1. Interpret Changes in a Net Position
Principles of Cost Analysis and Management

2. Terminal Learning Objective
Action: Interpret Changes in a Net Position Over a Period of Time.
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Prepare Statement of Budgetary Resources
Demonstrate Proprietary Reporting
Prepare basic Proprietary Financial Statements

3. 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

4. Status of Budgetary Resources
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

5. 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

6. Statement of Budgetary Resources (Cont.)
Q1. What items represent the budgetary resources? A1. Appropriations of $2720 Q2. What items represent the status of budgetary resources? A2. The information here about how the budget was used. Purchase orders issued represent Obligations. Obligations of $1280 were incurred. Q3. How much are the expenditures? A3. Goods received represent expenditures. Of the purchase orders issued, $824 was actually received. Q4. How much was left outstanding? A = 456. $456 represents the open Obligations. Q5. What is the unobligated balance? A5. Appropriations of 2720 – Open obligations 456 – expenditures 824 = 1440

7. Statement of Budgetary Resources (Cont.)
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

8. LSA #1 Check on Learning
Q1. What is the basic equation for the Statement of Budgetary Resources? A1. Q2. What items represent the Status of Budgetary Resources? A2.
Q1. What is the basic equation for the Statement of Budgetary Resources?
A1. Budgetary Resources = Status of Budgetary resources
Q2. What items represent the Status of Budgetary Resources?
A2. Open obligations, Expenditures, and Unobligated Balance

9. LSA #1 Summary
During this block, we went over preparing the Statement of Budgetary Resources. We also discussed the statement of budgetary resources, its items and basic equation.

10. 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

11. 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

12. 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
Receive
Pay
Consume
Commitment  Obligation  Expenditure

13. Proprietary vs. Budgetary (Cont.)
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
Receive
Pay
Consume
Asset & Liability  Remove Liability  Expense

14. 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

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

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

17. LSA #2 Check on Learning
Q1. What activity ends the involvement of the budgetary accounts in the purchasing process? A1. Q2. What activity constitutes an expense in the proprietary accounts? A2.
Q1. What activity ends the involvement of the budgetary accounts in the purchasing process?
A1. The receipt of goods or services – the expenditure.
Q2. What activity constitutes an expense in the proprietary accounts?
A2. The consumption of goods or services.

18. LSA #2 Summary
During this block, we discussed when the budgetary accounts end and the proprietary accounts begin. We also discussed what financial statements are created to record revenues and expenses correctly according to the accrual basis of accounting.

19. 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

20. Statement of Net Cost (Cont.)
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

21. Statement of Net Cost (Cont.)
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.

22. 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

23. Statement of Change in Net Position (Cont.)
Cumulative Results of Operations:
Unexpended Appropriations:
Appropriations used + Other financing sources - Net Cost = Net Change + Beginning = Ending
Appropriations received
- Appropriations used
= Net Change
+ Beginning
= Ending

24. Statement of Change in Net Position (Cont.)
Cumulative Results of Operations:
Unexpended Appropriations:
Appropriations used + Other financing sources - Net Cost = Net Change + Beginning = Ending
Appropriations received
- Appropriations used
= Net Change
+ Beginning
= Ending
Proprietary activity
Budgetary activity

25. Statement of Change in Net Position (Cont.)
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)

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

27. 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

28. Balance Sheet (Cont.)
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

29. Balance Sheet (Cont.)
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)

30. Why is it important to be familiar with External Reports?
S1. External Reporting is the primary objective of most accounting systems
S2. Cost accounting information is drawn from the same accounting system
S3. Understanding the basis of the accounting data permits a meaningful translation to useful cost information

31. 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

32. Governmental Reporting Spreadsheet
Enter data to record budgetary activity

33. Governmental Reporting Spreadsheet (Cont.)
Prepare the Statement of Budgetary Resources

34. Governmental Reporting Spreadsheet (Cont.)
Budgetary Resources equal
Status of Budgetary Resources

35. Governmental Reporting Spreadsheet (Cont.)
Prepare Statement of Net Cost

36. Governmental Reporting Spreadsheet (Cont.)
Net cost flows into the Statement of Change in Net Position, Cumulative Results of Operations

37. Governmental Reporting Spreadsheet (Cont.)
The Statement of Change in Net Position shows changes in both Cumulative Results of Operations and Unexpended Appropriations

38. Governmental Reporting Spreadsheet (Cont.)
The Balance Sheet shows Assets and Liabilities as well as the new balances in Unexpended Appropriations and Cumulative Results of Operations

39. LSA #3 Check on Learning
Q1. Which statement shows the cost to the government of providing a particular program or service? A1. Q2. Which statement explains the changes in the Net Position of the entity? A2.
Q1. Which statement shows the cost to the government of providing a particular program or service?
A1. Statement of Net Cost
Q2. Which statement explains the changes in the Net Position of the entity?
A2. Statement of Change in Net Position

40. LSA #3 Summary
During this block, we discussed how the Statement of Net Cost feeds into the Statement of Change in Net Position through the Cumulative Results of Operations. By solving for the Unexpended Appropriations, an entity can identify it’s budgetary and proprietary activities when the balance sheet has been completed.

41. Practical Exercise / Review

42. TLO Summary
Action: Interpret Changes in a Net Position Over a Period of Time.
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Prepare Statement of Budgetary Resources
Demonstrate Proprietary Reporting
Prepare basic Proprietary Financial Statements