class:Government and Non-Profit Accounting
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Reck_18e_Chap003new_PPT1.pptxGovernmental Operating Statement Accounts; Budgetary Accounting
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3-1 Describe how operating revenues and expenses related to governmental activities are reported in
the government-wide statement of activities.
Learning Objectives
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Government-wide Financial Statements
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Statement of Net Position
Statement of Activities
Classified by program or function
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Government-wide Statement of Activities
Government-wide statement of activities classifies expenses/revenues by functions and programs.
Functions and programs represent major activities or services of a government.
Net expense or revenue for each function or program is reported.
Expenses – Program Revenues = Net (Expense) Revenue
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Expenses: Direct and Indirect Expenses
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Direct Expenses
Indirect Expenses
Expenses specifically linked to a function or program
Reported as a separate line item and not allocated to any function or program
Reported on the line for a specific function or program
Expenses not directly linked to an identifiable function/program.
Program and General Revenues
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Program Revenues
General Revenues
Reported in the top section of the statement by functions/programs
Reported separately in the bottom portion of the statement
This allows user to evaluate whether functions or programs are self-sufficient or require general revenue to cover net costs.
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Program Revenue Categories
Charges for services
Charges to customers or others
Available for both governmental and business-type activities
For governmental activities: fines & forfeits; licenses & permits; operating special assessments; charges to other governments for services
Grants and contributions
Operating grants and contributions: restricted for operating purposes by resource providers
Capital grants and contributions: restricted for capital acquisitions
Multipurpose grants
Earnings from endowment
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General Revenue Examples
All taxes, even those specified by law for a particular use
Contributions to permanent funds and transfers between governmental and business-type activities should be reported below general revenues
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Reporting Special Items and Certain Transfers
Reported as separate line items below General Revenues:
Special items:
Items within management’s control and are either unusual in nature or infrequent in occurrence.
E.g. one-time revenue from the sale of a significant government asset
Extraordinary items:
Items or other events both unusual in nature and infrequent in occurrence.
Contributions to principal of endowment/permanent fund
Transfers between governmental activities and business-type activities.
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3-2 Distinguish, in governmental funds, between Revenues and Other Financing Sources and between Expenditures and Other Financing Uses.
Learning Objectives
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Governmental Fund Financial Statements
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Governmental Funds
Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balance
Governmental Fund Operating Statement Accounts
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Revenues
Expenditures:
i.e. operating expenditure, capital expenditure, debt service expenditure
Other Financing Sources (Other Financing Uses): transfers into (out of) a fund; the proceeds of debt issues
Expenditure Classification
Function or program: general gov, public safety, public works, health and welfare, culture and recreation
Organization unit: police dep, fire dep, building safety dep, street dep, city attorney, city clerk
Activity: specific work performed by organizational units
Character: current expenditure, capital outplays, debt service
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Major Revenue Source Classes
Taxes
Special Assessments
Licenses and Permits
Intergovernmental Revenues
Charges for Services
Fines and Forfeits
Miscellaneous Revenue
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Types of Taxes
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Ad Valorem Property Taxes
Sales Taxes
Gross Receipts Taxes
Death and Gift Taxes
Interest and Penalties on Delinquent Taxes
Income Taxes
Special Assessments
Service-type special assessments
Routine services (e.g. snow plowing, street cleaning) that are provided outside the normal service area or at a higher rate or level of quality than available to the general public
Capital improvements special assessments
Capital improvements that benefit only certain property owners
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Licenses and Permits
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Building Permit
Vehicle License
Business License
Animal License
Intergovernmental Revenue
According to GASB, grants and other financial assistance are transactions in which one government transfers cash or other items of value to (or incurs a liability for) another government, an individual, or an organization as a means of sharing program costs, subsidizing other governments or entities, or otherwise reallocating resources to the recipients.
Grants and other financial assistance are nonexchange transactions, and may be government-mandated or voluntary.
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Intergovernmental Revenue Recognition
Intergovernmental revenues are considered for revenue recognition when all applicable eligibility requirements are met.
Challenges include determination of eligibility requirements and when those requirements are satisfied including:
Required characteristics of recipients
Time requirements—Period in which grant must be used.
Reimbursements—Expenditures have been made
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Example
A local government has been awarded a state grant $50,000 to finance a fine arts program, but the state will provide reimbursement only after the grantee has made expenditures related to the fine arts program.
Year 1: no qualifying expenditure is incurred.
Year 2: The local government has incurred qualifying expenditures of $50,000.
How much revenues can be recognized in Year 1 and Year 2?
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Charges for Services
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All are charges for goods and services provided by a government entity
Court costs
Special police services
Street, sidewalk, and curb repairs
Parking meter receipts
Tuition
Recording fees
Zoning fees
Fines and Forfeits
Revenue from fines and forfeits includes:
Fines and penalties for commission of statutory offenses and for neglect of official duty.
Forfeitures of amounts held as security against loss or damage, or collections from bonds or sureties placed with the government for the same purpose.
Penalties of any sort.
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Miscellaneous Revenues
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Interest (except interest on taxes)
Rents and royalties
Escheats
Public enterprise contributions
Private contributions
3-3 Discuss budgetary reporting-governmental funds.
Learning Objectives
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Budgets
Restrictions on use of resources in governmental funds lead to
Requirement to prepare budgetary schedule
budget-to-actual comparison schedule
Recording budgetary journal entries
Integrate the budgetary accounts into the general ledgers
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Budgetary and Operating Account Relationships
| Budgetary Accounts | Operating Accounts | Budgetary Status |
| Estimated Revenues (Debit) | Revenues (Credit) | |
| Estimated Other Financing Sources (Debit) | Other Financing Sources (OFS) (Credit) | |
| Appropriations (Credit) | Expenditures (Debit) | Appropriations minus the sum of Expenditures and Encumbrances indicates remaining or overspent expenditure authority. |
| Estimated Other Financing Uses (Credit) | Other Financing Uses (OFU) (Debit) | |
| Encumbrances (Debit) | N/A | An encumbrance has a normal debit balance because it is a commitment to make an expenditure. |
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3-5 Explain how budgetary accounting contributes to achieving budgetary control over revenues and expenditures, including such aspects as
Recording and revising the annual budget.
Accounting for revenues, encumbrances, and expenditures.
Closing budgetary accounts.
Learning Objectives
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1. The legally approved budget for the General Fund of a government for the fiscal year ending 12/31/2020 shows 1,277,500 estimated revenues: 882,500 is estimated tax revenues, 200,000 is estimated intergovernmental revenues, and 195,000 is estimated revenues from licenses and permits.
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Estimated Revenues . . . . . . . . . . . 1,277,500
Budgetary Fund Balance . . . . . 1,277,500
Estimated Revenues Ledger:
Taxes . . . . . . . . . . . . . . . . . . . . . . . 882,500
Intergovernmental Revenues . . . . . 200,000
Licenses and Permits . . . . . . . . . . . 195,000
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The following budget has been legally approved as the budget for the General Fund of a government for the fiscal year ending 12/31/2020.
Estimated expenditures 1,362,000
Estimated other financing uses 274,500
2. The budget also shows the following information:
Estimated expenditures 1,362,000
Estimated other financing uses 274,500
1,150,000 of the estimated expenditures are intended for the general government, and 212,000 is intended for public safety.
The 274,500 estimated other financing use is budgeted for interfund transfer out to other funds.
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General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Budgetary Fund Balance . . . . . . . . . 1,636,500
Appropriations . . . . . . . . . . . . . . . . 1,362,000
Estimated Other Financing Uses . . 274,500
Appropriations Ledger:
General Government . . . . . . . . . . 1,150,000
Public Safety . . . . . . . . . . . . . . . . 212,000
Estimated Other Financing Uses Ledger:
Interfund Transfers Out to Other Funds . . . . . . . . . . . . . . . 274,500
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3. The General Fund collected revenues in cash during January from licenses and permits of 13,200, and intergovernmental revenues of 61,900.
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 75,100
Revenues . . . . . . . . . . . . . . . . . . . 75,100
Revenues Ledger:
Licenses and Permits . . . . . . . . . . . 13,200
Intergovernmental Revenues . . . . . 61,900
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4. Early in January, a total amount of 45,400 of purchase orders are issued. The purchase orders are for the following functions:
General government 38,000
Public safety 7,400
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Encumbrances—2020 . . . . . . . . . . . . . 45,400
Encumbrances Outstanding—2020 . 45,400
Encumbrances Ledger:
General Government . . . . . . . . . . . . . . 38,000
Public Safety . . . . . . . . . . . . . . . . . . . . 7,400
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5. The General Fund has partially received the order. The estimated dollar amount of the partial order is 42,000 (35,000 for General Government and 7,000 for Public Safety). The General Fund is billed 42,400 for this partial order (35,100 for the goods for General Government, and 7,300 for Public Safety).
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General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Encumbrances Outstanding—2020 42,000
Encumbrances—2020 . . . . . . . . 42,000
Encumbrances Ledger:
General Government . . . . . . . . 35,000
Public Safety . . . . . . . . . . . . . . . 7,000
.
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General Ledger Subsidiary Ledger
Debits Credits Debits Credits
Expenditures—2020 . . . . . . . . . . . 42,400
Vouchers Payable . . . . . . . . . . . 42,400
Expenditures Ledger:
General Government . . . . . . . . . . 35,100
Public Safety . . . . . . . . . . . . . . . . . 7,300
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General Ledger Debits Credits
Appropriations . . . . . . . . . . . . . . . . 1,362,000
Estimated Other Financing Uses . . 274,500
Estimated Revenues . . . . . . . . 1,277,500
Budgetary Fund Balance . . . . . 359,000
5. At year end, the budgetary accounts are closed.
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Special Topics: Revision of the General Fund Budget
During the fiscal year, comparisons should be made of budgeted amounts to actual amounts. A review may be necessary to determine whether the budget appears realistic or whether changes should be made in light of current information.
If the budget is legally amended, appropriate journal entries should be made to record the changes.
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Example
The legally approved budget for the General Fund of a government for the fiscal year ending 12/31/2020 shows:
Estimated revenues 1,377,500
Estimated expenditures 1,362,000
The administrators have determined that the budget should be legally amended to reflect following changes:
Charges for services are expected to be $15,000 more than originally budgeted.
There will be a 50,000 decrease in appropriation for public works and 80,000 increase in appropriation for public safety.
Question: What are the new balances of estimated revenues and appropriations?
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Special Topic: Receipt of Goods Ordered in Prior Year
Purchase orders and other commitments may be issued in one year, while the goods and services are received in the following year. In this case, the encumbrance account is not closed at year end.
When the goods or services are provided, they are considered an expenditure of the prior year, to the extent of the amount that was encumbered and did not lapse.
Any excess over the encumbrance amount is considered an expenditure of the year in which the goods or services are received.
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Example
All goods and services for which encumbrances were outstanding at the end of 2019 are received in 2020 at a total invoice cost of 127,250. The estimated amount was 127,000.
Question: How much do we charge to expenditure-2019 and expenditure-2020?
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