Explain Changes in Net Position © Dale R. Geiger 20111

Terminal Learning Objective Task: Explain Changes in Net Position Over a Period of Time Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors Standard: With at least 80% accuracy: Prepare Statement of Budgetary Resources Demonstrate proprietary reporting Prepare basic proprietary financial statements © Dale R. Geiger 20112

Do federal agencies keep two sets of books? © Dale R. Geiger 20113

Two Types of Accounts Budgetary Accounts track budgetary activities and resources Appropriations, Obligations, Expenditures Proprietary Accounts track financial activities and resources Liabilities and payment of liabilities Assets and payments received Expenses and revenues © Dale R. Geiger 20114

Budgetary Reporting Statement of Budgetary Resources Budgetary Resources consist of: Prior Year Unobligated Balance Current Year Appropriations Collections Expenditures+ Open Obligations + Unobligated Balance Appropriations & Other = Budgetary Resources=Status of Budgetary Resources © Dale R. Geiger 20115

Budgetary Reporting Statement of Budgetary Resources Budgetary Resources consist of: Prior Year Unobligated Balance Current Year Appropriations Collections Expenditures+ Open Obligations + Unobligated Balance Appropriations & Other = Budgetary Resources=Status of Budgetary Resources © Dale R. Geiger 20116

Statement of Budgetary Resources The fictional Training Appropriation Fund received appropriations of $2720 Purchase orders in the amount of $1280 were issued Goods received were $824 (estimated and actual) Task: Prepare the Statement of Budgetary Resources © Dale R. Geiger 20117

Statement of Budgetary Resources What items represent the Budgetary Resources? What items represent the Status of Budgetary Resources? How much are the expenditures? How much of the obligations was left outstanding? What is the unobligated balance? © Dale R. Geiger 20118

Statement of Budgetary Resources Budgetary Resources: Appropriations$2720 Status of budgetary resources: Obligations (unfilled orders) $456 Expended appropriations 824 Unobligated Balance 1440 Total$2720 © Dale R. Geiger 20119

Statement of Budgetary Resources Budgetary Resources: Appropriations$2720 Status of budgetary resources: Obligations (unfilled orders) $456 Expended appropriations 824 Unobligated Balance 1440 Total$2720 The purpose of this report is to show that all budgetary resources are accounted for © Dale R. Geiger

Check on Learning What is the basic equation for the Statement of Budgetary Resources? What items represent the Status of Budgetary Resources? © Dale R. Geiger

Proprietary Reporting Statement of Net Cost Costs – Earned Revenues = Net Cost Statement of Changes in Net Position Financing Sources – Net Cost = Change in Net Position Balance Sheet Assets = Liabilities + Net Position Uses the Accrual Basis of Accounting © Dale R. Geiger

Proprietary Reporting Statement of Net Cost Costs – Earned Revenues = Net Cost Statement of Changes in Net Position Financing Sources – Net Cost = Change in Net Position Balance Sheet Assets = Liabilities + Net Position Uses the Accrual Basis of Accounting © Dale R. Geiger

Proprietary Reporting Statement of Net Cost Costs – Earned Revenues = Net Cost Statement of Changes in Net Position Financing Sources – Net Cost = Change in Net Position Balance Sheet Assets = Liabilities + Net Position Uses the Accrual Basis of Accounting © Dale R. Geiger

Proprietary Reporting Statement of Net Cost Costs – Earned Revenues = Net Cost Statement of Changes in Net Position Financing Sources – Net Cost = Change in Net Position Balance Sheet Assets = Liabilities + Net Position Uses the Accrual Basis of Accounting © Dale R. Geiger

Proprietary Reporting Statement of Net Cost Costs – Earned Revenues = Net Cost Statement of Changes in Net Position Financing Sources – Net Cost = Change in Net Position Balance Sheet Assets = Liabilities + Net Position Uses the Accrual Basis of Accounting © Dale R. Geiger

Other Financing Sources Increase Net Position Prevent Revenues and Expenditures from being counted twice in the same entity Transfers of cash from other funds in the same government Unreimbursed services provided by another governmental segment or entity Cash inflows from long term borrowing © Dale R. Geiger

Proprietary vs. Budgetary The budgetary accounts use the budgetary basis: Once the goods are received, the budgetary accounting process is finished and the proprietary accounts take over Plan Order Consume Receive Pay Commitment  Obligation  Expenditure © Dale R. Geiger

Proprietary vs. Budgetary The proprietary accounts use the accrual basis: When goods are received  liability recorded When payment is made  liability satisfied When goods are consumed  expense Plan Order Consume Receive Pay Asset & Liability  Remove Liability  Expense © Dale R. Geiger

Lacy’s Proprietary Activities Lacy purchases supplies on account at the grocery store (she RECEIVES GOODS) The EXPENDITURE is the final activity in the budgetary accounts In the proprietary accounts: An asset is recorded: Supplies represent future benefit – they can be used to make and sell lemonade A liability is recorded: Lacy has an obligation to pay the bill in the future © Dale R. Geiger

Lacy’s Proprietary Activities When Lacy pays the grocery bill: In the proprietary accounts: Cash (an asset) decreases The liability is removed because Lacy has satisfied her obligation © Dale R. Geiger

Lacy’s Proprietary Activities When Lacy uses the supplies to make and sell lemonade In the proprietary accounts: Supplies (asset) decrease An expense is recorded Plan Order Consume Receive Pay Asset & Liability  Remove Liability  Expense © Dale R. Geiger

Check on Learning What activity ends the involvement of the budgetary accounts in the purchasing process? What activity constitutes an expense in the proprietary accounts? © Dale R. Geiger

Statement of Net Cost Most federal agencies generate revenues that are insignificant in comparison to expenses Revenues are generally reimbursements for costs incurred on behalf of other federal agencies Expenses – Revenues = Net Cost © Dale R. Geiger

Statement of Net Cost Statement of Net Cost Salaries and personnel costs for the fictional Training Appropriation Fund for the year were $398 Other expenses amounted to $40 Miscellaneous revenues of $186 were collected Task: Prepare the Statement of Net Cost © Dale R. Geiger

Statement of Net Cost Statement of Net Cost Salaries and personnel costs$398 Other expenses 40 Total Costs$438 Less: Miscellaneous revenues 186 Net Cost$252 © Dale R. Geiger

Statement of Net Cost Statement of Net Cost Salaries and personnel costs$398 Other expenses 40 Total Costs$438 Less: Miscellaneous revenues 186 Net Cost$252 The purpose of this statement is to show the cost to the government of providing this program or service. © Dale R. Geiger

Statement of Change in Net Position Shows how the activities of the period affect the Net Position of the entity Net Position consists of: Cumulative Results of Operations + Unexpended Appropriations The changes in the two categories are calculated separately © Dale R. Geiger

Statement of Change in Net Position Cumulative Results of Operations: Appropriations used + Other financing sources - Net Cost = Net Change + Beginning = Ending Unexpended Appropriations: Appropriations received - Appropriations used = Net Change + Beginning = Ending © Dale R. Geiger

Statement of Change in Net Position Cumulative Results of Operations: Appropriations used + Other financing sources - Net Cost = Net Change + Beginning = Ending Unexpended Appropriations: Appropriations received - Appropriations used = Net Change + Beginning = Ending Proprietary activity © Dale R. Geiger

Statement of Change in Net Position Cumulative Results of Operations: Appropriations used + Other financing sources - Net Cost = Net Change + Beginning = Ending Unexpended Appropriations: Appropriations received - Appropriations used = Net Change + Beginning = Ending Budgetary activity © Dale R. Geiger

Statement of Change in Net Position The fictional Training Appropriation Fund is a new entity, so beginning net position is zero Appropriations were $2720, and Expenditures were $824 (from Statement of Budgetary Resources) Net cost of operations is $252 (from Statement of Net Cost) © Dale R. Geiger

Statement of Change in Net Position © Dale R. Geiger

Statement of Change in Net Position © Dale R. Geiger

Statement of Change in Net Position Cumulative Results of Operations Unexpended Appropriations Appropriations--$2720 Appropriations Used$824(824) Less: Net Cost(252)-- Net change Add Beginning:-0- Ending:$572$1896 © Dale R. Geiger

Statement of Change in Net Position Cumulative Results of Operations Unexpended Appropriations Appropriations--$2720 Appropriations Used$824(824) Less: Net Cost(252)-- Net change Add Beginning:-0- Ending:$572$1896 © Dale R. Geiger

Balance Sheet Similar to the Statement of Financial Position Assets = Liabilities + Net Position If Assets < Liabilities, Net position will be negative Net position = Unexpended appropriations + cumulative results of operations © Dale R. Geiger

Balance Sheet The fictional Training Appropriation Fund has $2600 in its balance with the Treasury Equipment (net of depreciation): $380 Liabilities: $512 From Statement of Change in Net Position: Cumulative results of operations: $572 Unexpended Appropriations: $1896 Task: Prepare the Balance Sheet © Dale R. Geiger

Balance Sheet Assets: Balance with the Treasury$2600 Equipment (net of depreciation) 380 Total Assets $2980 Liabilities and Net Position: Liabilities $512 Unexpended Appropriations 1896 Cumulative results of Operations 572 Total Liabilities and Net Position$2980 © Dale R. Geiger

Balance Sheet Assets: Balance with the Treasury$2600 Equipment (net of depreciation) 380 Total Assets $2980 Liabilities and Net Position: Liabilities $512 Unexpended Appropriations 1896 Cumulative results of Operations 572 Total Liabilities and Net Position$2980 This statement lists the assets of the entity and shows how they were financed: (borrowing) (appropriations) (operations) This statement lists the assets of the entity and shows how they were financed: (borrowing) (appropriations) (operations) © Dale R. Geiger

Check on Learning Which statement shows the cost to the government of providing a particular program or service? Which statement explains the changes in the Net Position of the entity? © Dale R. Geiger

Why is it important to be familiar with External Reports? External Reporting is the primary objective of most accounting systems Cost accounting information is drawn from the same accounting system Understanding the basis of the accounting data permits a meaningful translation to useful cost information © Dale R. Geiger

Issues with Budgetary Accounting Focus is on obligations and expenditures Ordering and receiving goods do not reflect actual use of resources 99.9% philosophy of financial management All of the money will be spent, yet does not necessarily reflect the true cost of operations © Dale R. Geiger

Governmental Reporting Spreadsheet Enter data to record budgetary activity © Dale R. Geiger

Governmental Reporting Spreadsheet Prepare the Statement of Budgetary Resources © Dale R. Geiger

Governmental Reporting Spreadsheet Budgetary Resources equal Status of Budgetary Resources Budgetary Resources equal Status of Budgetary Resources © Dale R. Geiger

Governmental Reporting Spreadsheet Prepare Statement of Net Cost © Dale R. Geiger

Governmental Reporting Spreadsheet Net cost flows into the Statement of Change in Net Position, Cumulative Results of Operations © Dale R. Geiger

Governmental Reporting Spreadsheet The Statement of Change in Net Position shows changes in both Cumulative Results of Operations and Unexpended Appropriations © Dale R. Geiger

Governmental Reporting Spreadsheet The Balance Sheet shows Assets and Liabilities as well as the new balances in Unexpended Appropriations and Cumulative Results of Operations © Dale R. Geiger

Practical Exercise © Dale R. Geiger