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State & Local Government Accounting

Sources of GAAP for Government Entities

1. GASB Statements & Interpretations

. GASB Technical Bulletins

Cheap Custom Essays on State & Local Government Accounting

. Consensus Positions of GASB EITF (if it existed)

4. Implementation Guides of GASB Staff & Widely Recognized Industry Practices

5. Other Accounting Literature

Objectives of Financial Reporting for State and Local Governments are based on notion of Accountability (GASB Concept Statement No. 1 (187)

1. Compare actual results to budget

. Assess financial condition and operating results

. Assist in determining compliance with relevant laws and regulations

4. Assist in evaluating efficiency and effectiveness

The Reporting Entity

The Primary Government Typically a state or local government entity.

A Component Unit (e.g., community college, housing authority, arts organization) is usually reported in discrete presentation (separate column), but may be blended.

Contents of Comprehensive Annual Financial Report

• Introductory Section Table of Contents, Transmittal Letter, Officers, Organization Chart

• Financial Section

• Management's Discussion and Analysis

• Auditors' Report

• Basic Financial Statements

• Required Supplementary Information

• Statistical Section

Basic Financial Statements include

1. Government-wide Statements, under Accrual Accounting (GASB Statement No. 4) and Economic resources measurement focus

• Statement of Net Assets (Balance Sheet)

• Statement of Activities

. Fund Statements content and accounting methods vary by fund

. Notes to the Financial Statements

Fund Accounting The use of multiple accounting entities to account for resources segregated according to purpose.

Fund = Fiscal entity with self balancing set of records that record financial resources, related liabilities, residual balances, and changes therein.

Depending on the type of fund, financial statements will be prepared either using the [modified accrual basis and current financial resources measurement focus] or using the [accrual basis and economic resources measurement focus].

Current Financial Resources Focus

Current Assets Current Liabilities = Fund Balance

Economic Resources Focus

Current + Noncurrent Current Long-term = Net Assets

Assets Assets Liabilities Liabilities

Modified Accrual Accounting description/examples

• Revenue Recognition generally, when measurable and available

Imposed Non-Exchange (Tax) Revenue Recognized when taxes are levied & resources available.

Property taxes are an example.

o Derived tax revenues Recognized when susceptible to accrual (measurable and available), and/or when underlying transaction occurs.

Income Tax

Sales Tax

Motor Fuel Tax

o Government-mandated Non-exchange Transactions Record when conditions for receipt are met

Inter-governmental grants (e.g., grant from Federal Government)

o Voluntary Non-exchange Transactions Record when conditions for receipt are met

Similar to other inter-governmental grants, except that no restrictions on the use of the funds are imposed

o Interest accrued as earned

o Miscellaneous Revenue generally cash basis

• Expenditures Generally record when fund incurs liability

• Costs of personnel when paid (but this is close to when incurred because of recurring nature)

• Costs of goods and services when received

• Capital Outlays recorded as expenditures when asset is acquired

• Interest when legally payable (a little different than when incurred, so it is not accrued)

(If due date is one month after fiscal year end, the expenditure may be recorded)

Guidelines for Interest expenditures also apply to other Debt Service (i.e., principal payments)

Types of Funds

Governmental Funds

• General Fund

• Special Revenue Fund

• Capital Project Fund

• Debt Service Fund

• Permanent Fund

Under Modified Accrual Accounting and Current Financial Resources Measurement Focus, Basic Financial Statements Include

• Balance Sheet

• Statement of Revenues, Expenditures, and Changes in Fund Balances

Proprietary Funds

• Internal Service Funds

• Enterprise Funds

Under Accrual Accounting and Economic resources measurement focus, Basic Financial Statements Include

• Statement of Net Assets (Balance Sheet)

• Statement of Revenues, Expenses, and Changes in Fund Net Assets

• Statement of Cash Flows

o Operating

o Noncapital Financing (includes interest and principal paid on debt not related to capital assets)

o Capital and Related Financing (includes capital assets acquired and interest and principal paid on debt related to capital asset acquisitions)

o Investing (includes interest and dividends received)

Fiduciary Funds

• Agency Funds (one government collecting taxes for others)

• Trust Funds (Pension, Investment, Other)

Under Accrual Accounting and Economic resources measurement focus, Basic Financial Statements Include

• Statement of Fiduciary Net Assets

• Statement of Changes in Fiduciary Net Assets

Government-wide Statements (under GASB 4)

• Similar to GAAP for for-profit

• Measurement of Economic Resources

• Accrual Accounting

• Includes recording liabilities for LT Debt, Fixed Assets, and Depreciation

(Under certain conditions, government may choose the modified approach for infrastructure fixed assets, where infrastructure is not capitalized or depreciated. Conditions relate to adequacy of control and maintenance of infrastructure.)

Budgeting (for the General Fund)

Estimated Revenues

Appropriations - Approved or authorized (and estimated) expenditures (in the budget)

Steps in the Expenditure Process

• Appropriation

• Encumbrance A reservation for a Commitment

• Expenditure

• Payment (Disbursement)

At any time, appropriations can be broken down for control purposes into

• Expenditures already made

• Encumbrances (committed, but not expended)

• Unencumbered

Available Original

Remaining = Appropriation Encumbrances - Expenditure

Appropriation

The budget is recorded using debits and credits that are the opposite of actual

Estimated Revenues

Appropriations

Estimated Other Financing Uses (Transfers Out)

Budgetary Fund Balance

Journal Entry Examples For the Governmental Funds

(All entries are recorded in the General (Governmental) Fund unless otherwise stated)

Record the Budget with 400 of expected revenue and 5 of approved expenditures)

Estimated Revenues 400

Appropriations (Budgeted Expenditures) 5

Budgetary Fund Balance 5

Record 00 of tax revenue (and of estimated uncollectibles)

Taxes Receivable-Current 00

Estimated Uncollectible Taxes-Current

Revenues 18

Record taxes received of 176 for current year and 14 for prior year

Cash 10

Taxes Receivable-Current 176

Taxes Receivable-Delinquent 14

Record fees (revenues) for services of 60

Accounts Receivable 60

Allowance for Uncollectible Accounts 0

Revenues 60

Record collections of such fees of 58

Cash 58

Accounts Receivable 58

Record other Revenue of 0 (generally on cash basis)

Cash 0

Revenue 0

Record Expenditures of 0 that did not have an encumbrance

Expenditures 0

Vouchers (accounts) Payable 0

Record encumbrances (commitments) - for things like fixed assets and supplies estimated at 15

Encumbrances 15

Budgetary Fund Balance (BFB)

Reserved for Encumbrances 15

Record receipt of encumbered supplies and payment at 14 actual

BFB Reserved for Encumbrances 15

Encumbrances 15

Expenditures 14

Cash 14

(If the encumbrance is still outstanding at balance sheet date, the reserve for encumbrance is shown as part of fund equity.)

Adjusting entries may be used to record inventory balance (of ) under the "Purchase Method"

Supplies Inventory

Reserve for Supplies Inventory

(part of fund equity)

(When the supplies were originally purchased they were simply recorded as an expenditure.)

Transfers in and transfers out are common and generally also are budgeted.

Closing Entries

Close out Estimated Revenues and Appropriations (the budget) with net going to Budgetary Fund Balance.

Close out Revenues, Expenditures, & Encumbrances (the 'actual') with net going to Fund Balance.

Financial Statements

• Statement of Revenues, Expenditures and Changes in Fund Balance (with Budget and Actual)• Balance Sheet

Fund Equity = Fund Balance = Fund Assets - Fund Liabilities

Unreserved Fund Balance =

Fund Equity (Assets - Liabilities) Reserves

Only the unreserved fund balance is unrestricted and available for appropriation (the reserves have already been committed).

Required Notes to Financial Statements

GASB 4 requires disclosure of

• Summary of Significant Accounting Policies

• Cash deposits with financial institutions

• Investments

• Significant contingent liabilities

• Encumbrances outstanding

• Significant subsequent events

• Annual pension cost and net pension obligations

• Material violations of finance-related legal and contractual provisions

• Debt service requirements

• Commitments under operating leases

• Construction and other significant commitments

• Required disclosures about capital assets

• Required disclosures about long-term debt

• Deficit fund balances or net assets of individual funds

• Interfund receivables and payables

• Significant transactions with discretely presented component units

• Disclosures about donor-restricted endowments

Major Required Supplementary Information

• Budgetary Comparisons for the General Fund and Special Revenue funds with a legally adopted budget

• Disclosures regarding infrastructure if depreciation is not recorded on them

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