Governmental & Nonprofit Accounting

FASB

Standards-setting body for for-profit and nonprofit entities

GASB

Standards-setting body for state and local governmental entities

ACFR

Annual Comprehensive Financial Report; official annual report of governments

Form 990

Annual informational tax return for nonprofit organizations

Purpose of FASB standards

Provide information to investors for good decision-making

Purpose of GASB standards

Ensure accountability in use of public funds for taxpayers and lenders

Fund

Separate self-balancing set of resources used for a specific governmental purpose

Why governments use funds

To demonstrate accountability and track restricted resources

Three fund types

Governmental, Proprietary, Fiduciary

Governmental funds

Use modified accrual; focus on short-term financial resources

Proprietary funds

Use full accrual; operate like businesses charging fees for services

Fiduciary funds

Use full accrual; hold resources for benefit of others; excluded from government-wide statements

Measurement focus (full accrual)

Economic resources — long-term focus

Measurement focus (modified accrual)

Current financial resources — short-term focus

General fund

Main operating fund for day-to-day operations; only fund that can have positive unassigned fund balance

Special revenue fund

Accounts for revenues restricted for specific purposes (excludes debt service and capital projects)

Debt service fund

Accumulates resources and pays principal and interest on specific debt obligations

Capital projects fund

Accounts for resources used to construct or acquire major capital assets; new fund per project

Permanent fund

Principal legally cannot be spent; only investment income may be used (e.g. $1M donation for youth programs)

Enterprise fund

Proprietary subtype; sells goods/services to general public (e.g. city water utility, airport, transit)

Internal service fund

Proprietary subtype; sells goods/services to other government departments (e.g. city motor pool, IT dept)

Pension trust fund

Fiduciary subtype; manages employee retirement and benefit plan assets

Investment trust fund

Fiduciary subtype; manages investments for external parties such as other governments

Private-purpose trust fund

Fiduciary subtype; benefits specific individuals, private organizations, or other governments

Custodial fund

Fiduciary subtype; holds resources temporarily; not actively invested to earn return

Full accrual revenue recognition

When earned

Modified accrual revenue recognition

When measurable AND available

Available (modified accrual)

Collectible within current period so it can be used to pay current period liabilities

Full accrual expense recognition

When incurred

Modified accrual expense recognition

When the related fund liability is incurred

Exception to modified accrual expense recognition

Interest on long-term debt is NOT accrued; only recorded when legally due

Modified accrual income statement name

Statement of Revenues, Expenditures, and Changes in Fund Balance

Full accrual income statement name (proprietary)

Statement of Revenues, Expenses, and Changes in Fund Net Position

Full accrual income statement name (fiduciary)

Statement of Changes in Fiduciary Net Position

Government-wide income statement name

Statement of Activities

Government-wide balance sheet name

Statement of Net Position

Revenues under modified accrual

Income tax, sales tax, property tax, fines and penalties, licenses and permits

Other Financing Sources (OFS)

Proceeds from debt issuance, proceeds from sale of capital assets, transfers FROM other funds

Expenditures under modified accrual

Ordinary operating expenses, purchases of capital assets, repayments of debt principal and interest

Other Financing Uses (OFU)

Transfers TO other funds

Capital assets under modified accrual

Expensed immediately as expenditure; NOT capitalized; no depreciation recorded

Long-term debt proceeds under modified accrual

Recorded as Other Financing Source (OFS); NOT recorded as a liability

Debt repayment under modified accrual

Recorded as expenditure; NOT a reduction of liability

Interest on long-term debt under modified accrual

NOT accrued; recorded only when legally due

Full accrual balance sheet

Statement of Net Position; reports both current AND long-term assets and liabilities

Modified accrual balance sheet

Reports current assets and current liabilities ONLY; no long-term items; no capital assets

Deferred outflow

Consumption of net assets attributable to a future period; reported below assets; increases net position; NOT an asset because it provides no future economic benefit

Deferred inflow

Receipt of net assets attributable to a future period; reported below liabilities; decreases net position; NOT a liability because it has no legal obligation to pay

Deferred outflow example

State pays grant to city before city can legally use the money

Deferred inflow example

City receives grant from state before the eligibility period begins

Net position formula

Total Assets + Deferred Outflows − Total Liabilities − Deferred Inflows

Government-wide financial statements purpose

Show operational accountability — how efficiently and effectively government used resources

Government-wide financial statements use

Full accrual accounting

Funds included in government-wide statements

Governmental funds + Proprietary funds

Funds EXCLUDED from government-wide statements

Fiduciary funds — MAJOR EXAM TRAP

Government-wide statements consist of

Statement of Net Position + Statement of Activities

Statement of Activities structure

Governmental activities → Business-type activities → General revenues → Changes in Net Position

Net Pension Liability (NPL)

Excess of actuarial pension obligations over pension plan assets; NOT on pension fund balance sheet; reported ONLY on government-wide Statement of Net Position

Budgetary accounting purpose

Demonstrate legal and fiscal accountability for public funds

Government budgets

Legally binding spending limits; formally recorded in accounting records; reported in ACFR

Budget entries timing

Beginning of year (record estimated inflows/outflows) and end of year (reverse and close)

Budget vs actual results

Budget entries have NO impact on actual financial results reported

Budget account normal balances

Opposite of their actual account normal balances

Encumbrance

Commitment to spend recorded when purchase order is issued

Purpose of encumbrances

Prevent government from overspending beyond legal appropriations

Encumbrances NOT recorded for

Recurring expenditures such as salaries

Unencumbered appropriations formula

Appropriations − Expenditures to date − Encumbrances

Five fund balance classifications

Nonspendable, Restricted, Committed, Assigned, Unassigned (most to least restricted)

Nonspendable fund balance

Assets not in spendable form (e.g. prepaid expenses, inventory, permanent fund principal)

Restricted fund balance

Assets restricted by external authority such as grantors or law

Committed fund balance

Assets formally committed by government's highest decision-making authority via formal resolution

Assigned fund balance

Assets intended for specific use but not formally committed; no formal resolution required

Unassigned fund balance

Spendable assets with no restrictions; ONLY the general fund can report a positive unassigned balance

Encumbrances classification

Can be restricted, committed, or assigned depending on who approved the purchase