions between Nonbusiness Organizations and Profit-Oriented Enterprises • Distinctions – Absence of primary goal to earn a profit – No equity interests – Seldom finance through charges to individuals who benefit from the service – Rely on political action or fund-raising campaigns – Income determination model generally not applicable – Restrictions or limitations on use of resources LO Nonbusiness organizations versus profit-oriented enterprises Copyright © 2015 John Wiley & Sons, Inc All rights reserved Standards for Nonbusiness Organizations LO Nonbusiness organizations versus profit-oriented enterprises Copyright © 2015 John Wiley & Sons, Inc All rights reserved Standards for Nonbusiness Organizations GASB Conceptual Framework: Concept Statements Number Title Objectives of Financial Reporting Service Efforts and Accomplishments Communication Methods Elements of Financial Statements Amendment of Statement Number Measurement of Elements of Financial Statements LO Nonbusiness organizations versus profit-oriented enterprises Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting •Fund Accounting –Designed primarily to meet internal reporting and control objectives –Provides a basis for determining the fiscal responsibility and status of the organization •Fund Entity Classification – Expendable – Basic fund accounting concepts – Proprietary – Business type activity – Fiduciary - Agent or trustee LO The role of fund accounting Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Expendable Fund Entities Financial resources dedicated to a specified use Examples - Capital Projects or Debt Service fund Resources consist of cash and claims to cash Resources - Claims against resources = Fund balance Measurement focus is on flow of current financial resources Accounting Model 10 LO Differences in applications of revenue, expense, and expenditures Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: The City Council adopted a budget with estimated revenues of $1,560,000 and appropriated expenditures of $1,400,000 Estimated Revenue 1,560,000 Appropriations 1,400,000 Fund Balance - Unassigned 160,000 41 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: The budget authorized the transfer of $50,000 from the Water Fund to the General Fund Interest due for the year on the $1,000,000, 8% bond issue for the Civic Center is approved for transfer from the General Fund to the Debt Service Fund Due from Water Fund 50,000 Transfer from Water Fund 50,000 Transfer to Debt Service Fund 80,000 Due to Debt Service Fund 80,000 42 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: The annual property tax levy of 10% on assessed valuation ($11,000,000) is billed to property owners Two percent is estimated to be uncollectible Property Tax Receivable 1,100,000 Revenue 1,078,000 Allowance for Uncollectible Taxes (2%) 22,000 43 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: Goods and services amounting to $1,150,000 were ordered during the year Encumbrances 1,150,000 Fund Balance – Assigned (Encumbrances) 1,150,000 Invoices for all goods ordered in 2014 amounting to $29,000 were approved for payment Expenditures – 2014 29,000 Vouchers Payable 29,000 44 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: Funds for bond interest on Civic Center bonds were transferred to the Debt Service Fund Due to Debt Service Fund 80,000 Cash 80,000 45 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: Invoices for goods received during the year totaled $1,155,000 These were encumbered [see (3) above] Expenditures 1,155,000 Vouchers Payable 1,155,000 Fund Balance - Assigned (Encumbrances) Encumbrances 1,150,000 1,150,000 46 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: Transfer of funds from the Water Company was received in lieu of taxes Cash 50,000 Due from Water Fund 50,000 Taxes were collected from property owners in the amount of $1,050,000 Cash 1,050,000 Property Tax Receivable 1,050,000 47 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: Past-due tax bills of $17,000 were charged off as uncollectible Allowance for Uncollectible Taxes 17,000 Property Tax Receivable 17,000 10 Checks in payment of invoices for goods ordered in 2014 and 2015 were issued [see items (4) and (6) above] Vouchers Payable * 1,184,000 Cash 1,184,000 * ($29,000 + $1,155,000) 48 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Problem 17-1: 11 Revenues received from miscellaneous sources, other than property taxes, of $455,000 were recorded Cash 455,000 Revenue 455,000 12 Purchase order for two trash collection vehicle systems was issued Bid price per system was $120,000 Encumbrances (2 x $120,000) 240,000 Fund Balance – Assigned (Encumbrances) 240,000 49 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Financial Statements • Two Basic Statements (expendable fund entities) • • • • Revenue classified by major sources – Balance sheet – Statement of revenue, expenditures, and changes in fund balance Expenditures classified by major functions Comparative information presented for prior years Statement comparing budgeted and actual should be prepared for budgetary fund entities 50 fund LO Understand the general Copyright © 2015 John Wiley & Sons, Inc All rights reserved Reporting Inventory and Prepayments Inventory • Two Methods of accounting for and reporting inventory – Consumption method – Purchases method – Both acceptable for fund purposes • Under GASB Statement No 34, consumption method is consistent with the government-wide approach and the purchases method is not acceptable 51 LO Consumption and purchases Methods Copyright © 2015 John Wiley & Sons, Inc All rights reserved Reporting Inventory Assume $20,000 of beginning inventory, $50,000 is purchased, and ending inventory of $24,000 Consumption Method When Purchased: Expenditures 50,000 Cash End of Year: Inventory 50,000 4,000 Expenditures 4,000 Purchases Method When Purchased: Expenditures Cash End of Year: 50,000 50,000 NO ENTRY 52 LO Consumption and purchases Methods Copyright © 2015 John Wiley & Sons, Inc All rights reserved Reporting Inventory and Prepayments Inventory The Fund Balance for the governmental funds should classify any amounts for inventory as Fund Balance – Nonspendable Consumption Method – end of year: Fund Balance – Unassigned 4,000 Fund Balance – Nonspendable 4,000 The entry has no overall impact on fund balance, but –Reclassifies the increase in inventory from unassigned to nonspendable fund balance 53 LO Consumption and purchases Methods Copyright © 2015 John Wiley & Sons, Inc All rights reserved Reporting Inventory and Prepayments Inventory •The Fund Balance for the governmental funds should classify any amounts for inventory as Fund Balance – Nonspendable •Purchases Method – end of year: Inventory 4,000 Fund Balance – Nonspendable 4,000 –The entry has changed fund balance •After the entry, the amount reported for total fund balance will now equal the total fund balance if the consumption method were used 54 LO Consumption and purchases Methods Copyright © 2015 John Wiley & Sons, Inc All rights reserved Reporting Prepayments Question Prepayments for items such as insurance or rent that cover more than one accounting period may also be reported using the consumption or purchases methods True 55 LO Consumption and purchases Methods Copyright © 2015 John Wiley & Sons, Inc All rights reserved ... the purchases methods of accounting for inventories (and other prepaid items) Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting Fund Accounting Accounting for nonbusiness... fund accounting concepts – Proprietary – Business type activity – Fiduciary - Agent or trustee LO The role of fund accounting Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting. .. profit-oriented enterprises Copyright © 2015 John Wiley & Sons, Inc All rights reserved Fund Accounting •Fund Accounting –Designed primarily to meet internal reporting and control objectives –Provides