Basics of Governmental Accounting II 3/26/2015

Transcription

1 COURSE DESCRIPTION This course presents an in-depth look at some of the basic principles of governmental accounting. Understanding these principles provides the means for interpreting the concepts of governmental accounting and financial reporting. You will leave with a better understanding of why you do some of the things you do and a stronger knowledge base for handling financial transactions that come through your office. 1

2 COURSE OBJECTIVES Explain what GAAP is and how to comply with the standards. Understand the basic accounting concepts and the nature of assets and liabilities. Discuss in detail and understand practical use of the fundamentals and types of fund accounting. CEU REQUIREMENTS You must sign in at the beginning of class. You must stay for the duration of the entire class (whether you want to or not). You must sign out at the end of class. Each participant will receive a certificate for completing the class. Each participant is responsible for sending in necessary documentation for earning the CEU. 2

3 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Generally Accepted Accounting Principles (GAAP) instructs the user how properly to account for 1) transactions, 2) balances, and 3) disclosures in the financial statements. GAAP has developed from decades of common accounting practices. The phrase generally accepted means that an accountant cannot find specific accounting principles in any authoritative book. Accounting rule makers issue accounting principles for treatment of transactions. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The private organization called Governmental Accounting Standards Board (GASB) sets the GAAP rules for governments. The organization established in 1984 composed of seven board members. GASB determines the 1) accounting principles, 2) provides interpretations, and 3) guidance for implementation. GASB Statement No. 55 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (GASBS 55) prioritizes the pronouncements and documents for accounting principles as follows: 3

4 GOVERNMENTAL ACCOUNTING STANDARDS BOARD GASB distinguishes the difference between government environments and governmental entities from other types of organizations GASB Concepts Statement No. 1 (GASBCS 1) Objectives of Financial Reporting describes the differences as follows: WHAT S THE REASON FOR ALL OF THIS? Measuring financial performance is important on many different levels. Users of financial information have different needs for specific information and having accurate, reliable information is crucial to their operation. GAAP and GASB exist to help insure that users of financial information are looking at information that is presented 1) fairly, 2) uniformly (for comparison between entities) and 3) accurately. 4

5 The basis of accounting is the determination of when the financial statements require recording of a transaction. There are three different methods. Cash Accrual Modified Accrual BASIS OF ACCOUNTING Cash Basis Accounting - Using this method, revenues are recognized/recorded when they are received. Expenses/expenditures are recorded/recognized when they are paid. GASB does not accept the cash basis of accounting for the government-wide financial statements. But understanding this method may facilitate your understanding of the others. 5

6 BASIS OF ACCOUNTING Accrual Basis Accounting - Using this method, revenues are recognized/recorded when they are earned regardless of when they are received. Expenses/expenditures are recorded/recognized when they are incurred regardless of when they are paid. This is the basis used in the government-wide financial statements and by most commercial entities in preparing their financial statements. BASIS OF ACCOUNTING Modified Accrual Basis Accounting - Using this method, revenues and expenses/expenditures are recognized/recorded when they occur but can be affected by the timing of cash receipts or cash disbursements. When the revenue is measurable and available, it is recognized. Governmental funds may use this method for preparing fund financial statements but never for government-wide financial statements. Economic Resources Current Financial Resources 6

7 MEASUREMENT FOCUS Whereas the basis of accounting describes when recording of transactions takes place, the measurement focus defines what transactions are recorded. The two different styles of measurement focuses are: Economic resources Current financial resources. Arrangement of the government-wide financial statements and in the fund financial statements by proprietary funds that undertake business-type activities uses economic resources measurement focus. Governmental funds (general fund, special revenue, capital projects, and debt services are examples) use the current financial resources measurement focus. NATURE OF ASSETS Nature of Assets - GASB Concepts Statement No. 4 Elements of Financial Statements (GASBCS 4) defines an asset as resources with present service capacity that the government presently controls (GASB, n.d.). Measurement of the assets at a point reflects the statement of net assets (sometimes referred to as the balance sheet). The statement of net assets lists the assets in order of liquidity, which means how quickly the asset converts back into cash. Typical assets listed on the government s statement of financial position are: 7

8 NATURE OF LIABILITIES Nature of Liabilities - GASBCS 4 defines liabilities as present obligations to sacrifice resources that the government has little or no discretion to avoid (GASB, n.d.). Present liabilities on the statement of net assets incurred as of the year-end and do consist of an obligation to another party. The more common liabilities listed on the statement of net assets are as follows: 8

9 NATURE OF NET ASSETS Nature of Net Assets - Net assets are the difference between total assets and total liabilities. GASB 34 requires dividing the net assets up in the following three ways (GASB, n.d.): Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets QUESTIONS 1. How does GAAP provide guidance for government financial statements? 2. What is the purpose of GASB? 3. When is accrual and modified accrual basis of accounting used? 9

10 QUESTIONS 4. What is the difference between economic and current financial resources measurement focuses? 5. Describe how GASB defines an asset. 6. Describe how GASB defines a liability. ACCOUNT TYPES Understanding account types and how debits/credits effect each The different account types: Assets Liabilities Equities Revenues Expenditures Deferred Outflows Deferred Inflows 10

11 ACCOUNT TYPES Assets Normal Balance Debit (positive) Debits = Increase Credits = Decrease ACCOUNT TYPES Liabilities Normal Balance Credit (negative) Debits = Decrease Credits = Increase 11

12 ACCOUNT TYPES Equities Normal Balance Credit (negative) Debits = Decrease Credits = Increase ACCOUNT TYPES Revenues Normal Balance Credit (negative) Debits = Decrease Credits = Increase *Budget entries are reversed ACCOUNT TYPES Expenditures Normal Balance Debit (positive) Debits = Increase Credits = Decrease Only account type that uses object codes *Budget entries are reversed 12

13 ACCOUNT TYPES GASB63 Deferred Outflows Normal Balance Debit (credit) Debits = Increase Credits = Decrease ACCOUNT TYPES GASB63 Deferred Inflows Normal Balance Credit (negative) Debits = Decrease Credits = Increase 13

14 QUESTIONS 1. What account type would a short term debt be? What about a grant received in advance? 2. What is the normal balance for an asset? What about an expenditure? 3. Are individual revenue/expenditure accounts displayed on the Balance Sheet? If no, what report are they shown on? WHAT IS A FUND? The general purpose for developing fund accounting is so that each government is responsible for the collection and application of public monies. Each fund balance is much like a financial statement whereas the assets equal the liabilities. 14

15 FUND TYPES A. Governmental Funds - Generally, any fund that accounts for activities not businesslike is a governmental fund. Governmental funds are the general activities of a government. 1. General Fund 2. Special Revenue Funds 3. Capital Projects Funds 4. Debt Service Funds 5. Permanent Funds FUND TYPES B. Proprietary Funds - The two different types of proprietary funds use the accrual basis of accounting and the economic resources measurement focus. 1. Enterprise Funds 2. Internal Service Funds FUND TYPES C. Fiduciary Funds - Fiduciary funds account for monies that belong to other people and are not included in the government-wide financial statements. The fiduciary funds are included in the basic financial statements within the fund financial statements. 1. Pension Trust Funds 2. Investment Trust Funds 3. Private Purpose Trust Funds 4. Agency Funds 15

16 GOVERNMENTAL FUND A. Governmental Funds - Generally, any fund that accounts for activities not businesslike is a governmental fund. Governmental funds are the general activities of a government. 1. General Fund 2. Special Revenue Funds 3. Capital Projects Funds 4. Debt Service Funds 5. Permanent Funds 16

17 GOVERNMENTAL FUND General Fund. To account for all financial resources except those required to be accounted for in another fund. This is the main fund for the government, which accounts for all current activities other than those in another fund. It is the chief operating fund and each government can have only one according to GAAP rules The asset side of the general fund balance sheets generally consists of 1) cash, 2) investments, 3) receivables, and 4) inventories. GOVERNMENTAL FUND Special Revenue Funds. Account for the proceeds of specific revenue sources (other than expendable trusts or for major capital projects) that are legally restricted to expenditures for specified purposes. Special revenue funds are either optional or required legally by law. Funds needing special consideration to improve accountability for the fund assume special revenue status by the government. 17

18 GOVERNMENTAL FUND Capital Projects Funds - to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds) The government sometimes restricts, commits, or assigns capital project funds for capital outlay expenditures. Examples include the acquisition or construction of capital facilities and other capital assets. Capital activities of proprietary funds or trust funds are not included in the capital projects funds. 18

19 GOVERNMENTAL FUND Debt Service Funds - to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Debt service funds are a type of governmental fund that is used to account for resources that are restricted, committed, or assigned for debt service. This is essentially the government making payments on debt principle and interest payments. The resources collected in this fund cover the long-term debts, such as bonds, due to mature in the future. Using modified accrual basis of accounting and the current financial resources measurement focus, the debt service fund has three accounting issues. GOVERNMENTAL FUND Permanent funds. Permanent funds report restricted resources coming from interest earnings applied to programs and activities benefitting the government and its citizens. The principal is not spent. An example of programs and activities is a cemetery perpetual-care fund. 19

20 PROPRIETARY FUND B. Proprietary Funds - The two different types of proprietary funds use the accrual basis of accounting and the economic resources measurement focus. 1. Enterprise Funds 2. Internal Service Funds 20

21 PROPRIETARY FUND Enterprise funds. Enterprise funds account for operating and financing activities intended to finance or recover costs of providing goods or services to the public through user charges. An example is a Water and/or Sewer Fund operated by the government. GASBS 34 requires the establishment of an enterprise fund if one or more of the following criteria happen: PROPRIETARY FUND Internal service funds. These funds account for financing of goods or services provided predominantly between departments and agencies within the same government unit. Full costs of goods or services charge to the receiving department or agency. All internal service activity costs do not have to be recorded, but typically duplicating and printing services, motor pools, central garages, information processing, purchasing, and central stores and warehousing are allocated using separate funds. When the funds of both departments record expenditures and revenues, reversing journal entries correct the doubling up effect of internal service activities. 21

22 FIDUCIARY FUND C. Fiduciary Funds - Fiduciary funds account for monies that belong to other people and are not included in the government-wide financial statements. The fiduciary funds are included in the basic financial statements within the fund financial statements. 1. Pension Trust Funds 2. Investment Trust Funds 3. Private Purpose Trust Funds 4. Agency Funds 22

23 FIDUCIARY FUND Pension (and other employee benefit) trust funds. Pensions record in the pension trust funds if the government administers the pension plan or it is a component unit of the government. Separate pend trusts should be used for each pension plan. Pension trust funds use the accrual basis of accounting and the economic resources measurement focus. FIDUCIARY FUND Investment trust funds. GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools (GASBS 31) governs establishment of investment trust funds. The government sponsors external investment pools and provides individual investment accounts to other legally separate entities that are not part of the same financial reporting entity. 23

24 FIDUCIARY FUND Private-purpose trust funds. Private-purpose trust funds are a fiduciary fund that reports all trust agreements whereas it benefits individual, private entities, or other governments. A government designs the trust for a non-public activity and uses the accrual basis of accounting and the economic resources measurement focus. 24

25 FIDUCIARY FUND Agency funds. Agency funds account for assets held in a custodial capacity. The assets of the agency funds are always equal to the liabilities. School districts use this fund often to account for student activity funds, which legally belong to the students. Another example is one government collects the taxes of another government and then remitted to the other government on whose behalf one collected the taxes. QUESTIONS 1. Why did GAAP develop fund accounting for governments? 2. What is the chief operating fund of a government? 3. What basis of accounting and measurement focus do proprietary funds use? 4. What do fiduciary funds account for? 25

26 TENNESSEE STATE CHART OF ACCOUNTS GRANT1-FED Fund Function Object Cost Center Sub Object TN State COA follows this format: Fund - 3 digit Function 5 digit Object Code 3 digit Cost Center 5 digit Sub Object 3 digit Object Codes are only used on Expenditures Cost Centers and Sub Objects are: Optional Completely user defined TRANSACTION TYPES Understanding transaction types The different transaction types: AP Accounts Payable (Accrual Only) BB Beginning Balance CD Cash Disbursements CR Cash Receipts DP Deposits EC Encumbrances* IV Invoice Entries (Accrual Only) JE Journal Entries PA Payroll PO PO Liquidations * BG Budget BA Budget Amendment 26

27 TRANSACTION TYPES - NEXTGEN Manual Transactions are entered exactly the same way regardless of Transaction Type. Transaction Types are simply selected from the drop down. TRANSACTION TYPES Understanding transaction types and how they effect reporting The transaction types do not control how the balances are reflected on the ledger They do determine how the transaction is reported The transaction type determines the Journal the transaction will be listed on CD/AP Journal General Journal Cash Disbursement Journal Cash Receipts Journal Deposit Journal Encumbrance Journal Payroll Journal PO Journal Budget Journal T - Accounts The simplest of account structures Shaped like the letter T Account title and account number appear above the T Debits always go on the left side of the T Credit always go on the right side of the T 27

28 T - Accounts Record the Receipt of a Tax Payment (Cash Basis) Cash Current Property Tax Revenue There are a couple of ways these transactions get recorded in your ledger. 1. Some of you are using manual daily cash reports (DCR s) to make manual CR (cash receipt entries to your ledger. 2. Some of you are using the automated features (GL Interface) in the software to keep your ledger updated. This can be set up through utility billing, miscellaneous receipts, property tax, and business license. NEXTGEN TRANSACTION PROCESS To make manual transaction entries, from the Financial Management Menu select Transactions. Then select the sub menu option Transactions. Next, select New in the ribbon bar at the top. NEXTGEN TRANSACTION PROCESS Click the ellipsis to Add New Transaction Batch. The Batch ID field will be filled in with a default batch ID. Enter the Date for the batch. Enter any internal notes in the Internal Notes field if desired. Click Save and Close If the Post this transaction box is checked, the transaction does not have to be placed in a batch and will be automatically posted at the end of the transaction entry process. 28

29 NEXTGEN TRANSACTION PROCESS Enter the Transaction Date and Period to post your entries to Select the Transaction Type from the drop down Enter the Description associated with the transaction Click the Next button NEXTGEN TRANSACTION PROCESS Cash is entered as a debit on the left side Property Tax revenue is entered as a credit on the right side When all entries are entered and correct click on the Next button. This will open up the Transaction Summary Screen. NEXTGEN TRANSACTION PROCESS Verify the summary information is correct on both the Transaction and Entries tabs of the Transaction Summary Screen Click the "Finish" button to complete the transaction 29

30 NEXTGEN BATCH POSTING PROCESS From the Financial Management menu select Transactions. Then select the sub menu option Transaction Batches Click the Find button to display the unprocessed Transaction Batches Select the batch by double clicking on the batch NEXTGEN BATCH POSTING PROCESS Select Print Batch to print a report of the entries in the batch before posting Select Close Batch (only closed batches can be posted to the NextGen GL) Select Post Batch Click on the Next button. (Summary screen will show the batch details) Click the Finish button to post T - Accounts Record Tax Payment is Due (Accrual Basis) Property Tax Receivable Current Property Tax Revenue There are a couple of ways these transactions get recorded in your ledger. 1. Create manual entries (JE) in your ledger to record these transactions. 2. Use the automated features in the software to keep your ledger updated. A common use of this would be in the Utility Billing system. 30

31 NEXTGEN TRANSACTION PROCESS To make manual transaction entries, from the Financial Management Menu select Transactions. Then select the sub menu option Transactions. Next, select New in the ribbon bar at the top. NEXTGEN TRANSACTION PROCESS Place a check in the Post this transaction box Enter the Transaction Date and Period to post your entries to Select the Transaction Type from the drop down Enter the Description associated with the transaction Click the Next button NEXTGEN TRANSACTION PROCESS Property Tax Receivable is entered as a debit on the left side Property Tax revenue is entered as a credit on the right side When all entries are entered and correct click on the Next button. This will open up the Transaction Summary Screen. 31

32 NEXTGEN TRANSACTION PROCESS Verify the summary information is correct on both the Transaction and Entries tabs of the Transaction Summary Screen Click the "Finish" button to complete the transaction Once you click Finish the transaction will be automatically posted T - Accounts Record the Payment of an Invoice for Gasoline (Cash Basis) Cash Gas, Oil, Etc. Expense There are a couple of ways these transactions get recorded in your ledger. 1. When you create invoices in the AP/Purchasing system and let the system generate the vendor checks, the system creates the CD entries for the ledger. 2. When you write manual checks and then enter them in the AP/Purchasing system, the system creates the CD entries for the ledger. CASH DISBURSEMENT JOUNAL 32

33 T - Accounts Record an Invoice for Gasoline (Accrual Basis) Accounts Payable Gas, Oil, Etc. Expense There are a couple of ways these transactions get recorded in your ledger. 1. When you create invoices in the AP/Purchasing system, the system will generate the accrual entries (AP or IV) for the ledger. This requires some additional set up. Be sure to contact LGC support or your field rep for assistance in setting this up. 2. You can also create manual entries to set up the accrual. CD / AP JOURNAL Cash T - Accounts Record Transactions for Employee Payroll (Cash Basis) Federal Tax Payable FICA Payable Salary Expense FICA Matching Expense There are a couple of ways these transactions get recorded in your ledger. 1. When you run a payroll or create a manual payroll check in the system, the system can create these entries for you. This requires some additional set up. 2. You can also create manual entries. 33

34 PAYROLL JOURNAL A contingent liability, contract, purchase order, payroll commitment, tax payable, or legal penalty that is chargeable to an account. It ceases to be an encumbrance when paid-out or when the actual amount is determined and recorded as an expense. THE IN S & OUT S OF ENCUMBRANCES An encumbrance is a special type of accounting transaction that anticipates a future expenditure Amounts are encumbered, or set aside, in a particular expenditure account for a specific future purchase The document used to record an encumbrance is a Purchase Order (PO) Recording encumbrances is usually a part of an encumbrance approval system that includes approval of Requisitions for purchase before a purchase order is issued 34

35 THE IN S & OUT S OF ENCUMBRANCES When you create a purchase order in the system, an EC entry is made to the expenditure account(s). If you make a change to the purchase order, additional EC entries are made to the expenditure account(s). When the purchase order is liquidated either through payment or through liquidation without payment, a PO entry is made to the expenditure account(s). This removes the encumbered amount (releases it.) The system can be set up to print purchase orders out of the system without actually making encumbrance entries to the ledger The Statement of Expenditures & Encumbrances will show the total encumbrances for each account. See the excerpt below. The Purchase Order Listing by GL Account will show you a detailed analysis of the total shown on the Statement of Expenditures & Encumbrances. In our example, the total is made up from one purchase order. It is important that you reconcile these amounts periodically to be sure they agree. We recommend a monthly reconciliation. 35

36 QUESTIONS 1. What is the major difference between cash basis and accrual basis accounting? 2. In the software, does the transaction type selected have a direct impact on the balances on the ledger? If no, what do they control? 3. What type of transaction would you use to record daily cash revenues? 4. Are there any transaction types that are one-sided (don t require a balanced debit and credit?) BASICS OF GOVERNMENTAL FINANCIAL STATEMENTS The financial statements prepared under GAAP specifications includes: Management s discussion and analysis (MD&A) Government-wide financial statements Fund financial statements Required supplementary information (RSI) Comprehensive annual financial report (CAFR) 36

37 MD&A MD&A is an introduction to the financial statements assisting the readers by summarizing the objective, analysis of the financial performance, and financial position at the end of the fiscal year. The MD&A analysis is based on currently known facts, decisions, or conditions. The currently known facts must be events or decisions that have already occurred, or have been enacted, adopted, agreed upon, or contracted. MD&A The minimum requirements for MD&A are as follows: The MD&A provides a description of the basic financial statements and explanations to the reader about the differences in measurements and results of the government-wide and fund financial statements. GASBS 34 provides specific requirements for inclusion of condensed financial statement information for comparison of this year to the prior. Analyze the overall government financial position and explain significant differences between this year and the prior. Analyze the transaction and balance activities in each fund. 37

38 MD&A Explain and analyze why there are variations between the beginning and the ending budget amounts. Describe significant capital assets and long-term debt activities. If a government does not record, depreciation (modified approach), then GASB requires descriptions of significant changes, comparison to established levels, and actual versus estimated preservation in the condition of infrastructure assets. Explain the significant effects on the financial position or results of operations resulting from currently known facts, decisions, or conditions. The primary financial essentials of the general-purpose financial statements are: Government-wide financial statements Fund financial statements Notes to the financial statements 38

39 GOVERNMENTAL-WIDE FINANCIAL STATEMENTS The government-wide financial statements include the financial governmental activities accounted for in the governmental funds and the business-like activities in the enterprise funds. The primary government is comprised of the governmental activities and business-like activities. Fiduciary funds are not included in the government-wide financials. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Component units Legally separated entities, are included in the government-wide financial statements and the primary government because of their relationship. Similar to commercial businesses, component units are as subsidiaries reported in the commercial consolidated statements. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS The government-wide financial statement presents using the accrual system and the economic resources measurement. The presentation of the governmental fund financial information convert to these same principles in the government-wide financials, thus the seemingly two sets of books appearance. The enterprise funds use the accrual basis and economic resources measurement focus, so they do not need converting. 39

40 GOVERNMENTAL-WIDE FINANCIAL STATEMENTS The two sets of financial statements in the government-wide financials are Statement of net assets Statement of activities GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of net assets This fiscal year-end statement of net assets (balance statement) presents the assets and liabilities. The net assets are the difference between the assets and the liabilities. The statement of net assets divides into three required categories GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of net assets Invested in capital assets, net of related debt. This is the amount representing the capital assets net of accumulated depreciation, and reduced by the outstanding bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction or improvement of those assets. 40

41 GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of net assets Restricted net assets. This is the amount representing net assets that have external creditor, grantors, contributors, or laws or regulations of other governments and internal constitutional provisions or enabling legislation constraints placed upon them. Permanent endowments or fund principle amounts divide into expendable and nonexpendable components according to required perpetuity (continuance). Unrestricted net assets. These net assets do not meet the requirements of the previous two. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Sample Statement of Net Assets GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Sample Statement of Net Assets 41

42 GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of activities. The statement of activities is much like the income statement. It is a summary of the activities taking a person from the beginning net asset number to the ending asset number reported in the statement of net assets. The statement of activities uses the net (expense) revenue format, which reveals the financial burden of each of the reporting government s functions on its taxpayers. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of activities. The statement of activities presents the governmental activity by functions and business-type activities by segment. Segments are defined as identifiable activities reported as or within an enterprise fund or another standalone entity for which one or more revenue bonds or other revenue-backed debt instrument are outstanding. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of activities. Revenue presentation. Revenue presentation divides into: Program revenues General revenues 42

43 GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of activities. Program revenues Program revenues derive from the program itself or parties outside of government taxpayers. Program revenues reduce the cost of the program financed by the government s general revenues. Exchange or exchange-like transactions, such as water use charges, classify as charges for services. Another example is a capital asset renovation grant associated with a specific program that reports separately from the other grants. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Statement of activities. General revenues Taxes such as real estate taxes, sales tax, income taxes, and franchise taxes record as general revenues. Grants considered general revenue are different from program revenues because the government decides how the grant amounts are used using allocation tables. GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Sample Statement of Activities 43

44 GOVERNMENTAL-WIDE FINANCIAL STATEMENTS Sample Statement of Activities FUND FINANCIAL STATEMENTS Another section of the basic financial statements is the fund financial statements. The fund financial statements divide into: Governmental funds Proprietary funds Fiduciary funds 44

45 FUND FINANCIAL STATEMENTS The governmental and proprietary funds also report in the government-wide financial statements but the fiduciary funds do not. GASBS 34 lists funds as either major or combined together into one column since some governments have a large number of funds to report. The general fund is always a major fund and other funds qualify as a major fund if meeting the following criteria: Total assets, liabilities, revenues, or expenditures of the fund are at least 10% for all funds in that category (i.e., either governmental or proprietary). Total assets, liabilities, revenues, or expenditures of the fund are at least 5% of the total for all governmental and enterprise funds combined Governmental funds. FUND FINANCIAL STATEMENTS The funds listed in the governmental funds are general fund, special revenue funds, capital projects funds, debt service funds, and permanent funds. A balance sheet and a statement of revenues, expenditures, and changes in fund balances are the two required governmental fund financial statements. Both statements have major funds listed, a single column for the nonmajor funds, and a total for all governmental funds. Governmental funds. Balance sheet. FUND FINANCIAL STATEMENTS The governmental fund balance sheet presents assets equaling the liabilities and the fund balances. The governmental funds use the modified accrual basis of accounting and current financial resources measurement focus, so the balance sheet does not show long-term assets or long-term liabilities. The fund balances record as either nonspendable, restricted, committed, assigned, or unassigned. 45

46 Governmental funds. Balance sheet. FUND FINANCIAL STATEMENTS Nonspendable is the portion of the fund balance legally or contractually required to be maintained intact. Restricted funds balances are listed as restricted because the funds have an imposed restriction from creditors, grantors, contributors, or laws or regulations of other governments. Governmental funds. Balance sheet. FUND FINANCIAL STATEMENTS Committed fund balances form from legislation, resolutions, or ordinances. Assigned fund balances are specific purpose amounts (e.g., a finance committee delegates assigned amounts for specific purposes). Unassigned fund balances are the remaining amounts of the general fund. 46

47 BALANCE SHEET Balance Sheet displays ending balances for all asset and liability accounts (including fund balance/reserve accounts) Individual revenue and expenditure accounts are not listed. The total net difference between revenues and expenditures is displayed BALANCE SHEET Assets = Liabilities + Net Revenue/Expenditure $137, = $135, $2, The main objective of the balance sheet is to show the assets balanced to the sum of liabilities and net revenues and expenditures TRIAL BALANCE The trial balance displays the same basic structure as the balance sheet, but includes beginning balances and YTD debits/credits as well as ending balances 47

48 STATEMENT OF REVENUE Total Budget Month YTD Remain % Statement of Revenue lists the current revenue for the selected month. It also compares the YTD revenue to the budget along with a percentage of the budget that has been realized and how much is left to realize STATEMENT OF EXPENDITURES Total Budget YTD Remain % Month Statement of Expenditures and Encumbrance s has the same basic layout as the Statement of Revenue, but includes encumbrance information (if encumbrance accounting is utilized) SUMMARY FINANCIAL STATEMENT This is an excellent report for commission/council Summary Financial Statement compares revenues to summarized expenditures and displays the difference from the budget and ledger standpoints 48

49 MONITORING FINANCIAL REPORTS Your basic financial reports need to be reviewed frequently At least monthly (before month end close) This ensures your monthly and yearly financial reports are as accurate as possible It is much easier to find and correct mistakes as they occur rather than months later Just because it s in the computer does not mean that it is correct RECOGNIZING PROBLEM ACCOUNTS Things to look for: Over expenditures that need budget amendments Posting errors that need correcting Payables and/or receivables that need adjusting Due to and/or Due from accounts Some Red Flags are: Liability accounts with debit balances Asset accounts with credit balances Expenditure accounts greater than 100% of budget Liability accounts with left over pennies Recognizing Problem Accounts Odd debit balances Leftover pennies Major Problem A PROBLEM BALANCE SHEET 49

50 Recognizing Problem Accounts OVER EXPENDITURE? Recognizing Problem Accounts POSTING ERROR? 50

51 QUESTIONS 1. Can you name two Government-Wide Financial Statements? 2. What are the basic Fund Financial Statements? 3. Is there a report in the software that compares revenues vs. expenditures on the same report? QUESTION #4 THE TRIAL BALANCE There are two accounts in the asset group below that stand out. Which two? And why? These two accounts warrant investigation Assets normally have a debit balance REFERENCES Becker professional education: Financial cpa exam review (2011 ed.). (2010). U.S.A.: Devry/Becker. GASB (2012, May). Governmental accounting standards board. Retrieved from Ruppel, W. (2010). Governmental accounting made easy (2nd ed.). Hoboken, NJ: John Wiley & Sons, Inc. 51

52 CONCLUSION This concludes today s presentation on Principles of Governmental Accounting Part 2 Any Questions? 52