1. Advanced Forum Governmental Accounting April 1, 2014 NEW YORK STATE GOVERNMENT FINANCE OFFICERS’ ASSOCIATION, INC. 1

2. TODAY’S PRESENTERS : Dr. Kevin Bronner Professor of Governmental Accounting State University of New York at Albany William O’Reilly Chief Financial Officer Albany County Airport Authority John A. Savash, II Associate Professor of Accounting Elmira College 2

3. Topics To Be Covered Specialized public-sector accounting classifications including modified accrual and accrual accounting. (Bronner) Which fund to account for a given function or activity? (Bronner) Basic journal entries for governmental, proprietary, and fiduciary accounts. (Bronner) 3

4. Topics Continued Budgeting journal entries and budget comparisons statements. (O’Reilly). Basic steps in converting fund data for inclusion in government-wide financial statements. (Savash) 4

5. Class Resources Accounting and Reporting Manual, Office of New York State Comptroller (2011). City of Rochester, New York Comprehensive Annual Financial Report of the Year Ended June, 30, 2013. City of Rochester, NY 2012-2013 Budget. 5

6. Session #1: Measurement Focus and Basis of Accounting Current financial resource measurement focus used for Governmental Funds. Modified Accrual Accounting. Economic resources measurement focus used for Proprietary Funds. Accrual Accounting. The same transaction can be accounted for differently depending on the basis of accounting. 6

7. Governmental Funds General Fund accounts for all financial resources except those to be accounted for in another fund. Special Revenue Funds account for financial resources that are legally restricted to expenditures for a specific purpose. Capital Projects Funds account for financial resources to be used for the acquisition or construction of major capital facilities. 7

8. More Governmental Funds Debt Service Funds account for the accumulation of resources for, and the payment of, general long term debt and principal and interest. Permanent Funds account for resources that are legally restricted to the extent that only earnings, not principal, may be used for the purposes that benefit the government or its citizenry. 8

9. Governmental Funds Accounting Equation FA (Financial Assets) - RL (Related Liabilities) = FB (Fund Balance) General Capital Assets (GCA) account group contains all long term assets. General Long Term Liability (GLTL) account group contains all long term debt. 9

10. Governmental Funds Issues Long term assets seen as a current expenditure when built and not placed on the balance sheet presentation. Long term debt not included in fund structure or balance sheet. Account groups are separate accounting systems related to the funds. 10

11. Governmental Fund Account Groups General Capital Asset Account Group contains the long term assets. General Long Term Debt Account Group contains the long term debt. These are separate lists of items not on the balance sheet. 11

12. Proprietary Funds Enterprise Funds are financed primarily with fees or user charges. Business-type accounting where a yearly net income is developed using revenues and expenses. Long term assets and debt included in the fund. Depreciation used. 12

13. Enterprise Funds Used For… Water system. Sewer systems. Landfill systems with user fees. 13

14. Internal Service Fund Accounts for financing of goods or services provided by one department or agency to other departments of the governmental unit or to other governments. Business type accounting with net income presentation. Example: Motor pool. 14

15. Agency and Fiduciary Funds Agency fund used where the government is an agent or custodian of money. Example: Tax collection agency fund. Pension Trust Fund accounts for funds held for members/beneficiaries of pension funds or other employee benefit plans. Private-Purpose Trust Funds for other trust arrangements where the asset is maintained. 15

16. City of Rochester CAFR Government-wide Statement of Net Position Statement of Activities Accrual based accounting Capital assets shown Non current liabilities (debt) shown Depreciation used 16

17. City of Rochester Governmental Funds Balance Sheet for General Fund. Modified accrual accounting used. No long term assets on balance sheet. Long term assets reflected as an expenditure in the year they are paid. No long term debt. No depreciation expense 17

18. City of Rochester Issues Governmental funds used modified accrual. Enterprise funds use accrual. Government-wide statements use accrual. Transactions viewed separately in the accounting system. Year end reconciliation of modified accrual costs need to be converted to accrual basis. 18

19. Expenditure/Expense Entry for Long Term Capital Assets Governmental Funds: Dr. Cr. Expenditures Buildingxxx Cashxxx Expenditures item is run through the Income Statement and closed to Fund Balance at year end. Asset places in General Capital Asset Account Group and not on Balance Sheet. 19

20. Enterprise/Fiduciary Fund Building Addition Enterprise Fund: Dr. Cr. Buildings xxx Cashxxx Item is placed on the Balance Sheet. Depreciation journal entries to be made. Sheet. 20

21. Enterprise/Fiduciary Fund Depreciation Entry Enterprise Fund: Dr. Cr. Dep. Expense Buildingxxx Acc. Dep. Buildingsxxx Depreciation Expense Buildings is an income statement account that reduces net income. Accumulated Depreciation- Buildings is a balance sheet account that is subtracted from the Buildings account. 21

22. Long Term Debt Issue for Governmental Funds Governmental Funds: Dr. Cr. Cash xxx Other Fin. Sources Bonds xxx Other Financing Sources Bonds is an Income Statement Account closed to Fund Balance at year end. Debt shown in account group and not on balance sheet. 22

23. Enterprise/Fiduciary Fund Debt Journal Entry Enterprise Fund: Dr. Cr. Cash xxx Long Term Bonds xxx Long Term Bonds is a balance sheet account. 23

24. Session #2: Fund Accounting Exercise Please refer to the Journal Entry Exercises found in your binder. The objective is to make journal entries which illustrate how events are accounted for differently based on the use of modified accrual accounting vs. accrual accounting, and the type of fund used. 24

25. Session #3: Budgeting Aspects in the Accounting System GASB Statement No 41 Budgetary Comparison Schedules – Perspective differences an Amendment to GASB Statement No 34 updates the accounting requirements. Budgeting statement to reconcile budget amounts and actual amounts. Budget based journal entries. 25

26. City of Rochester, New York Budget Comparison Statement for 2013 Shows Final to Actual amounts for key budget items by fund. General Fund Real Property Tax Final Budget = $ 139,939,000 vs. Actual of $143,096,000. General Fund Expenditures in Final Budget = $347,639,000 vs. Actual of $328,526,000 in 14 areas. 26

27. The Accountant’s Issue You have to record the budget when it is passed (and amended) and then track the budget in great detail so you can present the final budget vs. actual presentation at year end. A simple journal entry such as recording a payroll expenditure has to be tied to the budget amount so it can be recorded in the right account. 27

28. Level of Control See OSC Accounting and Reporting Manual at p. 22-23 in the binder. Budget Item in code 1410.0 = $14,500. If there is a request to exceed the $14,500 in spending, it should be approved by the governing board. Strong accounting control for budget vs. actual worked into the accounting system. 28

29. Special General Ledger Budgeting Selected Accounts in ARM (p. 24) 510 Estimated Revenues 511 Appropriated Reserves 599 Appropriated Fund Balance 960 Appropriations 29

30. Ledgers Involved See Binder Session #3: 1.General Ledger 2.Expenditures Ledger 3.Revenues Ledger 4.Modified Budget and Actual Presentation 30

31. Budget Related Transactions 1.The budget is passed with $10,000 in estimated property tax revenues and appropriations of $10,000 which is comprised of a computer purchase for $1,000 and general fund labor of $9,000. 2.The computer system is ordered for $1,000. 3.The computer system arrives and is paid for in cash for $1,000. 31

32. Budget Transactions (cont.) 4) $8,000 of labor is used and paid for in cash. 5) $10,000 of property taxes collected in cash. 32

33. Budget Passed With $10,000 in Revenues and $10,000 in Appropriations 510 Estimated Rev. $10,000 960 Appropriations $10,000 -- To record the adopted budget General Ledger Accounts in use. Entry reversed at end of budget period. 33

34. Budget Detail Account XXX Property Tax Revenues $10,000 Account XXX Computer Purchase for $1,000 Account XXX Labor of $9,000 34

35. Budgeting Accounting Key Subsidiary Ledgers An Expenditure Ledger keeps track of Appropriations, Encumbrances, and Actual Spending and Budget Revisions. (Computer purchase for $1,000 encumbered but not labor). A Revenues Ledger keeps track of Estimated Revenues, Actual Revenues, and Budget Revisions. (Property tax revenue of $10,000). 35

36. Encumbrance Accounting When good or services included in the budget are ordered, a journal entry must be made to ensure that more goods or services can not be ordered than are included in the budget. Account 521 Encumbrances Account 821 Reserve for Encumbrances. 36

37. Three Transactions in Encumbrance Accounting 1.Goods or services are ordered. 2.A portion or the whole amount of the goods or services arrive. 3.The goods or services are paid for or a payable account is used. 37

38. Journal Entry Exercise Appropriation made for purchase of $1,000 computer system. Accounting department should review the purchase order for the item which shows the budgetary account. Journal Entry: 521 Encumbrances-Computers $1,000 821 Reserve for Enc.-Computers $1,000 -To reflect computer ordered Expenditures Subsidiary Ledger Entry Also Made. 38

39. Computer Order for $1,000 Arrives and is Paid in Cash Journal Entry: 821 Reserve for Enc. $1,000 521 Encumbrances $1,000 -To record ordered goods that arrived. xxx Expenditures-Computer $1,000 xxx Cash $1,000 -To record purchase of computer. 39

40. Computer Does Not Arrive At Year End? Account 521 closed at year end to the Unreserved Fund Balance Account. 909 Fund Balance $1,000 521 Encumbrances $1,000 -To close encumbrances at year end. -Entry reversed on Day 1 of Next Year if Encumbrance is to be opened. 40

41. Budgeting Journal Entry Exercise Additional Transactions: Only $8,000 of Labor Used in Fiscal Year and is paid for in Cash. $10,000 in property taxes collected in Cash. Show general journal end subsidiary journal transactions. 41

42. Budget Accounting Exercise Included in Binder Make the journal entries required for each transaction shown in the exercise. General Ledger, Expenditures Ledger, Revenues ledger to be used. Modified Budget and Actual Presentation. 42

43. Session #4: Converting Governmental Fund Data for Inclusion in the Government Wide Financial Statements We have funds with a different basis of accounting and we have to convert governmental fund data to present it in accrual accounting form. See City of Rochester, New York financial statements in the binder. 43

44. City of Rochester Government-wide Financial Statements Statement of Net Position showing Governmental Activities and Business-type Activities. A balance sheet with assets, liabilities, and Net Position and other items. 44

45. Statement of Activities Primary government and business-type activities distinction in right column. Major revenue categories shown. Cost categories for items such as general government, police, fire. 45

46. Government Wide Accounting Categories Governmental activities include funds used for governmental funds and the Capital Asset Account Group and the Long Term Debt Account Group. Business-type activities relate to enterprise fund activities. Fiduciary funds not included. All funds to use accrual accounting. 46

47. Four Key Data Conversion Tasks 1.Governmental activities to be recorded as a single entity and not by separate fund. 2.General Capital Asset Account Group and General Long Term Debt Account Group activities to be included in the statements. 3.Accrual accounting used for the presentation. 4.Internal Service Fund part of governmental activities. 47

48. Case Study on Data Conversion See tab in binder for Session #4. Governmental funds financial statements. Governmental funds account groups and plant accounting data. List of potential adjustments. Specific adjustments in the case study. Two conversion worksheets. 48

49. Initial Steps in Data Conversion Step #1: Prepare fund financial statements for all funds using modified accrual accounting for governmental funds, and full accrual basis for Proprietary and other required funds. Step #2: Prepare a pre closing trial – balance type worksheet for governmental funds grouped together, and proprietary funds grouped together. 49

50. Data Conversion continued Step 3: For the statement of net assets take the balance sheet for the governmental funds and make worksheet adjustments to it. Add long term assets and accumulated depreciation. Add long term debt items. Eliminate internal due to and due from categories. Adjust deferred items. 50

51. Data Conversion continued Step 4: Add columns for governmental funds to business type activities to develop line items for the Statement of Net Position. Never include fiduciary funds in the presentation since they are in a trust arrangement and can not be used for other purposes. 51

52. Activities Statement Data Conversion Depreciation added to expense accounts. Long term assets addition taken out of expense accounts. Current year bond financing costs taken out of the income statement and not reflected as other financing sources. 52

53. Workshop Recap Brief summary of key points on the basis of accounting, budgetary accounting, and data conversion for government-wide financial statements. Questions? 53

54. Contact NYS GFOA 126 State St., 5 th Fl. Albany, NY 12207 518-465-1512 www.nysgfoa.org www.nysgfoa.org © 2014—New York State Government Finance Officers’ Association, Inc. 54