explain changes in net position © dale r. geiger 20111

Explain Changes in Net PositionExplain Changes in Net Position

© Dale R. Geiger 2011 1

Terminal Learning ObjectiveTerminal Learning Objective• Task: Explain Changes in Net Position Over a

Period of Time • Condition: You are a cost advisor technician with

access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors

• Standard: With at least 80% accuracy:• Prepare Statement of Budgetary Resources• Demonstrate proprietary reporting• Prepare basic proprietary financial statements


Do federal agencies keep two sets of Do federal agencies keep two sets of books?books?


Two Types of AccountsTwo Types of Accounts

• Budgetary Accounts track budgetary activities and resources• Appropriations, Obligations, Expenditures

• Proprietary Accounts track financial activities and resources• Liabilities and payment of liabilities• Assets and payments received• Expenses and revenues


Budgetary ReportingBudgetary Reporting

• Statement of Budgetary Resources

• Budgetary Resources consist of:• Prior Year Unobligated Balance• Current Year Appropriations• Collections

Expenditures + OpenObligations

+ UnobligatedBalance

Appropriations& Other

=

Budgetary Resources = Status of Budgetary Resources


Statement of Budgetary ResourcesStatement of Budgetary Resources

• The fictional Training Appropriation Fund received appropriations of $2720

• Purchase orders in the amount of $1280 were issued

• Goods received were $824 (estimated and actual)

• Task: Prepare the Statement of Budgetary Resources



• What items represent the Budgetary Resources?

• What items represent the Status of Budgetary Resources?

• How much are the expenditures? • How much of the obligations was left

outstanding?• What is the unobligated balance?



Budgetary Resources:Appropriations $2720

Status of budgetary resources:Obligations (unfilled orders) $456Expended appropriations 824Unobligated Balance 1440

Total $2720



Budgetary Resources:Appropriations $2720

Status of budgetary resources:Obligations (unfilled orders) $456Expended appropriations 824Unobligated Balance 1440

Total $2720The purpose of this report is to show that

all budgetary resources are accounted for

© Dale R. Geiger 201110

Check on LearningCheck on Learning

• What is the basic equation for the Statement of Budgetary Resources?

• What items represent the Status of Budgetary Resources?


Proprietary ReportingProprietary Reporting

• Statement of Net CostCosts – Earned Revenues = Net Cost

• Statement of Changes in Net PositionFinancing Sources – Net Cost = Change in Net Position

• Balance SheetAssets = Liabilities + Net Position

• Uses the Accrual Basis of Accounting


Other Financing SourcesOther Financing Sources

• Increase Net Position • Prevent Revenues and Expenditures from

being counted twice in the same entity• Transfers of cash from other funds in the same

government• Unreimbursed services provided by another

governmental segment or entity

• Cash inflows from long term borrowing


Proprietary vs. BudgetaryProprietary vs. Budgetary

• The budgetary accounts use the budgetary basis:

Once the goods are received, the budgetary accounting process is finished and the proprietary accounts take over

Plan Order ConsumeReceive Pay

Commitment Obligation Expenditure


Proprietary vs. BudgetaryProprietary vs. Budgetary

• The proprietary accounts use the accrual basis:

• When goods are received liability recorded• When payment is made liability satisfied• When goods are consumed expense


Asset & Liability Remove Liability Expense


Lacy’s Proprietary ActivitiesLacy’s Proprietary Activities

• Lacy purchases supplies on account at the grocery store (she RECEIVES GOODS)

• The EXPENDITURE is the final activity in the budgetary accounts

• In the proprietary accounts:• An asset is recorded: Supplies represent future

benefit – they can be used to make and sell lemonade• A liability is recorded: Lacy has an obligation to pay

the bill in the future



• When Lacy pays the grocery bill:• In the proprietary accounts:• Cash (an asset) decreases• The liability is removed because Lacy has satisfied

her obligation



• When Lacy uses the supplies to make and sell lemonade

• In the proprietary accounts:• Supplies (asset) decrease• An expense is recorded


Asset & Liability Remove Liability Expense



• What activity ends the involvement of the budgetary accounts in the purchasing process?

• What activity constitutes an expense in the proprietary accounts?


Statement of Net CostStatement of Net Cost

• Most federal agencies generate revenues that are insignificant in comparison to expenses

• Revenues are generally reimbursements for costs incurred on behalf of other federal agencies

• Expenses – Revenues = Net Cost



• Salaries and personnel costs for the fictional Training Appropriation Fund for the year were $398

• Other expenses amounted to $40• Miscellaneous revenues of $186 were

collected • Task: Prepare the Statement of Net Cost



Salaries and personnel costs $398Other expenses 40Total Costs $438Less: Miscellaneous revenues 186Net Cost $252



Salaries and personnel costs $398Other expenses 40Total Costs $438Less: Miscellaneous revenues 186Net Cost $252

The purpose of this statement is to show the cost to the government of providing this program or service.


Statement of Change in Net PositionStatement of Change in Net Position

• Shows how the activities of the period affect the Net Position of the entity

• Net Position consists of:Cumulative Results of Operations

+Unexpended Appropriations

• The changes in the two categories are calculated separately



Cumulative Results of Operations:

Appropriations used+ Other financing sources- Net Cost= Net Change+ Beginning= Ending

Unexpended Appropriations:

Appropriations received - Appropriations used= Net Change+ Beginning= Ending







Proprietary activity© Dale R. Geiger 2011 30






Budgetary activity© Dale R. Geiger 2011 31


• The fictional Training Appropriation Fund is a new entity, so beginning net position is zero

• Appropriations were $2720, and Expenditures were $824 (from Statement of Budgetary Resources)

• Net cost of operations is $252 (from Statement of Net Cost)



Cumulative Results of Operations

Unexpended Appropriations

Appropriations -- $2720Appropriations Used $824 (824)Less: Net Cost (252) --Net change 572 1896Add Beginning: -0- -0-Ending: $572 $1896


Balance SheetBalance Sheet

• Similar to the Statement of Financial Position• Assets = Liabilities + Net Position• If Assets < Liabilities, Net position will be

negative• Net position = Unexpended appropriations +

cumulative results of operations


Balance SheetBalance Sheet

• The fictional Training Appropriation Fund has $2600 in its balance with the Treasury

• Equipment (net of depreciation): $380• Liabilities: $512• From Statement of Change in Net Position:• Cumulative results of operations: $572• Unexpended Appropriations: $1896

• Task: Prepare the Balance Sheet


Balance SheetBalance SheetAssets:Balance with the Treasury $2600 Equipment (net of depreciation) 380Total Assets $2980

Liabilities and Net Position:Liabilities $512Unexpended Appropriations 1896 Cumulative results of Operations 572Total Liabilities and Net Position $2980


Balance SheetBalance SheetAssets:Balance with the Treasury $2600 Equipment (net of depreciation) 380Total Assets $2980

Liabilities and Net Position:Liabilities $512Unexpended Appropriations 1896 Cumulative results of Operations 572Total Liabilities and Net Position $2980

This statement lists the assets of the entity and shows how they were financed:

(borrowing)

(appropriations)

(operations)



• Which statement shows the cost to the government of providing a particular program or service?

• Which statement explains the changes in the Net Position of the entity?


Why is it important to be familiar with Why is it important to be familiar with External Reports?External Reports?

• External Reporting is the primary objective of most accounting systems

• Cost accounting information is drawn from the same accounting system

• Understanding the basis of the accounting data permits a meaningful translation to useful cost information


Issues with Budgetary AccountingIssues with Budgetary Accounting

• Focus is on obligations and expenditures• Ordering and receiving goods do not reflect actual

use of resources

• 99.9% philosophy of financial management• All of the money will be spent, yet does not

necessarily reflect the true cost of operations


Governmental Reporting SpreadsheetGovernmental Reporting Spreadsheet

Enter data to record budgetary activity



Prepare the Statement of Budgetary Resources



Budgetary Resources equal

Status of Budgetary Resources



Prepare Statement of Net Cost



Net cost flows into the Statement of Change in Net Position, Cumulative Results of Operations



The Statement of Change in Net Position shows changes in both Cumulative Results of Operations

and Unexpended Appropriations



The Balance Sheet shows Assets and Liabilities as well

as the new balances in Unexpended Appropriations

and Cumulative Results of Operations


Practical ExercisePractical Exercise


explain changes in net position © dale r. geiger 20111

Documents

revenues dale

net position dale

budgetary activities

net coststatement of

liabilities net positionuses

expended appropriations

obligations unfilled

financial activities