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GOVERNMENTALAND NONPROFITACCOUNTING
Brief ContentsPreface xxi
CHAPTER 1 Governmental and Nonprofit Accounting
Environment and Characteristics 1
CHAPTER 2 State and Local Government Accounting and Financial ReportingModel: The Foundation 32 -
CHAPTER 3 The General Fund and Special Revenue Funds 69
CHAPTER 4 Budgeting, Budgetary Accounting, and Budgetary Reporting 120
CHAPTER 5 Revenue Accounting—Governmental Funds 175
CHAPTER 6 Expenditure Accounting—Governmental Funds 222
CHAPTER 7 Capital Projects Funds 264
CHAPTER 8 Debt Service Funds 303
CHAPTER 9 General Capital Assets; General Long-Term Liabilities; Permanent Funds
Introduction to Interfund-GCA-GLTL Accounting 3 4 4
CHAPTER 10 Enterprise Funds 391
CHAPTER 11 Internal Service Funds 440
CHAPTER 12 Trust and Agency (Fiduciary) Funds
Summary of Interfund-GCA-GLTL Accounting 4 7 2
CHAPTER 13 Financial Reporting
The Basic Financial Statements and Required Supplementary Information 5 0 8
CHAPTER 14 Financial Reporting
Deriving Government-Wide Financial Statements and Required Reconciliations 5 5 7
CHAPTER 15 Financial Reporting
The Comprehensive Annual Financial Report and the Financial Reporting Entity 6 1 3
CHAPTER 16 Non-SLG Not-for-Profit Organizations
SFAS 116 and 117 Approach 6 4 6
CHAPTER 17 Accounting for Colleges and Universities 685
VII
ContentsPreface xxi
CHAPTER 1Governmental and Nonprofit Accounting: Environment and Characteristics 1Characteristics and Types of G&NP Organizations 2
G&NP Sector Significance 2
The G&NP Environment 3 v . _ -
Objectives of G&NP Accounting and Financial Reporting 6
Authoritative Sources of G&NP Accounting Principles and Reporting Standards 6
TheFAF 7
The FASB 7
FASB-GASB Jurisdictions 7
"Government" Defined 8
1-1 In Practice: Not-for-Profit (Nonprofit) Organizations May Be Governments 8
The GASB 9
GAAP Hierarchies 1 1
Concepts and Objectives of SLG Accounting and Financial Reporting 12
Governmental-Type Activities 13
Financial Report Users 17
Financial Report Uses 18
Business-Type Activities 18
Users and Uses of Financial Reports 19
Financial Reporting Objectives 2 0
Characteristics of SLG Accounting and Financial Reporting 2 1Fund Accounting 2 1
Budgets and Appropriations 2 2
Other Distinguishing Characteristics 2 3
Commercial Accounting Comparison 2 4
Concluding Comments 2 4 ;
APPENDIX 1 -1 Evolution of Accounting Principles and Standards—Prior to the GASB 24Questions 27Exercises 28Problems 30
CHAPTER 2State and Local Government Accounting and Financial Reporting Model: The Foundation 32Overview of the GASB Financial Reporting Model 33The Fundamental Features of the SLG Accounting and Financial Reporting Model 35
GAAP and Legal Compliance 3 6
Fund Accounting 3 7
Fund Categories 3 8
Transaction Analysis 4 3
Types of Funds 4 4
2-1 In Practice: Governmental Fund Accounting for the Dallas Cowboys Football Stadium 4 9
Comparative Financial Statement Formats 52
Annual Financial Reporting 5 5
Concluding Comments 5 9
Questions 59
IX
X Contents
Exercises 60Problems 64Cases 67
CHAPTER 3The General Fund and Special Revenue Funds 69
Measurement Focus 70Purposes and Assumptions of This Chapter 71
General Fund Accounting—Illustrative Example 71Entries During 20X1 71 " ' "" 'Year-End Adjustments 83Preclosing Trial Balances 84Illustrative Example Worksheets 8420X1 Closing Entries 84Postclosing Trial Balance 86
Balance Sheets 87Interim Balance Sheet 87Year-End Balance Sheet 87Fund Balance 88Fund Balance Reporting Classifications 89Interfund Receivables and Payables 92Capital Assets and Long-Term Liabilities 92
Statement of Revenues, Expenditures, and Changes in Fund Balances 93Restatements 94Extraordinary Items and Special Items 95
Classification of Expenditures 95Combining Special Revenue Fund Statements 98Concluding Comments 100APPENDIX 3-1 General Ledger Worksheet and Subsidiary Ledgers 100APPENDIX 3 -2 Classification of Expenditures 100APPENDIX 3-3 Alternative Account Structure and Entries 109Questions 110Exercises 110Problems 114Cases 118
CHAPTER 4Budgeting, Budgetary Accounting, and Budgetary Reporting 120The Government Budgetary Perspective 121Budgetary Accounting and Reporting 122
Budgetary Accounting and Control 122Recording the Budget—General Ledger and Subsidiary Ledger 126Budget Revisions 126Revenues and Expenditures Ledgers Incorporating Budgetary Accounts 131Level of Detail in Subsidiary Ledgers 136Fund Balance Comparison Summary: Budgetary Accounting vs. GAAP 137
Budgetary Reporting Overview 137The Budgetary Basis 138Interim Budgetary Statements 138
Budget Comparison Schedule or Statement of Revenues, Expenditures, and Changes in Fund Balance—Budgetand Actual 140
Contents XI
Budgetary Comparison Statement Illustrated—Budgetary Basis Same as GAAP 1 4 1
Budgetary Comparison Statement Illustrated—Budgetary Basis
Differs from GAAP 143
Entries During 20X2 1 4 5
Use of a Budgetary Fund Balance Account 146
Budgetary Planning, Control, and Evaluation 147
Planning 147
Control 148
Evaluation 148
Basic Budgetary Terminology 1 4 8 ,
Capital vs. Current Budgets 149
Tentative vs. Enacted Budgets 149
General vs. Special Budgets 1 5 1
Fixed vs. Flexible Budgets 1 5 1
Executive vs. Legislative Budgets 1 5 1
Budgetary Approaches and Emphases 1 5 1
Budget Preparation 1 5 2
Overview 152
Preliminary Estimates 1 5 2
Preparing the Budget 153
Revenue Estimates and Requests 1 5 4
Expenditure Estimates and Requests 1 5 4
Expenditure Budgeting Approaches 1 5 4
Legislative Consideration and Action 1 5 6
Budget Execution 157
Concluding Comments 1 5 8
Questions 158
Exercises 159
Problems 163
Cases 167
Harvey City Comprehensive Case 1 7 0
CHAPTER 5Revenue Accounting—Governmental Funds 175Revenue Definition and Recognition 1 7 6
Nonexchange Transactions 1 7 8
Governmental Fund and Proprietary Fund Revenue Recognition Compared 1 8 0
Classification of Revenue Accounts 1 8 2General Fund Revenues 1 8 2
Other Governmental Funds Revenues 182
Taxes 183
Taxpayer-Assessed Taxes 183
Property Taxes 1 8 4
Property Tax Statements/Schedules 193
Licenses and Permits 1 9 3
Intergovernmental Revenues 193
Intergovernmental Revenue Classifications 1 9 4
Intergovernmental Revenue Accounting 1 9 5
Charges for Services 1 9 8
Interfund Services vs. Reimbursements 1 9 8
Charges for Services 1 9 8
Fines and Forfeits 2 0 0
XII Contents
Investment Earnings 201
Miscellaneous Revenues 204Escheats 204Private Contributions 205
Selected Nonrevenue Fund Balance Increases 205Capital Asset Sales/Losses 205Internal PILOTS 205Col lateral ized Borrowings 206
Revenue Reporting: GAAP vs. Budgetary 206
Changes in Accounting Principles 206 • _
Error Correction 209
Concluding Comments 210
Questions 210
Exercises 211
Problems 215
Cases 219
Harvey City Comprehensive Case 220
CHAPTER 6Expenditure Accounting—Governmental Funds 222
Expenditure Definition and Recognition 223Capital Outlay Expenditures 224Debt Service Expenditures 225Intergovernmental Expenditures 225Current Operating Expenditures 225Inventories and Prepayments 225Expenditure Recognition Summary 226
Expenditure Accounting Controls 227
Expenditure Accounting Procedures 227Personal Services 228 ,Materials and Supplies 230Other Services and Charges 234
Adjusting Entries 2376-1 In Practice: Government Lease Transactions 238Encumbrances 239Debt Service 240Claims and Judgments 240Compensated Absences 244Pension/OPEB Plan Contributions 245
Expenditure Reporting: GAAP vs. Budgetary 246
Changes in Accounting Principles 247Alternative Principles 247New GASB Standards 250
Error Correction 251
Concluding Comments 251
Questions 252
Exercises 252
Problems 254
Cases 261
Harvey City Comprehensive Case 262
Contents XI11
CHAPTER 7Capital Projects Funds 264Capital Projects Fund Operations and Accounting Standards 266
CPF Financial Resources 266Number of Funds 266CPF Life Cycle 267The Budget 268Interim Financing 269Project Costs 270Intergovernmental Revenues 271Recording Bond Issues 271 " '
Capital Projects Fund—Case Illustration Begun, 20X1 271Budgetary Entry 272Transaction/Event Entries 273General Ledger Worksheet(s) 274Preclosing Trial Balance 275Closing Entries 276Financial Statements 277
Capital Projects Fund—Case Illustration Concluded, 20X2 28020X1 Accounts Closed 280Case Illustration Assumptions and Entries—20X2 281General Ledger Worksheet 28320X2 Financial Statements 283
Other Capital Projects Fund Operations, Accounting, and Reporting Matters 286Bond Anticipation Notes (BANs) 286Investments and Arbitrage 288Remaining Fund Balance 288Reporting Multiple Projects 288Combining CPF Statements 289
Concluding Comments 2 8 9
Questions 2 9 0
Exercises 2 9 0 \
Problems 293Cases 299
Harvey City Comprehensive Case 3 0 1
CHAPTER 8Debt Service Funds 303Debt Service Fund Environment, Financing, and Expenditure Recognition 3 0 4
Long-Term Liabilities 304Fixed vs. Variable Rates 305Debt Service Payments 306Bonds and Fiscal Agents 306Required DSF Reserves 307Bond Ratings 307Bond Insurance 307Sources of Financing 308DSF Investments 308DSF Expenditure Recognition 308
Debt Service Fund for a Serial Bond Issue: Case Illustration 309Illustrative Entries 310Financial Statements 312
XIV Contents
Special Assessment Debt Service Funds 313Illustrative Entries 314Illustrative Financial Statements 316
Other Conventional Debt Service Fund Considerations 317Nonaccrual of Interest 317Combining Balance Sheet 317Combining Operating Statement 318
Debt Service Fund for a Term Bond Issue 318
Sinking Fund Requirements 319
Debt Service Funds for Deep Discount Issues 321 -
Refundings 322Reasons for Refundings 322Refundings Defined 322Defeasance of Debt 3238-1 In Practice: GFOA Recommended Practice: Analyzing an Advance Refunding 324
Debt Service Funds for Refundings 325Current Refunding 326Advance Refunding 327Debt and Non-Debt Financing 328Reporting Refundings 329Advance Refunding Disclosures 329
Concluding Comments 331
Questions 333
Exercises 333
Problems 336
Cases 340
Harvey City Comprehensive Case 342
CHAPTER 9General Capital Assets; General Long-Term Liabilities; Permanent Funds:Introduction to Interfund-GCA-GLTL Accounting 344Overview of General Capital Assets and General Lorig-Term Liabilities Accounting Procedures 345General Capital Assets 346
General Capital Assets Defined 346Initial Valuation 347Classification 348Capitalization Policy 3489-1 In Practice 349Property Records 350Capital Assets Inventory 351Additions, Betterments, and Renewals 351Depreciation/Accumulated Depreciation 351Updating GCA Accounts 353Recording Depreciation 356Sale, Replacement, or Retirement 356Intragovemmental Transactions 358Impairment 360Insurance Recoveries 362Damage or Destruction 362Reporting and Disclosures 363
General Long-Term Liabilities 3639-2 In Practice 365CPF-DSF-GLTL 366
Contents XV
Serial Debt 367Special Assessment Debt 367Other Government Liabilities 367Interest-Related Adjustments 369Defaulted Bonds 369In-Substance Defeasance 370GLTL Records 370GLTL Reporting and Disclosures 370
Permanent Funds 3 7 1
Introduction to Interfund-GCA-GLTL Accounting 3 7 4
Concluding Comments 3 7 8
Questions 3 7 8
Exercises 3 7 9
Problems 3 8 2
Cases 386
Harvey City Comprehensive Case 3 8 8
CHAPTER 1 0
Enterprise Funds 3 9 1
Common Characteristics and Principles of Proprietary Funds 3 9 1
Accounting Equation 391Accounting Principles 392Financial Statements 392
Enterprise Funds 4 0 1
Enterprise Funds Defined 401Specific EF Topics 402EF Accounting Illustrated 406Enterprise Fund Reporting Illustrated 417
Combining Enterprise Fund Financial Statements 4 2 0
Concluding Comments 4 2 6
Questions 4 2 6 \
Exercises 427
Problems 4 3 0
Cases 435
Harvey City Comprehensive Case 4 3 8
CHAPTER 1 1
Internal Service Funds 4 4 0
Overview of Accounting Principles 4 4 1
Initial Establishment 441Pricing Policies 444Pricing Methods 444Relation to Budget 445Financial Statements 445
Internal Service Fund Accounting Illustrated 446Automotive Equipment Unit 446Central Stores Fund 450Self-Insurance Fund 45411-1 In Practice: Practice Examples: Internal Service Funds 454
11-2 In Practice: Practice Examples: Self-Insurance Note Disclosure 455
Disposition of Increase or Decrease in Net Assets 459
Dissolution of an Internal Service Fund 459
XVI Contents
Combining Internal Service Fund Financial Statements 459Concluding Comments 459Questions 463Exercises 463Problems 466Cases 468Harvey City Comprehensive Case 470
CHAPTER 12Trust and Agency (Fiduciary) Funds: Summary of Interfund-GCA-GLTL Accounting 472The Accountability Focus 473Agency Funds 474
Simpler Agency Funds 47512-1 In Practice: Practice Examples-. Agency Funds 476Tax Agency Funds 476Special Assessment Agency Funds 480
Trust Funds 4 8 1
Private-Purpose Trusts 481Investment Trusts 483Pension Trusts 48412-2 In Practice: Defined Benefit Pension Trust Funds: Statement Information vs. Schedule of Funding Progress 487
Combining Trust and Agency Fund Financial Statements 492Additional Interfund-General Capital Asset-General Long-Term Liability Accounting Illustrations 492Concluding Comments 498Questions 498Exercises 499Problems 502Cases 505Harvey City Comprehensive Case 507
ICHAPTER 13Financial Reporting: The Basic Financial Statements and Required Supplementary Information 508Basic Financial Statements Overview 510Fund Financial Statements 511
Major Fund Reporting 512Fund-Based Financial Statements 52013-1 In Practice 52113-2 In Practice: GFOA Policy Statement: Budgetary Reporting 523
Government-Wide Financial Statements 524Statement of Net Assets 526Statement of Activities 528Measurement Focus 530Reporting Expenses 531Program vs. General Revenues 533Internal Service Funds 536Infrastructure Capital Assets 536
Note Disclosures 536
Required Supplementary Information 536Management's Discussion and Analysis 536Other RSI 538Special Purpose Governments 538
Contents XVII
Concluding Comments 538
APPENDIX 13-1 Illustrative Management's Discussion & Analysis 540
Questions 547
Exercises 547
Problems 550
Cases 553
Harvey City Comprehensive Case 556
CHAPTER 14
Financial Reporting: Deriving Government-Wide Financial Statements and Required Reconciliations 557
Deriving Governmental Activities Data 559
Deriving Government-Wide Financial Statement Data for Governmental Activities—A Worksheet-Based Approach 560The Conversion Worksheets 560Balance Sheet Conversion Worksheet Adjustments 565Farley County Balance Sheet Conversion 567Operating Statement Conversion Worksheet Conversion Adjustments 571Farley County Operating Statement Conversion 574
Deriving Business-Type Activities Data 579Statement of Net Assets 580Statement of Activities 580Reconciliations 583
Concluding Comments 585
APPENDIX 14-1 A One-Worksheet Approach to Deriving Governmental Activities Data 585
Questions 595
Exercises 596
Problems 599
Cases 607
Harvey City Comprehensive Case 611
CHAPTER 15 \
Financial Reporting: The Comprehensive Annual Financial Report and the Financial Reporting Entity 613
The Comprehensive Annual Financial Report 614The Introductory Section 614The Financial Section 616The Statistical Section 620
Supplemental and Special Purpose Reporting 624 -
Financial Reporting—Complex Entity Structure 624Reporting Entity Definition 625Reporting Entity Disclosures 627
Integrating Component Units Into the Reporting Entity 62715-1 In Practice: Component Units, Joint Ventures, and Related Organizations 628Blending 630Discrete Presentation 630Dual Reporting Entity Model 632Other Issues 632
15-2 In Practice: State Component Unit Data 632
Separate Issuance of Primary Government Financial Statements 633
Related Organizations, Joint Ventures, and Jointly Governed Organizations 633
Concluding Comments 634
Questions 636
XVIII Contents
Exercises 636
Problems 640
Cases 643
Harvey City Comprehensive Case 645
CHAPTER 16Non-SLG Not-for-Profit Organizations: SFAS 116 and 117 Approach 646
Classification of Organizations 648Voluntary Health and Welfare Organizations 648Other Not-for-Profit Organizations 648 v - - -
Classes of Net Assets 649
Non-GAAP Accounting and Reporting Requirements 650
Basis of Accounting 650
SFAS 117 Financial Statements 650BalanceNSheet 651Statement of Activities 652Statement of Cash Flows 660Statement of Functional Expenses 660
Nongovernment VHW0 and ONPO Accounting and Reporting Illustration 660Transactions and Entries 660Illustrative Financial Statements 66716-1 In Practice 673
Concluding Comments 674
Questions 674
Exercises 675
Problems 678
CHAPTER 17Accounting for Colleges and Universities 685
Classification as "Engaged Only in Business-Type Activities" 686
GAAP Reporting Requirements 687Balance Sheet 687Operating Statement 68917-1 In Practice: Government University Financial Statement: Practice Example 692Statement of Cash Flows 694
Case Illustration—A Government University 695Other Resources 699
Annuity and Life Income Gifts 705Annuity Gifts 705Life Income Gifts 709
Colleges and Universities Engaged in Both Governmental and Business-Type Activities 710
Nongovernment Not-for-Profit University Reporting 710
Concluding Comments 714
Questions 714
Exercises 714
Problems 716
CHAPTER 18Accounting for Health Care Organizations 723
Funds—Government Hospitals 724Basic Principles 725
Contents XIX
Unique Measurement and Display Features 725Distinguishing Primary Activities 725Classes of Revenues 72518-1 In Practice: Third-Party Payers: Significance and Accounting Policies 726Gains 728Donations 728Expense Classification 728Restricted Assets 729Property, Plant, and Equipment 730
Illustrative Case 7 3 0Summary of Transactions and Events 730 v
Financial Statements 739Balance Sheets 739Operating Statement 739Statement of Cash Flows 739
Nongovernment Not-for-Profit Hospital Reporting 739
Concluding Comments 746
Questions 746
Exercises 747
Problems 750
CHAPTER 19Federal Government Accounting 753
The Federal Financial Management Environment 754Financial Accounting Responsibilities 754Overview 756
The Budgetary Process 757The Budget Cycle 757Exceeding Budget Authority 760
Accounting Principles and Standards for Federal Agencies 760The Federal Model 760Standard General Ledger 764 IFederal Fund Structure 765Financial Reporting 76519-1 In Practice: Federal Government Accounting Issues 769
Federal Agency Accounting and Reporting Illustrated 769A Case Illustration 769Maintaining Budgetary Control 769Maintaining Proprietary Accounts 774Other Transactions and Entries 774Closing Entries 778Reporting 780
Concluding Comments 784
Questions 785
Exercises 785
Problems 787
CHAPTER 20Auditing Governments and Not-for-Profit Organizations 790
Overview 7 9 1What Is an Audit? 791
Classifications of Audits 791Management's Representations 793
XX Contents
External Auditor Classifications 793Engagement Letter 794
Auditing Standards 794AICPA Auditing Standards 794GAO Auditing Standards 796GAGAS Summary 797
The Financial Audit 798Auditing Standards 798Audit Procedures 798The Audit Report 799
The Single Audit 801Purposes 802Applicability 802Definitions 802Objectives 803Overview 804Auditee Responsibilities 804Auditor's Responsibilities 806Auditing Guidance 808Major FFA Programs 809Findings & Questioned Costs 813Illegal Acts 814Subrecipients 814Auditor Reports—Single Audit 815Auditee Reporting Responsibilities 816Other Matters 819
Concluding Comments 819
APPENDIX 20-1 Glossary 819
APPENDIX 20-2 Data Collection Form for Reporting on Audits of States, Local Governments,
and Nonprofit Organizations 821
Questions 825
Exercises 825 i
Problems 829
Cases 830
Index 833