1. Accounting for State & Local Governments, I
Chapter 11
Accounting for State &
Local Governments, I

2. Objectives of Gov. Reporting
SGAC 1
Government financial reports should respond to needs of the citizenry, their representatives, and investors and creditors involved in the lending process
Four uses of financial reports
Compare actual financial results with the legally adopted budget
Assess financial condition and results of operations
Determine compliance with finance-related laws, rules and regulations
Evaluate efficiency and effectiveness
Stresses accountability

3. Government’s Accountability
Fiscal Accountability: to justify that its actions comply with public decisions about obtaining and expending public resources in current year.
Operational Accountability: to report how efficiently and effectively it achieves its objectives using available resources.
Interperiod equity: Whether financial resources are sufficient for the services rendered in each period.
current tax payers’ vs future tax payers’ obligation
available for economic, political, and social decision-making

4. Corporate and Governmental Accounting Systems
Corporate Accounting
1 reporting entity, 1 accounting entity
Accrual accounting system
Measuring economic resources
Governmental Accounting
1 reporting entity, many accounting entities
GASB No.14: Primary government and its component units
Primary Government: separately elected body, legally separated, and fiscally independent
Fund accounting system
Measuring flow of financial resources
Profit Motive
Revenue & cost of providing services, Inflow & outflow of all resources

5. GASB Statement No. 34 (1999)
Requires the production of two sets of financial statements:
Fund Financial Statements
Government-wide Financial Statements
Show restrictions on the use of resources, and report current revenues and expenditures from certain activities.
Report all revenues and costs with a long term focus. Of interest to creditors, to assess the likelihood of being paid.
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6. Important DIfferences
Fund Financial Statements
Government-wide Financial Statements
individual activities.
current financial resources
fiscal accountability in raising and utilizing money.
modified-accrual accounting.
a whole.
operating accountability
all economic resources.
accrual accounting.
Help users evaluate government’s financial decisions and its long-term stability.
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7. Fund Accounting Classification
Governmental Funds
Proprietary Funds
Fiduciary Funds
Accounting for activities related to serving the public.
Accounting for business-type activities.
Accounting for financial resources held for others as trustee.
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8. Various Fund Types. Governmental Funds Proprietary Funds
Fiduciary Funds
General Fund
Enterprise Fund
Pension Trust Fund
Capital Project Fund
Internal Service Fund
Investment Trust Fund
Special Revenue Fund
Private-purpose Fund
Debt Service Fund
Agency Fund
Permanent Fund
MC4 (p.420) a

9. Fund Structure Fund Resources from Resources for General
Income tax, fees
administration
Special Revenue
Gov. grants, special taxes
Particular operation specified by rules
Capital Project
Specific project proceeds
acquisition of infra structure
Debt Service
Other funds, interest earned on investment
Payment for interest and principal
Permanent
Earnings from trust, legal agreements
As specified by trust agreement
Enterprise
Revenues from customers
Business activities
Internal service
Charges to other city department
Operating expense, capital expenditure….

10. Two statements are required:
Government-Wide F/S
Two statements are required:
Statement of Net Assets
Statement of Activities
Reporting is separated into governmental activities (government funds and most internal service funds) and business-type activities (enterprise funds and remaining internal service funds).
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11. Statement of Net Assets
Note: The Statement of Net Assets reports Governmental Activities separate from the Business-Type Activities.
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12. Statement of Net Assets
Also note this statement does not give information about Fiduciary Funds.
This is consistent with the “economic resources management focus” -- only include assets and liabilities that are available to use for governmental purposes.
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13. Statement of Activities
On the Statement of Activities, the net for a given function is determined horizontally, while the totals for expenses and revenues are determined vertically.
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14. Statement of Activities
The general revenues are shown separately at the bottom of the statement.
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15. Fund Financial Statements
Two statements are required:
Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balance
Fund-Based statements will include information on fiduciary funds.
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16. Fund Financial Statements
These statements will differ from the Government-Wide financial statements for three reasons.
The Internal Service Funds are included in separate statements for Proprietary Funds.
The current financial resources measurement basis is used.
The modified accrual accounting approach is used.
These statements will differ from the Government-Wide financial statements for three reasons. The Internal Service Funds are included in separate statements for Proprietary Funds.
The current financial resources measurement basis is used.
The modified accrual accounting approach is used.
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17. Fund Accounting – Balance Sheet Example
Separate column for each “major” fund (where a fund total > 10% of all funds in the same category, or > 5% of all funds).
Separate column for each “major” fund (where a fund total > 10% of all funds in the same category, or > 5% of all funds).
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18. Statement of Revenues, Expenditures, & Changes in FB
Also reports each “major” fund (where a fund total > 10% of all funds in the same category, or > 5% of all funds) in separate columns.
Also reports each “major” fund (where a fund total > 10% of all funds in the same category, or > 5% of all funds) in separate columns.
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19. Statement of Revenues, Expenditures, & Changes in FB
Statement continued. . .
Statement continued. . .
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20. Governmental Activities
Issued general obligation bonds, par value of $300 at101 to finance a Gov. office construction
Fund ? CA = CL FB
2. Transferred the premium to the fund for repaying liability.
Fund ? CA = CL FB
CPF
303
CPF -3
- 3
DSF +3

21. Governmental Activities
3. Incurred and paid construction costs of
$100 on the building (10yr life, residual val=0)
Fund ? CA = CL Fund Balance
4. Received $100, a federal grant for the building construction.
Fund ? CA = CL Fund Balance
CPF
-100
CPF
+100

22. Governmental Activities
5. Paid general government employees’ salaries,
$45. Another $5 of salaries accrued but
has not been paid
Fund ? CA = CL Fund Balance
6. Borrowed $75 on a six-month note to finance
general operating costs of the government.
Fund ? CA = CL Fund Balance GF
- 45 +5
-50 GF 75

23. Government Acctg Cycle
Budgetary Entry
Estimated Revenues <-->Appropriation
Execution
Taxes Receivable
Taxes Revenues, & Allowance
Encumbrances
Reserved for Encumbrances
Expenditure
Vouchers Payable or Cash
Cash
Taxes Receivable
Reserved for Encumbrances
Encumbrances ….
Closing
Appropriation<--> Estimated Revenues
Revenues <--> Expenditures &
Encumbrances

24. Procedures – Recording Budgetary Entries
A town enacts a motel excise tax to promote tourism and conventions. For 2013, the tax is expected to generate $490 in Special Revenues. The city council authorizes expenditures of $420 including $200 for salaries, $30 for utilities, $110 for supplies, and $80 for advertising.
A town enacts a motel excise tax to promote tourism and conventions. For 2013, the tax is expected to generate $490,000 in Special Revenues. The city council authorizes expenditures of $420,000 including $200,000 for salaries, $30,000 for utilities, $110,000 for supplies, and $80,000 for advertising.
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25. Procedures –Encumbrances
For Fund-Based Financial Statements:
An entry is required to record the encumbrance.
An entry is required when the bill is received.
For Government-Wide Financial Statements:
No entry is required to record the encumbrance.
Procedures – Encumbrances
For Fund-Based Financial Statements:
An entry is required to record the encumbrance.
An entry is required when the bill is received.
For Government-Wide Financial Statements:
No entry is required to record the encumbrance.
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26. Procedures – Encumbrances
Assume a city’s police department ordered $18 worth of equipment. This amount has been committed even though no formal liability exists until the equipment is received.
Procedures – Encumbrances – Example
Assume a city’s police department ordered $18,000 worth of equipment. This amount has been committed even though no formal liability exists until the equipment is received. Remember, this entry is only recorded for Fund-Based Financial Statements.
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27. Procedures –Encumbrances
The equipment arrives with an invoice for $19. Sales tax, price adjustments, and other costs may cause the actual invoice to differ from the estimated amount.
General Fund – Police Department
The account title typically used in place of Accounts Payable.
The equipment arrives with an invoice for $18,160. Sales tax, price adjustments, and other costs may cause the actual invoice to differ from the estimated amount.
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28. Procedures – Fixed Assets
The expenditure for fixed assets is recorded in the General Fund for fund-based statements.
But, depreciation is not recorded in the governmental fund, since net income is not a concept relevant to governmental units.
However, GASB requires a record of ALL capital assets in the Statement of Net Assets in government-wide statements.
And, depreciation expense is recorded.
Procedures – Fixed Assets
The expenditure for fixed assets is recorded in the General Fund for fund-based statements.
But, depreciation is not recorded in the governmental fund, since net income is not a concept relevant to governmental units.
However, GASB requires a record of ALL capital assets in the Statement of Net Assets in government-wide statements.
And, depreciation expense is recorded.
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29. Procedures –Recoging Revenues
Classifications
Derived Tax Revenues
Imposed Nonexchange Revenues
Government-mandated Nonexchange Transactions
Voluntary Nonexchange Transactions
For Fund Statements, record the revenues when they become “available for recognition”.
For Government-Wide Statements, record the revenues when “eligibility requirements have been met”.
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30. Procedures –Issuance of Bonds
The town of Ruark issues $9,000 in bonds for the construction of new school building.
The following journal entry is prepared to reflect the sale of the bonds.
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31. Pay FOR Long-Term LIability
The town makes a $500 bond payment and pays 3 months of interest amounting to $10.
Government-Wide Financial Statements Record principal and interest as with GAAP.
Fund-Based Financial Statements Record expenditures in the Debt Service Fund.
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32. Special Assessments
Governments may provide improvements or services that benefit particular properties.
They may assess the costs, in total or in part, to the property owners.
Examples
Paving
Curbing
Sidewalks
Sewers and drains
Water lines
Usually financed by debt issuance and liens on the benefited property (to ensure reimbursement).
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33. Special Assessments - Acctg
Government-wide financial statements
Debt and subsequent construction handled as for-profit enterprises do
Asset recorded at cost
Taxes assessed and collected
Tax receipts used to settle debt
Fund-based financial statements
Infrastructure not recorded
Debt not recorded
Reported in Capital Projects Fund and Debt Service Fund (tagged as special assessment in both)
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34. Interfund Transactions
Commonly used, particularly monetary transfers from the General Fund
Normally reported as “other financing source” and “other financing use” within the fund-based financial records
Many of these are not reported in the government-wide financial statements because they create no net impact (intra-activity transactions)
Interactivity transactions occur between governmental and enterprise funds and are reported on government-wide financial statements
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