Chapter 19: Accounting for State and Local Governmental Units – Governmental Funds by Jeanne M David, Ph.D., Univ of Detroit Mercy to accompany Advanced Accounting, 10th edition by Floyd A Beams, Robin P Clement, Joseph H Anthony, and Suzanne Lowensohn © 2009 Pearson Education, Inc publishing as 19-1 Governmental Funds: Objectives Prepare journal entries to record transactions in governmental funds Learn about accounting methods unique to governmental accounting – budgetary issues, encumbrance accounting, and interfund transactions Determine the appropriate governmental fund to be used Prepare governmental fund financial statements © 2009 Pearson Education, Inc publishing as 19-2 Objectives (cont.) Convert governmental fund financial statements to government-wide financial statements © 2009 Pearson Education, Inc publishing as 19-3 Accounting for State and Local Governmental Units – Governmental Funds 1: Record Transactions © 2009 Pearson Education, Inc publishing as 19-4 General Fund Transactions General fund entries • Start of fiscal year • During the year and adjustments • Closing entries Sample entries follow These are neither complete, nor selfreconciling Entries for interfund transfers and encumbrances are shown later, with Objective © 2009 Pearson Education, Inc publishing as 19-5 Beginning of Year Reserve for encumbrances 90 Reserve for encumbrances - prior year 90 Estimated revenues 3,500 Appropriations 3,320 Estimated other financing uses 115 transfers out Unreserved fund balance 65 • $90 in outstanding purchase orders were included on last year's balance sheet These are reclassified at the start of the current year • This year's approved budget is recorded The difference between expected sources of funds and expected uses of funds is credited to the unreserved fund balance Debit unreserved fund balance if expected uses exceed sources, © 2009 Pearson Education, Inc publishing as 19-6 Revenue and Collections Taxes receivable - current Allowance for uncollectibles – current Revenues Cash Taxes receivable – current Taxes receivable – delinquent Allowance for uncollectibles – delinquent Taxes receivable - delinquent 2,000 1,900 10 20 1,980 1,760 140 10 • Record revenues net of the estimated allowance • Separate receivable and allowance accounts are used for this year's taxes and all prior years' taxes • Write-offs occur when the taxes are deemed uncollectible When they are late, they are simply moved from current to delinquent (an adjustment) © 2009 Pearson Education, Inc publishing as 19-7 Expenditures (Without Encumbrance) and Payments Expenditures Vouchers payable Vouchers payable 200 200 187 Cash 187 • For Expenditures that are not encumbered first (no purchase orders are placed for wages, utilities, and many other items), they are recorded as they become due • These expenditures can be for current services or capital outlays (like fixed assets) © 2009 Pearson Education, Inc publishing as 19-8 Supplies (without encumbrance) Supplies inventory Vouchers payable 55 Expenditures Vouchers payable 55 345 345 • For supplies, this is the consumption method, like most businesses use Adjustments will recognize supplies used as Expenditures • For the purchase method, Expenditures would be debited at the time of purchase At year end, an adjusting entry would record Supplies inventory and Reserve for Supplies © 2009 Pearson Education, Inc publishing as 19-9 Expenditures – Prior Year Expenditures - prior year Vouchers payable 85 85 • When purchase orders for items are placed in one year and received in the following year, the expenditure is classified separately – for control purposes • These "expenditures" are still included with other expenditures from this year on the Statement of revenues, expenditures and changes in fund balance © 2009 Pearson Education, Inc publishing as 19-10 Encumbrance Accounting Place order Encumbrances 150 Reserve for encumbrances 150 Receive Reserve for encumbrances 150 goods Encumbrances 150 Expenditures 140 Vouchers payable 140 • Encumbrances are recorded at the time a purchase order is placed for the known or estimated amount • When the item is received, the encumbrance is reversed (using the amount originally recorded as an encumbrance) and the expenditure recorded for the actual amount • Use for orders of supplies and capital assets, and for construction contracts (in capital projects fund) © 2009 Pearson Education, Inc publishing as 19-31 Interfund Transactions - Transfers GF DSF Other financing use … nonreciprocal transfer to 14 debt service fund Cash 14 Cash 14 Other financing source … nonreciprocal 14 transfer from general fund • Involve entries in more than one fund account • Example: General fund (first entry) transfers $14 to the debt service fund; Debt service fund receives payment from general fund • Nonreciprocal transfers imply that it will not be paid back; Reciprocal transfers used for long term loans between funds © 2009 Pearson Education, Inc publishing as 19-32 Interfund Transactions - Other GF EF Expenditures Cash Cash Revenues • The above entries might be a city general fund paying its water bill and the city water department fund (enterprise fund) recording the receipt of revenue • Accounts used for short term receivables and payables – Due from other funds (basically, accounts receivable) – Due to other funds (analogous to accounts payable) – Advance to other fund (short term loan receivable) – Advance from other fund (short term loan payable) © 2009 Pearson Education, Inc publishing as 19-33 Accounting for State and Local Governmental Units – Governmental Funds 3: Which Fund? © 2009 Pearson Education, Inc publishing as 19-34 Five Governmental Fund Types © 2009 Pearson Education, Inc publishing as 19-35 Accounting for State and Local Governmental Units – Governmental Funds 4: Fund Financial Statements © 2009 Pearson Education, Inc publishing as 19-36 Fund Financial Statements Required governmental fund financial statements Statement of net assets or balance sheet Statement of revenues, expenditures and changes in fund balance Budgetary comparison information and 2: Prepare statements columns for general fund and other significant governmental fund • • General fund Special revenue funds with legally adopted budget • • Combine insignificant funds Show total (no interfund eliminations) © 2009 Pearson Education, Inc publishing as 19-37 General Fund Balance Sheet Assets Taxes receivable- delinquent Allowance for uncollectibles Accounts receivable Supplies Total Vouchers payable Deferred revenue Reserve for encumbrances Unreserved Total © 2009 Pearson Education, Inc publishing as $187 $240 (20) 220 180 90 $677 $325 50 $375 $50 252 302 $677 19-38 General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Total revenues $3,519 Less expenditures Current services* (3,158) Capital outlays (190) Excess of revenues over expenditures $171 Other financing sources (uses) Capital leases 45 Transfers out (164) Excess of revenues and OF sources over $52 expenditures and OF uses Fund balance, 10/1//06 250 Fund balance, 9/30/07 $302 Expenditures include those from "prior year" encumbrances © 2009 Pearson Education, Inc publishing as 19-39 Accounting for State and Local Governmental Units – Governmental Funds 5: Government-wide Financial Statements © 2009 Pearson Education, Inc publishing as 19-40 Government-wide Statements • Governmental fund statements – Modified accrual basis • Government-wide statements – Accrual basis • Covert governmental funds to accrual basis for inclusion government-wide statements Adjustments are prepared on worksheet • Individual fund records are not changed © 2009 Pearson Education, Inc publishing as 19-41 Fixed Assets • Add existing fixed assets with accumulated depreciation to assets and net assets • Current acquisitions – Remove expenditures for capital outlays – Add to fixed assets • Current dispositions – Remove other financing source – proceeds from sale of fixed assets – Reduce fixed assets, accumulated depreciation and record gain or loss © 2009 Pearson Education, Inc publishing as 19-42 Long Term Debt • Add existing long term liabilities, reduce net assets • Current borrowings – Remove other financing source – Increase liability • Current principal repayments – Remove expenditures – Decrease liability © 2009 Pearson Education, Inc publishing as 19-43 Leases and Other Adjustments • Capital leases have both fixed asset and long term liability adjustments • Revenues • Expenditures convert to expenses • Interfund activities and balances • Deferrals based on 60 day availability may be recognized • • Eliminate transfers and balances to/from Eliminate interfund internal service activities © 2009 Pearson Education, Inc publishing as 19-44 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United States of America Copyright © 2009 Pearson Education, Inc Publishing as Prentice Hall © 2009 Pearson Education, Inc publishing as 19-45 ... estimated allowance • Separate receivable and allowance accounts are used for this year's taxes and all prior years' taxes • Write-offs occur when the taxes are deemed uncollectible When they are... governmental fund financial statements to government-wide financial statements © 2009 Pearson Education, Inc publishing as 19-3 Accounting for State and Local Governmental Units – Governmental Funds...Governmental Funds: Objectives Prepare journal entries to record transactions in governmental funds Learn about accounting methods unique to governmental accounting – budgetary issues, encumbrance accounting,