Acct 315 Test 2 (Ch. 4-7)

Accounts for and reports all financial resources not accounted for and reported in another fund

general fund

Every general purpose government will have _____ and only _________ General Fund

one

Special revenue fund accounts for and report the proceeds of specific revenue sources that are _________or _________to expenditure for a specified purpose other than debt service or capital projects.

Restricted; committed

Special Revenue funds are not used if the resources are required to be used to acquire capital assets (____________) or for the payment of interest and principal on long-term debt (__________)

capital projects fund; debt service fund

If the government expects that a substantial portion of the resources supporting a special revenue fund will no longer be derived from restricted and committed sources, the government should discontinue the use of a special revenue fund and report the remaining resources in the ___________.

general fund

Governmental funds use ________ basis of accounting

modified accrual

In modified accrual, revenues are recognized when _____________

measurable and available

Government can determine or reasonably estimate amount

measurable

Amount expected to be collected within the current period or soon enough after that to be used to pay liabilities of the current period.

available

modified accrual recognized expenditures when liability is __________

incurred

Debt Service Expenditures for principal and interest are recorded when _______

due

Transactions between individual funds

interfund transactions

interfund transactions are eliminated in the __________ statements

government wide

transactions between funds should not be assumed to be _________ in nature.

arm's length

Reciprocal interfund transactions

-interfund loans

-interfund services provided and used

resources provided from one fund to another with the understanding that they will be repaid in the future.

interfund loans

represents transactions involving sales and purchases of goods and services between funds.

interfund services provided/used

Nonreciprocal interfund transactions

-interfund transfers

-interfund reimbursements

Represents flows of cash or other assets from one fund to another without a requirement for repayment.

interfund transfers

represents repayments to the funds that initially recorded expenditures by the fund responsible for the payment.

interfund reimbursements

significant transactions that are either unusual or infrequent but within the control of management

special items

Closing process for government type funds need to:

-Close budgetary accounts

-Close revenues, expenditures, encumbrances, and related other financing sources or uses to Fund Balance

Budgetary Accounts are closed to _____________

budgetary fund balance

________accounts are closed at YE and re-established in the next year.

Encumbrance

Activity Accounts are closed to ___________

fund balance

Fund Balance is presented on the Balance Sheet within the five categories of fund balance:

-nonspendable

-restricted

-committed

-assigned

-unassigned

Account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays.

capital projects fund

___________ exist only for the duration of the project for which it is created

capital project funds

Major source of funding for capital project funds is the issuance of ___________

long-term debt

Reporting objective of special revenue funds is to ensure the government can demonstrate the funds intended to be used on a specific project are __________ to the project.

traceable

Account for and report resources that are restricted, committed or assigned to expenditure for principal and interest.

debt service funds

While the debt service accumulates money and makes principal and interest payments, ___________ is not a liability of the fund. This is because the Debt Service Fund uses the modified accrual basis/ current resources measurement focus.

bonds payable

Debt service financing includes

-Transfers from the General fund

-Taxes earmarked for Debt Service

-Refinancing bond proceeds

the most common form of bonds issued by state and local governments; Require principal payments to be made throughout the life of the bond rather than waiting until the end.

serial bonds

4 types of serial bonds

-regular

-deferred

-annuity

-irregular

total principal of an issue is repayable in a specified number of equal installments over the life of the issue

regular serial bond

The first installment is delayed for two or more years after the date of the issue, but thereafter installments are due on a regular basis

deferred serial bonds

The amount of annual principal repayments is scheduled to increase each year by approximately the same amount that interest payments decrease so that the annual debt service payment remains relatively uniform over the term of the bond.

annuity serial bonds

Any other irregular patten of repayment that does not fit in the other three categories

irregular serial bonds

mature in their entirety on a given date, in contract to serial bonds, which mature in installments.

term bonds

Account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs.

permanent funds

a formal agreement in which a donor gives resources to a government to manage.

trust

Financial statements for governmental funds

-balance sheet

-statement of revenues, expenditures, and changes in fund balance

Governmental funds balance sheet has separate columns for General Fund, each major fund, and a single column for __________ funds.

nonmajor

For governmental funds, difference between assets and liabilities is termed ______________ and is reported as Nonspendable, Restricted, Committed or Assigned

Fund Balance

Governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balance will have columns for _________, ___________, and __________

general fund, major, nonmajor

Only the General Fund reports __________fund balance.

unassigned

Types of expenditures

-current

-debt service

- capital outlay

Used to account for activities like those often engaged in by commercial businesses. Users of goods or services are charged amounts at least sufficient to cover the costs of providing the goods or services.

Proprietary Funds

_____ funds are intended to be self-supporting and may return profits to the government.

proprietary

Proprietary funds use accrual basis so match ________ and ______

revenues and expenses

funds used to report activities that provide goods and services to other funds, departments, or agencies on a cost-reimbursement basis

internal service fund

fund used to report activities in which users are charged a fee for goods or services. They are appropriate when individuals or business external to the government are the predominant users

enterprise funds

Financial Statements of Proprietary Funds:

- Statement of Net Position (Balance Sheet)

- Statement of Revenues, Expenses, and Changes in fund Net Position

- Statement of Cash Flows

Similar to governmental funds, enterprise funds are reported by the major fund, with nonmajor funds in a separate column. However, ___________ funds are combined and reported in a single column.

internal service

In proprietary the excess of assets over liabilities of proprietary funds is termed Net Position and classified within three categories:

- Net Investment in Capital Assets

- Restricted Net Position

- Unrestricted Net Assets

If a government decides to use a single fund to accumulate funds and make payments for claims, it must use either the General Fund or an __________-many opt for the latter

internal service fund

If an ISF is used, the interfund premium is treated as a ________ to the ISF and as an Expense or Expenditure to other funds

revenue

GASB standards require the use of an enterprise fund under the following circumstances:

- When debt is backed solely by fees and charges

- When a legal requirement exists that the cost of providing services for an activity, including capital costs, be recovered through fees or charges.

- When a government has a policy to establish fees and charges to cover the cost of providing services for an activity.

Most common examples of Enterprise Funds

- Water utilities

- Electric or gas utilities

- Mass transit systems

- Hospitals,

- Parking lots/garages

Governmental enterprises often issue debt, called __________

revenue bonds

Provide greater security by pledging the full faith and credit of the government in addition to enterprise revenues.

general obligation bonds

In proprietary statement of net position, Governments must classify assets and liabilities as _______________ or ______________.

current or noncurrent

Net Position is reported within three categories:

unrestricted, restricted, and net investment in capital assets.

____________ means restricted by external parties or by legislation, including

legislation enacted by the government's governing body.

restricted

(Proprietary) Statement of Revenues, Expenses, and Changes in Fund Net Position

Revenues

− Expenses

= Operating Income

− nonoperating revenues and expenses

− capital contributions and transfers

= Change in Net Position

+ Beginning Net Position

= Ending Net Position

4 categories of proprietary fund statement of cash flows

- operating activities

- capital and related financing activities

- noncapital financing activities

- investing activities

include receipts from customers, payments to suppliers,

payments to employees, and receipt and pay of cash for quasi-external

transactions (interfund services provided and uses) with other funds.

operating activities

include proceeds and repayment of debt

related to capital acquisition, the receipt of and payments of grants related to capital acquisition, the payment of interest on debt related to capital acquisition, and the purchase or construction of capital assets.

Capital and Related Financing Activities

include proceeds and repayment of debt not

clearly related to capital outlay, grants received from and paid to other

governments for noncapital purposes, transfers to and from other funds (loans), and the payment of interest associated with noncapital debt.

Noncapital Financing Activities

include cash used to acquire investments, the interest

received on investments, and cash received from the sale or redemption of

investments. Does not include the purchase and sale of other long-term assets as FASB requires

Investing Activities

Differences between proprietary statement of cash flows and commercial business statement of cash flows

- Commercial may use Direct or Indirect

Methods; proprietary must use direct method

- Commercial interest and dividends received

are reported in operating section; proprietary Interest and dividend revenue is reported in investing section

- Commercial Interest payments are reported

in operating section; proprietary is in capital or noncapital related financing section

- Commercial Purchases or sales of long-term assets are reported in investing; proprietary is in capital related financing

- Commercial the reconciliation of income

and cash flows from operations starts with Net Income; The reconciliation of income and cash flows from operations starts with Operating Income

Governments are given custody of assets to be held for the benefits of third parties, including ______________, ____________, and ___________.

individuals, organizations, and other governmental units

Because the resources of fiduciary activities are not held for the benefit of the reporting entity, fiduciary activities are excluded from the ___________ financial statements.

government-wide

__________ and ___________ are used in place of Revenues and Expenses

additions; deductions

Fiduciary fund financial statements

- Statement of Fiduciary Net Position

- Statement of Changes in Fiduciary Net Position

Fiduciary Activities meet the following criteria

-A government either has custody of certain assets or has the ability to direct the use of the assets for the benefit of others outside the government.

-The assets are not derived from the government's own-source revenue, such as charges for services or taxes.

- The assets are held for the benefit of another party

four types of fiduciary funds

- Pension Trust Funds

- Investment Trust Funds

-Private-Purpose Trust Funds

-Custodial Funds.

accounts for assets held and invested on behalf of government employee pension plans

pension trust fund

accounts for assets held and invested on behalf of other governments under a trust agreement in a multi-government investment pool in which the reporting government is the trustee

investment trust fund

accounts for assets held according to a trust agreement other than a trust reported in pension or investment trust funds

private purpose trust fund

accounts for assets held in a fiduciary capacity not governed by a trust agreement

custodial fund

Accounts for fiduciary activities that are governed by a trust agreement other than a pension or investment trust fund, it should be reported as ________

private purpose

are created when individuals or organizations contribute resources with the agreement that the principal and/or income will be used to benefit others.

endowments

Although permanent and private purpose trust funds may appear similar, permanent funds use ___________ basis while private purpose funds use __________

- accrual

- modified accrual

The highest level of GASB fair value hierarchy is ___________

quoted prices from an active market in which buyers and sellers act in their best interest.

are financial contracts whose fair value is derived from the price of an underlying asset or obligation.

derivative instruments

Derivatives include:

-swaps

options

-forward contracts

-futures contracts

Governments can enter derivative contracts to mitigate the risk of economic loss arising from changes in the underlying asset or obligation. This activity is known as ________

hedging

Governments may enter derivative contracts for the purpose of earning a return. Changes in the value of derivates classified as investment derivates are reflected as ___________ in the period the value changes

investment gains and losses

is one in which the plan is required to pay out a certain level of benefit.

defined benefit plan

________ plan provides an individual retirement account for each participating employee, and no obligation exists for pension benefits beyond what has been accumulated in each account.

defined contribution

Governments place excess cash from multiple funds into a single __________

investment pool

___________ pools are not separate funds, and the resources continue to be reported by the funds providing the resources.

internal investment

Pensions have two categories of reporting

plan reporting and employer reporting

applies only to governments administering pensions

plan reporting

applies whether a government manages its own plan or participates in a plan administered by another government

employer reporting

Pension funds RSI:

- ten year schedule of changes in net pension liability and related ratios

- ten year schedule of employer contributions

- ten year schedule of investment returns

All fiduciary relationships that are not governed by a formal trust agreement is reported in a ____________

custodial fund

common uses of custodial funds

- tax collection funds

- jail inmate accounts

- section 529 college savings plans