class:Government and Non-Profit Accounting
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Reck_18e_Chap004_PPT.pptxC
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Accounting for Governmental Operating Activities—Illustrative Transactions and Financial Statements
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Learning Objectives
4-1 Analyze typical operating transactions for governmental activities and prepare appropriate journal entries at both the government-wide and fund levels.
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Dual-track approach
Different measurement focuses and bases of accounting for governmental funds and governmental activities at the government-wide level
Using the dual-track approach each transaction is recorded separately in the general journals for the governmental fund and governmental activities
The Dual-Track Approach
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Revenue recognition in General Funds
General funds
In general, revenue is recognized when measurable and available.
Property tax revenue is an example of a nonexchange revenue
Revenue is recognized when there is a legal enforcement claim– that is, when the property taxes are levied.
Revenue is then adjusted if not collected in the current fiscal year or soon after.
Revenue is recognized again once the collection is completed.
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Recording the property tax levy
1. The general fund has levied 2,653,061 of property tax revenue of year 2020, 98% of which is expected to be collectible.
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Collection of current year levied taxes
2. Collection of property taxes levied in 2020 amounts to $2,350, 408 during the first three months.
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Delinquent Taxes
3.1) All property taxes are legally due before the end of the fiscal year. The uncollected property taxes becomes delinquent.
Based on its past collection history, the General Fund does not collect a significant amount of delinquent taxes early (within first 60 days) in the following year.
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Delinquent Taxes
3. 2) 13,320 of interest and penalty has been levied on delinquent property taxes of year 2020, of which 10,800 is expected to be collected.
Based on its past collection history, the General Fund does not collect a significant amount of interest and penalty early (within first 60 days) in the following year.
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Collection of delinquent taxes
4. Delinquent taxes of 207,330 are paid, together with 7,200 interest and penalty recorded at the end of prior year.
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Writing off uncollectible delinquent taxes
5. The government approves to write off delinquent taxes totaling 26,300 and related interest and penalty of 1,215.
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Other Revenue recognition in General Funds
General funds
In general, revenue is recognized when measurable and available.
Other revenues: sales taxes, licenses and permits, fines and forfeits, charges for services
Revenue is recognized
when transaction takes place and cash is received
or if measurable before cash collection and available for current period or soon after
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Other revenues
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Other Revenue: Interfund Activity
| Fund financial statements | Government-Wide financial statements | |
| Interfund Exchange | Recognize revenues, expenditures/expenses | Intra-activity (Between two governmental funds or two enterprise funds): No effect Inter-activity (Between a governmental fund (or internal service fund) and an enterprise fund): record internal balance |
| Interfund Transfers (Nonexchange) | Recognize other financing source/ use if government funds |
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Expenditure Recognition
Expenditure budgeting on a cash or near-cash basis
Expenditure recognized in the period in which the government incurs the liability and
paid in current period (credit cash) or
shortly after the start of the next year (credit accrued liability account at time of transaction)
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Tax Anticipation Notes
An analysis of cash receipt and disbursement patterns may reveal that cash available for payment of expenditures will not be sufficient at times to make all required payments.
Banks customarily meet the working capital needs of a government by accepting a tax anticipation note from the government. These short-term loans are secured by the taxing authority of the government.
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Special Topics: Correction of Errors
Material errors should be corrected as soon as they are discovered.
Correction of errors
related to current receivables/ revenue/expenditures: adjust the affected accounts
related to prior period expenditures: adjust the fund balance.
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Assets—Inventory of Supplies
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Purchases Method
Expenditures equal the total cost of supplies purchased during the year
Consistent with modified accrual basis
Consumption Method
The expenses/expenditures reflect the amount consumed
Consistent with the accrual basis of accounting
Periodic inventory system
Perpetual inventory system
Expenditures and Inventory of Supplies must be adjusted at year end
No entry necessary at year end to adjust Expenditures and Inventory of Supplies
Inventory of Supplies Example
General Fund purchased supplies from external vendors in the amount of $260,000
Supplies costing $250,000 was consumed during the fiscal year.
At year-end, a physical inventory revealed that inventory of supplies is $10,000.
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Special Topics: Closing Entries
All temporary accounts, both budgetary and operating, must be closed to the budgetary fund balance and fund balance accounts.
When closing the operating accounts
Revenues + other financial sources – expenditures- other financing uses Change in Fund Balance—Unassigned
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Special Topics: General Fund Financial Statements
In governmental fund financial statements, the General Fund is always considered to be a major fund.
Although not required, separate financial statements may be prepared for the General Fund.
balance sheet
statement of revenues, expenditures and changes in fund balances
budgetary comparison statement (or schedule) of revenues, expenditures, and changes in fund balances.
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Special Revenue Funds
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Special revenue funds are needed when a significant revenue source is restricted or committed for a specific operating purpose, other than those served by proprietary or fiduciary funds.
Street Fund
Library Operating Fund
Trust Fund
Permanent Funds
GASB standards require that endowments be accounted for in a fund called a permanent fund.
Earnings are expendable for specific purposes, but the principal amount is not expendable
Public-purpose trusts for which both principal and earnings thereon can be expended for a specified purpose are accounted for in a special revenue fund.
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