Introduction to Governmental and Not-for-Profit Accounting…€¦ · Not-for-Profit Accounting, 7e...
Transcript of Introduction to Governmental and Not-for-Profit Accounting…€¦ · Not-for-Profit Accounting, 7e...
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Introduction to Governmental and
Not-for-Profit Accounting, 7e
Chapter 4:
The Governmental Fund Accounting Cycle,
An Introduction to General and Special Revenue Funds
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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
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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
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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
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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
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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
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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)
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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)
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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
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Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 4-*
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
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Property taxes receivable 2,000,000
Revenues – Property taxes 2,000,000
Basic Entries in General Fund:
Property Tax Levy
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Basic Entries in General Fund:
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
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Encumbrances – publ. safety 97,000
Encumbrances – street main. 90,000
Budgetary fund balance reserved
for encumbrances 187,000
Basic Entries in General Fund:
Purchase Orders
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Basic Entries in General Fund:
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
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Basic Entries in General Fund:
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
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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
Basic Entries in General Fund:
Record Expenditures
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• 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
Basic Entries in General Fund:
Cash Receipts
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• Tax anticipation note paid
• Interest = $4,000
Tax anticipation notes payable 400,000
Expenditures – debt service 4,000
Cash 404,000
Basic Entries in General Fund:
Tax Anticipation Notes
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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
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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
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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)
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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
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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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