accounting
DESCRIPTION
financial accountingTRANSCRIPT
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The General Fund and Special Revenue Funds
Chapter 3
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Learning Objectives
Discuss similarities & differences between GF and SRFs
Explain MFBA used for these funds
Understand and prepare budgetary entries
Analyze common journal entries for transactions, including interfund activity
Prepare adjusting & closing entries
Define special items and extraordinary items
Prepare GF and SRF financial statements
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General Fund
Used to account for all financial resources
that are not restricted to specific purposes
or otherwise required to be accounted for in
another fund.
Only fund that all governments have.
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Special Revenue Funds
Used to account for general government
financial resources that are restricted by
law or contractual agreement to specific
purposes other than debt service or major
capital projects.
Exist as long as the government has
resources dedicated to specific purposes.
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MFBA
Measurement Focus (MF) is on current
financial resources what is expendable
Basis of Accounting (BA) is modified
accrual recognition occurs for
Revenues when measurable & available
Expenditures when underlying liability is incurred,
except for long-term debt principal and interest
payments (when due)
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Basic Accounting Equation
Related
Liabilities
Fund
Balance
Financial
Assets
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Assumptions for this Chapter
Transactions do not address budgetary accounting, reporting, & control issues
Accounts maintained on GAAP basis during the year
Second assumption rarely holds in practice, but makes instruction easier and more uniform
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Illustrative Entries
Property tax levy
Other revenues
Orders and contracts
Salary expenditures
Interfund activity
Short-term borrowing
Extraordinary and special items
Other transactions and events
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#1 Property Tax Levy [Page 72]
Taxes Receivable Current
Allowance for Uncollectible
Current Taxes
Revenues Property Taxes
200,000
3,000
197,000
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Property Tax Levy
Notice use of allowance account in entry
No bad debts expense remember, a
governmental fund does not use expenses
Records revenue at the amount government
expects to collect
This form of entry assumes net amount will
be available other options discussed in
Chapter 5
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Other Revenues
Some revenues will be accrued when
services are provided
Other revenues may be recognized only
when cash is received no allowance
necessary since all of revenue received
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#2 Other Revenues [Page 73]
Accounts Receivable
Allowance for Uncollectible
Accounts Receivable
Revenues
36,000
1,000
35,000
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#3 Orders and Contracts [Page 74]
Expenditures
Vouchers Payable
29,900
29,900
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Orders and Contracts
Preceding slide showed the general journal entry
However, the details are in the subsidiary ledger
effects not demonstrated in slide show
Most accounts are for current operating
expenditures
Last account affects capital assets, resulting in
accounting in GCA-GLTL accounts
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GCA-GLTL Accounts
GCA (Equipment) Net AssetsGLTL
+$6,100 +$6,100
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#5 Salary Expenditures [Page 74]
Expenditures
Vouchers Payable
29,900
29,900
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Salary Expenditures
Comprise about 75% of city General Fund
expenditures and 85% of school board
General Fund expenditures
Effective control over these expenditures is
essential
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Interfund Activity
Nonreciprocal transactions
Interfund reimbursements
Interfund transfers
Reciprocal transactions
Interfund services provided
Interfund loans
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Interfund Reimbursements
Underlying event:
Transaction initially recorded in one fund
Should have been accounted for and reported in
a different fund
May also be used to distribute costs from
one from to others
Will not separately reported in financial
statements
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#6 Interfund Reimbursement
Receiving fund [Page 75]
Due from SRF
Expenditures
Paying fund (not in textbook)
Expenditures
Due to General Fund
1,500
1,500
1,500
1,500
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Interfund Transfers
Usually involve moving assets (cash or
inventory) from one fund to another
Do not involve requirement or expectation
or subsequent repayment
May also result from one fund providing
services to another without charging for
those services
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Common examples
GF resources transferred to DSF for principal and interest payments
GF resources transferred to CPF to pay for governments portion of capital project
SRF resources transferred to GF to finance expenditures for which SRF resources are restricted
GF resources transferred to EF to provide initial permanent financing
Residual assets of CPF or DSF transferred upon completion of purpose of fund
PF resources transferred to other funds to subsidize operations
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#7 Principal & interest [Page 76]
Transfer to DSF
Cash
5,000
5,000
Financial
Assets
Fund
Balance
Related
Liabilities
+$5,000 +$5,000 (OFS)
Effect on DSF
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#8 Routine unpaid transfer [Page 77]
Transfer from SRF
Due from SRF
10,000
10,000
Financial
Assets
Fund
Balance
Related
Liabilities
+$10,000 +$10,000 (OFU)
Effect on SRF
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#9 Transfer to EF [Page 77]
Transfer to EF
Cash
6,000
6,000
Assets Net AssetsLiabilities
+$6,000 +$6,000 (Transfer)
Effect on EF
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Interfund Services
Defined as sales and purchases of goods and services between funds for a price approximating their external market value
Accounting: Seller fund sells goods or services to external
party (recognizes revenues)
Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)
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#10 Interfund services [Page 78]
Expenditures
Due to ISF
30,000
30,000
Assets Net AssetsLiabilities
+$30,000 +$30,000 (Revenues)
Effect on Stores ISF
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Interfund Loans
One fund loans cash to another
Transaction does not change Fund Balance
Reporting
Lender fund recognizes a receivable
Receiving fund recognizes a liability
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Interfund Loan Terminology
Lender Fund
Short-term loan Due from
Long-term loan Advance to (normally causes
Reservation of Fund Balance)
Receiving Fund
Short-term loan Due to
Long-term loan Advance from
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#11 Payment of short-term loan [Page 78]
Due from SRF
Cash
1,250
1,250
Financial
Assets
Fund
Balance
Related
Liabilities
+$1,250 +$1,250
Effect on SRF
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#12 Loan repayment [Page 78]
Cash
Due from SRF
1,250
1,250
Financial
Assets
Fund
Balance
Related
Liabilities
$1,250 $1,250
Effect on SRF
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Short-term external borrowings
Usually made with banks
Receipt of loan and principal repayment do
not affect Fund Balance; however,
payment of interest does affect Fund
Balance
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#13 Short-term borrowing [page 79]
Cash
Short-Term Notes Payable
20,000
20,000
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#14 Partial loan repayment [page 79]
Short-Term Notes Payable
Expenditures [Interest]
Cash
5,000
600
5,600
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Extraordinary & Special Items
Extraordinary item Used by FASB & GASB
Event is not under control of management and is both (1) unusual in nature and (2) infrequent in occurrence
Special Item Unique to GASB
Event is under control of management and is either unusual or infrequent
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#15 Special item [Page 80]
Cash
Special Item Proceeds from
Sale of Beach Property
8,000
8,000
GCA
(Land)Net AssetsGLTL
$2,000 $2,000
Effect on GCA at historical cost
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#16 Extraordinary item [Page 80]
Cash
Extraordinary Item Insurance
Recovery Proceeds
5,750
5,750
GCA
(Land)Net AssetsGLTL
$6,000 $6,000
Effect on GCA at historical cost
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Other Transactions and Events
Preceding entries were for events common
to all governments
Following entries may or may not occur for
every government
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#17 Collecting taxes and other receivables [Page 81]
Cash
Taxes Receivable Current
Accounts Receivable
175,000
160,000
15,000
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Reclassify taxes as delinquent [Page 81]
#18 Receivable account
Taxes Receivable Delinquent
Taxes Receivable Current
#19 Allowance account
Allowance for Uncollectible Taxes
Current
Allowance for Uncollectible
Taxes Delinquent
40,000
3,000
40,000
3,000
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#20 Other Revenues [Page 81]
Cash
Revenues
205,000
205,000
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#21 Ordering goods & services [Page 81]
No journal entry required until goods
or services are received.
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#22 Collecting delinquent accounts [Page 82]
Cash
Taxes Receivable Delinquent
Revenues
20,200
20,000
200
Revenues are for interest and penalties not previously accrued.
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#23 Purchase of investments [Page 82]
Investments
Cash
10,000
10,000
The GASB has issued two standards in the last few years addressing
accounting for investments: #31 and #40. #31 addresses marking investments
to fair value. #40 addresses risk issues related to the investment. These and
related issues are discussed in Chapter 5.
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#24 Accruing other expenditures [Page 82]
Expenditures
Vouchers Payable
300,000
300,000
GCA
(Equipment)Net AssetsGLTL
$23,000 $23,000
Effect on GCA
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#25 Paying amounts owed [Page 82]
Vouchers Payable
Cash
360,000
360,000
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#26 Interfund transaction: Payment to ISF of balance owed [Page 82]
Due to Internal Service Fund
Cash
22,500
22,500
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#27 Collect accounts receivable [Page 83]
Cash
Accounts Receivable
13,000
13,000
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#28 Write-off an account [Page 83]
Allowance for Uncollectible Accounts
Receivable
Accounts Receivable
400
400
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#29 Correcting an error [Page 83]
Correction of Prior Year Error
Vouchers Payable
300
300
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Using the CPYE Account
Some wonder about using the Correction of Prior Year Error Account (CPYE)
Since the previous years expenditure accounts have been closed, it cant be charged to that account
The use of the Unreserved Fund Balance account is an option, but doing so would hide the error
Besides, remember to where the CPYE account will be closed: Unreserved Fund Balance
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Year-End Adjustments
Revenue Adjustments
Interest on investments and delinquent taxes
Unbilled charges for services
Unrestricted intergovernmental grants that are
due but havent been received
Expenditure Adjustments
Interest on short-term debt
Accrued payroll
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A1 Interest & Penalties [Page 83]
Interest & Penalties Receivable
Allowance for Uncollectible
Interest & Penalties
Revenues Interest & Penalties
550
50
500
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A2 Accrued interest on investments [Page 84]
Accrued Interest Receivable
Revenues
400
400
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A3 Accrued interest on short-term debt[Page 84]
Expenditures
Accrued Interest Payable
250
250
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Closing Entry Process
Close the operating accounts and update
Unreserved Fund Balance
Close subsidiary revenue and expenditure
accounts
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C Close the Actual [Page 85]
Revenues
Transfer from SRF
Special Item Proceeds from Sale of
Beach Property
Extraordinary Item Insurance
Recovery Proceeds
Unreserved Fund Balance
Expenditures
Transfer to DSF
Transfer to EF
Correction of Prior Year Error
438,100
10,000
8,000
5,750
51,300
399,250
5,000
6,000
300
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Reserve for Encumbrances
Reserves indicate that portion of Fund
Balance not available for appropriation
Reserve for Encumbrances indicates
amount that must be appropriated next
year for transactions started in current year
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#30 Outstanding orders [Page 84]
Unreserved Fund Balance
Reserve for Encumbrances
20,000
20,000
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General Fund Financial Statements
Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balance
___ Revenues, Expenditures, and Changes in Fund Balance Budget-to-Actual Statement of . . ., if part of the Basic Financial
Statements
Schedule of . . ., if placed in Required Supplementary Information (RSI)
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Balance Sheet
Standard Report FormatCurrent Assets = Current Liabilities + Fund Balance
Fund Balance presented in two sections
Reserved with specific reserves identified
Unreserved which may be further divided into
Designated with specific designations identified
Undesignated
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Reserves of Fund Balance
Indicate that some amounts are not available for
appropriation or expenditure
Creation requires action by governing council
Common reserves:
Encumbrances
Petty Cash
Inventories
Advances
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Long-Term Loan [Page 91]
The Loan
Advance to SRF
Cash
The Reserve
Unreserved Fund Balance
Reserve for Advance to SRF
5,000
5,000
5,000
5,000
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Unreserved Fund Balance
Available for appropriation and expenditure
May be designated for some specific
purpose
Normally done by Finance Director
Less formal than a reserve
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Statement of Revenues, Expenditures, & Changes in Fund Balance
May be referred to as the operating
statement
Format specified by the GASB (there had
been optional formats prior to 1999)
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Operating Statement Format
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Notes on the Statement [Page 94]
Beginning Fund Balance shown as previously reported and than corrected for error
Transfers reported separately from revenues and expenditures
Special item and extraordinary item reported between Other Financing Sources (Uses) and Net Change in Fund Balance
Statement explains changes in fund balance for the year
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Classification of Expenditures
Function
Organizational Unit (including Department
and Subunit)
Activity
Object Class
Character