GOVERNMENTAL AND NONPROFIT ACCOUNTING - · PDF fileCHAPTER 1 Governmental and Nonprofit...

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


Deriving Government-Wide Financial Statements and Required Reconciliations 5 5 7


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


Questions 252

Exercises 252

Problems 254

Cases 261


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


Questions 2 9 0

Exercises 2 9 0 \

Problems 293Cases 299


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


Questions 333

Exercises 333

Problems 336

Cases 340


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


Questions 3 7 8

Exercises 3 7 9

Problems 3 8 2

Cases 386


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


Questions 4 2 6 \

Exercises 427

Problems 4 3 0

Cases 435


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


APPENDIX 13-1 Illustrative Management's Discussion & Analysis 540

Questions 547

Exercises 547

Problems 550

Cases 553


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


APPENDIX 14-1 A One-Worksheet Approach to Deriving Governmental Activities Data 585

Questions 595

Exercises 596

Problems 599

Cases 607


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


Questions 636

XVIII Contents

Exercises 636

Problems 640

Cases 643


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


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


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


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


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


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

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