1. Accounting for State and Local Governments, Part I
Chapter Sixteen
Accounting for State and Local Governments, Part I
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Importance of Governmental Accounting
LO 1
Why is it different than “for profit” businesses?
Absence of profit motive removes an important internal control
Allocation of limited resources to unlimited needs creates public debate
Focus on sources and uses of funds
Need to inform public (stewardship)
Massive
Federal government
50 State governments
Thousands of local governmental units
Importance of Governmental Accounting
Absence of profit motive removes an important internal control
Allocation of limited resources to unlimited needs creates public debate
Focus on sources and uses of funds
Need to inform public (stewardship)
Massive
Federal government
50 State governments
Thousands of local governmental units
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3. Governmental Accounting
Governmental Accounting Standards Board (GASB) generates primary standards.
Focuses on financial reporting for non-profit governmental agencies.
Many concepts are similar to financial accounting, but terminology and procedures differ.
Requires two sets of financial statements
Governmental Accounting
Governmental Accounting Standards Board (GASB) generates primary standards.
Focuses on financial reporting for non-profit governmental agencies.
Many concepts are similar to financial accounting, but terminology and procedures differ.
Requires two sets of financial statements
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4. GASB Statement No. 34
LO 2
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.
Requires the production of two sets of financial statements:
Fund Financial Statements
Show restrictions on the use of resources, and report current revenues and expenditures from certain activities.
Government-wide Financial Statements
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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5. Reporting Diverse Governmental Activities - Fund Accounting
LO 3
Examples include:
Public Safety
Sanitation
Health & Welfare
Education
Parks & Recreation
Judicial System
Water and Sewer
Employee Pensions
Governmental units have many different types of activities.
No common motivation links these activities.
Each activity operates a quasi-independent, self-balancing set of accounts called “funds.”
Reporting Diverse Governmental Activities - Fund Accounting
Governmental units have many different types of activities.
No common motivation links these activities.
Each activity operates a quasi-independent, self-balancing set of accounts called “funds.” Examples include:
Public Safety
Sanitation
Health & Welfare
Education
Parks & Recreation
Judicial System
Water and Sewer
Employee Pensions
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6. Fund Accounting Classification
LO 4
All funds fall into one of three broad classifications.
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.
Fund Accounting Classification
All funds fall into one of three broad classifications.
Governmental Funds, Accounting for activities related to serving the public.
Proprietary Funds, Accounting for business-type activities.
Fiduciary Funds, Accounting for financial resources held for others as trustee.
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7. Government-Wide Financial Statements
LO 5
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).
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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8. 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.
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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9. Procedures – Importance of Budgets
LO 6
The budget serves several purposes:
Expresses public policy
Expresses financial intent
Provides spending limits
Compares actual results to the budget as a means of evaluating performance
Indicates proposed deficits
The budget is recorded in the books as a DEBIT to estimated revenues, and a CREDIT to each “appropriation” approved.
Procedures – Importance of Budgets
The budget serves several purposes:
Expresses public policy
Expresses financial intent
Provides spending limits
Compares actual results to the budget as a means of evaluating performance
Indicates proposed deficits
The budget is recorded in the books as a DEBIT to estimated revenues, and a CREDIT to each “appropriation” approved.
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10. Procedures – Fixed Assets
LO 7
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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11. Procedures – Recognition of Revenues
LO 8
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”.
Procedures – Recognition of 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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12. Procedures – Issuance of Bonds
LO 9
The town of Ruark issues $9 million in bonds for the construction of new school building.
The following journal entry is prepared to reflect the sale of the bonds.
The town of Ruark issues $9 million in bonds for the construction of new school building.
Prepare a journal entry to reflect the sale of the bonds.
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13. Interfund Transactions
LO 10
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
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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