introduction to governmental and not-for-profit accounting…€¦ · not-for-profit accounting, 7e...

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 4-*

Introduction to Governmental and

Not-for-Profit Accounting, 7e

Chapter 4:

The Governmental Fund Accounting Cycle,

An Introduction to General and Special Revenue Funds


Chapter 4 Topics

• General and Special Revenue Funds

• Recognizing Revenues and Expenditures

• Short-Term Financing and Investing

• Basic Entries in General and Special

Revenue Funds

• Closing the Accounts

• Fund Financial Statements

• Control Accounts and Subsidiary Ledgers


Review: General Fund

• Most significant fund

• Only one, broad in scope

• Accounts for financial resources not

recorded in other funds

– Report on basic day-to-day activities of

governments

• Examples of common programs:

– Public health, public safety, education, public

works


Review: General Fund

• Three types of revenues

– Taxes

• Local governments—real property tax and general

sales tax

• State governments—sales tax, income tax,

cigarette and motor fuel taxes

– Intergovernmental grants

– Miscellaneous items

• Investment income, licenses, permits, fees, and

fines


Review: Special Revenue Funds

• Account for proceeds of specific revenue

sources that are restricted or committed to

spending for specified purposes other than

debt service or capital projects

– Specific revenues for particular purposes


Review: Special Revenue Funds

• Possibly many special revenue funds,

narrow in scope

• Example: gas tax for street maintenance

• GAAP: only required when legally required

• “Helps ensure” funds used as intended

• Accounting like general fund


Revenue and Expenditure

Recognition

• Modified accrual consistent with budget

• Recognize revenues when measurable

and available

– Measurable: reasonable certainty of dollar

amount

– Available: inflow within the current period

• or within 60 days after for property taxes

• Expenditures recognized when liability is

incurred (exceptions covered later)


Recognizing Revenues

• Revenues may be accrued before

received

– Examples: property tax, interest on

investments

• Some revenues are recognized upon

receipt

– Because of uncertainty

– Examples: fines (Ch. 5)


Recognizing Expenditures

• Recognize expenditures when liability is

incurred

– Recognize salaries when paid

– Accrue salaries earned but not paid

– Exceptions covered later

Short-Term Financing and

Investing

• Revenues lumpy, but expenditures

relatively even during year

– Property taxes often required to be paid only

once or twice a year

• Short-term financing

– Tax anticipation notes

– Revenue anticipation notes

– Bond anticipation notes



Basic Entries in General Fund:

Record the Budget

Est. revenues – property taxes 2,000,000

Est. revenues – licenses and fees 70,000

Est. revenues – fines and forfeits 50,000

Appropriations – gen. gov. 300,000

Appropriations – publ. safety sal. 1,200,000

Appropriations – publ. safety sup. 100,000

Appropriations – street main. 495,000

Appropriations – debt service 5,000

Budgetary fund balance 20,000


Property taxes receivable 2,000,000

Revenues – Property taxes 2,000,000


Property Tax Levy



Tax Anticipation Notes

• Short-term borrowing to meet cash needs

– until taxes receivable are collected

• Recorded as liability in fund and interest

accrued

Cash 400,000

Tax anticipation notes payable 400,000


Encumbrances – publ. safety 97,000

Encumbrances – street main. 90,000

Budgetary fund balance reserved

for encumbrances 187,000


Purchase Orders



Record Expenditures

• The following purchased items were

received:

Purpose Encumbered Actual

Pub safety $97,000 $97,000

Street maint. 90,000 91,000

Total $187,000 $188,000



Record Expenditures

1. Reverse the encumbrance

Budgetary fund balance

reserved for encumbrances 187,000

Encumbrances – publ. saf. 97,000

Encumbrances – street maint. 90,000

Encumbrances balances are now $0


2. Record the expenditures

Expenditures – pub. safety 97,000

Expenditures – street maint. 91,000

Vouchers payable 188,000

When paid:

Vouchers payable 188,000

Cash 188,000


Record Expenditures


• Property taxes already accrued, received in

cash

– Licenses, fees, fines, forfeitures on cash basis

Cash 1,110,000

Property taxes receivable 1,000,000

Revenues – licenses and fees 63,000

Revenues – fines & forfeitures 47,000


Cash Receipts


• Tax anticipation note paid

• Interest = $4,000

Tax anticipation notes payable 400,000

Expenditures – debt service 4,000

Cash 404,000


Tax Anticipation Notes


Closing the Accounts

1. Reverse the budgetary entry

Appropriations – gen. gov 300,000

Appropriations – publ. safety sal. 1,200,000

Appropriations – publ. safety sup. 100,000

Appropriations – street main. 495,000

Appropriations – debt svc. 5,000

Budgetary fund balance 20,000

Est. revenues – property taxes 2,000,000

Est. revenues – fines and forfeits 50,000

Est. revenues – licenses and fees 70,000


2. Close revenues/expenditures to fund

balance

Revenues – property taxes 2,000,000

Revenues – licenses and fees 63,000

Revenues – fines and forfeits 47,000

Expenditures – gen. gov 294,000

Expenditures – pub. safety sal 1,190,000

Expenditures – pub. safety sup 97,000

Expenditures – street main. 477,000

Expenditures – debt svc. 4,000

Fund balance 48,000

Closing the Accounts


Governmental-Type Funds

Financial Statements

• Financial statements for governmental-

type funds:

– Statement of revenues, expenditures, and

changes in fund balance (Table 4-4)

– Balance sheet (Table 4-5)

– Budgetary comparisons (Table 4-6)


Control Accounts and

Subsidiary Ledgers

• Must record taxes receivable by property

• Governments use a general ledger

account

– For the total tax amount

– Control account

• Subsidiary ledger kept for each property

– Tax roll


Control Accounts and

Subsidiary Ledgers

• Tax roll also includes

– Description of property/type of property

– Owner and address

– Assessed value

• Interest/penalties on delinquent taxpayers

• In extreme cases, town may foreclose


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introduction to governmental and not-for-profit accounting…€¦ · not-for-profit accounting, 7e...

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