Post on 18-Dec-2015
Slide 17-1
Slide 17-2
Introduction to Fund Accounting
Advanced Accounting, Fourth Edition
17171717
Slide 17-3
Fund Accounting Accounting for nonbusiness
organizations.
Fund AccountingFund AccountingFund AccountingFund Accounting
Nonbusiness Organizations
Provide socially desirable service without regard to
financial gain.
Business Enterprises
Earn a return on investment.
Competitive market. Liquidity concerns.
Slide 17-4
Five Major Classifications
1. Governmental units.
2. Hospitals and other health care providers.
3. Colleges and universities.
4. Voluntary health and welfare organizations.
5. Other nonbusiness organizations (trade associations, professional associations, museums, religious organizations, etc.)
Classification of Nonbusiness Classification of Nonbusiness OrganizationsOrganizationsClassification of Nonbusiness Classification of Nonbusiness OrganizationsOrganizations
Slide 17-5
Distinctions
Absence of primary goal to earn a profit.
No equity interests.
Seldom finance through user charges.
Rely on political action or fund-raising campaigns.
Income determination model generally not applicable.
Restrictions or limitations on use of resources.
Distinctions between Nonbusiness Distinctions between Nonbusiness Organizations and Profit-Oriented Organizations and Profit-Oriented EnterprisesEnterprises
Distinctions between Nonbusiness Distinctions between Nonbusiness Organizations and Profit-Oriented Organizations and Profit-Oriented EnterprisesEnterprises
LO 1 Nonbusiness organizations versus profit-oriented LO 1 Nonbusiness organizations versus profit-oriented enterprises.enterprises.
Slide 17-6 LO 2 The role of fund accounting.LO 2 The role of fund accounting.
Fund AccountingFund AccountingFund AccountingFund Accounting
Fund Entity Classification
Expendable – Basic fund accounting concepts.
Proprietary – Business type activity.
Fiduciary - Agent or trustee.
Slide 17-7 LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and
expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Financial resources dedicated to a specified use.
Examples - Capital Projects or Debt Service fund.
Resources consist of cash and claims to cash.
Resources - Claims against resources = Fund balance.
Measurement focus is on flow of current financial resources.
Expendable Fund Entities
Accounting Model
Slide 17-8 LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and
expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Activities that are similar to business enterprises.
Examples:
Electric or water utility by a municipality
Rental of real estate by religious organization.
Focus on determination of net income, financial position, and cash flows.
Proprietary Fund Entities
Slide 17-9 LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and
expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Trust and Agency funds:
Pension trust fund.
Agency fund (resources of taxes, bonds, and other receipts held for individuals, outside organizations, and/or other funds).
Fiduciary Fund Entities
Slide 17-10 LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and
expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Approved resource flows are incorporated into annual budgets.
Budgeted expenditures are referred to as appropriations.
Approved budget may be recorded in the accounting records.
Budgetary account integration is useful in the control and administration of fund resources.
Budgetary Fund Entities (Governmental Funds)
Slide 17-11 LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and
expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Basic Financial Statements
Basis of Accounting
Government-Wide
Nonfiduciary activities.
Short- and long-run information.
Economic resources measurement concept.
Accrual basis of accounting.
Governmental Fund (expendable)
Current financial resources concept.
Modified accrual basis of accounting.
Revenues recognized when measurable and available.
Expenditures recorded when liability is incurred.
Slide 17-12
When used in fund accounting, the term “fund” usually refers to
a. A sum of money designated for a special purpose.
b. A liability to other governmental units.
c. The equity of a municipality in its own assets.
d. A fiscal and accounting entity having a set of self-balancing accounts.
QuestionQuestion
LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Slide 17-13 LO 4 Classification of revenues.LO 4 Classification of revenues.
Fund AccountingFund AccountingFund AccountingFund Accounting
By Fund and Major Revenue Source
Classification of Revenues
Major Sources of Revenue
Property taxes
Income taxes Sales and excise taxes Gift and inheritance taxes Fines and penalties Gifts and donations Forfeits Licenses and permits
Sales of property Charges for services Interest earned on loans and
investments
From federal, state, or local units: Grants Shared revenues Payments in lieu of taxes
Slide 17-14
Fund AccountingFund AccountingFund AccountingFund Accounting
Debt issue proceeds are accounted for as “other
financing sources.”
Interfund operating transfers are accounted for
as “other financing sources,” or “uses.”
Other Financing Sources
Slide 17-15
Fund AccountingFund AccountingFund AccountingFund Accounting
Revenue is ordinarily not recognized until it
1) can be objectively measured and
2) is available for expenditures of current period.
Recognition of Revenue (Expendable Funds)
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Fund AccountingFund AccountingFund AccountingFund Accounting
Revenue recognized when measurable and available.
Recognition of Revenue (Expendable Funds)
When Recognized?
Property Taxes Levied
Income Tax and Sales Tax
Returns are filed with paymentFines and Forfeits Collected
Sales of Property Time of sale
Pledges Time of pledge
Grants May or may not at time authorized
Slide 17-17
Appropriation Encumbrance Expenditure
Fund AccountingFund AccountingFund AccountingFund Accounting
LO 5 Classification of expenditures.LO 5 Classification of expenditures.
Recognition of Expenditures
Authorized to Spend
Purchase Order or Contract
Receipt of Goods
Disbursement
Payment
Encumbrances and expenditures are classified on the same basis (by fund, function, organizational unit, activity, character, or object class) as appropriations.
Slide 17-18
Authority granted by a legislative body to make expenditures and to incur obligations during a fiscal year is the definition of an
a. Appropriation.
b. Authorization.
c. Encumbrance.
d. Expenditure.
QuestionQuestion
LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Slide 17-19
Fund AccountingFund AccountingFund AccountingFund Accounting
LO 5 Classification of expenditures.LO 5 Classification of expenditures.
Exercise 17-3: (partial) Listed are transactions of the Town of Jackson.
1. A contract was signed with an independent company to do the trash collecting for the year. The contract price was $96,000.
2. The first monthly bill of $8,000 was received from the trash collector.
3. The $8,000 bill was paid.
Required: Prepare the journal entries needed in the records of the General Fund for these transactions.
Slide 17-20
Fund AccountingFund AccountingFund AccountingFund Accounting
LO 5 Classification of expenditures.LO 5 Classification of expenditures.
Exercise 17-3: 1. A contract was signed with an independent company to do the trash collecting for the year. The contract price was $96,000.
Encumbrance 96,000
Reserve for Encumbrances96,000
1.
Slide 17-21
Fund AccountingFund AccountingFund AccountingFund Accounting
LO 5 Classification of expenditures.LO 5 Classification of expenditures.
Exercise 17-3: 2. The first monthly bill of $8,000 was received from trash collector. 3. The $8,000 bill was paid.
Expenditures 8,000
Contracts payable8,000
Reserve for Encumbrances 8,000
Encumbrance 8,000
2.
Contracts payable 8,000
Cash8,000
3.
Slide 17-22
What type of account is used to earmark the fund balance to liquidate the contingent obligations of goods ordered but not yet received?
a. Appropriations.
b. Encumbrances.
c. Obligations.
d. Reserve for encumbrances.
QuestionQuestion
LO 3 Differences in applications of revenue, expense, and LO 3 Differences in applications of revenue, expense, and expenditures.expenditures.
Fund AccountingFund AccountingFund AccountingFund Accounting
Slide 17-23
Fund AccountingFund AccountingFund AccountingFund Accounting
LO 7 Capital expenditures.LO 7 Capital expenditures.
Capital Expenditures (Expendable Fund)
Treated as a current period expenditure.
Middletown purchased a police car for $10,000.
Expenditures 10,000
Cash 10,000
Slide 17-24
Fund AccountingFund AccountingFund AccountingFund Accounting
Recording Budgeted and Actual Revenue and ExpendituresExercise 17-3: (partial)
1. A budget consisting of estimated revenues of $1,950,000 and appropriations for expenditures of $1,800,000 was passed by the town council.
2. Property taxes of $1,150,000 were assessed; $1,115,000 are expected to be collectible.
3. Property taxes in the amount of $1,080,000 were collected.
4. Equipment costing $200,000 was purchased, and the old equipment was sold at for $24,000.
Required: Prepare required journal entries for General Fund.
Slide 17-25
Fund AccountingFund AccountingFund AccountingFund Accounting
Exercise 17-3: 1. A budget consisting of estimated revenues of $1,950,000 and appropriations for expenditures of $1,800,000 was passed by the town council.
Estimated Revenues 1,950,000
Appropriations 1,800,000
1.
Unreserved Fund Balance 150,000
Slide 17-26
Fund AccountingFund AccountingFund AccountingFund Accounting
Exercise 17-3: 2. Property taxes of $1,150,000 were assessed; $1,115,000 are expected to be collectible. 3. Property taxes of $1,080,000 were collected.
Property Tax Receivable 1,150,000
Estimated Uncollectible Taxes 35,000
2.
Revenue 1,115,000
Cash 1,080,000
Property Tax Receivable 1,080,000
3.
Slide 17-27
Fund AccountingFund AccountingFund AccountingFund Accounting
Exercise 17-3: 4. Equipment costing $200,000 was purchased, and the old equipment was sold at for $24,000.
Expenditures 200,000
Cash 200,000
4.
Cash 24,000
Revenue 24,000
Slide 17-28
Fund AccountingFund AccountingFund AccountingFund Accounting
Exercise 17-5 (variation): The preclosing trial balance for the General Fund of the City of Springfield is presented below. Trial Balance for December 31, 2008:
Cash 90,000
Certificates of Deposit 120,000
Property Taxes Receivable 175,000
Estimated Revenue 1,690,000
Expenditures 1,310,000
Encumbrances 165,000
Estimated Uncollectible Taxes $51,000
Vouchers Payable 65,000
Unreserved Fund Balance 44,000
Reserve for Encumbrances 165,000
Appropriations 1,550,000
Revenue 1,675,000
$3,550,000 $3,550,000
Slide 17-29
Fund AccountingFund AccountingFund AccountingFund Accounting
Exercise 17-5: Prepare closing entries.
Revenue 1,675,000
Unreserved Fund Balance 140,000
Appropriations 1,550,000
Expenditures 1,310,000
Estimated Revenue 1,690,000
Encumbrances 165,000
Unreserved Fund Balance 75,000
Unreserved Fund Balance 165,000
Slide 17-30
Fund Accounting – Comprehensive Fund Accounting – Comprehensive IllustrationIllustrationFund Accounting – Comprehensive Fund Accounting – Comprehensive IllustrationIllustrationProblem 17-1: The general ledger trial balance of the General Fund of the City of Bedford on January 1, 2008, shows the following:
Cash $100,000
Taxes Receivable 75,000
Allowance for Uncollectible Taxes $ 35,000
Unreserved Fund Balance 110,000
Reserve for Encumbrances—2007 30,000
Total $175,000 $175,000
Prepare journal entries to record the following activities and transactions for the General Fund during 2008.
Debit Credit
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-31
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1: 1. The City Council adopted a budget with estimated revenues of $1,560,000 and appropriated expenditures of $1,400,000.
Estimated Revenue 1,560,000
Appropriations 1,400,000
Unreserved Fund Balance 160,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-32
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1: 1. The budget authorized the transfer of $50,000 from the Water Fund to the General Fund. Interest due for the year on the $1,000,000, 8% bond issue for the Civic Center is approved for transfer from the General Fund to the Debt Service Fund.
Due from Water Fund 50,000
Transfer from Water Fund 50,000
Transfer to Debt Service Fund 80,000
Due to Debt Service Fund 80,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-33
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1: 2. The annual property tax levy of 10% on assessed valuation ($11,000,000) is billed to property owners. Two percent is estimated to be uncollectible.
Property Tax Receivable 1,100,000
Revenue 1,078,000
Allowance for Uncollectible Taxes 22,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-34
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1:
3. Goods and services amounting to $1,150,000 were ordered during the year.
Encumbrances 1,150,000
Reserve for Encumbrances 1,150,000
4. Invoices for all goods ordered in 2007 amounting to $29,000 were approved for payment.
Expenditures – 2007 29,000
Vouchers Payable 29,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-35
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1:
5. Funds for bond interest on Civic Center bonds were transferred to the Debt Service Fund.
Due to Debt Service Fund 80,000
Cash 80,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-36
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1:
6. Invoices for goods received during the year totaled $1,155,000. These were encumbered [see (3) above].
Expenditures 1,155,000
Vouchers Payable 1,155,000
Reserve for Encumbrances 1,150,000
Encumbrances 1,150,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-37
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1:
7. Transfer of funds from the Water Company was received in lieu of taxes.
Cash 50,000
Due from Water Fund 50,000
8. Taxes were collected from property owners in the amount of $1,050,000.
Cash 1,050,000
Property Tax Receivable 1,050,000
LO 8 Understand the general fund.LO 8 Understand the general fund.
Slide 17-38 LO 8 Understand the general LO 8 Understand the general
fund.fund.
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1:
9. Past-due tax bills of $17,000 were charged off as uncollectible.
Allowance for Uncollectible Taxes 17,000
Property Tax Receivable 17,000
10. Checks in payment of invoices for goods ordered in 2007 and 2008 were issued [see items (4) and (6) above].
Vouchers Payable * 1,184,000
Cash 1,184,000
* ($29,000 + $1,155,000)
Slide 17-39
Fund AccountingFund AccountingFund AccountingFund Accounting
Problem 17-1:
11. Revenues received from miscellaneous sources, other than property taxes, of $455,000 were recorded.
12. Purchase order for two trash collection vehicle systems was issued. Bid price per system was $120,000.
Encumbrances (2 x $120,000) 240,000
Reserve for Encumbrances 240,000
Cash 455,000
Revenue 455,000
LO 8 Understand the general LO 8 Understand the general fund.fund.
Slide 17-40
Fund AccountingFund AccountingFund AccountingFund Accounting
Two Basic Statements (expendable fund entities)
1. Balance sheet
2. Statement of revenue, expenditures, and changes in fund balance
Revenue classified by major sources.
Expenditures classified by major functions.
Comparative information presented for prior years.
Statement comparing budgeted and actual should be prepared for budgetary fund entities.
Financial Statements
LO 8 Understand the general LO 8 Understand the general fund.fund.
Slide 17-41
Reporting Inventory and PrepaymentsReporting Inventory and PrepaymentsReporting Inventory and PrepaymentsReporting Inventory and Prepayments
Two Methods
1. Consumption method
2. Purchases method
Under GASB Statement No. 34, consumption method is consistent with the
Government-wide approach.
Purchases method is not acceptable.
Both acceptable for fund purposes
Inventory
LO 9 Consumption and purchases Methods.LO 9 Consumption and purchases Methods.
Slide 17-42
Reporting InventoryReporting InventoryReporting InventoryReporting Inventory
Assume $20,000 of beginning inventory, $50,000 is purchased, and ending inventory of $24,000.
LO 9 Consumption and purchases Methods.LO 9 Consumption and purchases Methods.
When Purchased: Expenditures 50,000
Cash 50,000
End of Year: Inventory 4,000
Expenditures 4,000
Purchases MethodWhen Purchased: Expenditures 50,000
Cash 50,000
End of Year: NO ENTRY
Consumption Method
Slide 17-43
Reporting Inventory and PrepaymentsReporting Inventory and PrepaymentsReporting Inventory and PrepaymentsReporting Inventory and Prepayments
Purchases Method
Material amounts of inventory should be disclosed by
Footnote or
Reporting asset with contra account (Reserve for Inventory).
Reserve for Inventory
LO 9 Consumption and purchases Methods.LO 9 Consumption and purchases Methods.
Consumption Method
Reserve for inventory created debiting or crediting the “unreserved fund balance.”
Slide 17-44
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