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Accounting
Jeter ● Chaney
Introduction to
Accounting
For State and Local
Governmental Units
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Prepared by Sheila Ammons, Austin Community College
Learning Objectives
• Identify the issues involved in developing standards for
nonprofit organizations.
• Describe the broad categories of government fund
entities.
• Distinguish between a general fund and a special
revenue fund.
• Explain the use of a capital projects fund.
• Describe the purpose of a debt service fund.
• Explain the use of a permanent fund.
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Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.
Learning Objectives
• Distinguish proprietary funds from government funds.
• Describe where capital assets and long-term obligations
are reported in government financial statements.
• Describe the changes in reporting requirements under
GASB Statement No. 34.
• Explain the benefits of government-wide statements.
• Describe the types of interfund activities.
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Governmental Accounting
• GASB’s Statement No. 34, issued June 1999, requires:
– Financial statements using government-wide (entity-
wide) approach. (This does not eliminate traditional
fund accounting.)
– Statements emphasizing major funds.
– Management’s discussion and analysis (MD&A).
• GASB Statement No. 34 requires “full accrual”
accounting for all government-wide statements (i.e.,
flow of economic resources approach).
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Reporting Model: Minimum
Information Required
Government-wide Fund Financial Statements
Statement of net position Governmental funds:
Statement of activities Balance sheet
Statement of revenues, expenditures,
and changes in fund balances
Reconciliation to government-wide
statements
Proprietary funds:
Balance sheet or statement of net position
Statement of revenues, expenses,
and changes in net position
Statement of cash flows—direct format
Fiduciary funds:
Statement of fiduciary net position
Statement of changes in net position 5
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History of Governmental Accounting
Standards
• GASB was established (1984):
– Separate board under oversight of Financial
Accounting Foundation (FAF).
– Responsible for establishing financial and reporting
standards for governments.
– GASB endorsed prior statements and interpretations
of the NCGA, as well as standards embodied in the
1974 AICPA Industry Audit Guide.
– Pronouncements of the GASB are codified. The
codification is updated annually.
Encumbrance 150,000
Fund Balance - Assigned (encumbrances) 150,000
Cash 155,000
Expenditures 150,000
Cash 142,500
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Governmental Fund Entities – Debt
Service
Problem 18-1: Prepare the journal entries to be recorded by the debt
service fund as follows:
1. The 2015 budget entry.
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Governmental Fund Entities – Debt
Service
Problem 18-1: Prepare the journal entries to be recorded by the debt service
fund as follows:
2. The entry to record the annual transfer from the general fund.
Cash 71,607
Transfer from General Fund 71,607
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Governmental Fund Entities – Debt
Service
Problem 18-1: Prepare the journal entries to be recorded by the debt
service fund as follows:
4. The entry to record $4,929 in interest income for 2015.
Cash 4,929
Interest income 4,929
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Governmental Fund Entities – Debt
Service
Problem 18-1: Prepare the journal entries to be recorded by the debt
service fund as follows:
5. The entry(s) to close the accounts at the end of 2015.
Appropriations 10,000
Expenditures 10,000
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Governmental Fund Entities
Permanent Fund
• Used to account for and report financial resources that
are restricted to the extent that only earnings, and not
principal, may be used for purposes that support the
reporting government’s programs – that is, for the
benefit of the government or its citizenry. Permanent
funds do not include private-purpose trust funds, which
should be used to report situations in which the
government is required to use the principal or earnings
for the benefit of individuals, private organizations, or
other governments.
LO 6 Explain the use of a permanent fund.
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Governmental Fund Entities
Permanent Fund
• Two types of Nonexpendable Trust funds:
– Principal must be retained intact but earnings may be
expended.
– Principal and the earnings must be retained intact.
• Established as a result of a gift, a bequest, or some other
action that requires the governmental unit to act in a
fiduciary capacity.
LO 7 Proprietary funds. 31
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Proprietary Funds
Enterprise Funds
• Activity for which a fee is charged to external users for
goods and services.
• Common examples:
– Public utilities (water or electricity)
– Airports
– Transportation systems
– Parking lots and garages
– Recreational facilities (swimming pools)
LO 7 Proprietary funds.
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Proprietary Funds
Enterprise Funds
– Resources may come from contributions or from the
proceeds of long-term debt issues or both.
– Contributions may be obtained from
• Other governmental units,
• Resources of the General Fund
• Property owners,
• Subdivision developers, or
• Customers.
LO 7 Proprietary funds.
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Proprietary Funds
Enterprise Funds
– Activities are required to be reported as Enterprise Funds
if any one of the following is met:
1. The activity is financed with debt that is secured solely
by a pledge of the net revenues from fees and charges
of the activity.
2. Laws or regulations required that costs of providing
services must be recovered with fees and changes
(rather than with taxes or similar revenues).
3. Pricing policies establish fees and charges designed to
recover its costs, including capital costs.
LO 7 Proprietary funds.
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Proprietary Funds
Internal Service Funds
• Activity that provides goods or services to other funds,
departments, or agencies of the primary governmental
unit and its component units, or to other governments,
on a cost reimbursement basis.
• Should be used only if the reporting government is the
predominant participant in the activity.
– Otherwise, the activity should be reported as an
Enterprise Fund.
LO 7 Proprietary funds. 35
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Proprietary Funds
Internal Service Funds
– Common examples:
• Central computer facilities,
• Central garages and motor pools,
• Central purchasing and stores departments, and
• Central printing departments
– Resources obtained from contributions from
• Other funds,
• Proceeds from sale of general obligation bonds, or
• Long-term advances from other funds.
LO 7 Proprietary funds.
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Fiduciary Funds
Trust and Agency Funds
– Fiduciary funds are used to report assets held in a trustee
or agency capacity and therefore cannot be used to
support the government’s own programs.
– Purely custodial, and assets always equal liabilities.
– Fiduciary funds include:
• Pension trust funds,
• Investment trust funds,
• Private-purpose trust funds, and
• Agency funds.
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Capital Assets and Long-Term
Debt
• The purchase of capital assets are recorded as an
expenditure in the governmental fund statements.
• Proceeds from the issuance of long-term debt is
recorded as Other Financing Sources in the
governmental fund statements.
• Under GASB Statement No. 34, governments report all
capital assets, including infrastructure assets, and
unmatured general long-term debt on a government-
wide basis and report depreciation expense as a charge
to operations in each period.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s). Designate the fund in which each entry is recorded.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s). Designate the fund in which each entry is recorded.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s). Designate the fund in which each entry is recorded.
50
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s). Designate the fund in which each entry is recorded.
6. The City Water Company (an enterprise fund) issued a bill for $800 for
water provided to the street department’s street cleaner.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s). Designate the fund in which each entry is recorded.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s).
8. A central motor pool was established by a contribution of $120,000
from the General Fund, a long-term loan of $80,000 from the City Parks
Special Revenue Fund, and general obligation bond issue proceeds of
$200,000.
Continued
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s).
8. A central motor pool was established by a contribution of $120,000
from the General Fund, a long-term loan of $80,000 from the City Parks
Special Revenue Fund, and general obligation bond issue proceeds of
$200,000.
continued 55
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s).
9. The Motor Pool Fund billed the General Fund $10,000 and the City
Parks Fund $4,000 for the use of motor vehicles.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s).
10. Special Assessment Bonds in the amount of $400,000 were retired.
The city has indicated a willingness to guarantee the payment of principal.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s).
11. Customers’ deposits of $8,000 for water meters were received by the
City Water Company during the year. The monies are to be held in trust
until the customers request that their services be disconnected and the final
bills are collected.
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Governmental Fund Journal Entries
Problem 18-7: Prepare journal entries to record the following transactions
in the proper fund(s).
12. It is determined that the Service Fund will require an annual
contribution of $60,000 and earnings of $6,000 in the current year to
accumulate the amounts necessary to retire general obligation term bonds.
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