Chapter 17

Governmental Entities: General Fund

McGraw-Hill/Irwin

The McGraw-Hill Companies, Inc. 2006

Governmental Entities in United States Include:

Federal Government State Government Counties Townships Municipalities School districts Special districts

Objectives of Financial Reporting (GASB issued Concept Statement No. 1):

Should enable users to assess Governments accountability Should assist users in evaluating the operating result of Governmental Entity Should assist users in assessing the level of service provided and Governments ability to meet its obligation

The principal accounting unit is fund. GASB has identified in three categories:

Governmental Funds Proprietary Funds Fiduciary Funds

GOVERNMENTAL FUNDS

GENERAL FUNDS SPECIAL REVENUE FUNDS CAPTIAL PROJECT FUNDS DEBT SERVICE PERMANENT FUNDS

PROPERTIARY

ENTERPRISE FUND

INTERNAL SERVICE FUND

FIDUCIARY FUNDS

PENSION

Investment Trust Fund

Private Purpose Fund Agency Funds

General Fund

General fund accounts for the general activities of a government that are not accounted for by any other fund Only one general fund per reporting entity General fund is created at beginning of the Unit and it exists throughout the life of that unit.

Governmental Fund of Governmental Entities use Modified Accrual Basis of Accounting

Revenues are recognized only when they become both measurable and available Expenditure are recognized when the related liabilities are incurred Short term prepayments are not recognized as assets

Budgets are Legislative Control over Governmental Entities

Basic Classification of Budgets

Annual Budget (Include estimated revenue and appropriations for specific fiscal Year)

Capital Budget (used to control expenditure for construction projects, appropriate for capital project fund)

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Budgetary accounting is used to control expenditures and to account for the levy of taxes sufficient to cover estimated expenditures.

Budgetary accounts are estimated accounts that are the opposite (in terms of debit and credit) from real accounts. Entry to record budgetary accounts are made twice during the year. At the beginning of the year to record budget. And at the end of the year to reverse and close budget.

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Journal Entry at the beginning of the year to Record Budget:

Dr Estimated Revenues Dr Estimated Other Financing Sources Cr Appropriations Cr Estimated Other Financing Uses Cr/Dr Budgetary Fund Balance

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Journal Entry at the end of the year to Reverse and close Budget:
Dr Cr Dr/Cr Cr Cr Appropriations Estimated Other Financing Uses Budgetary Fund Balance Estimated Revenues Estimated Other Financing Sources

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Entries for Recording Revenue:

Billed
Dr Cr Cr Taxes Receivable Current Allowances for Uncollectible Taxes Revenue Cash Taxes Receivable Current Allowances for Uncollectible Taxes Taxes Receivable - Current

Collections
Dr Cr

Taxes Determined Uncollectible

Dr Cr

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Journal Entry to transfer uncollected taxes to a delinquent category:

Journal entry to reclassify receivable to delinquent

Dr Cr Taxes Receivable delinquent Taxes Receivable current

Journal entry to reclassify current allowance for uncollectible taxes to delinquent

Dr Cr Allowance for uncollectible taxes current Allowances for uncollectible taxes - delinquent

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Encumbrances

It is necessary to reflect not only the expenditures, but also the obligations to spend (Purchase Order). This is done to prevent overspending of appropriations. Subsidiary Ledgers are used to record the details of budgetary accounts, encumbrances and other general ledger accounts

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An encumbrance should not be viewed as an expenditure. Similarly the reserve for expenditure is not a liability.

Example :
1. Assume a purchase order is issued to purchase two sanitation trucks by the City of A.The estimated Cost is $45000 each. 2. The invoice is received for one to the trucks, at an actual cost of $44000.

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Example for Encumbrance Accounting: 1. Assume a purchase order is issued to purchase two sanitation trucks by the City of A.The estimated Cost is $45000 each. 2. The invoice is received for one to the trucks, at an actual cost of $44000. Assume that second truck is backordered.
1.

2.

3.

Set up Encumbrance Dr Encumbrance 90,000 Cr Reserve for Encumbrance Record invoice and Reverse estimated encumbrance (a) Dr Expenditure 44,000 Cr Vouchers Payable (or Cash) 44,000 (b) Dr Reserve for Encumbrance Cr Encumbrance At year end if encumbrance (Purchase Order) is still outstanding (a) Dr Reserve for Encumbrance Cr Encumbrance (b) Dr Unreserved fund balance 45,000 Cr Fund Balance reserved for encumbrance

90,000

45,000 45,000

45,000 45,000
45,000

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Inventory of Supplies (The Inventory of Supplies is

evidence of the availability of resources to benefit future periods and the reserve for inventory of supplies account serves as a reservation of fund balance.)

Entry when invoice received

Dr Inventory of Supplies Cr Vouchers Payable

Entry for Use of Supplies

Dr Expenditures Cr Inventory of Supplies

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Transfers Between Funds

Types of transfers between funds can be grouped as under.

External Transfers Operating Transfers Reimbursement Transfer Routine fund transfer of Loan or Advance Nature (Cash needed by one fund may be obtained from other funds.)
Quasi

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Entry to Record Routine Transfer

Dr Cr Dr Cr Due from other fund Cash Or Cash Due to other fund

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Entry to Record Operating Transfer

Dr Cr Other Financing Uses Cash/Other Fund Or

Dr Cr
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Cash/Other Fund Other Financing Sources

Financial Statements for the General Fund of a Governmental Entity

Balance Sheet And Statement of Revenues,Expenditures and Changes in Fund Balance. (Budgeted amounts,
actual amounts and variances from budgeted amounts are included in this statement)

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Closing entries for a general fund at the end of a fiscal year:

Journal entry to close the budget at year end (reverse for the same amount) Journal entry to close Encumbrances ledger account to the Unreserved and Undesignated Fund balance account Journal entry to close the Revenues, Other Financing Sources, Expenditures, and Other Financing Uses Ledger to the Unreserved and Undesignated Fund Balance account

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