advanced accounting 6e by jeter chaney chapter 18

Advanced Accounting Jeter ● Chaney Introduction to Accounting For State and Local Governmental Units Prepared by Sheila Ammons, Austin Community College Learning Objectives • Identify the issues involved in developing standards for nonprofit organizations • Describe the broad categories of government fund entities • Distinguish between a general fund and a special revenue fund • Explain the use of a capital projects fund • Describe the purpose of a debt service fund • Explain the use of a permanent fund Copyright © 2015 John Wiley & Sons, Inc All rights reserved Learning Objectives • Distinguish proprietary funds from government funds • Describe where capital assets and long-term obligations are reported in government financial statements • Describe the changes in reporting requirements under GASB Statement No 34 • Explain the benefits of government-wide statements • Describe the types of interfund activities Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Accounting • GASB’s Statement No 34, issued June 1999, requires: – Financial statements using government-wide (entitywide) approach (This does not eliminate traditional fund accounting.) – Statements emphasizing major funds – Management’s discussion and analysis (MD&A) • GASB Statement No 34 requires “full accrual” accounting for all government-wide statements (i.e., flow of economic resources approach) Copyright © 2015 John Wiley & Sons, Inc All rights reserved Reporting Model: Minimum Information Required Government-wide Statement of net position Statement of activities Fund Financial Statements Governmental funds: Balance sheet Statement of revenues, expenditures, and changes in fund balances Reconciliation to government-wide statements Proprietary funds: Balance sheet or statement of net position Statement of revenues, expenses, and changes in net position Statement of cash flows—direct format Fiduciary funds: Statement of fiduciary net position Statement of changes in net position Copyright © 2015 John Wiley & Sons, Inc All rights reserved History of Governmental Accounting Standards • GASB was established (1984): – Separate board under oversight of Financial Accounting Foundation (FAF) – Responsible for establishing financial and reporting standards for governments – GASB endorsed prior statements and interpretations of the NCGA, as well as standards embodied in the 1974 AICPA Industry Audit Guide – Pronouncements of the GASB are codified The codification is updated annually LO Issues involved in developing standards Copyright © 2015 John Wiley & Sons, Inc All rights reserved History of Governmental Accounting Standards Hierarchy of Standards –GASB Statement No 55 establishes the hierarchy used to establish generally accepted reporting standards for all state and local government-owned entities, including government-owned colleges and universities, health care providers, and utilities – The GASB and the FASB each has primary responsibility setting standards for entities under its jurisdiction for – Pronouncements of one Board should not be mandatory for entities under the jurisdiction of the other Board, unless designated as such by the primary Board LO Issues involved in developing standards Copyright © 2015 John Wiley & Sons, Inc All rights reserved The Structure of Governmental Accounting • Eleven Categories of Fund Entities – Governmental Funds (expendable)— – Focus on sources, use, and balances of current financial resources – General Fund – Special Revenue Funds – Capital Projects Funds – Debt Service Funds – Permanent Funds LO Broad categories funds Copyright © 2015 John Wiley & Sons, Inc All rights reserved The Structure of Governmental Accounting • Eleven Categories of Fund Entities (continued) – Proprietary Funds (nonexpendable)— – Focus on determination of operating income, changes in net position, financial position, and cash flows – Enterprise Funds – Internal Service Funds LO Broad categories funds Copyright © 2015 John Wiley & Sons, Inc All rights reserved The Structure of Governmental Accounting • Eleven Categories of Fund Entities – Fiduciary Funds – Reports assets held in a trustee or agency capacity for others – Focus on net position – Pension Trust Funds – Investment Trust Funds – Private-Purpose Trust Funds – Agency Funds LO Broad categories funds Copyright © 2015 John Wiley & Sons, Inc All rights reserved Interfund Activity • Interfund activity within and among governmental, proprietary, and fiduciary funds should be classified and reported as follows: a) Reciprocal interfund activity 1) Interfund loans 2) Interfund services provided and used b) Nonreciprocal interfund activity a) Interfund transfers b) Interfund reimbursements LO 11 Types of interfund activity Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded Bond proceeds of $1,000,000 were received to be used in constructing a firehouse An equal amount is contributed from general revenues Capital Projects Fund General Fund Cash 2,000,000 Bond Issue Proceeds 1,000,000 Transfer from General Fund 1,000,000 Transfer to Capital Projects 1,000,000 Cash 1,000,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded $800,000 of serial bonds matured Interest of $120,000 was paid on these and other serial bonds outstanding Debt Service Fund Expenditures Cash 920,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved 920,000 Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded $8,000 was received as insurance proceeds from the accidental destruction of a police car costing $24,000 General Fund Cash 8,000 Revenue 8,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded $120,000 in expendable funds was transferred from the City Parks Endowment Fund to the City Parks Special Revenue Fund Trust Fund Special Revenue Fund Transfer to Special Revenue Fund 120,000 Cash 120,000 Cash 120,000 Transfer from Trust Fund 120,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded Equipment purchased from general revenues at a cost of $200,000 was sold for $40,000 General Fund Cash 40,000 Revenue 40,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded The City Water Company (an enterprise fund) issued a bill for $800 for water provided to the street department’s street cleaner Enterprise Fund Due from General Fund 800 Revenue 800 General Fund Expenditures Due to Enterprise Fund 800 Copyright © 2015 John Wiley & Sons, Inc All rights reserved 800 Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) Designate the fund in which each entry is recorded The City Water Company transferred $400,000 in excess funds to the General Fund Enterprise Fund General Fund Transfer to General Fund 400,000 Cash 400,000 Cash 400,000 Transfer from Enterprise Fund 400,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) A central motor pool was established by a contribution of $120,000 from the General Fund, a long-term loan of $80,000 from the City Parks Special Revenue Fund, and general obligation bond issue proceeds of $200,000 Internal Service Fund Cash 400,000 Contributions from General Fund 120,000 Due to City Parks Special Revenue Fund 80,000 Contributions from General Obligation Bonds 200,000 Continued Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) A central motor pool was established by a contribution of $120,000 from the General Fund, a long-term loan of $80,000 from the City Parks Special Revenue Fund, and general obligation bond issue proceeds of $200,000 General Fund Transfer to Internal Service Special Revenue Fund Due from Internal Service fund 120,000 Cash 120,000 Cash 80,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved 80,000 Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) The Motor Pool Fund billed the General Fund $10,000 and the City Parks Fund $4,000 for the use of motor vehicles Internal Service Fund Due from General Fund 10,000 Due from City Park Special Revenue Fund 4,000 Revenue 14,000 General Fund Expenditures 10,000 Due to Internal Service 10,000 continued Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) The Motor Pool Fund billed the General Fund $10,000 and the City Parks Fund $4,000 for the use of motor vehicles Special Revenue Fund Expenditures Due to Internal Service Fund 4,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved 4,000 Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) 10 Special Assessment Bonds in the amount of $400,000 were retired The city has indicated a willingness to guarantee the payment of principal Debt Service Fund Expenditures Cash 400,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved 400,000 Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) 11 Customers’ deposits of $8,000 for water meters were received by the City Water Company during the year The monies are to be held in trust until the customers request that their services be disconnected and the final bills are collected Agency Fund Cash 8,000 Customer Deposit Agency Fund 8,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved Governmental Fund Journal Entries Problem 18-7: Prepare journal entries to record the following transactions in the proper fund(s) 12 It is determined that the Service Fund will require an annual contribution of $60,000 and earnings of $6,000 in the current year to accumulate the amounts necessary to retire general obligation term bonds Debt Service Fund Required Additions 60,000 Required Earnings 6,000 Fund Balance - Unassigned 66,000 Copyright © 2015 John Wiley & Sons, Inc All rights reserved ... Governmental Accounting • GASB’s Statement No 34, issued June 1999, requires: – Financial statements using government-wide (entitywide) approach (This does not eliminate traditional fund accounting. )... Inc All rights reserved History of Governmental Accounting Standards • GASB was established (1984): – Separate board under oversight of Financial Accounting Foundation (FAF) – Responsible for establishing... designated as such by the primary Board LO Issues involved in developing standards Copyright © 2015 John Wiley & Sons, Inc All rights reserved The Structure of Governmental Accounting • Eleven