Essentials of accounting 12th for governmental and not for profit organizations

Essentials of accounting 12th for governmental and not for profit organizations Essentials of accounting 12th for governmental and not for profit organizations Essentials of accounting 12th for governmental and not for profit organizations Essentials of accounting 12th for governmental and not for profit organizations Essentials of accounting 12th for governmental and not for profit organizations Essentials of accounting 12th for governmental and not for profit organizations Essentials of accounting 12th for governmental and not for profit organizations

Essentials of Accounting for Governmental and Not-for-Profit Organizations Twelfth Edition Paul A Copley, Ph.D., CPA KPMG Professor Director, School of Accounting James Madison University ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT ORGANIZATIONS, TWELFTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2015 by McGrawHill Education All rights reserved Printed in the United States of America Previous editions © 2013, 2011, and 2008 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOC/DOC ISBN 978-0-07-802581-5 MHID 0-07-802581-8 Senior Vice President, Products & Markets: Kurt L Strand Vice President, Content Production & Technology Services: Kimberly Meriwether David Managing Director: Tim Vertovec Brand Manager: Donna Dillon Director of Development: Ann Torbert Development Editor: Gail Korosa Marketing Manager: Michelle Nolte Director, Content Production: Terri Schiesl Content Project Manager: Jessica Portz Buyer: Laura Fuller Media Project Manager: Shawn Coenen Cover Designer: Studio Montage, St Louis, MO Cover Image: © Alan Crosthwaite/Alamy RF Compositor: MPS Limited Typeface: 10.5/12 Times Printer: R R Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Copley, Paul A Essentials of accounting for governmental and not-for-profit organizations / Paul A Copley, Ph D., CPA, KPMG Professor Director, School of Accounting James Madison University.—Twelfth edition pages cm ISBN 978-0-07-802581-5 (alk paper) Administrative agencies—United States—Accounting Nonprofit organizations—United States— Accounting I Title HJ9801.H39 2014 657'.83500973—dc23 2013038451 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites www.mhhe.com Preface Thank you for considering the twelfth edition of Essentials of Accounting for Governmental and Not-for-Profit Organizations I have used the text with traditional three-semester-hour classes, with half-semester GNP courses, and as a module in advanced accounting classes It is appropriate for accounting majors or as part of a public administration program The Excel-based problems were developed to facilitate delivery though distance learning formats The focus of the text is on the preparation of external financial statements The coverage is effective in preparing candidates for the CPA examination Among other changes, the twelfth edition is updated for recent professional pronouncements including: • GASB Statement No 63: Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position, • GASB Statement No 65: Items Previously Reported as Assets and Liabilities, • GASB Statement No 67: Financial Reporting for Pension Plans, • GASB Statement No 68: Accounting and Financial Reporting for Pensions, and • AICPA’s audit clarity project, including the 2013 editions of Audit and Accounting Guides: Not-for-Profit Entities and Audits of State and Local Governments The text contains a discussion of the GASB Codification of Financial Reporting Standards References are made throughout the text to specific segments of the Codification With the implementation of GASB 54 (Fund Balance Reporting), the last vestige of budgetary accounting is phased out of government financial statements The twelfth edition continues to provide budget and encumbrance journal entries, but presents these as distinct accounts that are not commingled with the accounts appearing in the basic financial statements This approach should reduce confusion sometimes experienced by students, particularly with the recording of encumbrances Among the more challenging aspects of state and local government reporting is the preparation of government-wide financial statements The approach demonstrated in the text is similar to that used in practice Specifically, day-to-day events are recorded at the fund level using the basis of accounting for fund financial statements Governmental activities are recorded using the modified accrual basis The fund-basis statements are then used as input in the preparation of government-wide statements The preparation of government-wide statements is presented in an Excel worksheet This approach has two advantages: (1) it is the approach most commonly applied in practice, and (2) it is an approach familiar to students who have studied the process of consolidation in their advanced accounting classes State and local government reporting is illustrated using an ongoing example integrated throughout Chapters through and 13 Additional features of the text are available on the instructor or student websites and include: • A continuous homework problem throughout Chapters through and 13 • Instructor’s Guide iii iv Preface • • • • Suggested Quiz and Examination Questions and Problems PowerPoint slides Excel-based assignments An additional practice set I am indebted to users of the textbook for their helpful suggestions, particularly: Carol Jessup (University of Illinois, Springfield), Stephanie McCartney King (Edison State College), Randall Kinnersley (Western Kentucky University), and Shiv Goyal (University of Maryland, University College) Additional comments and suggestions are welcome and may be addressed to: copleypa@JMU.edu Paul A Copley In memory of Wilma Shadley Ernsberger: There was grace in all she touched Contents Preface iii Chapter One INTRODUCTION TO ACCOUNTING AND FINANCIAL REPORTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT ORGANIZATIONS Generally Accepted Accounting Principles Sources of Generally Accepted Accounting Principles Definition of Government Objectives of Accounting and Financial Reporting Objectives of Accounting and Financial Reporting for the Federal Government Objectives of Financial Reporting by Not-for-Profit Entities Objectives of Accounting and Financial Reporting for State and Local Governmental Units State and Local Government Financial Reporting 11 Comprehensive Annual Financial Report 11 Measurement Focus and Basis of Accounting 12 Fund Structure for State and Local Government Accounting and Reporting 14 Number of Funds Required 16 Budgetary Accounting 16 Chapter Two OVERVIEW OF FINANCIAL REPORTING FOR STATE AND LOCAL GOVERNMENTS 20 The Governmental Reporting Entity 22 Reporting by Major Funds 23 Overview of the Comprehensive Annual Financial Report (CAFR) 23 Introductory Section 24 Financial Section: Auditor’s Report 25 Management’s Discussion and Analysis (MD&A) 26 Statement of Net Position 28 Government-wide Statement of Activities 30 Governmental Funds: Balance Sheet 32 Governmental Funds: Statement of Revenues, Expenditures, and Changes in Fund Balance 34 Proprietary Funds: Statement of Net Position 36 Proprietary Funds: Statement of Revenues, Expenses, and Changes in Fund Net Position 38 Proprietary Funds: Statement of Cash Flows 40 Fiduciary: Statement of Fiduciary Net Position 42 Fiduciary: Statement of Changes in Fiduciary Net Position 42 Notes to the Financial Statements 44 Required Supplementary Information Other Than MD&A 46 Combining Statements 48 Statistical Information 48 v vi Contents Special-Purpose Governments 49 Public Colleges and Universities 49 Other Governmental Not-for-Profit Organizations 50 Interfund Services Provided and Used 90 Interfund Transfers 90 Interfund Reimbursements 90 Illustrative Case—General Fund Chapter Three MODIFIED ACCRUAL ACCOUNTING: INCLUDING THE ROLE OF FUND BALANCES AND BUDGETARY AUTHORITY 55 Modified Accrual Accounts 56 Balance Sheet Accounts 56 Financial Statement Activity Accounts 61 Budgetary Accounts 63 Expenditure Cycle 63 Revenue Recognition for Nonexchange Transactions 65 Summary 68 Appendix: Budgetary Accounting Illustrated 69 Budgets and Budgetary Accounts 69 Recording the Budget 70 Accounting for Revenues 71 Accounting for Encumbrances and Expenditures 73 Budget Revisions 76 Budgetary Comparison Schedule 76 Classification of Estimated Revenues and Revenues 77 Classification of Appropriations and Expenditures 78 Chapter Four ACCOUNTING FOR THE GENERAL AND SPECIAL REVENUE FUNDS 86 Overview of Modified Accrual Accounting 87 Interfund Transactions 88 Interfund Loans 88 90 Use of Budgetary Accounts 91 Recording the Budget 91 Re-establishment of Encumbrances 92 Recording Prior-Year Property Taxes as Revenues 92 Tax Anticipation Notes Payable 92 Payment of Liabilities as Recorded 93 Encumbrance Entry 93 Recording Property Tax Levy 93 Collection of Delinquent Taxes 93 Collection of Current Taxes 94 Other Revenues 94 Repayment of Tax Anticipation Notes 95 Recognition of Expenditures for Encumbered Items 95 Payrolls and Payroll Taxes 96 Payment on Account and Other Items 96 Correction of Errors 97 Amendment of the Budget 97 Interfund Transactions 97 Write-off of Uncollectible Delinquent Taxes 99 Reclassification of Current Taxes 100 Accrual of Interest and Penalties 100 Deferral of Property Tax Revenue 101 Special Item 101 Preclosing Trial Balance 101 Closing Entries 103 Year-End Financial Statements 105 Illustrative Case—Special Revenue Fund 106 Motor Fuel Tax Revenues 107 Expenditures for Road Repairs 109 Reimbursement to General Fund 109 Reimbursement Grant Accounting 109 Closing Entry 110 Year-End Financial Statements 110 Recognition of Inventories in Governmental Funds 111 Summary 112 Contents Chapter Five ACCOUNTING FOR OTHER GOVERNMENTAL FUND TYPES: CAPITAL PROJECTS, DEBT SERVICE, AND PERMANENT 122 Capital Projects Funds Illustrative Case 124 125 Other Issues Involving Acquisition of Capital Assets 130 Acquisition of General Fixed Assets by Lease Agreements 130 Construction of General Fixed Assets Financed by Special Assessment Debt 131 Debt Service Funds 132 The Modified Accrual Basis— As Applied to Debt Service Funds 132 Additional Uses of Debt Service Funds 133 Debt Service Accounting for Serial Bonds 133 Illustrative Case—Regular Serial Bonds 133 Other Issues Involving Payment of Long-Term Debt 136 Debt Service Accounting for Deferred Serial Bonds 136 Debt Service Accounting for Term Bonds 136 Debt Service Accounting for Capital Lease Payments 137 Bond Refundings 137 Permanent Funds 138 Financial Reporting for Governmental Funds 140 Financial Statements—Governmental Funds 140 Summary 144 Chapter Six PROPRIETARY FUNDS Internal Service Funds vii 154 156 Establishment and Operation of Internal Service Funds 157 Illustrative Case—Supplies Fund 157 Other Issues Involving Internal Service Funds 161 Risk Management Activities 161 Implications for Other Funds 162 Enterprise Funds 162 Illustrative Case—Water Utility Fund 163 Proprietary Fund Financial Statements 168 Statement of Net Position 170 Statement of Revenues, Expenses, and Changes in Fund Net Position 170 Statement of Cash Flows 172 Accounting for Municipal Solid Waste Landfills 174 Pollution Remediation Costs 175 Summary 176 Chapter Seven FIDUCIARY (TRUST) FUNDS 189 Agency Funds 190 Tax Agency Funds 192 Accounting for Tax Agency Funds Financial Reporting for Agency Funds 194 Private-Purpose Trust Funds 192 194 Accounting for Investments 194 Illustrative Case—Private-Purpose Trust Funds 197 A Note about Escheat Property 198 Investment Trust Funds 199 Public Employee Retirement Systems (Pension Trust Funds) 199 Accounting and Reporting for Defined Benefit Pension Plans 200 viii Contents Additional Disclosures 205 Other Postemployment Benefit Trust Funds 208 A Note about IRS 457 Deferred Compensation Plans 208 A Final Comment on Fund Accounting and Reporting 208 Appendix: Employer Reporting for Pensions 210 Reporting of Pension Liabilities 210 Reporting of Pension Expenditure— Governmental Funds 211 Reporting of Pension Expense—Accrual Based Statements 211 A Final Note: Pension Discount Rates 215 Chapter Eight GOVERNMENT-WIDE STATEMENTS, CAPITAL ASSETS, LONG-TERM DEBT 225 Conversion from Fund Financial Records to Government-Wide Financial Statements 226 Capital Asset–Related Entries 228 Long-Term Debt–Related Entries 233 Adjusting to Convert Revenue Recognition to the Accrual Basis 234 Adjusting Expenses to the Accrual Basis 238 Adding Internal Service Funds to Governmental Activities 238 Eliminating Interfund Activities and Balances within Governmental Activities 241 Worksheet to Illustrate the Adjustments 241 Government-Wide Financial Statements 244 Statement of Net Position 244 Statement of Activities 247 Required Reconciliation to Government-wide Statements 250 Summary 252 Appendix: Accounting for Capital Assets and Long-Term Debt in Governmental Activities 253 Accounting for General Capital Assets, Including Infrastructure 253 The Modified Approach for Reporting Infrastructure 254 Collections 255 Asset Impairment 256 Accounting for Long-Term Debt 256 Types of General Long-Term Debt 257 Debt Disclosures and Schedules 257 Chapter Nine ACCOUNTING FOR SPECIAL-PURPOSE ENTITIES, INCLUDING PUBLIC COLLEGES AND UNIVERSITIES 272 GASB Statement 34 Reporting Rules for Special-Purpose Entities 273 Reporting by Special-Purpose Local Governments Engaged in Governmental Activities 273 Reporting by Special-Purpose Local Governments Engaged Only in Business-type Activities 278 Reporting by Special-Purpose Local Governments Engaged Only in Fiduciary-type Activities 278 Accounting and Financial Reporting for Public Colleges and Universities 279 The Environment of Public Higher Education 279 Accounting and Financial Reporting for Public Institutions of Higher Education 280 Illustrative Case—Northern State University—Beginning Trial Balance 281 Illustrative Case—Journal Entries 283 Contents Illustrative Case—Closing Entries 289 Illustrative Case—Financial Statements 292 Summary 296 Chapter Ten ACCOUNTING FOR PRIVATE NOT-FOR-PROFIT ORGANIZATIONS 306 Organizations Covered in This Chapter 308 Overview of Not-for-Profit Accounting 308 Three Classes of Net Assets 308 Financial Reporting 309 Note Disclosures 310 Accounting for Contributions, Including Reclassifications of Net Assets 310 Reporting of Expenses and Assets 311 Special Topics: Accounting for Contributions 312 Illustrative Transactions and Financial Statements 314 Beginning Trial Balance 314 Transactions 315 Financial Statements 322 Alternative Procedure for Recording Fixed Assets 327 Performance Evaluation 327 Mergers and Acquisitions 329 Summary of Not-for-Profit Accounting and Reporting 330 Chapter Eleven COLLEGE AND UNIVERSITY ACCOUNTING—PRIVATE INSTITUTIONS 341 Overview of Private College and University Accounting 343 Financial Statements 343 Illustrative Transactions and Financial Statements 344 Illustrative Transactions 345 ix Illustrative Financial Statements for Private Colleges and Universities 353 Split-Interest Agreements 353 Summary—Private College and University Reporting 358 Chapter Twelve ACCOUNTING FOR HOSPITALS AND OTHER HEALTH CARE PROVIDERS 366 Accounting and Reporting Requirements of the Health Care Guide 368 Financial Statements Revenues 370 Classifications 370 368 Illustrative Transactions and Financial Statements 370 Beginning Trial Balance 371 Illustrative Statements for Private Sector Not-for-Profit Health Care Entities 378 Financial Reporting for Governmental Health Care Entities 383 Financial Reporting for Commercial (For-Profit) Health Care Entities 383 Summary and Conclusions Regarding Health Care Accounting and Reporting 384 Chapter Thirteen AUDITING, TAX-EXEMPT ORGANIZATIONS, AND EVALUATING PERFORMANCE 391 Governmental Auditing 392 The Single Audit Act and Amendments 398 The Sarbanes-Oxley Act 400 Tax-Exempt Organizations 401 G-18 Glossary Appropriations, Expenditures, and Encumbrances Ledger (q.v.) supporting services Functional expense category recommended, but not required, by the FASB for not-for-profit organizations Includes fundraising, management and general, and membership development expenses (or expense) cannot be recognized until the time specified by the donor or grantor or contributor for expenditure total pension liability The portion of the actuarial present value of projected benefit payments that is attributable to past periods of employee service transfers As used in state and local government T tax agency fund Agency fund, usually maintained by a county official, to handle the collection of all property taxes within the county or other jurisdiction and the distribution of proceeds to all governments within the borders of that county or other jurisdiction tax increment debt Debt issued by a governmental unit to finance improvements in a Tax Increment Financing (TIF) District; the incremental taxes from those improvements are dedicated to the repayment of the debt tax rate Amount of tax stated in terms of a unit of the tax base; for example, $2.50 per $100 of net assessed valuation, or 25 mills (q.v.) tax supported bonds Bonds supported by the full faith and credit of the governmental unit, by specific taxes accounting, the shifting of resources from one category to another In fund reporting, the transfer of resources from one fund to another In governmentwide reporting, the transfer of resources from one type of activity to another, such as from governmental activities to business-type activities Transfers may be regularly recurring and routine (formerly called “operating transfers”) or nonroutine (formerly called “equity transfers”) Treasury, U.S Department of Federal executive branch agency; prepares Consolidated Financial Statements of the federal government One of the “principals” that approves FASAB standards of financial reporting for the federal government trust fund Fund consisting of resources received and held by the governmental unit as trustee, to be expended or invested in accordance with the conditions of the trust In governmental accounting, includes investment (q.v.), private-purpose (q.v.), and pension trust (q.v.) technical bulletins Issues by the staffs of the standards-setting bodies and approved by the boards, providing additional information regarding questions and answers that might be addressed by those bodies temporarily restricted net assets Category used by FASB to describe net assets (q.v.) as being restricted by donors, but are not permanently restricted net assets (q.v.) Temporarily restricted net assets may be restricted for purpose, time, plant acquisition, or term endowments (q.v.) term bonds Bonds for which the principal is paid at the end of the term Contrast with serial bonds (q.v.) term endowments Exist when a donor contributes an amount, which is not to be expended for a certain period of time Term endowments are classified as temporarily restricted net assets (q.v.) by FASB time requirements An eligibility requirement imposed by GASB A nonexchange revenue U-Z unassigned fund balance A classification of fund balance reported in governmental-type funds This is the residual fund balance category for the General Fund and is used to report negative fund balances in other governmental funds unmodified appropriation Proprietary account used by federal agencies It represents a source of funds to the federal agency and is similar to a transfer in account in a state or local government This account is credited at the time a spending approval is passed by Congress and signed by the president Unmodified opinion Audit report in which the auditor states that the financial statements are “fairly presented.” Unrelated Business Income Tax (UBIT) Tax that applies to business income of otherwise taxexempt not-for-profit entities Determined by relationship to exempt purpose and other criteria Governmental and Not-for-Profit Accounting Terminology G-19 unrestricted net assets Portion of the excess of voluntary nonexchange transactions One of total assets over total liabilities that may be utilized at the discretion of the governing board Separate classification provided in FASB Statement 117 and in GASB Statement 34 the four classes of nonexchange transactions established by GASB Examples are contributions and grants for restricted purposes but which purposes are not mandated independent of the grant voluntary health and welfare organizations Not-for-profit organizations formed for the purpose of performing voluntary services for various segments of society They are tax exempt, supported by the public, and operate on a not-for-profit basis Index Ability to pay, 411 Account structure (governmental funds), 57 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB Statement 42), 256 Accounting and Financial Reporting for Nonexchange Transactions (GASB Statement 33), 235 Accounting and Reporting Scholarship Discounts and Allowances to Tuition and Other Fee Revenues by Public Higher Education (Advisory Report 00-5), 281 Accounting for Certain Investments for Not-for-Profit Organizations (FASB Statement 124), 312 Accounting for Contributions Received and Contributions Made See FASB Statement 116 Accounting for Derivative Instruments and Hedging Activities (FASB Statement 133), 312 Accrual of interest and penalties, 100 Acquisition, 329–330 Acquisition method, 329–330 Activity classification, 79 Adams, Samuel, 420 Additions, 190 Advance refunding, 137 Adverse opinion, 398 Agency funds, 15, 190–194 financial reporting, 194 journal entries, 192–194 overview, 191 Agency plan, 199 AICPA See American Institute of Certified Accountants (AICPA) AICPA Audit and Accounting Guide: Health Care Entities (Health Care Guide), 308n, 367, 368, 383 AICPA Audit and Accounting Guide: Health Care Organizations, 278 AICPA Audit and Accounting Guide: Not-for-Profit Organizations (Not-for-Profit Guide), 308n, 329, 343, 354, 358, 368 AICPA Audit and Accounting Guide: State and Local Governments, 392, 394, 395, 398 AICPA Audit Guide: Government Auditing Standards and Circular A-133 Audits, 392 Allotments, 429–431 American Institute of Certified Accountants (AICPA), G-2 AICPA Audit and Accounting Guide: Health Care Organizations, 278 AICPA Audit and Accounting Guide: State and Local Governments, 392, 394, 395, 398 AICPA Audit Guide: Government Auditing Standards and Circular A-133 Audits, 392 AICPA Statement of Position 98-3, 399 Audit and Accounting Guide: State and Local Governments, 392, 394, 395, 398 Audits of Colleges and Universities, 343 Health Care Guide, 308, 367, 368, 383 Not-for-Profit Guide, 308, 329, 343, 354, 358, 368 Statement of Position 98-02, 328 Statements on Auditing Standards, 392, 398 Amorello, Matthew, 122 Analyst’s Guide to Government Financial Statements, 409, 410 Annuity serial bonds, 133 Apportionment, 429–431 Appropriations, 63, 78, 429–431 Appropriations Control, 70–71 Appropriations, Expenditures, and Encumbrances Ledger, 75 Asset impairment, 256 Assets, 10 Assets whose use is limited, 370 Assigned, 130 Assigned fund balance, 60, 91, 136, 138 Attestation engagement, 393 Audit and Accounting Guide: State and Local Governments (AICPA), 392, 394, 395, 398 Auditing See Governmental auditing Auditor’s report, 25, 395–398 Audits of Colleges and Universities (AICPA), 343 Balance sheet (and other similar statements), 32, 33 federal government, 422, 423 general fund, 106 governmental funds, 141 special-purpose entities, 275, 276 special revenue fund, 110 Index statement of financial position See Statement of financial position statement of net assets See Statement of net assets Balance sheet accounts, 56–61 Basic financial statements, 10, 21, G-3 See also Financial statements Basic Financial Statements—and Management’s Discussion and Analysis—for Public Colleges and Universities (GASB Statement 35), 49, 279 Basis of accounting, 13 Blending, 22–23 Bloomberg, Michael, 86 Bond general obligation, 163 journal entries, 257 municipal bond market, 409 revenue, 163 serial, 133–136 term, 136 Bond refundings, 137 Budget revisions, 76 Budget stabilization funds, 61 Budgetary accounting, 16–17, 69–79, 428–431 beginning of budget period, 69 budget revisions, 76 budgetary authority process, 429–431 budgetary comparison schedule, 76, 77 classification of appropriations and expenditures, 78–79 classification of estimated revenues and revenues, 77–78 encumbrances, 73–76 expenditures, 73–76 journal entries, 430, 431 recording the budget, 70–71 revenues, 71–73 Budgetary accounts, 63, 69, 429, G-3 Budgetary authority provers, 429–431 Budgetary comparison schedule, 46, 47, 76, 77, 108 Budgetary fund balance, 64 Business Combinations (FASB Statement 141), 329 CAFR See Comprehensive Annual Financial Report (CAFR) Capital and related financing activities, 173, 174 Capital asset-related entries, 228–231 Capital assets asset impairment, 256 collections, 255–256 defined, G-3 infrastructure, 253–256 lease agreements, 130–131 special assessment debt, 131–132 I-2 Capital lease, 130, 174 Capital lease payments, 137 Capital project funds, 87, 124–130 closing entry, 129 defined, 14 fund balances, 129–130 general fund, contrasted, 124 journal entries, 125–129 overview, 123 proceeds of debt/construction expenditures, 132 single fund vs separate funds, 124–125 Carnegie, Andrew, 306 Carryover method, 329 Cash flow statement See Statement of cash flows Cemetery district, 275–277 Character classification, 79 Charitable gift annuity, 358 Charitable lead trust, 355 Charitable remainder trust, 356–358 Chief Financial Officers’ Act (1990), 420 Christie, Chris, 189 Circular A-133 (OMB), 398, 399 Citizen’s Guide to the Financial Report of the U.S Government, 427–428 Classification appropriations and expenditures, 78–79 estimated revenues and revenues, 77–78 Clinton, Chelsea, 306 Closing entries See also Journal entries capital project fund, 129 debt service fund, 136 enterprise fund, 168 general fund, 103–105 health care entities, 376–378 internal service fund, 160 pension trust fund, 204 permanent fund, 140 private colleges/universities, 350–353 private not-for-profits, 322 private-purpose trust fund, 198 public colleges/universities, 289–292 special revenue fund, 110 Coburn, Tom, 391 Codifications, 7, 307 Cognizant agencies, 399 Collection of current taxes, 94 Collection of delinquent taxes, 93–94 Collections, 255, 311, G-4 Colleges and universities, 341–343.See also Private colleges/universities; Public colleges/ universities Commercial health care entities, 369, 383 Commercial-type funds, G-14 See also Proprietary funds I-3 Index Committed fund balance, 60, 130 Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements (GASB Concepts Statement No 3), 10 Community college, 279 Component units, 22, 23 Comprehensive Annual Financial Report (CAFR), 11, 23–48 auditor’s report, 25 balance sheet, 32, 33 budgetary comparison schedule, 46, 47 combining statement, 48 defined, G-4 introductory section, 24 MD&A, 26, 27 modified approach for reporting infrastructure, 46 notes to financial statements, 44–45 outline (required contents), 21 required contents, 20–21 statement of activities, 30, 31 statement of cash flows (proprietary funds), 40, 41 statement of changes in fiduciary net position, 42, 43 statement of fiduciary net position, 42, 43 statement of net position (government wide), 28, 29 statement of net position (proprietary funds), 36, 37 statement of revenues, expenditures, and changes in fund balance, 34, 35 statement of revenues, expenses, and changes in fund net position, 38, 39 statistical information, 48 Construction-type special assessment projects, 131–132 Consumption method, 111 Contingencies, 66 Contributed services, 312 Contributions, 307, 310–311 Correction of errors, 97 Cost-outcome measures, 412 Cost-sharing plan, 199 Cronkite, Walter, 366 Current refunding, 137 Dalai Lama, 341 Debt disclosure and schedules, 257–258 Debt limit, 258 Debt margin, 258 Debt per capita, 411 Debt-rating services, 409 Debt service coverage, 410, 411 Debt service fund, 87, 132–136 bond indentures/other agreements, 133 capital lease payments, 137 classification, 136 closing entry, 136 defined, 14 journal entries, 133–136 modified accrual basis, 132–133 one fund vs several funds, 133 overview, 123 serial bonds, 133–136 term bonds, 136 Deductions, 190 Defeased, 137 Deferred inflows of resources, 56 Deferred outflows of resources, 56 Deferred serial bonds, 133, 136 Defined benefit plan, 200 Defined contribution plan, 200 Definitions (glossary), 421, G-1 to G-19 Delinquent taxes collection, 93–94 write-off, 99–100 deMause, Neil, 154 Department of Treasury, 420, 425, G-18 Depreciation, 254, 255 Derivative instruments, 196 Derived tax revenues, 67, 68, 236, 237 Disclaimer of opinion, 398 Discrete presentation, 23 Donated collections, 255 Effectiveness audit, 393 Efficiency measures, 412 Einstein, Albert, 391 Elements of Financial Statements (GASB Concepts Statement No 4), 10 Eligibility requirements, 66, G-6 Eliminating interfund activities (governmental activities), 241 Encumbrance, 63, 73 Encumbrances Control, 73, 74 Encumbrances subsidiary accounts, 73 Endowment, 194, 344, G-6 Enterprise funds, 15, 162–168 closing entries, 168 common examples of governmental enterprises, 163 defined, G-6 general ledger accounts, 169 general obligation bonds, 163 journal entries, 164–168 net position balances, 168 operating profits, 163 overview, 155 Index revenue bonds, 163 when required, 162–163 Escheat property, 198 Estimated other financing sources, 63 Estimated other financing uses, 63, 71 Estimated revenue subsidiary accounts, 72 Estimated revenues, 63 Estimated Revenues Control, 70 Estimated revenues not yet realized, 73 Evaluating performance, 407–413 bond ratings, 409 fund-raising efficiency, 408 private not-for-profits, 327–328 program expense ratio, 407–408 ratio analysis, 409–410, 411 SEA reporting, 410–413 working capital ratio, 408 Exchange transactions, 312–313 Expended appropriations, 429, 431 Expenditure cycle, 63–65 Expenditures, 61, 88 Expenditures Control, 74, 75 FAF, FASAB, 5, 8, 420–421 FASB See Financial Accounting Standards Board (FASB) FASB Statement 116, 307 contributions, 310 health care organizations, 367 intention to give, 313 FASB Statement 117, 307 health care organizations, 367 required statements, 322 statement of activities, 323 statement of cash flows, 325 statement of financial position, 324 Federal Accounting Standards Advisory Board (FASAB), 5, 8, 420–421 Federal government, 419–438 accounting standards, 420–421 annual financial report, 421–425, 425–428 balance sheet, 422, 423 budgetary accounting, 429–431 budgetary authority process, 429–431 Citizen’s Guide, 427–428 Constitution, 420 FASAB, 420–421 GAAP hierarchy, historical overview, 420 illustrative example, 432–436 journal entries, 433–434 objectives of accounting and financial reporting, 8–9 I-4 proprietary accounting, 430, 431 Reconciliation of Net Operating Cost and Unified Budget Deficit, 427 SFFACs, 8–9, 421 statement of budgetary resources, 424, 426 statement of changes in cash balance from unified budget and other activities, 427 statement of changes in net position, 424, 425, 435 statement of custodial activity, 424–425, 427 statement of net cost, 422, 424, 435 statement of operations and changes in net position, 427 statement of social insurance, 422 terminology, 421 Federalist Papers, 420 Fiduciary funds, 15, 189–224 additions/deductions, 190 agency funds, 190–194 escheat property, 198 investment trust funds, 191, 199 overview (chart), 191 pension trust fund See Pension (or other employee benefit) trust fund private-purpose trust funds See Private-purpose trust funds statement of changes in fiduciary net position, 42, 43, 205 statement of fiduciary net position, 42, 43, 204 types of funds, 189 Financial Accounting Foundation (FAF), Financial Accounting Standards Board (FASB), G-7 Accounting for Certain Investments for Not-forProfit Organizations (Statement 124), 312 Accounting for Derivative Instruments and Hedging Activities (Statement 133), 312 authority, 306 Business Combinations (Statement 141), 329 codification, 307 colleges and universities, 341, 343 GAAP hierarchy, health care organizations, 367 Not-for-Profit Entities: Mergers and Acquisitions (Statement 164), 329, 330 not-for-profit organizations, 307 Statement of Financial Accounting Concepts No. 4, Transfer of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions for Others (Statement 136), 314 Financial audit, 393 Financial benefit, 22 I-5 Index Financial burden, 22 Financial ratios, 409–410, 411 Financial reporting entity, 22 Financial statement activity accounts, 61 Financial statements See also individual statements agency funds, 194 federal agencies, 421–425 federal government, 425–428 fiduciary funds, 42, 43, 204, 205 fund-basis statements, 11 general fund, 105, 106–108 government-wide statements, 11, 28–31, 244–249 governmental funds, 32–35, 140–143 health care entities, 368–370, 379–383 internal service funds, 161 investment trust funds, 199 notes, 10, 44–45 pension trust funds, 201, 204, 205 private colleges/universities, 343–344, 353–357 private not-for-profits, 309–310, 322–327 private-purpose trust funds, 198 proprietary funds, 36–41, 168–174 public colleges/universities, 280, 292–296 special-purpose entities, 275–277 special revenue fund, 110, 111 Financial Statements of Not-for-Profit Organizations See FASB Statement 117 Fire protection district, 275–277 501(c)(3) entities, 402 See also Tax-exempt organizations Form 990, 403, 404–405 Form 990-EZ, 403 Form 990-N, 403 Form 1023, 403 Foundations, 280–281 Franklin, Benjamin, 420 Full faith and credit, 257 Functional classification, 79, G-8 Fund, 11, 14, 78 Fund accounting, 4, 14, G-8 Fund accounting and reporting, 208–210 Fund balance, 57 assigned, 60, 91, 136, 138 budgetary, 64 capital project funds, 129–130 committed, 60, 130 defined, G-8 nonspendable, 58, 138, 246 restricted, 58–60, 130, 136, 246 unassigned, 60, 138 Fund balance classifications, 58–60 Fund balance reporting, 62 Fund balance with Treasury, 431 Fund basis financial statements, 11, 21 Fund-raising efficiency, 408 GAAP See Generally accepted accounting principles (GAAP) GAAP hierarchy, 6, 7, G-8 GAAS, 392 GAGAS, 392 GAO, 392, 420, 425, G-9 GASB See Governmental Accounting Standards Board (GASB) GASB - codification sections Sec 1300.100, 14n Sec 1400.103, 254 Sec 1400.109, 255 Sec 1400.113, 254 Sec 1400.114, 253 Sec 1400.161, 256 Sec 1600.116, 88 Sec 1800.161, 63n Sec 2100, 22 Sec 2100.109, 26 Sec 2100.140, 280 Sec 2200, 11, 20–21 Sec 2200.113, 49 Sec 2200.922, 195 Sec 2800, 48 Sec 958-805, 329 Sec 958-605-35, 314 Sec D40.101, 196n Sec L20.105, 130 Sec N50.104, 235 Sec N50.106.d, 285 GASB Statement 34 accrual basis/economic resources measurement focus, 252 business-type activities, 278 capital assets, 256 enterprise funds, 162–163 financial statements, governmental funds, 140 general-purpose government, 273 governmental activities, 273 governmental auditing, 394 General capital assets, 253, G-9 See also General fixed assets General fixed assets, 253–256 asset impairment, 256 collections, 255–256 defined, 124, G-9 governmental fund resources, 124 infrastructure, 253–256 lease agreements, 130–131 special assessment debt, 131–132 Index General fund, 14, 56, 87, 123, G-9 See also Illustrative case - General fund General ledger accounts See also Journal entries budgetary accounting, 69 enterprise funds, 169 general fund, 102 health care entities, 377 private colleges/universities, 351 private not-for-profit organizations, 321 public colleges/universities, 290 General long-term debt, 124, 252, 257, G-9 General obligation bonds, 163 General obligation debt, 257 General-purpose governments, 273, G-9 Generally accepted accounting principles (GAAP) defined, G-9 hierarchy, sources, Generally accepted auditing standards (GAAS), 392 Generally accepted government auditing standards (GAGAS), 392 Glossary, G-1 to G-19 Government Accountability Office (GAO), 392, 420, 425, G-9 Government Auditing Standards, 392–395 Government-mandated nonexchange transactions, 67, 68, 236, 237 Government vs for-profit enterprise budget, longevity, organizational purposes, sources of revenues, 3–4 stakeholders, Government-wide statements, 11, 209, 225–271 adjustments, 252 capital asset-related entries, 228–231 conversion process, 226–228 information flow (diagram), 227 reconciliation, 32, 34, 250–251 statement of activities, 30, 31, 247–249 statement of net position, 28, 29, 244–246 worksheet, 244–246 Governmental Accounting Standards Board (GASB), 5, G-9 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (Statement 42), 256 Accounting and Financial Reporting for Nonexchange Transactions (Statement 33), 235 Analyst’s Guide to Government Financial Statements, 409, 410 authority, 306 I-6 Basic Financial Statements—and Management’s Discussion and Analysis— for Public Colleges and Universities (Statement 35), 49, 279 codification, See also GASB - codification sections colleges and universities, 341 Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements (Concepts Statement No. 3), 10 defined, G-9 Elements of Financial Statements (Concepts Statement No 4), 10 evaluating performance, 409 GAAP hierarchy, health care organizations, 367 Objectives of Financial Reporting (Concepts Statement No 1), Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements (Interpretation 6), 88 SEA, 410, 412 Service Efforts and Accomplishments Reporting (Concepts Statement 2), 410 Statement 34 See GASB Statement 34 Statement 53, 196 Statement 54, 130, 136, 140 user guides, 409 Why Government Accounting and Financial Reporting Is - and Should Be - Different, Governmental activities, eliminating interfund activities, 241 Governmental auditing, 392–401 auditing standards, 392 auditor’s report, 25, 395–398 ethical concepts, 394 major programs, 399–400 opinion units, 394 RSI, 397 Sarbanes-Oxley Act, 400–401 single audit process, 398–400 types of audits, 392–394 Governmental enterprises See Enterprise funds Governmental financial reports, 21 See also Comprehensive Annual Financial Report (CAFR) Governmental funds, 14, 32–35, 123, 140–143 See also individual funds Governmental health care entities, 368, 369, 383 See also Hospitals and other health care providers Governmental organizations, I-7 Index Hamilton, Alexander, 420 HCA, 367 Health care accounting See Hospitals and other health care providers Health Care Guide, 308, 367, 368, 383 Health care organizations, 367, 368 Health care providers See Hospitals and other health care providers Hedging, 196 Hedging derivatives, 196 Henry, Patrick, 420 Hospital Corporation of America (HCA), 367 Hospitals and other health care providers, 366–390 accounting standards, 367 beginning trial balance, 371 classifications, 370 closing entries, 376–378 commercial health care entities, 369, 383 financial statements, 368–370, 379–383 general ledger accounts, 377 governmental health care entities, 368, 369, 383 Health Care Guide, 367, 368, 383 health care organizations, 367, 368 journal entries, 371–378 not-for-profit business-oriented organization/notfor-profit nonbusiness-oriented organization, contrasted, 368 overview, 369 ownership forms, 369 private not-for-profit entities, 367, 369, 370–382 revenues, 370 statement of cash flows, 381, 382 statement of changes in net assets, 379–380 statement of financial position, 380, 381 statement of operations, 368–370, 379 Illustrative case - general fund, 90–106 See also General fund accrual of interest and penalties, 100 amendment of budget, 97 balance sheet, 107 budgetary accounts, 91 budgetary comparison schedule, 108 closing entries, 103–105 collection of current taxes, 94 collection of delinquent taxes, 93–94 correction of errors, 97 deferral of property tax revenue, 101 encumbrance entry, 93 financial statements, 105, 106–108 general ledger control accounts, 102 interfund transactions, 97–99 other revenues, 94–95 payment of liabilities, 93 payment on account and other items, 96 payroll/payroll taxes, 96 preclosing trial balance, 101, 103 property tax levy, 93 re-establishment of encumbrances, 92 reclassification of current taxes, 100 recognition of expenditures for encumbered items, 95 recording prior-year property taxes, 92 recording the budget, 91 reimbursement from special revenue fund, 109 repayment of tax anticipation notes, 95 special item, 101 statement of revenues, expenditures, and changes in fund balance, 107 tax anticipation notes payable, 92 write-off of uncollectible delinquent taxes, 99–100 Illustrative case - special revenue fund, 106–111 balance sheet, 110 closing entries, 110 motor fuel tax revenues, 107–109 reimbursement grant accounting, 109 reimbursement to general fund, 109 road repairs, 109 statement of revenues, expenses, and changes in fund balances, 111 Illustrative transactions See Journal entries Impairment, 256 Imposed nonexchange transactions, 66, 67, 236, 237 Income determination funds, G-14 See also Proprietary funds Independent auditor’s report, 25, 395–398 Inflows of resources, 10 Infrastructure, 253–256 depreciation, 254, 255 modified approach, 254–255 note disclosures, 254 RSI schedules, 46, 255–256 types of assets, 254 Infrastructure assets, 254 Intentions to give, 313 Interfund loans, 88, 89 Interfund reimbursements, 89, 90, 99 Interfund services, 89, 90, 97–98 Interfund transactions, 88–90 defined, G-10 interfund loans, 88, 89 interfund reimbursements, 89, 90 interfund services provided and used, 89, 90 interfund transfers, 89, 90 journal entries, 97–99 nonreciprocal interfund activity, 88 Index overview (chart), 89 reciprocal interfund activity, 88 Interfund transfers, 89, 90, 98–99 Internal balances, 246 Internal service funds, 15, 156–162 closing entries, 160 defined, G-10 establishment/operation, 157 financial statements, 161 governmental activities, 238–240 journal entries, 157–160 operating income, 162 operating statement, 157 overview, 155 risk management activities, 161–162 when used, 162 Interpretations, Inventories, 111–112 Investing activities, 173, 174 Investment derivatives, 196 Investment in general fixed assets, 253, 254 Investment trust funds, 15, 191, 199 Investments, 194–196 Investor-owned colleges, 341, 342 Investor-owned health care enterprises, 369, 383 Irregular serial bonds, 133 IRS 457 deferred compensation plan, 208 Jay, John, 420 Jefferson, Thomas, 20, 122 Johnson, Lyndon B., 86 Journal entries See also Closing entries; General ledger accounts agency funds, 192–194 bonds, 257 budgetary accounting, 430 See Budgetary accounting capital asset-related entries, 229–230 capital project funds, 125–129 debt service funds, 133–136 enterprise funds, 164–168 general fund, 90–106 See also Illustrative case general fund health care entities, 371–378 internal service funds, 157–160 journal entries, 433–434 long-term debt, 233–241 nonexchange transactions, 237 pension trust fund, 201–204, 212–214 private colleges/universities, 345–353 private not-for-profits, 315–322 private-purpose trust funds, 197–198 proprietary accounting, 430 public colleges/universities, 283–289 I-8 serial bonds, 133–136 special revenue fund, 106–111 King, Martin Luther, Jr., 341 Lamm, Richard, 225 Lapse, 65 Lease agreements, 130–131 Leverage measures, 410 Liabilities, 10 Life income fund, 358 Liquidity ratios, 411 Local government See State and local governments Long-term debt, 256–258 bonds, 137, 257 capital lease payments, 137 debt service fund See Debt service fund deferred serial bonds, 136 general obligation debt, 257 journal entries, 233–244 note disclosures, 257–258 term bonds, 136 types of debt, 257 Lotteries, 163 Low-risk auditee, 400 Lowell, Abbott Lawrence, 272 Madison, James, 1, 420 Maher, Bill, 55 Major fund, 23 Major programs, 399–400 Management discussion and analysis (MD&A), 26, 27 Measurement focus, 13 Merger, 329 Modified accrual accounting, 13, 55–56, 87–88 Modified accrual accounts balance sheet accounts, 56–61 budgetary accounts, 63 financial statement activity accounts, 61 Motor fuel tax revenues, 107–109 Multiyear pledges, 311 Municipal bond market, 409 Municipal solid waste landfills, 174–175 NACUBO, 343, G-11 NACUBO Financial Accounting and Reporting Manual, 358 National Association of College and University Business Officers (NACUBO), 343, G-11 Net assets, G-11 private colleges/universities, 344 private not-for-profits, 308–309 Net investment in capital assets, 28, 161 Net pension liability, 206, 210 I-9 Index Net position See also Statement of net position changes (fiduciary net position), 42, 43, 205 changes (fund net position) See Statement of revenues, expenses, and changes in fund net position changes (net position), 424, 425, 435 defined, 10 enterprise funds, 168 fiduciary net position, 42, 43, 204 internal service funds, 161 restricted, 28, 161, 168 unrestricted, 28, 161, 168 Nonaudit services, 393 Noncapital financing activities, 173, 174 Nonexchange transactions common forms, 66 derived tax revenues, 67, 68, 236, 237 GASB Statement 33, 235 government-mandated, 67, 68, 236, 237 journal entries, 237 imposed nonexchange revenues, 66, 67, 236, 237 overview (chart), 67, 236 revenue recognition, 65–68, 234–237 voluntary, 67, 68, 236, 237 Nongovernmental not-for-profits See Private notfor-profit organizations Nonmajor fund, 23 Nonreciprocal interfund activity, 88 Nonspendable fund balance, 58, 138, 246 Not-for-Profit Entities: Mergers and Acquisitions (FASB Statement 164), 329, 330 Not-for-Profit Guide, 308, 329, 343, 354, 358, 368 Not-for-profit organizations, 50 defined, GAAP hierarchy, health care See Hospital and other health care entities objectives of financial reporting, private See Private not-for-profit organizations private colleges See Private colleges/universities public colleges See Public colleges/universities Notes to financial statements, 10, 44–45 Obama, Barack, 20, 272, 419 Object classification, 79, G-12 Objectives of accounting and financial reporting federal government, 8–9 not-for-profits, state and local governments, 9–10 Objectives of Financial Reporting (GASB Concepts Statement No 1), Obligations: undelivered orders, 429, 431 Office of Management and Budget (OMB), 420, G-13 OMB Circular A-133, 398, 399 Operating activities, 173, 174 Operating income, 162 Operating lease, 130 Opinion units, 394 Organizational unit classification, 79 Other financing sources revenues, 61 Other financing uses, 61 Other not-for-profit organizations, 308 Other postemployment benefit trust funds, 208 Outcome measures, 412 Outflows of resources, 10 Output measures, 412 Oversight agencies, 399 Paul, Ron, 225 Payroll/payroll taxes, 96 Pension discount rates, 215 Pension (or other employee benefit) trust fund, 199–215 agency plan, 199 closing entry, 204 contributory/noncontributory plans, 200 cost-sharing plan, 199 defined, 190, 200 defined benefit/defined contribution plan, 200 employer reporting, 200–201, 210–215 financial statements, 201, 204, 205 IRS 457 deferred compensation plan, 208 journal entries, 201–204, 212–214 net pension liability, 206, 210 other postemployment benefits, 208 pension discount rates, 215 PERS, 200 plan reporting, 201 schedule of changes in net pension liability and related ratios, 207, 212 total pension liability, 206, 210 Performance audit, 393–394 Performance evaluation See Evaluating performance Performance indicator, 368–370 Permanent fund, 124, 138–140 classification, 140 closing entries, 140 defined, 14 journal entries, 138–140 overview, 123 Permanently restricted net assets, 309, 344 Perpetual trust held by a third party, 355–356 PERS, 200, G-14 Pledge, 311 Pollution remediation costs, 175–176 Pooled (life) income fund, 358 Preclosing trial balance, 101, 103 Present value, 131 Index Primary government, 22 Prior-year property taxes, 92 Private colleges/universities, 341–365 academic terms spanning two fiscal years, 343 AICPA, 343 beginning trial balance, 345 closing entries, 350–353 expense categories, 343 financial statements, 343–344, 353–357 general ledger accounts, 351 journal entries, 345–353 NACUBO, 343 net assets, 344 overview, 342 split-interest agreements, 353–358 statement of cash flows, 353, 357 statement of changes in net assets, 353, 355 statement of financial position, 353, 356 statement of unrestricted revenues, expenses, and other changes in unrestricted net assets, 353, 354 student financial aid, 343 Private health care entities, 367, 369, 370–382 See also Hospitals and other health care providers Private not-for-profit organizations, 306–340 AICPA audit and accounting guides, 308, 329 allocation of costs, 328 beginning trial balance, 314–315 closing entries, 322 collections, 311 commercial enterprises, contrasted, 310 contributed services, 312 contributions, 307, 310–311 exchange transactions, 312–313 expenses and assets, 311–312 FASB standards, 307 financial statements, 309–310, 322–327 fixed assets, 311–312, 327 general ledger accounts, 321 intentions to give, 313 journal entries, 315–322 mergers and acquisitions, 329–330 multiyear pledges, 311 net assets, 308–309 note disclosures, 310 other not-for-profit organizations, 308 performance evaluation, 327–328 program expense ratio, 328 statement of activities, 309, 323–324 statement of cash flows, 309, 325 statement of financial position, 309, 324 statement of functional expenses, 310, 325–327 surplus, 328 transfers intended for others, 313–314 voluntary health and welfare organization, 308 I-10 Private organizations, Private-purpose trust funds, 15, 194–198 closing entry, 198 defined, G-14 distinguishing characteristic, 194 escheat property, 198 financial statements, 198 investments, 194–196 journal entries, 197–198 overview, 191 Proceeds of bonds, 125 Proceeds of long-term notes, 125 Program expense ratio, 328, 406, 407–408 Promise to contribute, 311 Property taxes deferral of revenue, 101 defined, G-14 levying the tax, 93 prior-year, 92 revenue recognition, 66 Proprietary accounting, 430, 431 Proprietary accounts, 431 Proprietary funds, 15, 154–188 defined, 156 enterprise funds See Enterprise funds FASB standards, 156 financial statements, 34–41, 168–174 internal service funds See Internal service funds municipal solid waste landfills, 174–175 overview (chart), 155 pollution remediation costs, 175–176 statement of cash flows, 172–174 statement of net position, 36, 37, 170, 171 statement of revenues, expenses, and changes in fund net position, 38, 39, 170–172 Proprietary schools, 341, 342 Public charity, 402 See also Tax-exempt organizations Public choice, 2n Public colleges/universities, 49–50, 279–296 Advisory Report 00-5, 281 capital assets, 281 closing entries, 289–292 community college, 279 financial aid, 281 financial statements, 292–296 foundations, 280–281 general ledger accounts, 290 journal entries, 283–289 manner of reporting, 279 overview, 342 postclosing trial balance, 282 required reports/statements, 280 revenue sources, 280 I-11 Index Public employee retirement system (PERS), 200, G-14 Public organizations, Purchases method, 111–112 Qualified opinion, 398 Quasi-endowment, 344 Quasi-external transactions, 90 Quick ratio, 411 Rainy day funds, 61 Rating agencies, 409 Ratio analysis, 409–410, 411 Reciprocal interfund activity, 88 Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements (GASB Interpretation 6), 88 Reconciliation federal government, 427 government-wide statements, 250–251 statement of activities, 34 statement of cash flows, 173, 174 statement of net position, 32 Reconciliation of Net Operating Cost and Unified Budget Deficit, 427 Refunding of existing debt, 137 Regular serial bonds, 133–136 Reimbursement (revenue recognition), 66 Reimbursement grant accounting, 109 Reporting of Related Entities by Not-for-Profit Organizations (Statement of Position 94-3), 312 Required characteristics of recipients, 66 Required supplementary information (RSI), 10, 21, 46, G-15 budgetary comparison schedule, 46, 47, 108 governmental auditing, 397 infrastructure, 46, 255–256 MD&A, 26, 27 modified approach for reporting infrastructure, 46 schedule of changes in net pension liability and related ratios, 207, 212 Restricted (not for profit), G-15 See also Permanently restricted net assets; Temporarily restricted net assets Restricted fund balance, 58–60, 130, 136, 246 Restricted net position, 28, 161, 168 Revenue bonds, 163 Revenue budget, 77 Revenue recognition available, 234–235 contingencies, 66 converting revenue recognition to accrual basis, 234–237 derived tax revenues, 67, 68 general rule, 65 government-mandated nonexchange transactions, 67, 68 imposed nonexchange transactions, 66, 67 modified accrual accounting, 65–68 nonexchange transactions, 65–68 overview (chart), 67, 236 property taxes, 66, 235 reimbursement, 66 required characteristics of recipients, 66 time requirement, 66 voluntary nonexchange transactions, 67, 68 Revenue source classes, 78 Revenues Control, 71, 72 Revenues ledger, 72 Risk-based approach, 400, G-15 Risk management activities, 161–162 Road repairs, 109 RSI See Required supplementary information (RSI) Rubio, Marco, 55 Ryan, Paul, 419 Sanitation department, 275 Sarbanes-Oxley Act, 400–401 Schedule of changes in long-term debt, 257 Schedule of changes in net pension liability and related ratios, 207, 212 Schedule of debt service requirements, 258 Schedule of direct and overlapping debt, 258 Schedule of legal debt margin, 258 Scholarships, 343 School report cards, 413 Scott, Rick, 366 SEA See Service efforts and accomplishments (SEA) Separation of church and state, Serial bonds, 133–136 annuity, 133 debt service accounting, 133 deferred, 133 defined, G-16 irregular, 133 journal entries, 133–136 regular, 133 Service efforts, 412 Service efforts and accomplishments (SEA), 410–413 cautions, 412–413 example (school report cards), 413 GASB, 410, 412 objective of SEA reporting, 412 SEA measures, 412–413 Service Efforts and Accomplishments Reporting (GASB Concepts Statement 2), 410 SFFACs, 8–9, 421 Index Single Audit Act (1984), 398 Single Audit Act Amendments (1996), 398 Single audit process, 398–400 60-day rule, 66, 235 Solid waste landfills, 174–175 Solvency ratios, 411 Special assessment projects, 131–132 Special items, 30, 101, G-16 Special-purpose entities, 49, 272–305 balance sheet/statement of net position, 275, 276, 305 business-type activities, 278 defined, 273 fiduciary-type activities, 277–278 financial statements, 275–277 governmental activities, 273–277 overview (chart), 274 public colleges/universities See Public colleges/ universities statement of revenues, expenditures, and changes in fund balance/statement of activities, 275, 277 Special-purpose governments, 49 Special revenue fund, 87, 123 See also Illustrative case - special revenue fund Split-interest agreements, 353–358 Stakeholders, Standard-setting organizations, State and local governments budgetary accounting, 16–17 CAFR, 11 See also Comprehensive Annual Financial Report (CAFR) fiduciary funds, 15 See also Fiduciary funds funds, 14–16 GAAP hierarchy, governmental funds, 14 levels of financial statement reporting, 11 measurement focus/basis of accounting, 12–14 number of funds required, 16 objectives/uses of financial reporting, 9–10 overview of financial reporting process, 12 proprietary funds, 15 See also Proprietary funds terminology, 421 State lotteries, 163 Statement of activities government-wide, 30, 31, 247–249 private not-for profits, 309, 323–324 special-purpose entities, 275, 277 Statement of budgetary resources, 424, 426 Statement of cash flows, 40, 41, 172–174 capital and related financing activities, 173, 174 governmental health care entities, 383 investing activities, 173, 174 non-profit health care entities, 381, 382 I-12 noncapital financing activities, 173, 174 operating activities, 173, 174 private colleges/universities, 357 private not-for-profits, 309, 325 public colleges/universities, 295, 296 reconciliation, 173, 174 Statement of changes in cash balance from unified budget and other activities, 427 Statement of changes in fiduciary net position, 42, 43, 205 Statement of changes in net assets health care entities, 379–380 private colleges/universities, 353, 355 Statement of changes in net position, 424, 425, 435 Statement of custodial activity, 424–425, 427 Statement of fiduciary net position, 42, 43, 204 Statement of Financial Accounting Concepts No (FASB), Statement of financial position health care entities, 380, 381 private colleges/universities, 353, 356 private not-for-profits, 309, 324 Statement of functional expenses, 310, 325–327 Statement of net cost, 422, 424, 435 Statement of net position government-wide, 28, 29, 244–246 governmental health care entities, 383 proprietary funds, 36, 37, 170, 171 public colleges/universities, 293, 296 special-purpose entities, 275, 276 Statement of operations (health care entities), 368–370, 379 Statement of operations and changes in net position, 427 Statement of revenues, expenditures, and changes in fund balances, 34, 35 general fund, 107 governmental funds, 142–143 special-purpose entities, 275, 277 special revenue fund, 111 Statement of revenues, expenses, and changes in fund net position governmental health care entities, 383 proprietary funds, 38, 39, 170–172 public colleges/universities, 294, 296 Statement of social insurance, 422 Statement of unrestricted revenues, expenses, and other changes in unrestricted net assets, 353,354 Statements, Statements of Federal Financial Accounting Concepts (SFFACs), 8–9, 421 Statements on Auditing Standards (AICPA), 392, 398 Statistical information, 48 I-13 Index Supplies fund, 157–161 Supplies inventories, 111–112 Support for the arts, Tax agency funds, 192–194 Tax anticipation notes payable, 92 repayment, 95 Tax-exempt organizations, 401–409 applying for tax-exempt status, 402–403 author’s summary remarks, 407 executive compensation, 406–407 federal filing requirements, 403–405 501(c)(3) organization, 402 Form 990, 404–405 IRS oversight, 406–407 public charity, 402 state filing requirements, 405 UBIT, 405–406 Taxes/taxation collection of current taxes, 94 collection of delinquent taxes, 93–94 exempt organizations See Tax-exempt organizations derived tax revenues, 67, 68 motor fuel tax revenues, 107–109 payroll/payroll taxes, 96 property taxes See Property taxes reclassification of current taxes, 100 Taxpayer Bill of Rights (1996), 405 UBIT, 405 write-off of uncollectible delinquent taxes, 99–100 Taxpayer Bill of Rights (1996), 405 Technical bulletins, Temporarily restricted net assets, 309, 344 Term bonds, 136 Term endowment, 344 Terminology (glossary), 421, G-1 to G-19 Time requirement, 66 Total pension liability, 206, 210 Transactions See Journal entries Transfer of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions for Others (FASB Statement 136), 314 Transfers in - governmental funds, 241 Transfers out - governmental funds, 241 Treasury, U.S Department of, 420, 425, G-18 Trial balance general fund, 101, 103 health care providers, 371 private colleges/universities, 345 private not-for-profit organizations, 314–315 public colleges/universities, 282 Trust accounting, 138 Trust and agency funds, 15 See also Fiduciary funds Type A programs, 400 Type B programs, 400 UBIT, 405 Unassigned fund balance, 60, 138 Uncollectible delinquent taxes, 99–100 Unexpended appropriations, 431 Universities, 341–343 See also Private colleges/ universities; Public colleges/universities Unmodified opinion, 395, 396–397, G-18 Unrelated business income tax (UBIT), 405 Unrestricted net assets, 309, 344 Unrestricted net position, 28, 161, 168 Voluntary health and welfare organizations, 308, 368 Voluntary nonexchange transactions, 67, 68, 236, 237 Wann, David, 154 Washington, George, 420 Water utilities, 98 Water utility fund, 163–168 What You Should Know about Your Local Government’s Finances: A Guide to Financial Statements, 409 Why Government Accounting and Financial Reporting Is - and Should Be - Different, Wilder, Douglas, 189 Working capital ratio, 408 Write-off of uncollectible delinquent taxes, 99–100 Yellow Book, 392, 394 ... libraries, and performing arts organizations that are owned or controlled by governments Accounting and financial reporting standards for profit- seeking businesses and for nongovernmental not -for- profit. .. Summary 296 Chapter Ten ACCOUNTING FOR PRIVATE NOT -FOR- PROFIT ORGANIZATIONS 306 Organizations Covered in This Chapter 308 Overview of Not -for- Profit Accounting 308 Three Classes of Net Assets 308 Financial... Public not -for- profits Private not -for- profits Investor-owned businesses Federal Accounting Standards Advisory Board (FASAB) Governmental Accounting Standards Board (GASB) Governmental Accounting