1 FUND BALANCE TRAINING PREPARED BY: FRANKIE EZZAT, PRINCIPAL ACCOUNTANT CHART OF ACCOUNTS & ANALYSIS DIVISION OF GENERAL ACCOUNTING
2 Definition of Fund Balance Fund Balance – The difference between assets and liabilities is reported as fund balance in governmental funds.
3 Components of Fund Balance Fund balance is divided into the following components: Reserved Unreserved a. Designated Unreserved b. Undesignated Unreserved Reserved Fund Balance – The function of reserved fund balance is to isolate the portion of the fund balance that is not available for discretionary spending. Legal restrictions on spending, fund balance is reserved to indicate situations where a portion of fund balance is not available for new spending because of legal restrictions involving parties outside the financial reporting entity. Restrictions are imposed by parties outside the government, laws and regulations.
4 (Continued)… Components of Fund Balance (Continued)… Unreserved Fund Balance - is divided into Designated and Undesignated fund balance. a) Designated Unreserved Fund Balance – represents management’s intended use of resources and should reflect actual plans approved by the government’s senior Management (BOS). Expressed another way, designations reflect a government’s self-imposed limitations on the use of otherwise discretionary fund balance. b) Undesignated Unreserved Fund Balance – available expendable financial resources in a governmental fund that are not subject to tentative management plan (i.e., designate).
5 Usage of Fund Balance Fund balance serves as a measure of current available financial resources. Used for: At year-end closing all the operational activities (revenues and expenditures) will close out to fund balance, increasing or decreasing beginning fund balance as it rolls forward to the next year. Not used for: Not to record year to date transactions. Year-to-date transactions must go through operations (revenues and expenditures).
6 (Continued)… Usage of Fund Balance (Continued)… Scenario 1 - Use of Fund Balance in Fund 10000: Sheriff department received revenue of $100,000 in FY 03. The source was not used since the funding has restricted use (based on external restrictions) the $100,000 must be reclassified to Reserved Fund Balance at the end of the year. Entries recorded in FY 03: Debit Credit 10000-2500100000-101100- Cash $100,000 10000-2500100000-773520-Revenue $100,000 10000-2500100000-325100-Unresv.Undesign. $100,000 10000-2500100000-308105-Reserved$100,000
7 (Continued)… Usage of Fund Balance (Continued)… In FY 04, Sheriff department would like to use the $100,000. What’s the process and the required entries in FY 04? Since it’s going to be expended in FY 04, it needs to be appropriated in FY 04 as well. Appropriation can be established through the budget or later with a Form 11. The Form 11 should state the following changes : Increase Appropriation of fund 10000 Decrease Reserved FB of fund 10000 Increase Unreserved Undesignated FB of fund 10000 Once the balance is in Unreserved undesignated FB, the department can start expending out of the appropriation.
8 (Continued)… Usage of Fund Balance (Continued)… Scenario 2 -Use of Fund Balance in Sub-fund and Expending out of Fund 10000: Fund 11062, Executive Office. There is a reserved fund balance of $150,000 which originally resided in the trust fund, therefore it was reserved in fund 11062. In FY 04, the EO would like to use the $150,000 and post the transactions out of fund 10000 instead of sub-fund 11062. What’s the process and the required entries? It needs to be appropriated in FY 04. The Form 11 should state the following changes: Increase Appropriation of fund 10000 Decrease Reserved FB of sub-fund 11062
9 Since the department has to expend out of fund 10000, the following entries are to be recorded by ACO once the Form-11 is approved. The request for the entries must be included as an attachment to ensure posting of the entries by ACO. Debit Credit 11062-1100100000-308118-Reserved $150,000 11062-1100100000-101100-Cash $150,000 10000-1100100000-101100-Cash $150,000 10000-1100100000-325100-Unreserv. Undesign. $150,000 Balance is reclassified to fund the expenditures of sub-fund 11062. Usage of Fund Balance (Continued)…
10 (Continued )… Usage of Fund Balance (Continued )… Scenario 3 - Recording Revenue in Multiple Funds (Fund 10000 & Sub-fund 11065): Sub-fund of the General Fund11065, Executive Office. In this example, a cash receipt for $100,000 was received in FY 04 and of this amount, $60,000 belongs to fund 10000 and the remaining balance stays in the sub-fund 11065. Required Entries: DebitCredit 11065-1100100000-101100-Cash $40,000 11065-1100100000-774710-Revenue$40,000 10000-1100100000-101100-Cash $60,000 10000-1100100000-774710-Revenue$60,000
11 If the total receipt is posted to sub-fund 11065 at the time it was received, the following entries to be recorded: DebitCredit 11065 - 110010000-101100 $60,000 11065 - 110010000-774710$60,000 10000 - 110010000-101100 $60,000 10000 - 110010000-774710$60,000 To record General Fund portion of the receipt from fund 11065. Usage of Fund Balance (Continued)…
12 Scenario 4 – Use of Fund Balance in Sub-fund 20001: Department of Transportation, sub-fund 20001 has a fund balance of $50,000 that was carried over from FY 03. In FY 04 the department would like to use the balance. What’s the process and the required entries? It needs to be appropriated in FY 04. The Form 11 should state the following changes: Increase Appropriation of fund 20000 Decrease Reserved FB of sub-fund 20001 No additional entries required once the appropriation is approved, expenditures can be posted against the appropriation. Usage of Fund Balance (Continued)…
13 (Continued)… Usage of Fund Balance (Continued)… Scenario 5– Use of Fund Balance in Sub-fund 20001 and Expending out of Fund 20000: Department of Transportation, sub-fund 20001 has a fund balance of $60,000 from prior year. In FY 04 the department would like to use the resource and post the transactions out of fund 20000. What’s the process and the required entries? It needs to be appropriated in FY 04. The Form 11 should state the following changes: Increase appropriation of fund 20000 Decrease reserved FB of sub-fund 20001
14 Since the department has to expend out of fund 20000,the following entries are to be recorded by ACO once the Form-11 is approved. The request for the entries must be included as an attachment to ensure posting of the entries by ACO Required Entries: Debit Credit 20001-3130100000-308118-Reserve$60,000 20001-3130100000-101100-Cash $60,000 20000-3130100000-101100-Cash $60,000 20000-3130100000-325100-Unreserv.Undesign$60,000 Balance reclassified to fund expenditures of fund 20001. Usage of Fund Balance (Continued)…
15 Usage of Fund Balance (Continued)… Scenario 6– Posting to Deferred Revenue instead of Revenue in Sub-fund 11022: Mental Health Substance Abuse received $30,000 from collection of fees and fines (CAI month-end distribution) from Courts in the current year. Required entries: Debit Credit 11022-4100500000-101100- Cash$30,000 11022-4100500000-731260- Other fines $30,000 Note: By inappropriately recording transactions to deferred revenue, we are understating current year revenues, fund balance and overstating liabilities in the fund.
16 Frequent Erroneous Postings To Fund Balance It’s very crucial to make sure we understand the usage of fund balance and how we are recording operational transactions (revenues and expenditures) which ultimately close out to fund balance.
17 ( Continued)… Frequent Erroneous Postings To Fund Balance ( Continued)… Here are a few examples of erroneous postings: 1. Fund Balance (already recognized as revenue in prior year) reclassified from Sub-fund to the budgetary fund as REVENUE of the current year. In prior year the balance was recognized as revenue, and as part of the year-end process it closed out to the fund balance. Recognizing it again would be duplication and it will overstate current year revenues and understate beginning fund balance.
18 (Continued)… Frequent Erroneous Postings To Fund Balance (Continued)… 2. The amount was brought in the sub-fund as revenue and reclassified to the budgetary fund as revenue again (without reducing the revenue in the sub-fund). If the amount needs to be recognized in the budgetary fund and not the sub-fund, then we need to decrease revenue and cash in the sub-fund and increase cash and revenue in the budgetary fund.
19 Frequently Erroneous Postings To Fund Balance 3.Usage of deferred revenue for convenience to avoid posting entries to various sub-funds. Deferred revenue account should be used ONLY if the resource inflows do not meet the criteria for revenue recognition. Unearned amounts are always reported as deferred revenue. In governmental funds, earned amounts are also reported as deferred revenue until they are available to liquidate liabilities of the current period. Note: For County of Riverside, the availability period for revenue recognition is 12-months, therefore longer than 12-months needs to be reported as deferred revenue.
20 Closing Rules At the end of the year, all expenditures and revenues close out to a fund balance account and with the PeopleSoft system we can direct the system to have different fund balance accounts for each fund if necessary.
21 ACO Contact For any further questions on this presentation or any questions related to fund balance, please contact: Frankie Ezzat at 5-3851 or via e-mail firstname.lastname@example.org.