HG

Untitled Flashcard Set

Chapter 4


Illustrative Case: Town of Brighton

Comparison of Government-wide Statement of Net Position vs. General Fund Balance Sheet


Measurement Focus & Basis of Accounting

  • Government-wide Statement of Net Position

    • Economic resources focus (all assets + liabilities, current & noncurrent).

    • Accrual basis (revenues when earned, expenses when incurred).

    • Similar to corporate financial reporting.

  • General Fund Balance Sheet

    • Current financial resources focus (only short-term assets & liabilities).

    • Modified accrual basis (revenues when measurable & available; expenditures when liability incurred & payable from current resources).

    • Excludes long-term assets & liabilities.


Format Differences

  • Gov-wide (Net Position format)

    • Equation: Assets + Deferred Outflows – Liabilities – Deferred Inflows = Net Position

    • Condensed, aggregated across all governmental funds.

  • General Fund (Traditional Balance Sheet format)

    • Equation: Assets + Deferred Outflows = Liabilities + Deferred Inflows + Fund Balance

    • More detailed, fund-specific reporting.


Key Line-Item Differences

  • Assets

    • Gov-wide: Reports all → cash, receivables, supplies inventory, capital assets ($19.3M).

    • General Fund: Only current → cash, receivables (net of allowances), excludes capital assets & LT receivables.

  • Liabilities

    • Gov-wide: Includes all → current payables ($320K), due to federal govt ($90K), accrued interest ($37.5K), bonds payable ($1.5M).

    • General Fund: Only current → vouchers payable ($320K), due to federal govt ($90K).

  • Deferred Inflows

    • Gov-wide: none shown.

    • General Fund: $232,024 deferred inflows = unavailable revenues (not collectible in time).

  • Fund Balance / Net Position

    • Gov-wide:

      • Net Investment in Capital Assets = $17.83M

      • Restricted (Debt Service) = $74,447

      • Unrestricted = $411,461

      • Total Net Position = $18.3M

    • General Fund:

      • Unassigned Fund Balance = $122,000


Why Numbers Differ

  • Unassigned Fund Balance ($122K) vs. Unrestricted Net Position ($411K) → gap of $289K due to:

    • Basis of accounting differences (modified accrual vs. accrual).

    • Inclusion of other governmental fund types in Gov-wide totals (not just General Fund).

  • Example:

    • Gov-wide cash includes General + Debt Service + Internal Service Fund balances.

    • Investments in debt service fund ($40,384) and supplies in ISF ($61,500) appear in Gov-wide, but not GF.


Conceptual Takeaways

  • Neither Net Position nor Fund Balance = equity → taxpayers do not “own” a residual claim like stockholders.

  • Gov-wide = broad financial health of all governmental activities.

  • Fund-level = compliance and fiscal accountability for current period resources.



LO 1


Dual-Track Entries (Fund vs Gov-wide)

Quick rules (memorize these)

  • Fund (GF) = modified accrual, current financial resources → record expenditures, no LT assets/liabilities, apply availability (e.g., 60-day rule for property taxes).

  • Gov-wide (Gov Activities) = full accrual, economic resources → record assets/liabilities & expenses, capitalize & depreciate, no availability test.


Budget & Encumbrances

  1. Record the budget (GF only)

  • Fund: Dr Estimated Revenues / Cr Appropriations, Budgetary Fund Balance (net).

  • Gov-wide: No entry.

  1. Encumbrances issued (GF only)

  • Fund: Dr Encumbrances—2027 / Cr Encumbrances Outstanding—2027.

  • Gov-wide: No entry.

  1. Receive goods/services previously encumbered (cost < estimate)

  • Fund (reverse encumbrance at estimate):
    Dr Encumbrances Outstanding—2027 / Cr Encumbrances—2027.
    Then record actual: Dr Expenditures / Cr Vouchers Payable.

  • Gov-wide: Dr Expenses (by function) / Cr Vouchers Payable.

  1. Capital item purchased (copier)

  • Fund:
    Reverse encumbrance (as above).
    Record purchase: Dr Expenditures / Cr Vouchers Payable.

  • Gov-wide: Capitalize: Dr Equipment / Cr Vouchers Payable.


Paying current liabilities

  1. Pay vouchers & amounts due to other govt

  • Fund & Gov-wide: Dr Vouchers Payable; Dr Due to Federal Govt / Cr Cash.


Payroll

  1. Accrue January payroll + employer FICA; withholdings

  • Fund: Dr Expenditures (by function) / Cr Vouchers Payable, Due to Fed, Due to State.

  • Gov-wide: Dr Expenses (by function) / Cr Vouchers Payable, Due to Fed, Due to State.

  1. Pay net payroll

  • Fund & Gov-wide: Dr Vouchers Payable / Cr Cash.


Property taxes—levy, collection, year-end steps

  1. Levy current year property taxes (2% uncollectible)

  • Fund: Dr Taxes Rec—Current; Cr Allowance—Current; Cr Revenues (net).

  • Gov-wide: Same but credit General Revenues—Property Taxes.

  1. Collect current taxes

  • Fund & Gov-wide: Dr Cash / Cr Taxes Rec—Current.

  1. Year-end reclass: remaining current → delinquent

  • Fund & Gov-wide:
    Dr Taxes Rec—Delinquent; Dr Allowance—Current / Cr Taxes Rec—Current; Cr Allowance—Delinquent.

10a) Apply availability (60-day) in GF

  • Fund: Dr Revenues / Cr Deferred Inflows—Unavailable Revenues (for portion not available).

  • Gov-wide: No availability adjustment.


Interest & penalties on delinquent taxes

  1. Accrue I&P on delinquents (part uncollectible)

  • Fund: Dr I&P Rec on Taxes; Cr Allowance— I&P; Cr Deferred Inflows—Unavailable (unless clearly available).

  • Gov-wide: Dr I&P Rec; Cr Allowance— I&P; Cr General Revenues—I&P.

  1. Additional current-year interest ($400)

  • Fund: Dr I&P Rec / Cr Revenues— I&P.

  • Gov-wide: Dr I&P Rec / Cr General Revenues— I&P.

  1. Collect delinquent taxes + prior-year I&P

  • Fund:
    Dr Cash / Cr Taxes Rec—Delinq; Cr I&P Rec.
    Then recognize previously deferred: Dr Deferred Inflows—Unavailable / Cr Revenues (tax + I&P).

  • Gov-wide: Dr Cash / Cr Taxes Rec—Delinq; Cr I&P Rec (no revenue now; it was recognized earlier).

  1. Write off uncollectible delinquents

  • Fund & Gov-wide:
    Dr Allowance—Delinq Taxes; Dr Allowance— I&P / Cr Taxes Rec—Delinq; Cr I&P Rec.


Other (non-tax) revenues

  1. Cash collections + accrue bimonthly sales tax

  • Fund: Dr Cash; Dr Sales Taxes Rec / Cr Revenues (by source).

  • Gov-wide: Dr Cash; Dr Sales Taxes Rec / Cr Program Revenues—Charges for Services (e.g., licenses/permits, fines allocated to functions, charges for services), Cr General Revenues—Sales Taxes, Cr General Revenues—Misc.


Short-term borrowing (Tax Anticipation Notes)

  1. Borrow TANs

  • Fund & Gov-wide: Dr Cash / Cr Tax Anticipation Notes Payable.

  1. Repay TANs + interest

  • Fund: Dr TANs Payable; Dr Expenditures—Interest / Cr Cash.

  • Gov-wide: Dr TANs Payable; Dr Expenses—General Government (interest) / Cr Cash.


What to practice (high-yield)

  • Convert fund entries to gov-wide:

    • Replace Expenditures ↔ Expenses (or Capital assets).

    • Add/keep LT assets/liabilities at gov-wide; omit them at fund.

    • Apply availability only in the fund statements.

  • For program vs general revenue at gov-wide:

    • Charges for services (incl. fines) → program revenue by function.

    • Taxes, unrestricted misc → general revenues.


Big Picture: What GASB Wants

  • Purpose: Provide information for accountability and decisions (economic, social, political).

  • Primary users: Citizens, legislative/oversight bodies, creditors.

  • Useful info characteristics: Understandable, reliable, relevant, timely, consistent, comparable.

GASB Concept Statements you’ll actually use

  • CS 1: Objectives of reporting (accountability, decision-usefulness).

  • CS 3/7: Where info goes—statements, notes, RSI, supplementary.

  • CS 4: Elements (Assets, Liabilities, Deferred Outflows/Inflows, Inflows, Outflows, Net Position).

  • CS 6: Measurement—initial amounts for service assets; remeasurement (e.g., fair value) for cash-convertible items; attributes: historical cost, fair value, replacement cost, settlement.

🔑 Deferred Outflows/Inflows affect net position but aren’t assets/liabilities. Use them only when a GASB standard requires.

2) Activities & Funds

Three activity buckets

  • Governmental activities (core services + admin).

  • Business-type activities (self-supported by fees: utilities, airports, transit).

  • Fiduciary activities (custodial/trust for others; excluded from gov-wide).

Fund categories & types

  • Governmental funds (modified accrual; current financial resources):

    • General Fund (GF)

    • Special Revenue (SRF)

    • Debt Service (DSF)

    • Capital Projects (CPF)

    • Permanent (PF)

  • Proprietary funds (accrual; economic resources):

    • Enterprise (EF)

    • Internal Service (ISF)

  • Fiduciary funds (accrual; economic resources):

    • Custodial

    • Trusts: Pension/OPEB, Investment, Private-purpose

Major fund reporting

  • GF is always major.

  • Else: Any fund meeting 10% within category and 5% of combined governmental+enterprise for the same element (assets+deferred outflows; liabilities+deferred inflows; revenues; expenditures/expenses).

3) Financial Reporting Model

  • Two kinds of basic statements: Government-wide and Fund.

  • MD&A + RSI required.

  • Gov-wide (accrual; economic resources):

    • Statement of Net Position (Net position = Net investment in capital assets; Restricted; Unrestricted).

    • Statement of Activities (by function/program; “Expenses − Program Revenues = Net (Expense) Revenue”; then add general revenues, transfers, unusual/infrequent items).

  • Fund statements:

    • Governmental funds: Balance Sheet; Statement of Revenues, Expenditures, & Changes in Fund Balances (SRECGB) — modified accrual.

    • Proprietary funds: Statement of Net Position; Statement of Revenues, Expenses & Changes in Fund Net Position; Statement of Cash Flows.

    • Fiduciary funds: Statement of Fiduciary Net Position; Statement of Changes in Fiduciary Net Position (not in gov-wide).

Reconciliations required between total governmental fund balances and governmental activities net position, and between change in governmental fund balances and change in governmental activities net position.

4) Government-wide Statement of Activities

  • Program revenue categories (3):

    1. Charges for services (includes licenses/permits, fines/forfeits).

    2. Operating grants & contributions.

    3. Capital grants & contributions.

  • General revenues: All taxes (even dedicated by law), unrestricted grants, investment earnings, etc.

  • Direct vs Indirect expenses: Direct to functions; interest on general LT debt usually separate line; shared depreciation allocated or shown unallocated (clearly labeled).

5) Governmental Fund Statements

  • Balance Sheet (modified accrual): Current financial resources only; no general capital assets or general LT debt.

  • SRECGB:

    • Revenues vs Other Financing Sources (OFS) (e.g., transfers in, debt proceeds, asset sales).

    • Expenditures vs Other Financing Uses (OFU) (e.g., transfers out).

  • Key difference from accrual: Record expenditures when current financial resources are used/obligated (no depreciation in governmental funds).

6) Budgetary Accounting

Why record the budget? Legal compliance & control. Required RSI: Budget-to-Actual for GF and each major SRF with legally adopted budgets.

Budgetary control accounts (control + matching actuals):

  • Estimated Revenues (DR) ↔ Revenues (CR)

  • Appropriations (CR) ↔ Expenditures (DR)

  • Estimated OFS (DR) ↔ OFS (CR)

  • Estimated OFU (CR) ↔ OFU (DR)

  • Encumbrances (DR) / Encumbrances Outstanding (CR)

Normal balances trick: With the exception of Encumbrances (debit), budgetary accounts have the opposite normal balance of their operating counterpart.

Encumbrance cycle:

  1. Encumbrance (DR Encumbrances; CR Encumbrances Outstanding).

  2. On receipt: Reverse encumbrance for estimated amount; record Expenditure and Vouchers Payable for actual.

  3. Year-end: Encumbrances appear only in the budgetary comparison schedule (not in statements). If you honorthem next year, either keep them open or close/reopen; may reclassify fund balance(restricted/committed/assigned) but never label “encumbrances” on the face.

Budget amendments: Record increases/decreases to Estimated Revenues/Appropriations and plug Budgetary Fund Balance.

Budgetary comparison schedule (RSI):

  • Shows Original & Final budget, Actual (budgetary basis), and two variances.

  • Encumbrances included in “Actual” (often labeled Expenditures & Encumbrances).

7) Revenue Recognition Nuggets

  • Measurable & Available (available often defined by policy; property taxes = 60 days by GASB).

  • Property tax cycle:

    • Levy: DR Taxes Rec—Current; CR Allowance (uncollectible); CR Revenues (net collectible).

    • Collections: DR Cash; CR Taxes Rec—Current.

    • Year-end reclass current→delinquent; if not available within 60 days: DR Revenues; CR Deferred Inflows—Unavailable Revenues.

    • Interest/penalties on delinquent: Often deferred in funds (availability uncertain); recognized as general revenues at gov-wide.

  • Sales/income/gross receipts taxes: Recognize in period of underlying transactions (net of refunds).

  • Intergovernmental (grants): Recognize when eligibility & time met and available.

8) Common Internal Transactions

  • Internal Service Fund (ISF) supplies: Fund pays billed amount (expenditure); gov-wide records cost (ISF markup eliminated).

  • Enterprise Fund services to GF: Fund-level: Due to/From and expenditure/revenue; gov-wide: Internal balances between columns; program expense for the function.

  • Payments in Lieu of Taxes (PILOT) from enterprise: Fund-level revenue; gov-wide program revenue if tied to specific services.

9) Inventory Accounting

  • Purchases method (funds): Expenditure = purchases; year-end adjust Inventory and Fund Balance—Nonspendable.

  • Consumption method (required at gov-wide & proprietary; optional in GF): Expenditure/Expense = consumption; record inventory when purchased; reclassify fund balance (nonspendable) in GF.

10) Closing Entries (LO 4-2)

  • Close budgetary accounts (reverse original + amendments).

  • Close operating accounts: Revenues/Expenditures → Fund Balance—Unassigned.

  • Reclassify fund balance for restricted/committed/assigned amounts that remain.

11) Journal Entry Templates (Fund vs Gov-wide)

Encumbrance placed (GF only):
DR Encumbrances—FYxx | CR Encumbrances Outstanding—FYxx

On receipt (GF):
DR Encumbrances Outstanding—FYxx | CR Encumbrances—FYxx
DR Expenditures—FYxx | CR Vouchers Payable (actual)

On receipt (Gov-wide):
DR Expense (or Capital Asset if threshold) | CR Vouchers Payable

Property tax levy (GF):
DR Taxes Rec—Current | CR Allowance–Uncollectible | CR Revenues (net)

Year-end deferral (GF):
DR Revenues | CR Deferred Inflows—Unavailable Revenues

Short-term TAN borrowing (both):
DR Cash | CR TANs Payable
Repayment: DR TANs Payable; DR Expenditures/Expense–Interest; CR Cash

12) Fund Balance Classifications (Gov’t Funds)

  • Nonspendable (e.g., inventory, prepaids, endowment principal).

  • Restricted (external/legal constraints).

  • Committed (highest-level formal action).

  • Assigned (intent—body or delegated official).

  • Unassigned (GF only; other funds can show negative unassigned if needed).

13) Quick “Why” Answers (your checkpoints)

  • Deferred inflows/outflows appear on both gov-wide and fund statements when required; placement differs by statement format and availability criterion.

  • Three activity categories: Governmental, Business-type, Fiduciary.

  • Program revenues (3): Charges for services; Operating grants/contributions; Capital grants/contributions.

  • OFS/OFU on SRECGB: Shown below revenues/expenditures in their own section (not revenues/expenditures).

  • Budgetary accounts exist for legal control and to compare to actuals; they don’t appear on GAAP statements.

  • Encumbrances in RSI only: They’re commitments, not liabilities/expenditures; thus excluded from balance sheet & SRECGB.

14) Mnemonics & Pitfalls

  • MEGA-B for measurement focus/basis:

    • Modified accrual → Expenditures (not expenses) → Governmental funds → Availability matters → Budget control w/ encumbrances.

  • P.O. → Vouch → Pay: Purchase Order (encumber) → Invoice/Voucher (expenditure) → Disburse (cash).

  • All taxes are general revenues at gov-wide, even if restricted by law (unless grant/contribution restricted to a program).

  • Don’t book depreciation in governmental funds; do book at gov-wide.

Property tax 60-day rule (funds) vs no availability test at gov-wide.