-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
1/43
2009 Pearson Education, Inc. publishing as 18-1
Chapter 18: An Introduction to
Accounting for State and Local
Governmental Units
by Jeanne M. David, Ph.D., Univ. of Detroit Mercy
to accompany
Advanced Accounting, 1thedition
!y "loyd A# $eams, %o!in Clement,'oseph (# Anthony, and Su)anne Lo*ensohn
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
2/43
2009 Pearson Education, Inc. publishing as 18-2
Governmental: +!ectives
1. Learn about thehistorical development of
accounting principles for state and local
governmental units.
2. Understand the need for fund accountingand its
basic premises.
. Perform transaction analysis using proprietary
and governmental accounting models.!. "ecogni#e various fund categories, as $ell as
their measurement focus and basis of accounting.
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
3/43
2009 Pearson Education, Inc. publishing as 18-3
+!ectives %cont.&
'. "evie$ basic governmental accounting
principles.
(. Learn about the contents of a governmental
entity)s comprehensive annual financial report#
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
4/43
2009 Pearson Education, Inc. publishing as 18-
1: (istory1: (istory
*n +ntroduction to *ccounting for tate and Local
-overnmental Units
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
5/43
2009 Pearson Education, Inc. publishing as 18-!
Governmental -ntity
&opular election of officers or appointment !y
officials of one or more state or local
governments
&otential for unilateral dissolution !y
government
.et assets revert to government
&o*er to enact or enforce a ta/
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
6/43
2009 Pearson Education, Inc. publishing as 18-"
0eveloping Standards
unicipal "inance +fficers Association Governmental Accounting, Auditing and Financial
Reporting, 1968
AIC&A Audits of State and Local Governmental Units, 1974 .ational Council on Governmental Accounting
Governmental Accounting and Financial Reporting
Principles (beginning 1979)
Governmental Accounting Standards $oard GASB Statements (beginning 1984) Codification(1985, updated continually)
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
7/43 2009 Pearson Education, Inc. publishing as 18-#
(ierarchy of GAA&
GAA& for local and state governmental
accounting:
1# GAS$ Statements and Interpretations
2# GAS$ 3echnical $ulletins
4# Consensus positions of GAS$5s -merging
Issues 3as6 "orce
7# Implementation Guides# +ther accounting literature
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
8/43 2009 Pearson Education, Inc. publishing as 18-8
2: "und Accounting2: "und Accounting
*n +ntroduction to *ccounting for tate and Local
-overnmental Units
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
9/43 2009 Pearson Education, Inc. publishing as 18-9
Accounting for Governments
"ocus on continuing a!ility to fund and provide
goods and services
.ot profit
3ypes of activities
1# $usiness type activities
Provide services or goods to users for fees
2# General governmental activities
Provide services or goods to citizens
witout regard for a!ilit" to pa"
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
10/43 2009 Pearson Education, Inc. publishing as 18-10
"und %def.&
9a fiscal or accounting entity *ith a self !alancing
set of accounts recording cash and other
!alances, and changes therein, *hich are
segregated for the purpose of carrying on
specific activities9 -*/ 0odification
Groups of funds:
&roprietary fundsGovernmental funds
"iduciary funds
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
11/43
2009 Pearson Education, Inc. publishing as 18-11
"und Accounting
-ach fund has
Accounting e;uation
'ournals, ledgers and other records "inancial statements
A single governmental unit, e#g#, one city, has
multiple funds each *ith their o*n financial
statements# 3here is a comprehensive report#
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
12/43
2009 Pearson Education, Inc. publishing as 18-12
&roprietary "und odel
Current assets
< noncurrent assets
- current lia!ilities
= noncurrent lia!ilities
> net assets
CA < .CA ? CL ? .CL > .et assets
Accounting is similar to !usiness enterprises#
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
13/43
2009 Pearson Education, Inc. publishing as 18-13
Governmental "und odel
Current assets
? current lia!ilities
> fund !alance
CA ? CL > "und $alance
Accounting focuses on current financial resources#
-/penditures reflect the use of *or6ing capital, insteadof e/penses *hich focus on consumption of resources#
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
14/43
2009 Pearson Education, Inc. publishing as 18-1
General "A and L30
General fi/ed assets @"A are not recorded in
governmental funds#
General fi/ed asset and depreciation records
are maintained separately
General long term de!t @L30 is not recorded in
governmental funds#
Separate records are also 6ept
$oth are reported in the government=*ide
statements
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
15/43
2009 Pearson Education, Inc. publishing as 18-1!
4: 3ransaction Analysis4: 3ransaction Analysis
*n +ntroduction to *ccounting for tate and Local
-overnmental Units
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
16/43
2009 Pearson Education, Inc. publishing as 18-1"
3ransactions
1# $orro*ed B !y issuing a 4=year note#
2# &urchased e;uipment costing B4 for cash#
4# Sold a fully depreciated truc6 costing B8, *ith
a residual value of B1 for B8 cash#
7# Computed current depreciation as B1#
# $orro*ed B4 on a si/ month note#
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
17/43
2009 Pearson Education, Inc. publishing as 18-1#
Using &roprietary "und odel
odel: CA < .CA ? CL ? .CL > .et Assets
CA NCA C NCNet
A!!et!
1 "o##o$ed long te#% 75 75
& "oug't euip%ent (*) *
+old t#uc 8 (1*) (&)
4 ep#eciation (15) (15)5 "o##o$ed !'o#t te#% * *
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
18/43
2009 Pearson Education, Inc. publishing as 18-18
Using Governmental "und odel
3he long term !orro*ing is a source of current financialresources, as is the sale of the truc6#
Ac;uisition of e;uipment uses current financial resources
odel: CA ? CL > "und !alance
CA C.und
balance
1 "o##o$ed long te#% 75 75
& "oug't euip%ent (*) (*)
+old t#uc 8 8
4 ep#eciation
5 "o##o$ed !'o#t te#% * *
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
19/43
2009 Pearson Education, Inc. publishing as 18-19
7: "und Categories7: "und Categories
*n +ntroduction to *ccounting for tate and Local
-overnmental Units
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
20/43
2009 Pearson Education, Inc. publishing as 18-20
&roprietary "und 3ypes1# Internal service funds
&rovide goods or services on a !usiness type
!asis primarily for internal customers
For departments and agencies of tat
government
#otor pools, central printing
2# -nterprise funds
&rovide goods or services on a !usiness type
!asis primarily for e/ternal customers
For citizens and oters
Utilities, tras service, mass transit
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
21/43
2009 Pearson Education, Inc. publishing as 18-21
Governmental "und 3ypes
1# Special revenue funds
General governmental financial resources
restricted for specific purposes
2# &ermanent funds
%esources are restricted !ut earnings !enefit
government or citi)ens
4# Capital proects funds
%esources used to construct or ac;uire
maor governmental fi/ed assets
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
22/43
2009 Pearson Education, Inc. publishing as 18-22
Governmental "unds %cont.&
7# 0e!t service funds
%esources to !e used to pay principle,
interest and charges on long term de!t
# General fund
Dor6ing capital availa!le for general
governmental use
Governmental offices, police, fire, li!rar"
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
23/43
2009 Pearson Education, Inc. publishing as 18-23
"iduciary "und 3ypes
$asic proprietary model:
CA < .CA ? CL ? .CL > .et Assets
1# &ension trust funds
2# Investment trust funds
4# &rivate purpose trust funds
An a!!reviated model:
CA > CL
7# Agency funds
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
24/43
2009 Pearson Education, Inc. publishing as 18-2
Apply odel to Specific "unds
1# Issued general o!ligation !onds, par value of B4,, at 11to finance construction of a government office !uilding#
2# 3ransferred the premium on the !onds to the fund used toaccount for payment of principal and interest on the !onds#
4# Incurred and paid construction costs of B12 on the!uilding#7# Levied and collected sales ta/es restricted to use for
economic development, BE## &aid general governmental employeesF salaries, B7#
Another B of salaries accrued !ut has not !een paid#
E# $orro*ed B, on a si/=month note to finance generaloperating costs of the government#
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
25/43
2009 Pearson Education, Inc. publishing as 18-2!
odel: CA ? CL > "und !alance
+peci/ic .und0 CA C.und
balance
1Capital p#oect! /und ,** ,**
&a Capital p#oect! /und (*) (*)
&b ebt !e#2ice /und * *
Capital p#oect! /und (1&5) (1&5)
4 +pecial #e2enue /und 6* 6*
5 3ene#al /und (45*) 5* (5**)
6 3ene#al /und 1,5** 1,5**
3ransactions in Governmental
3ype "unds
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
26/43
2009 Pearson Education, Inc. publishing as 18-2"
$ases of Accounting
Governmental type funds odified accrual !asis of accounting "ocus on flo* of current financial resources
%ecord e/penditures
&roprietary fiduciary type funds Accrual !asis of accounting "ocus on economic resources
%ecord e/penses
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
27/43
2009 Pearson Education, Inc. publishing as 18-2#
: Governmental Accounting: Governmental Accounting&rinciples&rinciples
*n +ntroduction to *ccounting for tate and Local
-overnmental Units
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
28/43
2009 Pearson Education, Inc. publishing as 18-28
%evenue %ecognition
-/change or e/change=li6e transactions .one/change transactions
0erived ta/ revenues %sales or income ta& Imposed none/change %property ta& Government mandated none/change%federal
mandates& Holuntary none/change %donations&
%ecogni)e revenue in governmental funds
3ransaction is su!stantially complete"unds are measura!le and availa!le
$ot more tan %& da"s .et revenue approach %net of uncollectibles&
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
29/43
2009 Pearson Education, Inc. publishing as 18-29
-/penditures and -/penses
-/penses
Cost of assets or services used
%ecogni)e in period incurred
-/pendituresCost of goods or service ac;uired, *hether or
not consumed
aturing of long term de!t principal%ecogni)ed in period current lia!ility isincurred'(cept) interest on long term de!t is
recognized wen due
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
30/43
2009 Pearson Education, Inc. publishing as 18-30
Interfund Activity
Interfund loans Interfund transfers
+perating or residual e;uity
1# .onreciprocal Government funds
*ter financing sources and uses &roprietary funds
$onoperating revenues or e(penses2# %eciprocal
Seller as revenues Purcaser as e(pense or e(penditure
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
31/43
2009 Pearson Education, Inc. publishing as 18-31
$udget
Dhen approved !y the legislative !ody, the !udget
for e/penditures !ecomes a spending ordinance
that has the force of la*# An approved revenue
plan also has the force of la*#
Appropriations
Approved or authori)ed e/penditures
AllotmentAppropriation for a specific time period
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
32/43
2009 Pearson Education, Inc. publishing as 18-32
"inancial %eporting -ntity
&rimary governmentCity, to*n, state
Special purpose government
Dater district, hospital, transit authority3reated as primary government
Separatel" elected !od", legall" separate,
fiscall" independent Component unitLegall" separate, !ut primar" government is
financiall" accounta!le
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
33/43
2009 Pearson Education, Inc. publishing as 18-33
E: Comprehensive Annual "inancialE: Comprehensive Annual "inancial%eport @CA"%%eport @CA"%
*n +ntroduction to *ccounting for tate and Local
-overnmental Units
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
34/43
2009 Pearson Education, Inc. publishing as 18-3
&rimary Government %eporting
Annual report called Comprehensive Annual
"inancial %eport @CA"%
Includes primary government and !lended
component unitsGASB Statement $o+ -
Government *ide financial statements
"und financial statements
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
35/43
2009 Pearson Education, Inc. publishing as 18-3!
CA"% ? Introductory Section
3a!le of contents Letter of transmittal &rincipal officers
+rgani)ational chart
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
36/43
2009 Pearson Education, Inc. publishing as 18-3"
CA"% ? "inancial Section
anagement5s 0iscussion Analysis Auditor5s report Government=*ide financial statements
Statement of .et AssetsStatement of Activities
"und financial statements @detailed later .otes and re;uired supplementary information
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
37/43
2009 Pearson Education, Inc. publishing as 18-3#
Statement of .et Assets
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
38/43
2009 Pearson Education, Inc. publishing as 18-38
St t t f
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
39/43
2009 Pearson Education, Inc. publishing as 18-39
Statement of
Activities
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
40/43
2009 Pearson Education, Inc. publishing as 18-0
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
41/43
2009 Pearson Education, Inc. publishing as 18-1
"und "inancial Statements
$alance sheet ? Governmental funds @G" Statement of revenues, e/penditures, and changes
in fund !alance ? G"
Statement of net assets ? &roprietary funds @&" Statement of revenues, e/penses and changes in
net assets ? &" and similar trust funds
Statement of cash flo*s ? &" and similar trust
funds
Statement of fiduciary net assets Statement of fund changes in fiduciary net assets
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
42/43
2009 Pearson Education, Inc. publishing as 18-2
CA"% ? Statistical Section
Includessocial and economic data"inancial trends
"iscal capacity Comparative, multi=period Accounting and non=accounting data
-
7/23/2019 Beams10e_Ch18 Accounting for State and Local Government
43/43
Copyright 2J &earson -ducation, Inc#Copyright 2J &earson -ducation, Inc#
&u!lishing as &rentice (all&u!lishing as &rentice (all
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.