Advanced accounting 10th by a beams athony ch20

Chapter 20: Accounting for State and Local Governmental Units – Proprietary and Fiduciary 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 © Pearson Education, Inc publishing as Prentice 20-1 Proprietary and Fiduciary Funds: Objectives Review the appropriate accounting and financial reporting for proprietary funds Recognize the proper treatment of internal service funds in the government-wide statements Introduce the differences between a proprietary fund statement of cash flows and its commercial business counterpart Prepare journal entries and fund financial statements for fiduciary funds Learn about GASB guidance for pension fund accounting © Pearson Education, Inc publishing as Prentice 20-2 Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds 1: Proprietary Funds © Pearson Education, Inc publishing as Prentice 20-3 Accounting for Proprietary Funds • Model CA + NCA – CL – NCL = Net assets • Use accrual accounting • Net assets – Invested in capital assets net of related debt – Restricted net assets – Unrestricted net assets • Two types – Internal service funds – Enterprise funds © Pearson Education, Inc publishing as Prentice 20-4 Internal Service Funds • Use for government activities that provide goods and services to other departments or agencies of that same governmental unit • Central stores/ purchasing • Motor pools • Print shop • Might be started with transfers from general fund and/or contributed capital from other sources • Main source of revenues is other funds • Use "Due from …" rather than accounts receivable © Pearson Education, Inc publishing as Prentice 20-5 ISF – Entries (1 of 3) Cash 200   Motor vehicles 120   Other financing source - nonreciprocal transfer from general fund   200 Contributed capital from municipality   120 • A village begins a central motor pool with $200 from the general fund and a contribution of vehicles – The Other financing source and Contributed capital increase the ISF's net assets © Pearson Education, Inc publishing as Prentice 20-6 ISF – Entries (2 of 3) ISF GF SRF Due from general fund 100   Due from special revenue fund 30   Service revenues   130 Expenditures 100   Due to internal service fund   100 Expenditures 30   Due to internal service fund   30 • It provides motor pool services to the general fund and special revenue fund and bills them $100 and $30 • The general fund and special revenue fund will record the bills received as expenditures © Pearson Education, Inc publishing as Prentice 20-7 ISF – Entries (3 of 3) ISF Cash Due from general fund GF 100     Due to internal service fund Cash 100 100     100 • The internal service fund collects the $100 due from the general fund • The general fund will record the payment of its liability © Pearson Education, Inc publishing as Prentice 20-8 ISF – Other Transactions • Most other transactions parallel those of businesses – Use expenses, not expenditures – Record acquisition, disposition, and depreciation of fixed assets – Income is closed to unrestricted net assets © Pearson Education, Inc publishing as Prentice 20-9 Enterprise Funds • Use for governmental activities – Financed and operated like a business – Provide goods and services to general public • Utilities, civic centers, golf clubs • Might start with funds transferred and contributions • Main revenues from general public, but some from other departments of the government • Use "Accounts Receivable" for general public and others and "Due from …" for other funds of this governmental unit © Pearson Education, Inc publishing as Prentice 20-10 Government-wide Statements • Internal service funds are included with governmental funds – All represent governmental activities • Enterprise funds displayed in a single column labeled Business-type activities • ISF and EF already use accrual accounting • Interfund balances: either • Eliminate • Show interfund balances separate from other assets/ liabilities • No reconciliations needed for ISF and EF © Pearson Education, Inc publishing as Prentice 20-20 ISF in Financial Statements • In the Proprietary fund statements: – Internal service funds are in a separate column • Separately, to the side of the total for businesstype/ enterprise funds • Not added to those enterprise funds • In the Government-wide statements: – Internal service funds plus governmental funds are shown as one total • Labeled as governmental-type activities • Governmental-type and business-type activities are the added together © Pearson Education, Inc publishing as Prentice 20-21 Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds 3: Proprietary Funds Statement of Cash Flows © Pearson Education, Inc publishing as Prentice 20-22 Cash Flow Categories Four cash flow categories: Cash flows from operations Cash flows from noncapital financing activities Cash flows from capital and related financing activities Cash flows from investing activities Compared to for-profit enterprises – Capital expenditures are removed from other investing activities – Their related financing activities are taken from other financing activities – Capital expenditures and related financing have their own category © Pearson Education, Inc publishing as Prentice 20-23 Statement of Cash Flows Cash flows from operations: Cash received from customers Cash paid to suppliers Cash paid for other expenses Net cash provided by operations Cash flows from noncapital financing activities: Cash from general fund Cash flows from capital and related financing activities: Purchase of equipment Payment on capital debt Net cash provided by capital and related financing Cash flows from investing activities: Interest and dividends Net increase in unrestricted cash Cash balance, 7/1/08 Cash balance, 6/30/08 © Pearson Education, Inc publishing as Prentice   $1,161 (326) (471)         ($18) (87)                     $364         (105)   $263 457 $720 20-24 Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds 4: Fiduciary Funds © Pearson Education, Inc publishing as Prentice 20-25 Accounting for Fiduciary Funds • Account for assets held in a trust or agency capacity – Not used for government's own programs • Fiduciary funds – Private purpose trust funds – Investment trust funds – Pension trust funds – Agency funds • Focus on demonstrating fulfillment of fiduciary responsibilities – Accrual accounting © Pearson Education, Inc publishing as Prentice 20-26 Agency Funds • For funds held in custodial capacity – County government acts as agent collecting tax for local government – Collections on special assessments from taxpayers and repayment of special assessment bonds if local government is not obligated on bonds Agency Model: Assets = Liabilities © Pearson Education, Inc publishing as Prentice 20-27 Agency Transactions • New County collects property taxes for two cities, A and B New County uses an agency fund to record the assessment and collections • It deducts a 1% commission for acting as agent – The 1% commission is transferred to the general fund, and recorded as revenue there • For simplicity, assume all taxes assessed are collected • Entries for New County follow © Pearson Education, Inc publishing as Prentice 20-28 Agency Entries – for New County Taxes receivable Liability to City A Liability to City B Cash Only asset and Taxes receivable liability Liability to City A accounts are Liability to City B used! Due to general fund Due to general fund Liability to City A Liability to City B Cash © Pearson Education, Inc publishing as Prentice 300       200 100 300     300       3   198   99     300 20-29 Trust Funds • • • • • CA + NCA – CL – NCL = Net assets Assets: cash, receivables, investments Liabilities: payables Net assets – Net assets held in trust, expendable – Net assets held in trust, nonexpendable Temporary accounts – Contributions (in) – Distributions (out) – Investment income, expenses Use Accrual accounting © Pearson Education, Inc publishing as Prentice 20-30 Fiduciary Fund Financial Statements • Fund Statements – Statement of fiduciary net assets – Statement of changes in fiduciary net assets • Fiduciary funds are not included in the governmentwide statements © Pearson Education, Inc publishing as Prentice 20-31 Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds 5: Pension Funds © Pearson Education, Inc publishing as Prentice 20-32 Pension Trust Fund • Account for Public Employee Retirement Systems (PERS) • GASB Statement No 25, 27 and 50 • Do not apply FASB pension accounting • Disclosures – Scheduled of funding progress for defined benefit, single and multiple employer plans • Also disclose – Other post-employment benefits © Pearson Education, Inc publishing as Prentice 20-33 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 © Pearson Education, Inc publishing as Prentice 20-34 ... customers Cash paid to suppliers Cash paid for other expenses Net cash provided by operations Cash flows from noncapital financing activities: Cash from general fund Cash flows from capital and related... Contributed capital - capital grant   50 Equipment 65   Cash   65 Cash 50   Due from other governments   50 • Grants to acquire or enhance capital assets are recorded as contributed capital • Grants... single column labeled Business-type activities • ISF and EF already use accrual accounting • Interfund balances: either • Eliminate • Show interfund balances separate from other assets/ liabilities