Government Accounting Ch 1-3

Identify and describe the five environmental differences between governments and for-profit business enterprises

1. Organizational purposes- the purpose of commercial business is to generate profit for the benefit of its owners, government exists for the well-being of citizens providing public services- whether its beneficial or not

2. sources of revenues- businesses rely on net income to determine whether the measure of demand exceeds the costs of providing the service and is an accepted measure of performance. governments derive their sources from taxes.

3. potential for longevity-due to the the ability to tax governments rarely go out of style; businesses tend to disappear

4. relationship w/ stakeholders- governments have an obligation to demonstrate accountability for public funds: businesses rely on creditors

5. role of the budget- businesses prepare budgets for planning and controlling purposes. government budgets carry the authority of law, preventing public officials from spending outside their budgetary authority.

Define government

public corporations and bodies corporate and politic are governmental organizations. A corporate body means that it is recognized as a legal entity. A body politic is a civil division of the state and one or more of these characteristics:

1.popular election of officers or approval of a controlling majority of the members of the organization’s governing body by officials of one or more state or local governments

2. the potential for unilateral dissolution by a government with the net resources reverting to a government

3. the power to enact and enforce a tax levy

Fund Accounting

system organized on the basis of funds, each of which is considered a separate accounting entity.

Governmental Funds

generic classification used by the GASB to refer to all funds other than proprietary and fiduciary. includes general, special revenue, capital projects ,debt service, and permanent funds

Proprietary funds

major fund of governmental accounting also known as income determination or commercial- type funds. include enterprise funds and internal service funds

Fiduciary Funds

any fund held by a governmental unit in a fiduciary capacity, ordinarily as agent or trustee (not theirs to keep) 4 categories: custodial funds, pension trust funds, investment trust funds, and private-purpose trust funds.

fund

represents a part of activities in an organization, separately reports the resources and activities of a part of a government and is segregated because of the existence of restriction or limitations on the use of some resources

permanent funds

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

capital project funds

account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlays. As such, it accounts for the purchase or construction of major capital improvements, except those purchased or constructed by a proprietary (and less commonly, fiduciary) fund.

debt service fund

account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest, other than interest or principal on proprietary or fiduciary activities.

special revenue funds

account for and report the proceeds of specific revenue sources that are restricted or committed (not merely assigned) to expenditure for specified purpose other than debt service or capital projects. These include activities funded by federal or state grants or by taxes specifically restricted to certain activities.

general fund

accounts for most of the basic services provided by the government. Technically, it accounts for and reports all financial resources not accounted for and reported in another fund.

enterprise fund

a fund established for the purpose of measuring net income for a governmental department providing goods or services primarily to outside consumers, in which it is the intent of the government that the department operate on a cost-recovery or profitable basis.

internal service fund

a fund established for the purpose of measuring net income for a governmental department providing services primarily to other departments or agencies within the government, in which it is the intent of the government that the department operate on a cost reimbursement basis.

investment trust fund

- Accounts for the external portion of investment pools governed by a trust agreement in which the sponsoring government acts as trustee.

pension fund

used to account for assets provided to pension trusts. The earnings of these assets are used to pay the pensions of public (government) employees.

private-purpose trust fund

- report all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments.

custodial funds

account for all other fiduciary activities, including activities where a trust agreement is not in effect.

With respect to Government-wide financial statements, which of the following is not required by GASB?

statement of cash flows

With respect to the preparation of fund basis financial statements, governmental funds other than the General Fund are considered to be major when which of the following conditions exist?

• With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues, or expenditures of that individual governmental fund constitutes 10% of the total for the governmental fund category.

• With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues, or expenditures of that individual governmental or enterprise fund are 5% of the total of the governmental and enterprise categories, combined.

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what is included in the rsi

• Management's Discussion and Analysis (MD&A)

• Budgetary Comparison Schedule

• The Schedule of Funding Progress and Schedule of Employer Contributions when the government reports a pension trust fund

Under GASB rules for the financial reporting entity:

component units are included if the primary government is financially accountable for their operations.

imposed non-exchange transactions

are taxes and other assessments imposed by a government on non-governmental entities without an underlying exchange transaction occurring first (e.g., property taxes, fines, forfeits, and special assessments).

The standard sequential process for acquiring goods or services in governmental accounting is:

• Requisition order (Internal request/application for approval to purchase)

• Encumbrance (Issuance of a purchase order)

• Expenditure (Receipt of goods/services and processing of invoice)

• Disbursement (Payment of cash)

component units

legally separate organizations for which elected officials of the primary government are financially accountable

primary governments

can be a state government, a general purpose local government such as a city or county, or a special-purpose government

when should they be included in the primary government financial statements. ?

•       -must have one of the following characteristics: 1. the primary government controls a voting majority of the other organization’s governing board or otherwise may impose its will on the organization; or, (2) the other organization is fiscally dependent upon the primary government 2^nd they the related organization must represent a financial benefit or burden to the primary government.

modified accrual includes:

·      Governmental funds (money came in but wasn’t earned) other financing source

·      Revenue

·      Expenditures

·      No long-term capital assets

·      No long-term liabilities

·      Current focus

full accrual includes

·      Government-wide (we owe money long-term) liabiltiy

·      Revenue

·      Expenses

·      Capital assets

·      Long-term liabilities

·      Long-term/whole picture

Encumbrance

when a purchase order or contract is issued as authorized by an appropiation

Appropriation

the legal authorization for the government to make expenditures for specific purposes

purpose of an encumbrance

to stop the government from accidentally overspending its budget

imposed non-exchange

there is no underlying exchange creating the tax (government puts it on for you)

derived tax revenue

derived from an underlying transaction conducted by a citizen or business

government-mandated

a higher level of government requires a low level of government to do something

voluntary exchange

usually grants or donations supporting a program where participation isnt required

non-spendable

mostly includes inventories and prepaid items and the principal of a permanent fund

spendable resources

all remaining net resources of a fund after removing those determined to be non-spendable. further classified according to nature of any constraints imposed on their use, using a hierarchy of constraints ( restricted, committed , assigned , unassigned)

restricted

constraints placed on the use of resources are externally imposed (debt covenant or granting agency) imposed by the law constitutionally or by legislation

committed

constraints placed on the use of resources highest form of governement formally decides what it will be used for

unassigned

residual classification of the general fund

assigned

the government expressed intent to use resources for specific purpose

j/e for encumbrances

dr. encumbrance control

cr. budgetary fund balance (reserved for encumbrances)

j/e for the actual expenditures and encumbrances reversals

dr. budgetary fund balance- reserved for encumbrances

cr. encumbrance control

j/e for budget revisions

dr. est. revenue control

cr. est other financing uses