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IMPLEMENTATION GUIDE

ACCOUNTING FOR REVENUE AND

OTHER FINANCING SOURCES

June 1996

This is the original Implementation Guide to SFFAS 7 and was replaced by the Revised Implementation Guide at http://www.fasab.gov/pdffiles/impguid7200204.pdf. Neither guide has been updated for subsequent changes to SFFAS 7; please check for the most recent SFFAS 7 file in the FASAB Handbook at www.fasab.gov/pdffiles/handbook_sffas_7.pdf.

This guide presents illustrations andexplanations intended to help practice andunderstanding; it does not constituteauthoritative standards for preparers andauditors of financial statements. Authoritativeguidance on display (format) of financialreports prepared pursuant to the Chief FinancialOfficers Act of 1990 (as amended) is provided bythe Office of Management and Budget (OMB) in itsperiodic bulletins on the form and content ofagency financial statements. Further guidance onapplying Statements of Federal FinancialAccounting Standards (SFFAS) and interpretationsof those standards may be requested from OMB,Office of Management and Budget, pursuant to OMBCircular 134, Financial Accounting Principlesand Standards (May 20, 1993). Also, guidance onspecific questions that arise in practiceconcerning the proper account(s) to use torecord a given transaction may be sought fromthe Standard General Ledger Board.


IMPLEMENTATION GUIDE FOR

ACCOUNTING FOR REVENUE

AND

OTHER FINANCING SOURCES


IMPLEMENTATION GUIDE TO ACCOUNTING FOR REVENUEAND OTHER FINANCING SOURCES

TABLE OF CONTENTS

CHAPTER 1: REPORTING ON REVENUE AND OTHER FINANCING SOURCES ..... 1INTRODUCTION................................................. 1OVERVIEW OF NEW FINANCIAL STATEMENTS......................... 2

Statement of Net Cost (3); Statement of CustodialActivity (4); Statement of Changes in Net Position(5); Statement of Budgetary Resources (5); Statementof Financing (6)

HOW FINANCIAL STATEMENTS HAVE BEEN CHANGED................... 7Changes to the Statement of Operations (7); Changes tothe Balance Sheet (9); New Statements of BudgetaryResources and Financing (12)

TERMINOLOGY AND THE EVOLVING FEDERAL REPORTING MODEL......... 12Disclosure (12); Required Supplementary Information(12); Required Supplementary Stewardship Information(13); Other Accompanying Information (13)

CHAPTER 2: NEW FINANCIAL STATEMENTS.............................. 16STATEMENT OF NET COST........................................ 16

Rationale (16); Illustrative Statement of Net Cost(19); Attributing revenue to the costs of earning it(23); Implications for the display of special cases(26)

STATEMENT OF CUSTODIAL ACTIVITY.............................. 29Rationale (29); Illustrative Statement of CustodialActivity (30)

STATEMENT OF CHANGES IN NET POSITION......................... 31Illustrative Statement of Changes in Net Position(32); Implications of the term "net results ofoperations" (32)

STATEMENT OF BUDGETARY RESOURCES............................. 33Rationale (33); Illustrative Statement of BudgetaryResources (34)

STATEMENT OF FINANCING....................................... 35Rationale (35); Illustrative Statement of Financing(37); Preparing the Statement of Financing (37);Obligations and nonbudgetary resources (38); Resourcesthat do not fund net cost of operations (39); Coststhat do not require resources (40); Financing sourcesyet to be provided (41)

REPORTING REVENUE............................................ 42

CHAPTER 3: COMPARISON BETWEEN ACCOUNTING AND BUDGETARYCLASSIFICATIONS OF TRANSACTIONS.............................. 44INTRODUCTION................................................. 44TRANSACTIONS WITH THE PUBLIC................................. 44

General comparison (44); User charges (47)INTRAGOVERNMENTAL TRANSACTIONS............................... 48CHOICE OF CLASSIFICATION SYSTEM.............................. 49


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___________________________________________Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing SourcesImplementation Guide

CHAPTER 4: CASE STUDY AND ILLUSTRATIONS.......................... 53ILLUSTRATIVE CASE TRANSACTIONS, JOURNAL ENTRIES, AND TRIAL

BALANCES ............................................... 59ILLUSTRATIVE FINANCIAL STATEMENTS PREPARED FOR CASE STUDY

ENTITIES ............................................... 67

CHAPTER 5: ADDITIONAL GUIDANCE FOR PREPARING THE STATEMENT OFFINANCING ........................................................ 81

INTRODUCTION................................................. 81DECREASE IN THE ANNUAL LEAVE LIABILITY....................... 82ASSETS ACQUIRED BY CAPITAL LEASE............................. 83TRANSFERS OF ASSETS IN AND OUT WITHOUT REIMBURSEMENT......... 87SALE OF CAPITALIZED ASSETS................................... 89EXCHANGE REVENUE FROM THE PUBLIC............................. 90SPECIAL TOPICS RELATED TO DISCRETIONARY DIRECT LOAN AND

LOAN GUARANTEE PROGRAMS ................................ 93Introduction (93); Reconciliations and the chapter 4case (94); Subsidy reestimates (96); Pre-credit reformloans (101); Subsidy expense for defaulted guaranteedloans: credit reform (104)

APPENDIX: CIRCULAR A-134 ........................................ 105




CHAPTER 1: REPORTING ON REVENUEAND OTHER FINANCING SOURCES

INTRODUCTION

1. Statement of Federal Financial AccountingStandards Number 7, Accounting for Revenue andOther Financing Sources and Concepts forReconciling Budgetary and Financial Accounting(SFFAS No. 7), provides authoritative standardsfor classifying, recognizing, and measuringinflows of resources to the U.S. Government andits component reporting entities. These standardshelp provide better information about the cost ofthe Government's activities, make Federalfinancial reporting more supportive of the budgetand performance measurement, and demonstrateaccountability. The standards reflect the conceptsadopted in Statement of Federal FinancialAccounting Concepts No. 1, Objectives of FederalFinancial Reporting (SFFAC No. 1), and Statementof Federal Financial Accounting Concepts No. 2,Entity and Display (SFFAC No. 2).

2. This document is an implementation guide forSFFAS No. 7. It is not authoritative material. Theguide presents illustrations, explanations, and acase study intended to help practice andunderstanding. Authoritative guidance on form andcontent (i.e., display) of financial reportsprepared pursuant to the Chief Financial OfficersAct of 1990 (as amended) is provided by OMB in itsperiodic bulletins on the form and content ofagency financial statements. Further guidance onapplying SFFAS No. 7 and interpretations of it andother Federal accounting standards may berequested from the Office of Federal FinancialManagement, Office of Management and Budget,pursuant to OMB Circular A-134, FinancialAccounting Principles and Standards (May 20, 1993,or as subsequently amended).1 Also, guidance onspecific questions that arise in practiceconcerning the proper account(s) to use to recorda given transaction may be sought from theStandard General Ledger Board.

1A-134 is reproduced in the Appendix to this Implementation Guide.


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3. FASAB prepared this implementation guidepursuant to Paragraph III.I, "Pronouncements," ofFASAB's approved rules of procedure. Subparagraph3 of paragraph III.I reads: "The FASAB may, inits discretion and with or without appointment oftask forces, research, notice, public hearings, orpublic exposure, issue in its name or at itsdirection other communications of an informationalnature related to Federal accounting and financialreporting, including the FASAB's mission,policies, and activities. Such communications mayinclude, among others, discussion memorandums,summary and related documents, research reports,responses to requests and inquiries, andstatements of policy dealing with matters ofFederal accounting and financial reporting." Mostof this Guide is a revision or expansion of partsof the material included in the exposure draft,Accounting for Revenue and Other Financing Sources(July 1995). It has been revised in light of thecomments on that exposure draft.

4. This implementation guide is organized largelyin terms of the new basic financial statements forcomponent Federal reporting entities. Thefollowing new financial statements illustrate theapplication of the standards in SFFAS No. 7:

o Statement of Net Cost,

o Statement of Custodial Activity,

o Statement of Changes in Net Position,

o Statement of Budgetary Resources, and

o Statement of Financing.

5. Some accounting and disclosure issues peculiarto the consolidated financial statements of theU.S. Government (required by the GovernmentManagement Reform Act) have not yet been addressedby the Board. Those consolidated statements maydiffer from the statements of the component unitsdescribed in this guide.

OVERVIEW OF NEW FINANCIAL STATEMENTS


REPORTING ON REVENUE AND OTHER FINANCING SOURCES 3��



6. The standards in SFFAS No. 7 contemplate thatfor each component reporting entity, all costswill be shown in a Statement of Net Cost, alongwith applicable exchange (i.e., earned) revenues.Another statement, the Statement of Changes in NetPosition, will report nonexchange revenues andappropriations. Separating costs and exchangerevenues from nonexchange revenues and otherfinancing sources is necessary to calculate thenet cost incurred by a reporting entity inproviding its outputs and its contributions tooutcomes.

Statement of Net Cost

7. Under the new accounting standards, exchangerevenues will be deducted from gross costs on aStatement of Net Cost to show the net cost ofthe entity's operating activities. Gross costconsists of all the costs recognized by anentity for a given period under Federalaccounting standards. Net cost is the amountfor which the entity is responsible and may,with appropriate details or "breakdowns" bysuborganizations and programs, be compared withthe entity's outputs to evaluate itsperformance. Gross cost also is relevant toperformance measurement and, for some purposes,is more useful than net cost. Net cost is alsothe amount that, with some exceptions, mustultimately be paid by the taxpayer. The onlymajor exception is for intragovernmental salesof goods and services. The extent to whichtaxpayers bear the costs of these goods andservices depends on whether the goods andservices are sold to entities that in turn sellgoods and services to the public, or toentities that are financed by taxes. The netcost of operations may also be financed byother nonexchange revenue such as fines anddonations.

8. Details or breakdowns within the Statementwill also show exchange revenues deducted fromthe related costs of the transactions thatgenerated these revenues. This will show theextent to which the costs of goods and servicessold to the public are recovered by exchangerevenues. Exchange revenues will be included inthe Statement of Net Cost regardless of whetherthe entity retains the amounts or transfersthem to others.


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Statement of Net Cost Focuses on:

Operating costs (gross costs) andrelated exchange revenues of thereporting entity

Presents information about:All costs less earned revenues in totaland by suborganizations and programs

Emphasizes:Net cost of operations for comparisonwith performance measures

Statement of Custodial Activity

9. For reporting entities such as the InternalRevenue Service (IRS) that collect taxes forother entities, such custodial collections andthe adjustments to measure revenue will bereported in statements that are separate fromthose used to report on the collecting entity'sown operations. A Statement of CustodialActivity will reflect the collections by type,the adjustments to calculate the revenue, andthe disposition of the amounts to the entitiesentitled to receive them. The collectingentities will not recognize inflows from thesecustodial activities as their own revenue.2

Statement of Custodial Activity

Focuses on:Revenue collections on behalf of otherentities

Presents information about:Source and disposition of collectionsand related accruals

Emphasizes:Accountability for collections

2The IRS and the Customs Service now prepare a Statement of CustodialActivity.





Statement of Changes in Net Position

10. The Statement of Changes in Net Positionprovides a summary of all the entity'stransactions that affect its net position. Thenet result of the entity's operations will becalculated by deducting from the net cost ofoperations the financing for that net cost. Thefinancing is provided by nonexchange revenues,appropriations used, and other financingsources. To arrive at the change in netposition during the period, adjustments will bemade for any prior period adjustments andchanges in unused but available appropriations.

Statement of Changes in Net Position

Focuses on:Financing sources for operations

Presents information about:All flow transactions of the entity

Emphasizes:The components of net results of operationsand the change in net position

Statement of Budgetary Resources

11. The other financial statements do notprovide information about the flow of budgetaryresources on the budgetary basis of accounting.Information on that basis is used to controlthe obligation of budgetary resources and theoutlays to liquidate those obligations. AStatement of Budgetary Resources will show thisinformation and provide a reference point forthe accrual-based financial statements. ThisStatement tracks the execution of the budgetfrom the budgetary resources, to obligations ofthose budgetary resources, and finally to outlays (usually in cash) to satisfyobligations. Budgetary integrity will beenhanced because this Statement will be subjectto audit.

Statement of Budgetary Resources

Focuses on:Budgetary resources provided, thestatus of these resources, and outlays


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Presents information about:Budgetary data from budgetaryresources, to obligation of funds, tooutlays

Emphasizes:Showing budget execution on a budgetbasis of accounting

Statement of Financing

12. Finally, a Statement of Financing willexplain how the obligations incurred on abudget basis of accounting, together withnonbudgetary resources, finance the net cost ofoperations of the reporting entity. TheStatement of Financing provides areconciliation or "translation" from the budgetto the financial statements. The Statement willhelp those who work with the budget tounderstand the financial statements and thecost information they provide.

Statement of Financing

Focuses on:Reconciling budget obligations with netcost of operations

Presents information about:

Budgetary and nonbudgetary resources andthe items which explain the differencesbetween the budget basis and financialstatement basis of accounting

Emphasizes:Making financial information morecomparable and useful

HOW FINANCIAL STATEMENTS HAVE BEENCHANGED

13. Readers who know how Federal agencies havereported in the past may find it helpful toread this section, which illustrates how thenew standards have changed reporting byGovernment component units.





Changes to the Statement of Operations

14. Past practice combined all costs, revenues,and other financing sources in a singleStatement of Operations. Past practice did notrecognize appropriations as a financing sourcewhen they were used to acquire assets, but itdid accrue anticipated appropriations forincurred expenses. These practices often causedthe bottom line in the old Statement ofOperations to approximate zero.

15. The illustration on page 8 shows thatapplying the new standards will mean that theold Statement of Operations will be dividedinto separate statements. Costs and exchangerevenues, on the one hand, will be shown in thenew Statement of Net Cost, where they willdetermine the net cost of operations.Nonexchange revenue and other financing, on theother hand, will be shown in the new Statementof Changes in Net Position, where they will bededucted from the net cost of operations todetermine the operating results. The operatingresults will be calculated in such a way thatthey will no longer often approximate zero as amatter of definition. This is because theappropriation will be recognized as used in thesame period that budgetary accountingrecognizes an expended appropriation. This willsimplify accounting for appropriations. TheStatement of Changes in Net Position will alsoshow how the operating results and otheradjustments determine the change in netposition.

16. The figure on page 8 illustrates thechanges described above, but does not show theinteraction between the Statement of CustodialActivity and the Statement of Changes in NetPosition (i.e., the flow of nonexchangerevenues from the collecting entity's Statementof Custodial Activity to the recipient entity'sStatement of Changes in Net Position).


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�� STATEMENT OF OPERATIONS �� (Old Format) �� < Revenues �� Appropriations used>�� Less: Expenses>�� Difference (often approximately 0) � � �� STATEMENT OF NET COST � � �� (New) � � �� Cost of goods and services sold <�� > Less: Exchange (earned) revenues � � �� Net cost of exchange transactions � � �� Other costs <�� > Net cost of operations � �� STATEMENT OF CHANGES IN NET POSITION � �� (New) � �� > Net cost of operations � �� Appropriations used <�� > Nonexchange revenues and other financing �� Net result of operations �� Prior period adjustments �� Change in cumulative results of operations �� Change in unexpended appropriations �� Change in net position ��





Changes to the Balance Sheet

17. The old Balance Sheet will be simplified. Theflow effects of current capital transactions willbe shown in the Statement of Changes in NetPosition as illustrated at the bottom of thepreceding page, and certain capital balances willbe consolidated in the Balance Sheet. Previously,donations and transfers-in of assets withoutreimbursement were reflected directly in theBalance Sheet as additions to capital (i.e.,without being reflected in operations). Also,appropriations used to acquire capital assets werereflected in the Balance Sheet as investedcapital. They were not reflected in operationsuntil the assets were depreciated. As a result,the current period effects of these transactionsand events were obscured: only accumulatedbalances (i.e., stocks rather than flows) at theend of the accounting period were shown.

18. New accounting standards will governaccounting for unreimbursed asset transfersbetween Government entities, for donations, andfor appropriations used. These standards willrequire that flows from the related transactionsand events be separately recognized in theStatement of Changes in Net Position. The resultsof these flows will be combined with the resultsof other operating flows in one capital account,"cumulative results of operations." This standardand SFFAS No. 1's requirement for separatedisclosure of current liabilities that are notcovered by budgetary resources eliminate the needfor the capital account for future fundingrequirements. These standards, together with OMB'sform and content requirement that the BalanceSheet separately report liabilities that arecovered by budgetary resources and those that arenot covered, eliminate the need separately toreport future funding requirements as a negativeitem in net position in the Balance Sheet. Theonly other capital account on the current BalanceSheet, "unexpended appropriations," will remainunchanged. Entities with reason to do so maycontinue to report this information separatelywithin cumulative results of operations or as adisclosure.

19. Eliminating separate balances showing theaccumulated amounts of invested capital,donations, and transfers from other Governmententities will omit some information from theBalance Sheet. That information, however, is not


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ordinarily used and, in the case of futurefinancing, is misleading. It is misleading becauseit only represents amounts that were expensed, notitems that were capitalized (such as assets undercapital lease). Hence, looking at the unfundedliabilities (rather than the negative capitalaccount for future funding requirements) gives atruer picture of the future budgetary resourcesneeded for assets and expenses recognized in theproprietary financial statements of the reportingperiod.

20. The figure on the next page shows how theBalance Sheet will be condensed and how flowinformation in the Statement of Changes in NetPosition affects related Balance Sheet elements.





�� BALANCE SHEET �� (Old Format) �� Fund balance with Treasury �� Other assets �� Liabilities �� Capital: �� Unexpended appropriations �� < Transferred-in capital �� < Donated capital �� < Invested capital �� < Future funding/financing requirements �� Cumulative results of operation �� Net position �� BALANCE SHEET �� (New) �� Fund balance with Treasury �� Other assets �� Liabilities �� Capital �� Unexpended appropriations<�� >Cumulative results of operations <�� Net position � � �� STATEMENT OF CHANGES IN NET POSITION � � �� (New) � � �� Net cost of operations � � �� Appropriations used � � �� Nonexchange revenues (including donations) � � �� Transfers (in and out) � � �� Net result of operations � � �� Prior period adjustments � � �� Net change in cumulative results >�� Change in unexpended appropriations >�� Change in net position ��


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New Statements of Budgetary Resources andFinancing

21. These two new statements provide budgetaryinformation on a budget basis and relate thatinformation to the financial statements byreconciling budget obligations with the net costof operations. The next illustration shows howthese statements relate to each other and howcertain elements relate to the Balance Sheet.

�� STATEMENT OF BUDGETARY RESOURCES �� (new) �� Budgetary resources �� Status of budgetary resources: �� < Obligations incurred �� Other �� Outlays �� STATEMENT OF FINANCING �� (new) �� >Obligations incurred �� Less: Spending authority from offsetting �� collections and adjustments � � Other financing sources (nonbudgetary) �� Total obligations, as adjusted, and �� nonbudgetary resources �� Reconciling items: �� Minus: Resources that do not fund net �� cost of operations during the period>�� >Plus: Costs that do not require current � �� or future resources to be provided � �� Plus: Financing sources yet to be provided� �� Net cost of operations � �� CURRENT YEAR BALANCE SHEET <�� < PRIOR YEAR BALANCE SHEET ��





TERMINOLOGY AND THE EVOLVING FEDERALREPORTING MODEL

22. "Disclosure" in this document indicates reporting information in notes or narrativeregarded as an integral part of the basicfinancial statements. "Supplementary" indicatesreporting information in schedules or narrativeregarded as "Required Supplementary Information"(RSI) as that term is used by the FinancialAccounting Standards Board (FASB) and theGovernmental Accounting Standards Board (GASB) inaccounting standards and by the General AccountingOffice (GAO) and the American Institute ofCertified Public Accountants (AICPA) in auditingstandards. Government auditing standards (whichincorporate the AICPA's standards by reference)require more limited auditing procedures for RSIthan is required for basic information. "RequiredSupplementary Stewardship Information" (RSSI) is anew category unique to Federal Governmentaccounting and auditing standards. It refers tocertain information for which FASAB expects theGAO and OMB in collaboration to agree uponappropriate auditing procedures.3 "OtherAccompanying Information" (OAI) refers tounaudited information that accompanies the auditedfinancial statements. These terms are intended toindicate the Board's expectations regarding theminimum auditor's responsibility for theinformation, not its placement in reports.

23. To provide a context for the new standard, thetable on page 15 depicts the terms and categoriesused in accounting and auditing standards todefine the auditor's normal degree of associationand responsibility in connection with anexamination of financial statements. The word"normal" acknowledges that the scope of any givenengagement can be modified by the relevantauthorities, e.g., by adding agreed-uponprocedures to be performed on certain RSI or OAI.

24. Until such time as the GAO and OMB havedefined the audit procedures for RSSI andGovernment Auditing Standards have been modified,the existing categories should be used.Operationally, similar field work results can be

3In its Statement of Recommended Accounting Standards, SupplementaryStewardship Reporting, FASAB recommends designating certain information asRSSI, with the expectation that OMB and GAO will in collaboration agree uponaudit procedures appropriate to apply to this information.


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achieved under the existing standards by defininginformation as RSI or OAI as appropriate, with anyadditional desired agreed upon audit proceduresspecified by OMB in its instructions regardingaudit of these financial statements. As isillustrated in the table on page 15, differentreporting standards would apply under the proposedstandards. 25. The new standard calls for certain informationto accompany the financial statements as otheraccompanying information. This includesinformation about the revenue gap, a perspectiveon the income tax burden, and estimates of revenueforgone as a result of not charging full cost ormarket price for transactions with the public. Thestandard also recognizes that reporting entitiesmay wish to present other accompanying informationabout other subjects, including directed flows ofresources and tax expenditures related to programsfor which the entities are responsible. This willmean that the auditor will treat this informationas other accompanying information that is providedby the statement preparer but not required by astandards setter. Except as otherwise directed bythe authority engaging for audit, or as may besubsequently directed by future developments inauditing and/or accounting standards, the auditoris not responsible for auditing this information.The auditor merely notes any material incon-sistency between this information and the auditedfinancial statements.


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CATEGORIES OF INFORMATION AND AUDITOR'S NORMAL ROLE IN CURRENT AND NEW STANDARDS

Basic Information Accompanying Information

Basic Financial Statements and Notes[highest level of audit work]

Required SupplementaryInformation (RSI) [limitedaudit procedures]

Other AccompanyingInformation (OAI) [notaudited]

Fieldwork: The auditor examines the basicinformation and expresses an opinionwhether it is fairly presented inaccordance with relevant accountingstandards. Each line in the statements,and each number in the statements andnotes, is a separate "assertion" to betested, but the auditor's tests areperformed, and the auditor's opinion isexpressed, in light of the auditor'sjudgment about materiality (whether auser's decision would be influenced). Thejudgment about materiality is influencedby the objectives of the financialstatement or report and the usescontemplated for the information in it.Reporting: If basic information ismissing or materially misstated theauditor expresses an adverse or"qualified" opinion (or, in some cases,disclaims an opinion).

Fieldwork: The auditorperforms limited proceduresspecified by professionalstandards to review the RSI.These procedures are mainlyinquiry and limited analyticalprocedures such as comparinginformation obtained forconsistency with the auditor'sknowledge and the evidencecollected in connection withthe examination of the basicinformation. Reporting: IfRSI is missing or materiallymisstated, the auditor notesthis, but may still express anunqualified opinion on thebasic financial statements, ifwarranted.

Fieldwork: The auditorreads the other accompanyinginformation to see whetherit appears materiallyinconsistent with thefinancial statements, butdoes not audit theinformation. Reporting: Theauditor notes any materialinconsistency with thefinancial statements, butmay still express anunqualified opinion on thebasic financial statements,if warranted.

Required Supplementary Stewardship Information (RSSI): Fieldwork: to be defined by the GAO and OMB;varies for each item. Reporting: same as for "basic" information--i.e., auditor must qualify ordisclaim if RSSI is missing or materially misstated.




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CHAPTER 2: NEW FINANCIAL STATEMENTS

STATEMENT OF NET COST

Rationale

26. The Statement of Net Cost is designed toexplain and analyze the net cost of operations ofan entity. The display of the information in thisStatement reflects the thinking that underlies thestandards in SFFAS No. 7 for distinguishingexchange revenue from nonexchange revenue andother financing sources, for recognizing exchangerevenue, for matching exchange revenue with cost,and for assigning exchange revenue to the costs ofearning it. The concept of this Statement is alsodiscussed in SFFAC No. 2, Entity and Display.4

27. The illustration of the Statement of Net Coston page 19 expands upon the illustration in SFFACNo. 2, Entity and Display. As explained in theintroduction to this guide, the Statement of NetCost shows separately the components of the netcost of the reporting entity's operations for theperiod. It consists of a display showing (1) thegross cost of the goods and services provided at aprice, (2) the amount of related exchange revenue,(3) the resulting shortfall, or net cost,5 (4) thegross cost of the goods, services, transfers, andgrants not provided at a price (which comprisemost of the Government's expenses), (5) the coststhat cannot be assigned to specific outputs orprograms, and (6) the exchange revenues thatcannot be attributed to specific outputs orprograms.

28. The costs in items (1), (4), and (5) ofparagraph 0 are the gross costs of the reportingentity during the period and comprise all thecosts recognized by the entity for a given periodaccording to Federal accounting standards. Thecosts that cannot be assigned to outputs orprograms consist of (a) high level generalmanagement and administrative support costs thatcannot be directly traced, assigned on a cause-andeffect-basis, or reasonably allocated to segments

4See pp. 31-34.

5The exchange revenue may be more than the gross cost, in which case thenet cost is negative, i.e., the difference is a net revenue.


NEW FINANCIAL STATEMENTS 17��



and their outputs and (b) those "non-productioncosts" that cannot be assigned to a particularprogram (non-production costs are costs that,under Federal accounting standards, are linked toevents other than the production of goods andservices).6

29. The total net cost of operations of thereporting entity will be the net cost of all itsoutputs, whether or not provided at a price, plusthe costs (and minus the exchange revenues) thatare not assigned to outputs. The elements of thedisplay on the Statement of Net Cost will berelated to each other in a way that shows how thenet cost of operations is determined for thereporting entity as a whole and its sub-organizations and programs.

30. Suborganizations are generally equivalent toresponsibility segments, for which cost accountingis performed to measure and report the costs ofthe segment's outputs.7 More than onesuborganization may incur costs for a singleprogram, as in cases where other suborganizationsprovide supporting services or goods withoutcharge to the program. Net program cost equals thenet cost of outputs plus any non-production coststhat can be assigned to the program but not to itsoutputs.

31. The following example of a Statement of NetCost illustrates some of the basic relationshipsthat might be displayed, depending on the natureof the entity.

o Program A produces outputs that are entirelysold to the public.

o Program B produces outputs all of which arealso sold, but some to the public and therest to other Government entities.

o Programs C and D produce outputs that are notsold. Program C provides goods, services,transfers, or grants to the public; program Dprovides services to both the public and

6See SFFAS No. 4, Managerial Cost Accounting Concepts and Standards forthe Federal Government, especially pp. 37-38 and 42, paragraphs 92 and 104.

7See ibid., pp. 31-35. Also see SFFAC No. 2, Entity and Display, pp. 25-26, para. 75 and footnote 14.


18 CHAPTER 2��



other Government entities.

o Program E produces two outputs for the public,of which one is sold and the other is not.

32. The net program cost is calculated separatelyfor each program as gross costs less revenueearned, if any. Some of the programs illustratedin this Statement are carried out within a singlesuborganization, while others are not. If aprogram is carried out by more than one sub-organization, the net program cost is calculatedboth for each of these suborganizations separatelyand for all suborganizations together that areresponsible for that program. All three sub-organizations in the illustration incur somegeneral management and administrative supportcosts that cannot be assigned to programs andoutputs and are thus reported as "costs notassigned to programs."8 Suborganization C earns aninsignificant amount of revenue that cannot beattributed to its outputs or programs and so isreported for the suborganization as a whole.

8SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for theFederal Government, pp. 37-38, para. 92, defines such costs more fully andrequires that they be reported in the entity's financial statements, such asthe Statement of Net Cost, as costs not assigned to programs. Also see SFFACNo. 2, Entity and Display, pp. 33-34, para. 94-96.





Illustrative Statement of Net Cost

Sub- Sub- Sub-organi- organi- organi-zation A zation B zation C Total��

Costs: Program A:

Public .. $XX $XX $XX Less earned revenues .. X ..

Net program costs .. XX XX XX

Program B:Intragovernmental $XXX .. .. XXXPublic XXX .. .. XXX

Total XXX .. .. XXX Less earned revenues XX .. .. XX

Net program costs XXX .. .. XXX

Program C:Program costs, public XXX XXX XXX XXX

Program D:Intragovernmental XXX XXX .. XXXPublic XXX XXX .. XXXProgram costs XXX XXX .. XXX

Program E:Output 1: Public XX .. .. XX

Less earned revenues X .. .. X Net cost of output 1 XX .. .. XXOutput 2: Public XXX .. .. XXXNet program costs XXX .. .. XXX

Costs not assigned to programs XX XX XX XX

Less other earned revenues not attributed to programs .. .. X X

Net Cost of Operations $XXX $XXX $XXX $XXX

33. Other variations on the Statement of Net Costwill also be appropriate depending on the types ofprograms that the reporting entity carries out andOMB=s guidance on the form and content of agencyfinancial statements. For example, a program thatmakes transfer payments to the public mightdifferentiate these payments from itsadministrative costs because the transfer payments


20 CHAPTER 2��



are a measure of the benefits provided by theprogram:

Program F: Public: Transfer payments XXX Administrative costs X

Program costs XXX

34. Stewardship investment might also bedifferentiated: costs incurred for Federallyfinanced physical property that is owned by stateand local governments, for certain education andtraining, and for research and development. Thesecosts have a distinctive importance because theyare investments to increase economic growth andprovide benefits to the nation over an extendedperiod of time:9

Program G: Public:

Costs for stewardship investment XXX

Administrative costs XOther costs X

Program costs XXX

35. As another example, a program might incur non-production costs, which are costs linked to eventsother than the production of goods and services inthe period when the costs were recognized. Forexample, the cost of acquiring weapons systems andother Federal mission property, plant, andequipment (PP&E) is recognized as a cost on theStatement of Net Cost when acquired, rather thanthrough depreciation over the Federal missionproperty's estimated useful life.10 Federal costaccounting does not assign non-production costssuch as this to the goods and services produced inthe period when the cost is recognized. Non-production costs might usefully be differentiatedfrom other costs on the Statement of Net Cost inorder to show and analyze separately those coststhat were incurred during the reporting period forproducing outputs in that period. For this reason,SFFAS No. 6, Accounting for Property, Plant, and

9See FASAB's Statement of Recommended Accounting Standards, SupplementaryStewardship Reporting (May 1996), pp. 5 and 31-43.

10SFFAS No. 6, Accounting for Property, Plant, and Equipment, p. 16,para. 53.





Equipment, requires that the cost of Federalmission PP&E, heritage assets, and stewardshipland be separately disclosed, either on the faceof the Statement of Net Cost or in footnotes,depending on the materiality of the amounts andthe need to distinguish them from other costsrelating to outputs and outcomes. In the case ofweapons systems purchases, the distinction mightbe shown as follows:11

Program H:Weapons system purchases XXXOther costs XXX

Program costs XXX

36. If a program produces several large anddistinct outputs, regardless of whether it earnsany revenue, it may be illuminating to display thecosts of each. If such a program has material non-production costs, they may be displayed separatelyfrom the production costs of the outputs:

Program I: Public:

Output 1 XXOutput 2 XX

Non-production costs X Program costs XX

11For further analysis of accounting for non-production costs, see SFFASNo. 4, Managerial Cost Accounting Concepts and Standards for the FederalGovernment, especially para. 97, 103, and 104; and related discussion in SFFASNo. 4's Basis for Conclusions, para. 214-215. For the case of Federal missionPP&E, heritage assets, and stewardship land, see SFFAS No. 6, Accounting forProperty, Plant, and Equipment, para. 53, 61, and 69.


22 CHAPTER 2��



37. As illustrated by these diverse possibilities,the Statement of Net Cost will emphasizeinformation about the cost of operations. By thismeans, it will help achieve the objectives ofFederal financial reporting and managerial costaccounting. Managers responsible for programs canoften obtain cost information they need frominternal cost reports and in other ways. Otherusers, however, depend partially or wholly ongeneral purpose financial reports for costinformation. These users include higher-levelmanagement of the entity, high-level ExecutiveBranch officials and their staffs, and theCongress. They may need to refer to generalpurpose financial reports not only for theinformation contained in them but also to helpthem interpret the cost information they receivedirectly from management and to relate it to otherinformation and events. Budget or programanalysts, academic researchers, and members of thespecialized news media and interest groups maydepend even more on the information provided in anentity's general purpose financial reports.Members of the general news media and the publicwho wish to consult Government financial reportsmay rely entirely on general purpose financialreports. Even for program managers, the emphasison net cost in this Statement and its use byothers may contribute to a greater understandingof the concept and routine use of thisinformation.

38. Good information on gross and net cost,determined and analyzed in the manner of thisStatement, is essential to the success of theGovernment Performance and Results Act of 1993(GPRA)12 in relating costs to accomplishments.GPRA requires setting performance goals forprogram activity and establishing performanceindicators to measure outputs and outcomes of theprogram activity. Performance measurement underGPRA is to begin in FY 1999, and pilot projectsstarted in FY 1994. Under OMB's plan to carry outGPRA, performance reports will show the results ofwhat was actually accomplished (outputs andoutcomes) with the resources used. The net cost ofprograms (as well as gross cost) should be afundamental measure of these resources.

12Public Law 103-62.





39. Preparers should decide the exactclassification of suborganizations and programsbased on the nature of the entity, the missionsand outputs for the entity's GPRA strategic andannual performance plans, the concepts in Entityand Display, Federal accounting standards, andOMB's bulletin prescribing the form and content ofagency financial statements. OMB's guidance on theform and content of agency financial statementsmay require that the gross cost and net cost ofoperations be calculated by suborganization,program, and output, and reported separately inthe Statement of Net Cost (or, if appropriate toreduce the complexity of the display, in footnotesto that Statement). Suborganizations are generallyequivalent to responsibility segments as definedby the standards on managerial cost accounting.13

Under the cost accounting standards, a responsi-bility segment must be able to assign full coststo the measurable outputs of its programs.14 Ifreported on that basis, users of general purposefederal financial reports will be provided withthe gross cost of the reporting entity's outputs(and outcomes).

40. When unit costs of outputs (and outcomes) areprovided as performance indicators elsewhere inthe report containing the financial statements, itmay be useful to provide a reference to thatinformation in the financial statements. A cross-reference in the financial statements does notchange the level of audit otherwise specified forthe performance information.

41. The information provided in the Statement ofNet Cost generally will not be as detailed as theinformation needed by those who are responsiblefor budgeting and managing the costs of theGovernment, and by those who for other reasonshave a special interest in the performance of agiven program. The detailed information should beavailable through the managerial cost accountingsystem, cost analyses, and other studies used toprovide the information reported in the Statementof Net Cost. However, the Statement of Net Cost

13SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for theFederal Government, pp. 31-35. Also see SFFAC No. 2, Entity and Display, pp.25-26, para. 75 and footnote 14.

14SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for theFederal Government, pp. 36-42 and 51-59.


24 CHAPTER 2��



provides important summary information to topmanagement, the central agencies, Congress, andthe public. The Statement of Net Cost alsoprovides a link to the more detailed informationthat may be used by managers of the reportingentity to explain the results shown in theStatement of Net Cost.

Attributing revenue to the costs of earningit

42. A reporting entity may have several missionscarried out by different suborganizations, all ofthem having component programs and outputs. Foreach of these, both gross cost and net cost areimportant in evaluating performance and managingcost. Furthermore, either an entity as a whole orits suborganizations and programs may havesignificant costs that are not incurred to earnrevenue, as well as significant costs that areincurred for that purpose. Therefore, the revenue-earning and nonrevenue-earning components needto be separately evaluated in order to assess thenet cost of particular activities. Additionally,various components may earn revenue but covercosts to different degrees.

43. In all these cases, the net cost of thereporting entity as a whole does not show theextent to which earned revenue covers the cost ofproviding particular outputs. This can only becalculated for the entity=s components.Determining the net cost for components istherefore essential to achieve the goals of SFFASNo. 7: to match exchange revenue with the grosscost of outputs and to offset exchange revenueagainst that related gross cost.

44. Exchange revenue should be attributed to thecosts of outputs unless it is not reasonablypossible to do so. If that cannot be done,exchange revenue should be attributed to the costsof programs, or, if that also is not reasonablypossible, to the costs of suborganizations.Attributing exchange revenue to the components ofan entity in this way is more effective forperformance evaluation, price setting, and otherpurposes than attributing it to the reportingentity as a whole.

45. The following principles help determine thedegree to which exchange revenue can reasonably be





attributed to a component of a reporting entity, asuborganization, or a program. Application ofthese principles requires the exercise ofmanagerial judgment to meet the goal of measuringnet cost for the many Government reportingentities with their varied characteristics.

45.1. Exchange revenue may be earned by anentity or program that sells all its goods orservices in exchange for revenue. Examples includethe Postal Service and the Defense BusinessOperations Fund. If the entity's gross costs aredivided among programs or suborganizations thatall sell goods or services, the exchange revenueattributable to these programs or suborganizationsshould be offset against the respective grosscosts. If the entity is not so divided, itsexchange revenue should be offset against thegross cost of the entity as a whole.

45.2. Exchange revenue may be attributable toan organization (or a program) as a whole incarrying out a function that is inherentlygovernmental. For example, SEC registration feesmay be deemed attributable to the SEC as a wholerather than to a division or line of activitywithin the SEC that manages the registrationprocess. Such exchange revenue should be offsetagainst the gross cost of the organization as awhole rather than the costs of the line ofactivity.

45.3. Exchange revenue may be earned by theoperations of the entity as a whole in sellinggoods or services. For example, the National ParkService charges admission fees to parks and incursexpenses for such activities as preservingwildlife, maintaining roads, and providing visitorfacilities. The fees are not related to the costsof the visitors as opposed to the costs ofmaintaining the land as a national heritage. Theyshould be offset against the gross cost of theNational Park Service.

45.4. Exchange revenue may be earned by aparticular component of a reporting entity, suchas a program within a suborganization. Except inthe cases specified above, such exchange revenueshould be offset against the gross cost of thatcomponent to calculate its net cost. The net costof that component should be added to the net costsof other components to calculate the net cost of


26 CHAPTER 2��



the reporting entity as a whole.

45.5. Exchange revenue may be earned as abyproduct by some activities within a program orsuborganization that are secondary to the mainpurpose of the program or suborganization. Forexample, the Geological Survey sells maps to thepublic as a byproduct of its surveys and otherresearch. Such exchange revenue should be offsetagainst the incremental costs incurred to producethat revenue, based on the assignment of costsaccording to the managerial cost accountingstandards.15 The other costs of the GeologicalSurvey should be classified in other components ofthe organization.

45.6. Exchange revenue that is insignificant orcannot be associated with particular outputs maybe deducted separately against the cost of theprogram, suborganization, or reporting entity as awhole.

46. Whether a particular revenue is offset againstthe cost of the reporting entity as a whole oragainst the cost of a component also depends onthe level of aggregation of the reporting entity.As explained above, the admission fees of theNational Park Service can reasonably be attributedto the National Park Service but not to itscomponents. Therefore, in financial statements ofthe National Park Service, such revenue would mostlikely be offset against the gross cost of thereporting entity (the National Park Service) as awhole. However, the financial statements of theDepartment of the Interior might be divided bysuborganization and include the National ParkService as one separate component. Because theadmission fees would be reasonably attributed tothe National Park Service, they would offset thegross cost of the component (the National ParkService) on the Department's Statement of Net Costrather than the gross cost of the reporting entity(the Department) as a whole.

47. The effect of the level of aggregation couldbe even more pronounced where the exchange revenueis deducted from the gross costs of a programwithin a suborganization in the financialstatements of the suborganization. In the

15For the standard on cost assignment, see ibid., pp. 51-59.





financial statements of the full organization, theprograms of the suborganization might beconsolidated and the exchange revenue deductedfrom the gross cost of the suborganization as awhole.

Implications for the display of special cases

48. Exchange revenue collected for others. Manyentities that collect exchange revenue keep thatrevenue for their own use. Revolving funds keepthe revenue they earn. By their nature, they areexpected to finance at least a significant part oftheir cost by selling goods and services in acontinuing cycle of business-type activity. Othercollecting entities may also keep the revenue theyearn. Sometimes, however, the exchange revenue istransferred to the General Fund or to otherentities in whole or in part. For example, theSoutheastern and Southwestern PowerAdministrations transfer the revenue they collectfrom the public to the General Fund of theTreasury. Similarly, the Western Area PowerAdministration, while retaining some of therevenue that it collects, transfers the rest tothe General Fund and various special fundsdesignated by law.

49. As a general rule, exchange revenuetransferred to others must be offset against thecollecting entity's gross cost to determine itsnet cost of operations. Exchange revenue reducesthe net cost of operations incurred by the entityin producing outputs, regardless of whether theentity keeps the exchange revenue for its own useor transfers it to another operating entity or theGeneral Fund. Likewise, exchange revenue reducesthe net cost of the entity=s operations to thetaxpayer regardless of its disposition. Therefore,all exchange revenue related to the cost ofoperations must be deducted from gross cost in theStatement of Net Cost to determine the net cost ofoperations for the entity. The display in thatStatement has no need to distinguish betweenexchange revenue retained or transferred toothers.

50. Exchange revenue that is transferred to othersdoes not, however, affect the collecting entity'soperating results and net position. Therefore, asrequired by the standards in SFFAS No. 7 for otherfinancing sources, such exchange revenue is


28 CHAPTER 2��



recognized as a transfer-out in calculating theentity's operating results in its Statement ofChanges in Net Position.

51. The only exception to the general rule occurswhen the entity recognizes virtually no cost inearning the exchange revenue, as explained in thefollowing section.

52. Exchange revenue unrelated to recognized cost.In exceptional cases, an entity may recognizevirtually no costs in connection with earningexchange revenue that it collects. A major examplefor many years has been the Minerals ManagementService (MMS) of the Department of the Interior.It manages energy and other mineral resources onthe Outer Continental Shelf (OCS) and collectsrents, royalties, and bonuses due the Governmentand Indian tribes from minerals produced on theOCS and other Federal and Indian lands. The rents,royalties, and bonuses are exchange revenues,earned by sales in the market. If the value ofnatural resources were recognized as an asset byMMS, then depletion could be recognized as a costaccording to the units of production method asminerals were extracted.16 The revenue from rents,royalties, and bonuses could then be matchedagainst MMS=s gross cost, including depletion andminor other costs, to determine its net cost ofoperations.

53. MMS does not recognize a depletion cost forvarious reasons, including the fact that underpresent accounting standards the value of naturalresources is not recognized as an asset. As aresult, this exchange revenue cannot be matchedagainst the economic cost of operations and bearslittle relationship to the recognized cost of MMS.Therefore, it should not be subtracted from MMS'sgross cost in determining its net cost ofoperations in its Statement of Net Cost. If itwere subtracted, the relationship between MMS=snet cost of operations and its measures ofperformance would be distorted. The net cost ofoperations of the Department of the Interior wouldlikewise be distorted.

16Methods of calculating depletion based on the economic cost ofextraction, such as represented here, should be distinguished from depletionmethods allowed under the Internal Revenue Code.





54. MMS collects this revenue acting as an agentfor the recipients designated by law: theTreasury, certain entities within the Governmentto which amounts are earmarked, the states, andIndian tribes and allottees. Therefore, MMS shouldaccount for the exchange revenue as a custodialactivity, which is an amount collected for others,in the same way as the Internal Revenue Serviceaccounts for the nonexchange revenue that itcollects. Because the revenue collected by MMS isexchange revenue, it should be recognized andmeasured under the exchange revenue standards whenthe rents, royalties, and bonuses are due pursuantto the contractual agreements. Custodial activityis reported in the entity=s Statement of CustodialActivity.

55. The rents, royalties, and bonuses transferredto Treasury for the General Fund or to otherGovernment reporting entities should be recognizedsimilarly by these recipient entities. The revenueis exchange revenue and should be recognized andmeasured under the exchange revenue standards.However, although the revenue comes from exchangetransactions, neither the Government as a wholenor the other recipient entities recognize thenatural resources as an asset and depletion as acost. Therefore, the revenue should not offset thecost of operations for the U.S. Government as awhole or for these entities and should not beincluded in their Statements of Net Cost. As inthe case of MMS, offsetting cost by this revenuewould distort the relationship between the netcost of operations and the measures of theperformance of these entities. The exchangerevenue should instead be a financing source indetermining the operating results and changes innet position in their Statements of Changes in NetPosition.

56. The Board is addressing the accounting fornatural resources in a separate project. If itconcludes that the value of mineral rights shouldbe recognized as an asset and depletion as a cost,it would be appropriate to recognize the exchangerevenue from rents, royalties, and bonuses indetermining the net cost of operations.

57. Although MMS is the most prominent case of anentity collecting exchange revenue for which itrecognizes virtually no cost, there can be otherinstances. The Federal Communications Commission


30 CHAPTER 2��



collects exchange revenue from the auction of theradio spectrum. Such revenue should be accountedfor in the same way as the revenue collected byMMS.

STATEMENT OF CUSTODIAL ACTIVITY

Rationale

58. Entities that collect nonexchange revenue forthe General Fund and other recipient entities donot recognize revenue as a result of collectingthese resources. These entities are designated as"collecting entities" by SFFAS No. 7, whichrequires that the collection and disposition ofnonexchange revenue be accounted for as custodialactivity. The collection of exchange revenue isnot a custodial activity, as a general rule,because exchange revenue should be deducted fromgross cost in the Statement of Net Cost for thepurpose of determining the net cost of operations.SFFAS No. 7 requires this accounting for exchangerevenue regardless of whether the entity retainsthe exchange revenue for its own use or transfersit to others, except under exceptionalcircumstances stipulated in the standard anddiscussed in the previous section.

59. Collecting entities need to report theircustodial activities in a way that highlightsthese important activities but does not obscurethe entities' own operating costs. Therefore, significant transactions related to collectingrevenue for others will be reported separately from the entity's reports on its own net cost andchanges in net position. A statement designed todo that follows:





Illustrative Statement of Custodial Activity

Sources of Revenue:

Cash Collections: (by type of tax or duty) $XX

Refunds and Other Payments ( X)

Net Collections XX

Accrual Adjustment X

Total Revenue XX

Disposition of Revenue:

Transferred to others: (by recipient) XX

Increase (decrease) in amounts to be transferred X

Retained by the Entity X

Total Disposition of Revenue XX

Net Custodial Activity $-0- ��

60. Collecting entities are to report both cashand accrual information for taxes and duties theycollect. Most of the Government's nonexchangerevenues are derived from taxes and duties.Components of cash collections, by type of tax orduty, transfers to recipient entities, and therelated accrual adjustments should normally bereported as illustrated above. Collections ofnonexchange revenue other than taxes and dutiesmay also be reported on a cash basis and adjustedto an accrual basis, but only the accrual basisinformation is required. The sources anddisposition of revenue should net to zero.

61. The increases (or decreases) in the amounts ofrevenue to be transferred to other entities affectthe inter-entity balances between the collectingentities and the entities that receive andrecognize the revenue. Amounts may be retained bythe collecting entities if they are entitled tothe revenue. The collecting entities report suchamounts in their Statement of Net Cost as an


32 CHAPTER 2��



exchange revenue if it is retained as areimbursement of the costs of collection.

62. Based on the revenue standards in SFFAS No. 7,the net change in revenue-related assets andliabilities of the collecting entities is acomponent of revenue. The net change is referredto as the accrual adjustment. The accrualadjustment consists of accounts receivable, theallowance for uncollectible amounts, and accountspayable for refunds. Revenue recognized by therecipient entities is composed of the cashtransferred to them and the increase or decreasein the amount to be transferred to them asmeasured by applicable cash collections and theaccrual adjustment.

STATEMENT OF CHANGES IN NET POSITION

63. The Statement of Changes in Net Position isdesigned to show results of operations for theperiod and other adjustments to net position. Theterm "net results of operations" describes theexcess (or the deficit) of the "net cost ofoperations" over "financing sources." These termsdesignate the first three sections in theStatement, as illustrated below. The net result ofoperations is also the current period's change inthe cumulative results of the entity's operationssince its inception, except to the extent thatthere are prior period adjustments. Prior periodadjustments include corrections of errors and allchanges in accounting principles.17

64. The Statement also shows budgetary resourcesfrom two accounting perspectives. First is theamount of appropriations used during the period.Together with other financing sources,"appropriations used" is deducted from net cost toshow the net result of the entity's operations forthe period. From the budgetary standpoint,appropriations include dedicated tax receipts,such as Social Security taxes and Highway TrustFund excise taxes. From a proprietary standpoint,on the other hand, unexpended appropriations donot include dedicated tax receipts because these

17In the private sector, prior period adjustments are limited tocorrections of errors and a few types of accounting principle changes. Inaddition, if comparative statements are presented, statements of prior periodsare restated to reflect the retroactive application of the adjustment.





receipts are accounted for as nonexchange revenue.Therefore, appropriations used would not includededicated tax receipts, thus avoiding doublecounting of these amounts as financing sources.18

65. The second perspective on budgetary resourcesis the change in unexpended appropriations duringthe period. The Balance Sheet reports "unexpendedappropriations" at the end of the current periodas a separate element of net position. A simpleillustration of the Statement of Changes in NetPosition appears below. As was illustrated for theStatement of Net Cost, the Statement of Changes inNet Position might also be subdivided bysuborganization.

Illustrative Statement of Changes in Net Position

Net Cost of Operations $(XXX)

Financing Sources(other than exchange revenue): Appropriations used XXX Taxes (nonexchange revenue) X Donations (nonexchange revenue) X Imputed financing X Transfers-in X Transfers-out (X)

Net Results of Operations X

Prior Period Adjustments X

Net Change in Cumulative Results of Operations X

Increase (Decrease) in Unexpended Appropriations X

Change in Net Position X

Net Position-Beginning of Period XX

Net Position-End of Period $ XX

18For trust funds financed entirely by dedicated revenue and otherdedicated financing sources, there are no "appropriations used."


34 CHAPTER 2��



Implications of the term "net results ofoperations"

66. Some of those who commented on FASAB'sexposure draft Accounting for Revenue and OtherFinancing Sources expressed concern that somereaders might infer the amount of "net results ofoperations" was a significant performance measure,even though this will not be the case for mostFederal reporting entities. Some users might drawsuch an inference because, in the private sector,the term "net results of operations" is synonymouswith net income and net income is the "bottomline" performance measure. The Statement ofOperations used by Federal reporting entitiesprior to implementation of SFFAS No. 7 focused ona similar bottom line, net results of operations.This was the effect of showing the flow of alloperating activities on a single statement. Formost Federal entities, however, no single bottomline can accurately measure performance, and "netresults of operations" normally provides littleinformation on either the costs or the benefits ofan entity's operations. Therefore, the Statementof Changes in Net Position is not a performance-related Statement, and using the term "net resultsof operations" in this context does not imply thatit is a measure of performance.

67. The Board notes that, when OMB revises itsform and content guidance, OMB may wish toconsider whether any change is needed in thecaptions for lines on the Statement of Changes inNet Position that are now labelled "Net Results ofOperations" and "Net Change in Cumulative Resultsof Operations."





STATEMENT OF BUDGETARY RESOURCES

Rationale

68. The Statement of Budgetary Resources and therelated disclosures provide information about howbudgetary resources were made available as well astheir status at the end of the period. Thisinformation is based on budgetary accountingrules. Because it is a basic financial statement,it also makes budget execution subject to audit atthe level of the reporting entity. Some people areconcerned about the accuracy of budget executiondata at the budget account level. SFFAS No. 7calls for that information to be presented formajor budget accounts as RSI, which normally issubject only to limited review by auditors. Whenappropriate, this information could be madesubject to more extensive agreed-upon auditprocedures or attestation by OMB (through itsbulletin on audits of Federal financialstatements) or by Inspectors General or others whoarrange for audits. Finally, the Statement ofBudgetary Resources reports the "obligationsincurred," which is also reported in the Statementof Financing and is the reference point for thereconciliation to the accrual-basis financialstatements. An illustration of this statementfollows:


36 CHAPTER 2��



Illustrative Statement of Budgetary Resources

Budgetary resources: Budget authority (line 1) $XXX Unobligated balances-beginning of period (line 2A) X Spending authority from offsetting collections (line 3) X Adjustments (lines 4-6) X

Total, budgetary resources $XXX

Status of budgetary resources: Obligations incurred (line 8)) $XXX Unobligated balances-end of period (line 9) X Unobligated balances-not available (line 10) X

Total, status of budgetary resources (line 11) $XXX

Outlays: Obligations incurred(line 8) $XXX Less: spending authority from offsetting collections and adjustments (lines 3A,B,D,&4A) X Obligated balance, net-begin. of period (line 12) X Obligated balance transferred, net (line 13) X Less: obligated balance, net- end of period (line 14) X

Total, outlays (line 15) $XXX

69. The terminology and definitions used in theStatement of Budgetary Resources are taken fromthe budget. OMB Circular A-34, Instructions onBudget Execution, dated December 26, 1995, definesthe terms shown in this Statement. The abovebudgetary resources illustration differs fromSFFAC No. 2, Entity and Display, to conform to theDecember 1995 revision of A-34. The revised SF-133line item numbers are shown on the aboveillustration. If OMB concepts and definitions arerevised in the future, the classification andrecognition of the appropriate amounts shouldchange accordingly. The U.S. Government StandardGeneral Ledger (SGL) provides a crosswalk from theSGL accounts to reports on budget executionprepared for OMB. Those budget execution reportscontain the information needed to prepare thisStatement.

70. Disclosures are required if the informationshown differs from that which is included in the"actual" column of the President's Budget. For





example, this disclosure would be needed in caseswhere the reporting entity in the financialstatements is different than the reporting entityin the Budget.

71. Some users may be confused by budgetary termsbeing used in general purpose financial reports.As with all financial statements, footnotes areneeded to make them understandable, especiallywhen the financial statements use terms specificto a field of knowledge not necessarily known to ageneral user of the statements.

STATEMENT OF FINANCING

Rationale

72. A primary objective of the Board is thatreaders of the financial statements be able tounderstand the difference between obligations, asreported in the Federal budget and on theStatement of Budgetary Resources, and the net costof operations reported in the Statement of NetCost. Guidance prior to SFFAS No. 7 only re-conciled expended authority with expenses. SFFASNo. 7 requires the more comprehensive recon-ciliation between obligations and net cost ofoperations.

73. "Net cost of operations" is the focal point ofthe Statement of Financing. The Board perceivesinformation about gross and net cost to be theprincipal advantage that the financial statementsoffer both to those concerned with the budget andto those concerned with making performancemeasurement (as required under GPRA) successful.Therefore, budgetary obligations should bereconciled with net cost. By this comparison,financial reports can help those who make programauthorization, modification, and discontinuationdecisions.

74. Besides its value in reconciling budgetary andfinancial accounting, the Statement of Financingsupplies information not shown elsewhere in thefinancial statements. It reports the net change inthe amount of obligations for undelivered ordersfrom the beginning to the end of the period, underthe caption "Change in Amount of Goods, Services,and Benefits Ordered, but Not Yet Received orProvided." Under the caption "Financing SourcesYet to Be Provided," the Statement reports the


38 CHAPTER 2��



future budgetary funding requirements fortransactions reflected in the net cost ofoperations for the period. Those amounts can belarge, where substantial amounts of unfundedliabilities are recognized.

75. In addition to the information it provides,the Statement of Financing will provide additionalassurance about the reliability of the system thatproduces the accounting and budgetary information.SFFAC No. 2, Entity and Display, does notillustrate the Statement of Financing but it isexplained and illustrated in an amendment to SFFACNo. 2 published as part of SFFAS No. 7. Anillustration follows:

Illustrative Statement of Financing

Obligations and Nonbudgetary Resources: Obligations incurred $XXX Less: Spending authority from offsetting collections and adjustments X Donations not in the budget X Financing imputed for cost subsidies X Transfers-in (out) X Exchange revenue not in the budget (X) Other X Obligations, as adjusted,

and Nonbudgetary Resources $XXX

Resources That Do Not Fund Net Costof Operations: Change in amount of goods, services, and benefits ordered but not yet received or provided (X) Costs capitalized on the Balance Sheet (X) Financing sources that fund costs of prior periods (X) Other (X)

Costs That Do Not Require Resources: Depreciation and amortization X Revaluations of assets and liabilities X Other X

Financing Sources Yet to be Provided X

Net Cost of Operations $XXX





Preparing the Statement of Financing

76. This comprehensive reconciliation can beaccomplished by presenting the followinginformation:

Net resources: obligations, as adjusted, andnonbudgetary resources

Resources not used to fund net cost ofoperations

Costs that do not require resources

Financing sources yet to be provided

These sets of information can be combined to yieldthe net cost of operations and, thereby, explainthe differences between obligations and net costof operations as shown above. The information isdiscussed in more detail below and is illustratedfor specific transactions in chapters 4 and 5.

Obligations and nonbudgetary resources

77. The obligations and nonbudgetary resourcessection reports the computation of "ObligationsIncurred" and its related budgetary adjustments.It also shows the items that provide financing butthat are not recognized in the entity's budget.

78. Obligations include orders for goods andservices which have not yet been filled (referredto as "undelivered orders,") and the value ofgoods and services received from orders which havebeen filled (referred to as "expended authority"). Budgetary adjustments to obligations are required(1) to subtract spending authority from offsettingcollections (i.e., earned reimbursements,increases (decreases) in unfilled customer ordersfor work to be performed by the Federal reportingentity, and transfers from trust funds) and (2) tosubtract recoveries of prior year obligations.

79. The sum of obligations and the adjustments toit represents the value of net budgetary resourcesobligated which could finance the net cost ofoperations. Additional financing sources couldalso finance net cost of operations. These wouldinclude such items as assets transferred in or outwithout reimbursement, most donations other thancash, and financing sources imputed for cost


40 CHAPTER 2��



subsidies. They must be added to the amount ofobligations because they are nonbudgetaryresources and, therefore, are not included inobligations.

80. Also, there may be exchange revenues which arenonbudgetary, e.g., an increase in accountsreceivable from the public. (Intra-governmentalaccounts receivable are normally considered abudgetary resource, whereas accounts receivablefrom the public are not.) Any non-budgetaryexchange revenues must be subtracted fromobligations. This is because they were subtractedin the computation for net cost of operations, butwere not included in the computation forobligations, as adjusted. Thus, an increase inaccounts receivable from the public would besubtracted in the computation for net resources; adecrease would be added. Note that the amount ofcollections from the public is budgetaryresources; hence the adjustment required is onlyfor the change in revenues accrued as a receivablefrom the public.

81. The result of the above paragraphs 0-0 wouldbe the net resources available to fund net cost ofoperations. This would be arrayed as shown below:

Obligations Incurred

Less Adjustments

Plus Nonbudgetary Resources Other than Exchange Revenue

Less Nonbudgetary Exchange Revenues

Equals Obligations, as Adjusted, and Nonbudgetary Resources

Resources that do not fund net cost ofoperations

82. Resources that do not fund net cost ofoperations for a reporting period commonly arisefrom three sources. One source is the change ingoods, services, and benefits ordered but not yetreceived or provided. Another source is any goodor service capitalized on the Balance Sheet. Thethird source is any item treated as a financingsource yet to be provided in a prior period thatis being recognized as a budgetary resource in thecurrent period.





83. The change in goods, services, and benefitsordered but not yet received or provided is thenet change in undelivered orders from thebeginning of the period to the end. The entity hadto incur an obligation to place an order for goodsor services, but accrual accounting does notrecognize the transaction until the ordered goods,services, and benefits are actually received orprovided. To reconcile obligations with the netcost of operations, net increases in undeliveredorders should be subtracted from the netobligations and nonbudgetary resources; netdecreases should be added. The entity's obligationto incur future costs is important information inand of itself, and therefore the total amountoutstanding at the end of the reporting period isto be disclosed.

84. Goods and services received and capitalized asassets on the Balance Sheet should be subtractedfrom obligations and nonbudgetary resources. Theyrequire obligations but do not affect net cost.General property, plant, and equipment (PP&E) isthe most obvious example. Other examples includeloans made by liquidating funds under the FederalCredit Reform Act of 1990 (P.L. 101-508) andpurchases of inventory.

85. An entity may receive budgetary resources inthe current period that were previously reportedas "financing sources yet to be provided," such asappropriations for credit subsidy reestimatesrecognized as expenses of the previous period, orfor decreases in the liability for annual leave.Such amounts must be subtracted from obligationsand nonbudgetary resources, because the currentperiod budgetary financing funds costs (eitherexpenses or capitalized items) that wererecognized in previous periods.

Costs that do not require resources

86. Although there may be many expenses of thistype, two of the most common are: (1) allocationof assets to expense, and (2) expenses related torevaluation of assets.

87. Cost is recognized in the Statement of NetCost when cost of assets is allocated to expense.Depreciation of capitalized PP&E is an example ofsuch allocation. Often the budgetary financingsources for the assets will have been recognized


42 CHAPTER 2��



during a prior period, when the capitalized itemswere acquired. Because the Statement of Financingis to report net cost of operations, the cost ofassets allocated to expense must be added toobligations and nonbudgetary resources.

88. Changes during the accounting period in thevaluation of assets (initially acquired by budgetary resources) may be made throughaccounting provisions or revaluations. When made,they are included in net cost of operations.Examples include:

o revaluation of PP&E due to obsolescence ordamage, and

o revaluation of inventory for expected lossesdue to excess or unserviceable quantities,realization value lower than carrying value,etc.

89. It may not always be feasible to reportseparately the acquisition of certain assets,adjustments to them, and sales of them. Forexample, as a practical matter, a net decrease ininventory because of a combination of revaluationsand sales that exceeded purchases may need to beaggregated in one amount under the caption, "CostsThat Do Not Require Resources." This type ofnetting, though sometimes necessary, reduces theinformative quality of the Statement of Financing.

Financing sources yet to be provided

90. The section of the Statement of Financinglabeled "financing sources yet to be provided"reports the amount of obligations that will bemade in future periods for costs recognized in thereporting period. It includes financing for allcosts for which the Congress has not yetauthorized the financing, or for which theCongress has authorized the financing but theamount has not yet been made available. Thisamount is added to the obligations andnonbudgetary resources of the reporting periodbecause it represents a cost recognized in theStatement of Net Cost for the reporting period forwhich the financing sources will have to beprovided in future periods. When financing islater made available, it is reported in theStatement of Financing as a subtraction fromobligations and nonbudgetary resources in the





section entitled "resources that do not fund netcost of operations." It is also recognized as"appropriations used" and reported in theStatement of Changes in Net Position.

91. For agencies funded by appropriations, themost common example is the cost of increases inunused annual leave. Cost for this leave isincurred in the reporting period, but it isnormally funded through salary and expenseappropriations in subsequent years. The amountrelated to this increase in unused annual leave isreported as a financing source yet to be provided.

92. A further prominent example is the cost ofsubsidy reestimates for program funds under theCredit Reform Act. For financial reporting,subsidy reestimates are usually made as of the endof a fiscal year, and any increase in subsidy costis recognized as an expense of that year. However,the reestimate cannot be calculated until afterthe end of the year, so the funding of thatexpense is not available until the following year.Thus, although the Congress has provided apermanent indefinite appropriation, it cannot beused until after the end of the fiscal year towhich the reestimate applies.

93. In some instances, such as annual leave,funding for previously recognized costs may not beseparately identifiable. Therefore, only theperiod change can be accounted for in theStatement of Financing. An increase in theunfunded liability would be shown as a financingsource yet to be provided and a decrease would beshown as resources that do not fund net cost.

REPORTING REVENUE

94. The previous sections explained the differentways in which revenues are reported, depending onwhether the revenue is exchange or nonexchange andon whether the collecting entity keeps the revenueor transfers it to others. The revenue may bereported on the Statement of Net Cost, theStatement of Custodial Activity, or the Statementof Changes in Net Position.

95. The following chart summarizes whichstatements to use. Note that exchange revenue,except for a few cases as noted earlier (seeparagraphs 0-0), is always reported on the


44 CHAPTER 2��



Statement of Net Cost and deducted from gross costin calculating the entity's net cost ofoperations. If such revenue is transferred toothers, it is also reported as a transfer-out inthe Statement of Changes in Net Position.





REVENUE REPORTING SUMMARY

DISPOSITION OFREVENUE

EXCHANGE REVENUE19 NONEXCHANGE REVENUE

Collecting entitykeeps all

Statement of NetCost

Statement of Changesin Net Position

Collecting entitytransfers all toothers

Full amount reportedon Statement of NetCost and alsoreported as atransfer-out on theStatement of Changesin Net Position

Full amountscollected andaccrued, and theirdisposition,reported onStatement ofCustodial Activity

Collecting entitykeeps some andtransfers some toothers

Full amount reportedon Statement of NetCost and the amounttransferred outreported on theStatement of Changesin Net Position

Full amountscollected andaccrued, and theirdisposition(including amountsretained), reportedon the Statement ofCustodial Activity.Amounts retainedalso reported onStatement of Changesin Net Positionunless theyreimburse thecollection function;then they arereported on theStatement of NetCost as exchangerevenue.

19See para. 0 - 0 for discussion of exceptional cases where exchangerevenue is unrelated to recognized cost.




46

CHAPTER 3: COMPARISON BETWEENACCOUNTING AND BUDGETARYCLASSIFICATIONS OF TRANSACTIONS

INTRODUCTION

96. This chapter compares the classification oftransactions for financial accounting in SFFAS No.7 with the classification of transactions used inthe budget. The classification systems are verysimilar for transactions with the public, thoughsignificantly different in some respects forintragovernmental transactions. This chapter alsocompares the merits of having separate and commonclassification systems.

TRANSACTIONS WITH THE PUBLIC

97. General comparison. The distinction betweennonexchange and exchange revenue is similar butnot identical to the distinction in the budgetbetween governmental receipts and offsettingcollections from the public.20 Governmentalreceipts are shown as the "receipts" in thebudget and compared with outlays to calculatethe deficit; whereas offsetting collections aresubtracted from gross disbursements todetermine the "outlays."21 Nonexchange revenuegenerally corresponds to governmental receipts,and exchange revenue generally corresponds tooffsetting collections. As a result, the

20The foundation of budget concepts for the distinction betweengovernmental receipts and offsetting collections is the Report of thePresident's Commission on Budget Concepts (Washington, D.C.: U.S. GovernmentPrinting Office, October 1967), pp. 64-72.

21Offsetting collections are divided between two major categories:"offsetting collections credited to expenditure accounts," which are deductedin calculating the net outlays of the expenditure accounts in the budget towhich they are credited; and "offsetting receipts," which are deposited inreceipt accounts and in most cases are deducted in calculating net outlays atthe agency level. (In a few cases, they are deducted in calculatinggovernment-wide net outlays.) In either case, they are an offset to totalbudget outlays. The difference between them, which is determined by law, isnot germane to the issues in this chapter.


COMPARISON OF CLASSIFICATIONS 47��



budgetary classification and the accountingclassification in SFFAS No. 7 are compatiblewith a few exceptions: gains and losses,budgetary inflows not recognized as revenue(such as exchanges of assets at book value),and inflows of resources recognized infinancial accounting but not in the budget(such as non-cash donations). Also, there are afew instances where a particular inflow that isclassified as a governmental receipt in thebudget is classified as an exchange revenue inthe financial accounting and hence subtractedfrom gross cost in the Statement of Net Cost.

98. The distinction in budgetary conceptsbetween governmental receipts and offsettingcollections is based on the difference in themethod of allocating resources: collectivedecision making for governmental receipts andthe market for offsetting collections.Governmental receipts are those collectionsderived from the exercise of the Government'ssovereign powers, particularly its sovereignpower to compel payment through taxation;whereas offsetting collections from the publicare derived from business-type activities. Thepurpose of this system of classification is tomeasure the size of the Government, itsagencies, and its functions in terms of theamount of resources allocated throughcollective political choice rather than throughthe principle that the provision of servicerequires the payment of a price. Under thisclassification system, the budget totals--totaloutlays and total receipts--measure what theU.S. Government does collectively in its roleas a government, which is its predominant role,rather than what it does in its secondary roleas a business.

99. Since nonexchange transactions, such asincome tax receipts, would rarely occur exceptas a result of the Government's sovereignpower, they are all governmental receipts inthe budget. Exchange transactions are morevaried. Exchange transactions with the public,such as the sale of maps and electricity,generally do not depend on sovereign power, somost are offsetting collections in the budget.However, there are three types of exceptions.

o Federal employee contributions to


48 CHAPTER 3��



retirement plans are exchange transactionsbecause they are part of a broaderexchange transaction--selling laborservices in return for compensation--inwhich each party receives and sacrificessomething of value. They are governmentalreceipts in the budget, however, becausethe budget classification deems them to beakin to compulsory social insurance taxes.

o Some transactions with the public thatarise from the Government's sovereignpower to regulate, such as passport feesand the SEC registration fee, areclassified as exchange transactions forfinancial reporting. The entity'soperations produce the revenue inconjunction with the expense; identifiablebeneficiaries pay fees for the specialservices provided, or identifiable non-Federal entities pay fees to compensatethe Government for the costs that wereincurred in regulating them for thebenefit of the general public; and thefees in general are closely related to thecost of providing service or regulation.Nevertheless, since the collections dependon the Government's sovereign power ratherthan being the result of voluntarytransactions, these regulatory user feesare governmental receipts under budgetconcepts.

o Exchange transactions may produce a cashinflow all of which is included in theoffsetting collections of the budget butonly part of which is recognized in thefinancial accounting statements as aninflow of resources. Some exchangetransactions produce gains or losses forthe difference between cash inflow andbook value instead of producing revenuefor the whole amount of the cash inflow(such as the sale of property, plant, andequipment that has been capitalized). Theentire amount of the cash collected is anoffsetting collection in the budget, butonly the gain or loss is recognized in theStatement of Net Cost. Other exchangetransactions, such as the repayment ofpre-1992 direct loans and otherreceivables at book value, are notincluded in revenue or other financing





sources at all, although (except for post-1991 direct loans) the entire amount ofcash collected is an offsetting collectionin the budget.22

100. User charges.23 The term "user charge" designates payments that are based to a degreeon related benefits or damages. Many areexchange transactions in the accountingclassification of SFFAS No. 7 and areoffsetting collections in the budget. Some, theregulatory user charges discussed above, areexchange transactions in the classification ofSFFAS No. 7 but in concept are governmentalreceipts in the budget.

101. Still other user charges are benefit taxesor taxes related to the cause of some damage.Benefit taxes are levied on bases that arerelated to the use of publicly provided goodsand services or the public provision of otherbenefits, such as the gasoline excise tax,which is largely dedicated to the highway trustfund. Taxes may also be levied on bases relatedto the cause of some damage and dedicated topay for that damage, such as the tax ondomestically mined coal, which is dedicated tothe black lung disability trust fund. Becausethese are taxes, which depend on theGovernment's sovereign power to compel payment,they are governmental receipts in the budget.Because the relationship between the tax andthe benefit received by an identifiablerecipient is so indirect and disproportionate,these taxes are nonexchange transactions in thefinancial accounting.

102. The budget classification of user chargesand other transactions is not clear-cut inevery case. The nature of transactions may bemixed and contain elements of both voluntaryexchange and sovereign power. For example,

22These repayments, however, may lead to an increase or decrease inexpense if they are the occasion for reestimating the subsidy cost of post-1991 direct loans or for adjusting the allowance for uncollectible amounts ofother receivables.

23User charges are discussed in a CBO study that has a broader scope thanindicated by its title. See The Growth of Federal User Charges (August 1993).The data in that study have been updated in CBO Memorandum, The Growth ofFederal User Charges: An Update (October 1995).


50 CHAPTER 3��



individuals under Medicare may choose to paypremiums for Supplemental Medical Insurance(SMI). At the same time, however, theGovernment, through its sovereign powers, paysfor about three-quarters of the cost of SMI,which is such a strong incentive that almostall eligible persons participate. As a result,the premiums might reasonably be classified aseither governmental receipts or offsettingcollections. They were classified asgovernmental receipts when the program beganbut for some years have been classified asoffsetting collections.

103. Furthermore, the budget classification ofvarious user charges does not follow theconceptual principles in every instance.Statutory requirements and other publicpolicies have increasingly classifiedregulatory user charges as offsettingcollections in recent years even though theyarise from the exercise of the Government'ssovereign power.24 The budget classification ofreceipts now has a formal category of"offsetting governmental receipts" thatincludes a number of transactions that aredeemed to arise from sovereign power but areclassified as offsetting receipts; and thebudget identifies as "governmental" thoseoffsetting collections credited to expenditureaccounts that arise from sovereign power.25

24CBO, The Growth of Federal User Charges (August 1993), pp. 35-36.

25Governmental offsetting collections credited to an expenditure accountare identified as such and shown on a separate line in the account's programand financing schedule.





INTRAGOVERNMENTAL TRANSACTIONS

104. The relationship between budgetary andfinancial accounting transactions is not nearlyas close for intragovernmental transactions asit is for transactions with the public. Allintragovernmental collections recorded in thebudget are offsetting collections. This isnecessary in order that the receipt and outlaytotals of the budget reflect only transactionswith the public. However, as explained inAppendix B of SFFAS No. 7, some of theseoffsetting collections are exchange revenues inthe new financial accounting, a few arenonexchange revenues, while a number of othersare classified as other financing sources.Furthermore, the financial accountingrecognizes some inflows of resources that arenot transactions in the budget.

105. Intragovernmental exchange transactionsconsist of all payments for goods and servicesprovided, such as the sale of services by DBOF(Defense Business Operations Fund) to anotherentity within the Department of Defense.Intragovernmental nonexchange transactions arethose transactions where the inflow ofresources is akin to a correspondingnonexchange transaction with the public (suchas an employer entity's contributions to SocialSecurity and Medicare for its employees) orderives directly from past nonexchangetransactions with the public (such as interestpaid to trust funds on their investments inTreasury securities that they purchased fromprevious tax receipts).

106. Other intragovernmental financing sourcesare more varied. They include many inflows ofresources that are not recorded as transactionsin the budget. The most important of these isappropriations, which are recognized as another financing source to the entity when usedbut are not recorded in the calculation ofbudget outlays and receipts. The budget recordsappropriations, of course, but appropriationsprovide the authority to enter into obligationsthat will result in outlays rather than beingoffsets in calculating the amount of outlays.Recording appropriations as offsettingcollections would make outlays approximatelyzero when appropriations were subtracted from


52 CHAPTER 3��



the outlays for which they provided theauthority. Further examples of other financingsources are the transfer of capitalized assetswithout reimbursement, and imputed financingwhen the full cost of goods or services isrecognized but is not charged to the entitythat receives them. The other intragovernmentalfinancing sources all have the same basiccharacteristic: they are not produced by theoperations of the entity that receives theinflow and therefore should not be deductedfrom its gross cost in determining its net costof operations.

CHOICE OF CLASSIFICATION SYSTEM

107. Because financial and budgetary accountingare related, it may be asked whether financialaccounting should follow the budgetaryclassification of transactions. For intra-governmental transactions, the differences areso large and fundamental between budgetaryaccounting and the principles in SFFAS No. 7that the two classifications could notreasonably be made the same.

o The accounting principles of SFFAS No. 7require that exchange revenue berecognized separately from nonexchangerevenue and other financing sources andoffset against gross cost in order tocalculate net cost. Nonexchange revenueand other financing sources do not affectnet cost but do contribute to netposition. The budget classification ofintragovernmental offsetting collectionsdoes not make this distinction and mustoffset all intragovernmental transactionsagainst gross outlays in order for thebudget totals to measure transactions withthe public.

o The inflows of resources classified byfinancial accounting as other financingsources--such as appropriations--could notbe classified as offsetting collections inthe budget without making the relatedbudget outlays approximately zero as amatter of definition. However, they arenecessary in financial accounting todetermine the change in net position.





108. For transactions with the public, on theother hand, the differences between theprinciples of SFFAS No. 7 and the budgetaryclassification are relatively small. There areabout $5 billion of employee contributions toFederal retirement systems that are classifiedas exchange transactions for financialaccounting but are governmental receipts in thebudget, and there are around $2 billion ofregulatory user fees that are classified in thesame way. There are also sales of property,plant, and equipment, which are recognized infinancial accounting only to the extent of again or loss but are measured by cash inflow inthe budget. These and similar transactions arerelatively small compared to the $1,570 billionof governmental receipts plus offsettingcollections (from the public) recorded in thebudget for 1995.

109. Financial accounting could follow thebudget in classifying the type of transactionwith the public by matching exchange revenuewith offsetting collections and nonexchangerevenue with governmental receipts. Thearguments are fourfold. First, one classi-fication system is simpler to use andunderstand than two systems and would avoidconfusion. Second, the two classificationsgenerally overlap, as discussed above, so theaggregate loss from misclassification in termsof the financial reporting criteria could notbe large. Third, in some cases the transactionsfor which the two classifications differ areborderline decisions under both classifi-cations, especially in the area of regulatoryuser charges. And fourth, a separate classi-fication system would need its own method ofensuring compliance.

110. The underlying argument in favor ofseparate classifications is that differentclassification systems are needed for differentpurposes. The primary purpose of theclassification system for revenue and otherfinancing sources is to help measure the netcost of an entity's operations. To achieve thisresult, it is necessary to offset the entity'scosts by the revenue that it earns from theprovision of goods and services.


54 CHAPTER 3��



111. The net cost of operations is importantinformation. For all entities, the net cost(and the gross cost) should be compared withoutputs and outcomes in assessing theeffectiveness with which resources are used toachieve results. For an entity that providesgoods and services to the taxpayer, net cost isneeded in order to calculate the extent towhich the cost of the activity is borne by thetaxpayer rather than by identifiable recipientsof special benefits or by identifiable partiesthat are being regulated. This information canhelp decision makers evaluate the extent towhich the entity's exchange activities werejustified in terms of the public's willingnessto pay. Both the comparison of costs withoutputs and outcomes, and the information aboutthe public's willingness to pay, can be used bymanagement, the President, and the Congress inmaking decisions about the allocation ofresources. And for all entities that providegoods and services, whether to the public or toother Federal entities, the net cost ofoperations is needed in evaluating andestablishing the entity's pricing policy. Theextent to which expense is covered by usercharges can be a critical factor in settinguser changes that are efficient and fair.





112. Although a separate classification systemfor transactions with the public would makelittle difference to the aggregate amounts inthe consolidated financial statements of theU.S. Government, it would enable theseparticular goals to be much better met for anumber of specific entities and activities:instances where the budget does not offsetprogram outlays by the collections earned bythe program's provision of goods and services,or where the budget records an offsettingcollection that exceeds the gain/loss oradjustment to expense. Furthermore, as long asthe financial accounting standards measure sometransactions in terms of the difference betweenthe cash inflow and the book value of theassets that are given up, the dollar amounts ofa few types of transactions cannot be the same.The financial accounting standards, moreover,recognize a few transactions with the publicthat are not recorded in the budget. Nor canthe financial accounting classification becompatible in all cases with both budgetconcepts and budget practice. Finally, theclassification of intragovernmentaltransactions would remain very different, sothe two systems would still not be identical.

113. Because the purposes of financialaccounting and the budget are different,although related, it is reasonable to expectthat the classification systems appropriate foreach purpose would also be related but notidentical. This would be similar to therelationship between the Federal budget and theFederal sector in the national income andproduct accounts. Their principal purposesdiffer, and as a result their classificationshave important differences even while beingsimilar in many respects.26 Accordingly, the

26The difference between the classifications in the budget and thenational income and product accounts prior to the comprehensive revision ofthese accounts in January 1996 is discussed in "National Income and ProductAccounts," chapter 19 of Analytical Perspectives, Budget of the United StatesGovernment, Fiscal Year 1996, pp. 267-70. For a more detailed reconciliationtable, see Bureau of Economic Analysis, National Income and Product Accountsof the United States, vol. 2, 1959-88 (Washington: Government Printing Office,1992), table 3.18B.


56 CHAPTER 3��



Board decided to recommend that financialaccounting use a separate classification systemfrom the budget.




57

CHAPTER 4: CASE STUDY ANDILLUSTRATIONS

114. This is a case study to illustrate theapplication of the new standard on accounting forrevenue and other financing sources. The caseprovides a set of budgetary and proprietaryjournal entries and related proprietary financialstatements for three Federal entities that havetransactions with each other and with the public.The entities are:

a. a collecting entity, which receives an annualappropriation and collects tax revenuesearmarked for a trust fund;

b. a credit program entity, which makes loans,provides reimbursable services to the trustfund, and procures services from the public;

c. a trust fund, which consolidates the cash andinvesting activities of Treasury's FinancialManagement Service with the activities of theprogram agency administering the trust fund'soperations.

115. The case illustrates the followingtransactions in the appropriate entities:

a. collection, accrual, and transfer of taxes;

b. ordering goods or services to be received orprovided;

c. issuance and receipt of appropriations andborrowings from Treasury;

d. interagency borrowing from Treasury;

e. receipt or provision of goods, services, andbenefits, including making loans to thepublic;

f. collection of loan principal and interest;

g. interagency purchase, issuance, andredemption of Treasury securities;


58 CHAPTER 4��



h. accrual, payment, and receipt of interest onthe Treasury securities;

i. imputation of revenue and expense forservices provided at less than cost;

j. depreciation of equipment and accrual ofannual leave;

k. temporary accrual of financing sources forexpenses to be funded from future financingsources;

l. closing entries.

116. Both pre- and post-closing trial balances areshown for the budgetary and proprietary accountsfor each entity. From these, the followingfinancial statements are illustrated based on therequirements of the new standard:

a. Statement of Custodial Activity;

b. Statement of Net Cost;

c. Statement of Changes in Net Position;

d. Balance Sheet;

e. Statement of Budgetary Resources; and

f. Statement of Financing.

117. Only the line items necessary to complete thestatements are shown. Crosswalks to accountbalances from which the figures are obtained arepresented on the face of the statement forillustrative purposes.

118. There are a number of caveats in using thecase.

a. The case entities do not reflect anyparticular Federal agencies or programs.Although there are counterparts to theillustrated transactions in real Federalagencies and programs, the case entities andtheir transactions are fictitious. Dollaramounts used in transactions are assumed forpurposes of illustration. Particularly,regarding the credit agency, in an actual


CASE STUDY 59��



situation the amounts relating to the subsidyand its amortization would be computed usingpresent value methodologies, which are beyondthe scope of this implementation guide.Information on present value computations fordirect loan and loan guarantee programs isprovided in the reference set forth inparagraph 119(h). Additional information isalso found in Appendix B, "TechnicalExplanations and Illustrations," of SFFAS No.2, Accounting for Direct Loans and LoanGuarantees (August 23, 1993).

b. The transactions are illustrative, but notcomprehensive. Federal agencies engage inmany transactions in addition to those shown,such as the use and recognition of contractauthority and sales of assets, decreases inthe liability for annual leave, accrual ofexchange revenue from the public, etc. Acomprehensive case would mask the benefit ofthe illustrations by requiring voluminoustechnical and explanatory information aboutspecific programs and transactions.Similarly, the reports and crosswalksillustrated are condensed and simplified tohighlight application of key concepts andrequirements of the revenue standard.Authoritative guidance for agency financialstatements that are prepared pursuant to theChief Financial Officers Act (as amended) iscontained in OMB's bulletin on form andcontent. Guidance for budgetary reports iscontained in OMB Circulars A-11 and A-34.Agencies may sometimes develop alternativecrosswalks which provide the sameinformation.

c. The journal entries and trial balances forthe collecting agency and trust fund utilizeaccounts provided in the U. S. GovernmentStandard General Ledger, and the illustratedreports include crosswalks to those accounts.Account names are often abbreviated to fitwithin available space. At this writing, theSGL Board is revising the illustrativetransactions in the SGL, and journal entriesare subject to change.

d. Accounts which would be subaccounts of an SGLaccount are shown with the master accountnumber. For example, account number 6100,


60 CHAPTER 4��



AOperating/Program Expenses,@ is used for thesubaccount ADepreciation Expense -Equipment.@ Subaccount titles and numbersare the purview of agencies.

e. Line items which would be reported based ondata elements being captured with accountsare indicated with a AD.@ For example,account 6100, AOperating Expenses,@ wouldrequire data elements for each expense toindicate whether the expense was exchange- ornonexchange-related.

f. Accounts not presently in the SGL are markedAXXXX@ in place of a number, and the issuesinvolved have been referred to the SGL Boardfor resolution.

g. Crosswalks are those for SGL accounts used inthe case only. They do not include the entireSGL chart of accounts.

h. Beginning account balances are assumed to bezero for purposes of illustration.

i. For simplicity, all appropriations areclassified as "other," SGL account 4119,rather than as specific types ofappropriations. In an actual situation,specific types of appropriations, withdifferent SGL account numbers, would bedesignated as applicable. Budgetary authorityfor the collecting and credit agencies isassumed to expire at year-end; authority forthe trust fund is assumed to be available forobligation in the succeeding year.Additionally, apportionment of resources isassumed and not illustrated. The status ofresources is shown beginning with theirallotment by agencies for commitment andobligation. Commitment accounting, which doesnot add to the value of the case, is notillustrated.

j. In most cases, revenues and expenses are notbroken out beyond the designation Aexchange@and Anonexchange.@ This is for illustrativepurposes only and is designed to avoidcluttering the statements with specific items


CASE STUDY 61��



which do not add to the value of the conceptspresented. Note, however, that in an actualsituation, revenues and expenses must bebroken out by source of revenue and nature ofexpense as prescribed by OMB's form andcontent guidance.

k. The trust fund transactions provide fortransfers of collections to it in the amountcollected. In practice, transfers are madeduring the year based on estimates, and anyamount collected but not yet transferred atyear-end is accrued as a receivable and arevenue by the trust fund.

l. In addition to activities for the entitiesillustrated, the Department of the Treasurywould maintain records on the Government'scash position and debt. Related informationwould be reported in the ConsolidatedFinancial Statements of the U. S. Government.

m. The illustrative Balance Sheets are designedsolely to highlight the new, simplifiedcapital structure which would result fromapplication of the revenue standard. Assetsand liabilities are not segregated by entityand non-entity to avoid complicating theexample with items not related to the revenuestandard. Agency Balance Sheets would beprepared in accordance with SFFAS No. 1 andthe form and content guidance published byOMB, which prescribes the entity and non-entity designations.

119. More detailed information on Federalaccounting can be found in such references as:

a. Accounting for Basic Operating Appropriationsand Reimbursables, U. S. General AccountingOffice (AFMD-PPM-2.1, September 1990)

b. Accounting for Expired AppropriationAuthority Under the Requirements of P.L. 101-110, U. S. Standard General Ledger Board(October 1991)

c. Illustrative Cases in Accounting Under theCredit Reform Act of 1990, U. S. FinancialManagement Service (cases 2b, 3b, 4, and 5b,with various dates through 1994)


62 CHAPTER 4��



d. Budgetary Accounting in the FederalGovernment, U. S. Financial ManagementService (September 30, 1994)

e. Treasury Financial Manual, issued by the U.S.Financial Management Service. (See esp. I TFM2-4200 and supplements and transmittalletters setting forth and updating the U. S.Government Standard General Ledger.)

f. OMB Circulars A-11 (Budget Preparation), A-34(Budget Execution), and A-127 (FinancialManagement Systems)

g. OMB Bulletin 94-01, Form and Content ofAgency Financial Statements (November 1993,or as subsequently amended)

h. Accounting for the Present Value of DirectLoan and Loan Guarantee Programs Under theFederal Credit Reform Act of 1990 (P.L. 101-508), U.S. Financial Management Service(September 16, 1993).

120. The transactions and journal entries for thecase begin on the next page.


63

ILLUSTRATIVE CASE TRANSACTIONS, JOURNAL ENTRIES, AND TRIAL BALANCES

(In the following illustrations, "N/A" means "not applicable.")

Transactions CollectingAgency

CreditAgency Trust Fund

1. The collecting and credit agenciesreceived appropriations, which werefully apportioned and allotted.Warrants were issued.

Budgetary entry4119 Other Appropriations Realized 1000 4610 Allotments - Realized

Resources 1000

Proprietary entry1010 Fund Balance with Treasury 1000 3100 Appropriated Capital 1000

Budgetary entry4119 Other Appropriations Realized 1500 4610 Allotments - Realized Resources 1500

Proprietary entry1010 Fund Balance with Treasury 1500 3100 Appropriated Capital 1500

Budgetary entryNone

Proprietary entryNone

2. The collecting agency collectedtaxes for the trust fund and depositedthem to the Treasury.

Budgetary entryNone

Proprietary entries1010 Fund Balance with Treasury 5000 5800 Tax Revenue 5000 - & -5990 Contra Revenue - Collected for Others 5000 2990 Custodial Liability (D) 5000

N/A N/A

3. Treasury transferred collections tothe Trust Fund.A warrant was issued and the fundswere allotted. (The trust fundrecognizes this as an appropriation.It is not subject to the apportionmentprocess.)

Budgetary entryNone

Proprietary entry2990 Custodial Liability (D) 5000 1010 Fund Balance with Treasury 5000

N/A Budgetary entry4119 Other Appropriations Realized 5000 4620 Other Funds Available for Commit/Oblig 5000

Proprietary entry1010 Fund Balance with Treasury 5000 5800 Tax Revenues 5000

4. Goods, services, and benefitsordered to be received or providedwere recorded. Borrowing authority wasrecorded for loans to be made and wasapportioned and allotted.

Budgetary entry4610 Allotments - Realized Resources 750 4800 Undel Orders 750


Budgetary entry4142 CY Borr Auth Realized 2004610 Allotments - Rlzd Resour 700 4800 Undel Orders 900


Budgetary entry4620 Other Funds Available 4500 for Commit/Oblig 4800 Undel Orders 4500


5. The entities received goods andservices for use in operations and

Budgetary entry4800 Undel Orders 750

Budgetary entries4148 Resour Realzd from BA 200

Budgetary entry4800 Undel Orders 4200


CHAPTER 4: ILLUSTRATIVE CASE STUDY 64��



provided benefits to participants inprograms they operate. These includeditems accounted for as operatingexpenses in all three entities;capitalized equipment in the creditagency and trust fund; and loans thecredit agency made to credit programparticipants. To make the loans, thecredit agency borrowed money from theTreasury and used funds appropriatedfor loan subsidies, as provided underthe Credit Reform Act of 1990 (P.L.101-508). The entities paid for someitems during the year; the remainderwere still payable at year-end.

4900 Expended Authority 750

Proprietary entries6100 Operating/Program Expense - Nonexch (D) 750 1010 Fund Balance with Treasury 750 - & -3100 Appropriated Capital 750 5700 Appr Capital Used 750

4145 BA Converted to Cash 200 - & -4800 Undel Orders 500 4900 Expended Authority 500

Proprietary entries1010 Fund Balance with Treasury 200 2510 Prin Pay to Treasury 200 - & -1350 Loans Receivable 2501750 Equipment 1006100 Operating/Program Expense - Exch (D) 1506100 Subsidy Expense- other than re-est. (D) 50 1010 Fund Balance with Treasury 375 1399 Allowance for Subsidy 50 2110 Accounts payable 125 - & -3100 Appropriated Capital 300 5700 Appr Capital Used 300

4900 Expended Authority 4200

Proprietary entry1750 Equipment 10006100 Operating/Program Expense - Nonexch (D) 3200 1010 Fund Balance with Treasury 3000 2110 Accounts Payable 1200

6. Trust fund monies were invested inTreasury securities.

N/A N/A Budgetary entryNone

Proprietary entry1610 Securities at Par 800 1010 Fund Balance with Treasury 800

7. Interest on the Treasury securitieswas collected.

N/A N/A Budgetary entry4119 Other Appro. Realized 10 4620 Other Funds Avail for Commit/Oblig 10

Proprietary entry1010 Fund Balance with Treasury 10 5300 Interest Revenue 10

8. Collections for loan principal andinterest made in transaction #5 werereceived. The monies were used to payinterest and reduce principal on theborrowing from Treasury.

N/A Budgetary entries4262 Act Coll - Loan Principal Collected 404263 Act Coll - Loan Interest Collected 10 4147 Payments to Treasury 35*

4900 Expended Authority 15*

*The $35 is principal and the $15 is intereston the loan from Treasury

Proprietary entries1010 Fund Balance with Treasury 50 1350 Loans Receivable 40 5300 Interest Inc. - Borrowers (D) 10 - & -2510 Prin Payable to Treasury 356310 Interest Expense-Treasury 15 1010 Fund Balance with

N/A





Treasury 50 - & -3100 Appropriated Capital 15 5700 Appropriated Capital Used 15

9. The credit agency provided servicesfor, and collected a fee from, thetrust fund. (see related transaction12)

N/A Budgetary entry4250 Reimbursements & Other Income Earned 100 4610 Allotments - Rlzd Resour 100

Proprietary entry1010 Fund Balance with Treasury 100 5200 Service Revenue 100

Budgetary entries4620 Other Funds Available for Commit/Oblig 100 4900 Expended Authority 100

Proprietary entries6100 Operating/Program Expenses - Nonexchange (D)100 1010 Fund Balance with Treasury 100

10. Treasury redeemed a portion oftrust fund investments at par plusaccrued interest.

N/A N/A Budgetary entry4119 Other Appropriations Realized 11 4620 Other Funds Avail. for Commit/Oblig 11

Proprietary entry1010 Fund Balance with Treasury 261 1610 Securities 250 5300 Interest Revenue 11

11. The trust fund accrued interest onthe remaining Treasury investments.

N/A N/A Budgetary entry

NoneProprietary entry1340 Interest Receivable 25 5300 Interest Revenue 25

12. The trust fund was informed thatthe amount charged for servicesprovided by the credit agency was lessthan the credit agency's cost (seetransaction 9). The applicablestandard for that cost required thetrust fund to recognize an imputedcost for the difference. An imputedfinancing source was also recognizedto offset the imputed cost.

N/A N/A Budgetary entryNone

Proprietary entry

XXXX Imputed Expenses 15 5900 Imputed Financing Sources (D) 15

13. Depreciation on equipment wasrecorded.

N/A Budgetary entryNone

Proprietary entry6100 Depr Exp - Equip (D) 20 1759 Accum Depr - Equip 20

Budgetary entryNone

Proprietary entry6100 Depr Exp - Equip (D) 200 1759 Accum Depr - Equip 200

14. The annual leave liability wasaccrued. Entries to indicate thatfinancing sources are needed are madeas a convenience to automated systems

Budgetary entryNone

Proprietary entries

Budgetary entryNone

Proprietary entries

Budgetary entryNone

Proprietary entry





preparing the Statement of Financing,which requires that figure.

6100 Annual Leave Expense (D) 25 2220 Annual Leave Liab 25 - & -3501 Future Funding Requir 25 XXXX Fin Sources - Unfunded 25

6100 Annual Leave Expense (D) 30 2220 Annual Leave Liab 30 - & -3501 Future Funding Requir 30 XXXX Fin Sources - Unfunded 30

6100 Annual Leave Expense (D) 20 2220 Annual Leave Liab 20

[Note: Assumes annual leave is a fundedexpense for the trust fund. If not, anunfunded Financing Source would have to berecorded, as was done for the Collecting andCredit Agencies.]

15. Tax revenues to be collected wereaccrued.

Budgetary entryNone

Proprietary entries1310 Taxes Receivable (D) 400 5800 Tax Revenues 400 - & -5990 Contra Revenue for Others 400 2190 Liab for Tax Accrual (D) 400

N/A N/A

16. A reestimate of the subsidy atyear end indicated that $8 additionalsubsidy and $1 interest on thereestimate should be recorded. Afterthe reestimate the subsidy wasamortized and the future financingsource for the unfunded subsidyreestimate (which will be received inthe following year) was recorded. Theentry to indicate that a financingsource is needed is made as aconvenience to automated systemspreparing the Statement of Financing,which requires that figure.

N/A Budgetary entryNone

Proprietary entries6100 Subsidy Exp. Re-est (D) 86330 Int Expense - Re-est. (D) 1 1399 Allowance for Subsidy 8 5300 Interest Income - Re-est (D) 1 - & -1399 Allowance for Subsidy 5 5300 Interest Inc - Subs. (D) 5 - & -3501 Future Funding Requir 9 XXXX Fin Source - Unfunded 9

N/A

Preclosing Trial Balance Budgetary4119 Other Appro Realized 10004610 Allotments Rlzd Resour 2504900 Expended Authority 750 1000 1000

ProprietaryXXXX Fin Sources - Unfunded 251010 Fund Balance with Treasury 2501310 Taxes Receivable (D) 4002190 Liability for Tax Accrual (D) 4002220 Annual Leave Liab 253100 Appropriated Capital 2503501 Future Funding Requir 255700 Appr Capital Used 7505800 Tax Revenues 54005990 Contra Revenue Collected for Others 54006100 Annual Leave Expense (D) 25

Budgetary4119 Other Appr Realized 15004142 CY Budget Auth Rlzd 2004145 BA Converted to Cash 2004148 Resour Realzd from BA 2004610 Allotments - Rlzd Resour 9004250 Reimbursements & Other Income Earned 1004262 Act Coll - Loan Principal 404263 Act Coll - Loan Interest 104147 Actual Pmts to Treasury 354800 Undelivered Orders 4004900 Expended Authority 515 2050 2050

ProprietaryXXXX Fin Sources - Unfunded 391010 Fund Balance with Treasury 14251350 Loans Receivable 2101399 Allowance for Subsidy 53

Budgetary4119 Other Appro Realized 5021

4620 Other Funds Available for Commit/Oblig 421

4800 Undelivered Orders 3004900 Expended Authority 4300 5021 5021

Proprietary1010 Fund Balance with Treasury 13711340 Interest Receivable 251610 Securities 5501750 Equipment 10001759 Accum Depr - Equip 2002110 Accounts Payable 12002220 Annual Leave Liab 205300 Interest Revenue 465800 Tax Revenue 5000





6100 Operating/Program Expense - NonExch (D) 750 6850 6850

1750 Equipment 1001759 Accum Depr - Equip 202110 Accounts Payable 1252220 Annual Leave Liab 302510 Prin Payable to Treasury 1653100 Appropriated Capital 11853501 Future Funding Requir 395200 Service Revenue 1005300 Interest Revenue 165700 Appr Capital Used 3156100 Annual Leave Expense (D) 306100 Subsidy Expense other than re-est. (D) 506100 Subsidy Exp.-re-est. 86100 Depreciation Expense - Equip (D) 206100 Operating/Program Expense - Exchange (D) 1506310 Interest Expense-Treasury 15 6330 Interest Expense--Re-est. 1 2048 2048

5900 Imputed Financing Sources (D) 156100 Depreciation Expense - Equip (D) 2006100 Annual Leave Expense (D) 20XXXX Imputed Expenses 156100 Operating/Program Expense - Nonexch (D) 3300 6481 6481

Closing Entries:(Note that the closing entry forunfunded financing sources reversesthe entry which created the accountsin transaction #14.)

Budgetary entries4201 Total Actual Resources 1000 4119 Other Appro Realized 1000 - & -4610 Allotments Rlzd Resour 250 4650 Allotments - Expired Authority 250 - & -4900 Expended Authority 750 4201 Total Actual Resources 750

Proprietary entries3310 Cum Result of Oper. 255700 Appr Capital Used 7505800 Tax Revenues 5400 5990 Contra Revenue Collected for Others 5400 6100 Annual Leave Expense (D) 25 6100 Operating/Program Expense - NonExch (D) 750

- & -

XXXX Fin Sources - Unfunded 25 3501 Future Funding Requir 25

Budgetary entries4145 BA Converted to Cash 2004147 Actual Pmts to Treasury 354201 Total Actual Resources 1815 4119 Other Appro Realized 1500 4142 CY Borrow. Auth. Rlzd. 200 4148 Resour Realzd from BA 200 4250 Reimbursement & Other Income Earned 100 4262 Act Coll - Loan Principal 40 4263 Act Coll - Loan Interest 10 - & -4610 Allotments - Realized Resources 900 4650 Allotments - Expired Authority 900 - & -4900 Expended Authority 515 4201 Total Actual Resources 515

Proprietary entries5200 Service Revenue 1005300 Interest Revenue 165700 Appr Capital Used 315 3310 Cumulative Results of 157 Operations 6100 Subsidy Expense (D) 58 6100 Annual Leave Expense (D) 30 6100 Depreciation Expense - Equip (D) 20 6100 Operating/Program Expense - Exchange (D) 150

Budgetary entries4201 Total Actual Resources 5021 4119 Other Appro Realized 5021

- & -

4900 Expended Authority 4300 4201 Total Actual Resources 4300

Proprietary entries5300 Interest Revenue 465800 Tax Revenue 50005900 Imputed Financing Sources (D) 15 3310 Cumulative Results of Operations 1526 6100 Depreciation Expense - Equip (D) 200 XXXX Imputed Expenses 15 6100 Annual Leave Expense (D) 20 6100 Operating/Program Expense - Nonexch (D) 3300





6310 Int Expense--Treasury 15 6330 Int Expense--Re-est 1 - & -XXXX Financing Sources - Unfunded 39 3501 Future Funding Requir 39

Post Closing Trial Balance Budgetary4201 Total Actual Resources 2504650 Allotments - Expired Authority 250 250 250

Proprietary1010 Fund Balance with Treasury 2501310 Taxes Receivable (D) 4002220 Annual Leave Liability 252990 Custodial Liab. (D) 4003100 Appropriated Capital 2503310 Cum Results of Oper. 25 675 675

Budgetary4201 Total Actual Resources 1300 4650 Allotments - Expired Authority 900 4800 Undelivered Orders 400 1300 1300

Proprietary1010 Fund Balance with Treasury 14251350 Loans Receivable 2101399 Allowance for Subsidy 531750 Equipment 1001759 Accum Depr - Equip 202110 Accounts Payable 1252220 Annual Leave Liab 302510 Prin Payable to Treasury 1653100 Appropriated Capital 11853310 Cumulative Results of Operations 157 1735 1735

Budgetary4201 Total Actual Resources 7214620 Other Funds Avail. for Commit/Oblig 421

4800 Undelivered Orders 300 721 721

Proprietary

1010 Fund Balance with Treasury 13711340 Interest Receivable 251610 Securities 5501750 Equipment 10001759 Accum Depr - Equip 2002110 Accounts Payable 12002220 Annual Leave Liab 203310 Cumulative Results of Operations 1526 2946 2946


CASE STUDY 69��



121. a. The following pages present financial statements for the three entitiesinvolved. The matrix below identifies the statements prepared for eachentity.

ILLUSTRATIVE FINANCIAL STATEMENTS PREPARED FOR CASE STUDY ENTITIES

Collecting Credit Statement Agency Agency Trust Fund

Custodial Activity Figure 1 N/A N/A

Net Cost Figure 2 Figure 7 Figure 12

Changes in Net Position Figure 3 Figure 8 Figure 13

Balance Sheet Figure 4 Figure 9 Figure 14

Budgetary Resources Figure 5 Figure 10 Figure 15

Financing Figure 6 Figure 11 Figure 16

b. The legend for the various statements is as follows:

1. [ ] designates accounts and arithmetic2. XXXX designates an account not in the SGL3. B = beginning account balance4. E = ending account balance5. No B or E = adjusted (preclosing) account balance6. Pub = public (outside the Government)7. Fed = Federal (within the Government)


70CHAPTER 4 ��



Figure 1

Illustrative Collecting AgencyStatement of Custodial ActivityFor Year Ended September 30,

Sources of Revenue

Collected [5800 Tax Revenue + 1310 Tax Rec(B)-(E)] $5,000Increase in Net Receivables

[1310 Tax Rec(E) - (B)] 400 Total Revenues $5,400

Disposition of Revenue

Transferred to Others [5990 Rev. Collected for Others- 2190 Liab. for Tax Accrual (E-B)] $5,000Increase in Amounts to be Transferred

[2190 Liab. for Tax Accrual (E)-(B)] 400 Total Disposition of Revenues ($5,400)

NET CUSTODIAL ACTIVITY -0-

Figure 2

Illustrative Collecting AgencyStatement of Net Cost

For Year Ended September 30,

Costs (not related to earned revenue)

Annual Leave Expense [6100] $ 25Other Expenses [6100] 750

NET COST OF OPERATIONS $775


CASE STUDY 71��



Figure 3

Illustrative Collecting AgencyStatement of Changes in Net PositionFor Year Ended September 30,

Net Cost of Operations $775

Financing Sources (Other than Earned Revenues)that Affect Net Position:

Appropriations Used to acquire goods, services,and benefits [5700] 750

Net Results of Operations $(25)

Increase in Unexpended Appropriations [3100 (E-B)] 250

Increase in Net Position $225

Net Position, October 1 0

NET POSITION, SEPTEMBER 30 [MUST = 3100(E) + 3310(E)] $225


72CHAPTER 4 ��



Figure 4

Illustrative Collecting AgencyBalance Sheet


Assets

Fund Balance with Treasury [1010] $ 250Taxes Receivable [1310] 400

TOTAL ASSETS $ 650

Liabilities and Net Position

Liabilities

Custodial Liability [2990] $ 400 Annual Leave Liability [2220] 25

Total Liabilities $ 425

Net Position

Unexpended Appropriations [3100] $ 250Cumulative Results of Operations [3310] (25)

Total Net Position $ 225

TOTAL LIABILITIES AND NET POSITION $ 650


CASE STUDY 73��



Figure 5

Illustrative Collecting AgencyStatement of Budgetary ResourcesFor Year Ended September 30,

Budgetary Resources

Current Appropriations [4119(B)] $1,000

Status of Budgetary Resources

Obligations incurred [4800 (E-B) + 4900] $ 750

Unobligated balance not available [4650 (E)] 250

Total, status of budgetary resources $1,000

Outlays

Obligations incurred [4800 (E-B) + 4900] $ 750

Add obligated fund balance, net October 1 0

Deduct obligated fund balance, net September 30 0

Total, outlays $ 750


74CHAPTER 4 ��



Figure 6

Illustrative Collecting AgencyStatement of Financing


Obligations and Nonbudgetary Resources

Obligations incurred [4800 (E-B) + 4900] $750

Other 0 Obligations and Nonbudgetary Resources 750

Financing Sources Yet to be Provided [XXXX Future Fin Source or 2220 (E-B)] 25



CASE STUDY 75��



Figure 7

Illustrative Credit AgencyStatement of Net Cost


Costs to Produce Exchange Revenue

Interest Expense [6310 + 6330] $16Depreciation Expense [6100] 20Annual Leave Expense [6100] 30Subsidy Expense [6100] 58Other Expense [6100 + XXXX imputed expenses] 150

$274

Less Earned Revenue

Intragovernmental [5200 Fed.] $100 Interest Income [5300] 16

$(116)


Figure 8

Illustrative Credit AgencyStatement of Changes in Net PositionFor Year Ended September 30,


Financing Sources (Other than Earned Revenues)that Affect Net Position:

Appropriations Used [5700] 315

Net Results of Operations $157

Net Position, October 1, 0

NET POSITION, SEPTEMBER 30, ____[must = 3100 (E) + 3310 (E)] $157


76CHAPTER 4 ��



Figure 9

Illustrative Credit AgencyBalance Sheet


Assets

Fund Balance with Treasury [1010] $1,425Loans Receivable [1350] $210Less Allowance for Subsidy [1399] (53) 157

Equipment [1750] $100Less: Accumulated Depreciation [1759] (20) 80

TOTAL ASSETS $1,662


Liabilities

Accounts Payable [2110] $125 Annual Leave Liability [2220] 30 Prin. Pay. to Treasury [2510] 165

Total Liabilities $320

Net Position

Unexpended Appropriations [3100] $1,185 Cumulative Results of Operations [3310] 157

Total Net Position $1,342

TOTAL LIABILITIES AND NET POSITION $1,662


CASE STUDY 77��



Figure 10

Illustrative Credit AgencyStatement of Budgetary ResourcesFor Year Ended September 30,

Budgetary Resources

Current Appropriations [4119] $1,500Borrowing Authority [4142] 200Collection of Loan Principal and Int. [4262 + 4263] 50Reimbursements for Services [4250] 100Less Principal Repaid to Treasury [4147] (35)

Total, budgetary resources $1,815


Obligations incurred [4800 (E-B) + 4900] 915Unobligated balance not available [4650 (E)] 900


Outlays

Obligations incurred[4800 (E-B) + 4900] $915 Spending authority from offsetting

collections and adjustment [4250 + 4262 + 4263] (150)Add obligated fund balance, net October 1 0Deduct obligated fund balance, net September 30

[4800(E) + 2110(E)] (525)

Total, outlays $ 240


78CHAPTER 4 ��



Figure 11

Illustrative Credit AgencyStatement of Financing



Obligations incurred [4800 (E-B) + 4900] $915Less spending authority from offsetting collections [4250 + 4262 + 4263] (150) Less exchange revenue not in the budget: Interest Income--Subsidy [5300 Int. Inc.--Subsidy (D)] (5) Interest Income--Reestimate [5300 Int. Inc.--Re-est. (D)] (1) Obligations and Nonbudgetary resources $759

Resources That Do Not Fund Net Cost of Operations

Changes in Goods, Services, and Benefits Ordered But NotYet Received or Provided [4800 (E-B)] (400)

Costs Capitalized on the Balance Sheet[1750 Equipment (E-B) + 4800 Obligations for Loans Made (D)- 4262 Collections of Loan Principal - 6100 Subsidy Expenseother than for reestimates (D)] (260)

Costs That Do Not Require Resources

Depreciation [6100 Depr] 20

Financing Sources Yet to be Provided

[XXXX Future Fin Sources or 2220 (E-B) + 6100 Subsidy Reestimates] 39



CASE STUDY 79��



Figure 12

Illustrative Trust FundStatement of Net Cost


Costs Not Related to Producing Exchange Revenue

Depreciation [6100] $ 200Annual Leave [6100] 20Imputed [XXXX] 15Other [6100] 3,300

NET COST OF OPERATIONS $3,535

Figure 13

Illustrative Trust FundStatement of Changes in Net PositionFor Year Ended September 30,

Net Cost of Operations $3,535

Financing Sources (Other than Earned Revenues)that Affect Net Position

Tax Revenues [5800] $5,000Interest Revenue from Treasury [5300 (D)] 46Imputed Financing Sources [5900 (D)] 15

5,061

Net Results of Operations $1,526

Net Position, October 1, 0

NET POSITION, SEPTEMBER 30, $1,526


80CHAPTER 4 ��



Figure 14

Illustrative Trust FundBalance Sheet


Assets

Fund Balance with Treasury [1010] $1,371Interest Receivable [1340] 25Securities [1610] $800

Less Unamortized Discount [1611] (250) 550Equipment [1750] $1,000

Less: Accumulated Depreciation [1759] (200) 800

TOTAL ASSETS $2,746


Liabilities

Accounts Payable [2110] $1,200 Annual Leave Liability [2220] 20

Total Liabilities $1,220

Net Position

Cumulative Results of Operations [3310] 1,526

TOTAL LIABILITIES AND NET POSITION $2,746


CASE STUDY 81��



Figure 15

Illustrative Trust FundStatement of Budgetary Resources


Budgetary Resources

Appropriations of Tax Collections [5800] $5,000Appropriations of Interest Collected [5300 - 1340 (E)] 21

Total, budgetary resources $5,021


Obligations incurred [4800 (E-B) + 4900] $4,600Unobligated balance available for obligation [4260] 421


Outlays

Obligations incurred [4800 (E-B) + 4900] $4,600 Add obligated fund balance, net October 1

[4800 (B) + 2110 (B)] 0Deduct obligated fund balance, net September 30

[4800 (E) + 2110 (E)] 1,500

Total, outlays $3,100


82CHAPTER 4 ��



Figure 16

Illustrative Trust FundStatement of Financing



Obligations incurred[4800 (E-B) + 4900] $4,600Imputed financing sources [5900 imputed] 15

Obligations, as Adjusted, and Nonbudgetary Resources $4,615


Change in Goods, Services, and Benefits Ordered But Not Yet Received or Provided [4800 (E-B)] (300)Costs Capitalized on the Balance Sheet

[1750 Equipment (E-B)] (1,000)


Depreciation [6100 Depr] 200 Annual Leave Expense [6100 Annual lv] 20

NET COST OF OPERATIONS $3,535




83

CHAPTER 5: ADDITIONAL GUIDANCE FORPREPARING THE STATEMENT OF FINANCING

INTRODUCTION

122. Chapter 4 illustrated the results of numeroustypical transactions for the financial statementsin SFFAC No. 2, Entity and Display, as amended bySFFAS No. 7 to include the Statement of Financing.It was not feasible to include every possibletransaction or to illustrate every possiblecircumstance.

123. Most of the financial statements in Entityand Display are based on concepts for the samefinancial statements that existed previously. Eventhe Statement of Budgetary Resources was based onthe SF-133, "Report on Budget Execution," requiredof agencies by OMB. However, the Statement ofFinancing, introduced in SFFAS No. 7, isrelatively new. While reconciliations betweenexpended authority and expenses have been requiredbefore, there has not been a requirement toreconcile gross obligations with net cost ofoperations.

124. Because of the newness of the Statement, thischapter provides additional information about theStatement of Financing by showing how certainadditional transactions should be reported. Theyinclude:

a. a decreasein the annual leave liability from thebeginning to the end of the year;

b. acquisitionof assets under capital leases;

c. transfer ofassets in and out without reimbursement;

d. sale ofproperty, plant, and equipment at a gain,loss, or neither;

e. accrual ofrevenue which is not recognized as abudgetary resource;


84 CHAPTER 5��



f. specialtopics related to discretionary direct loanand loan guarantee programs.

125. Whereas chapter 4 presented journal entriesand trial balances for the results of thetransactions covered, this chapter deals withindividual transactions only. Journal entries andtrial balances leading to the transaction are notincluded. The U.S. Government Standard GeneralLedger illustrates transactions for agencies andincludes crosswalks to reports, and the StandardGeneral Ledger Board provides a forum fordiscussing issues related to recording andreporting.

126. For each of the five transaction types, thischapter describes the transactions and illustrates reporting on the Statement ofFinancing. The transactions are not intended to becomprehensive, but rather are particular issuesraised during a pilot test of the Statement ofFinancing and in other comments from agencies. Aswith chapter 4, small dollar amounts are used forsimplicity. Also, as with chapter 4, this chapterpresents condensed, simplified financialstatements designed to illustrate only the basicconcepts and information presented. Theillustrations are non-authoritative and shall notbe viewed as criteria against which to audit.Authoritative guidance for display of financialstatements prepared pursuant to the CFO Act (asamended) is provided by OMB in its bulletin onform and content.

DECREASE IN THE ANNUAL LEAVE LIABILITY

127. Chapter 4 illustrated reporting an increasein the unfunded liability for annual leave. Thishas been the situation most agencies haveencountered as their staffs or budgets have grown.However, as the Government has recently begundownsizing, agencies are beginning to encountersituations in which the annual leave liabilitydecreases rather than increases.


GUIDANCE FOR THE STATEMENT OF FINANCING 85��



128. For appropriated entities, when the annualleave liability increases, it is shown on theStatement of Financing as a reconciling item underthe caption Afinancing sources yet to beprovided.@ This is because the budget does notrecognize an increase in annual leave as anobligation, but financial accounting recognizes itas an expense. Obligations are recorded in theyear the leave is paid. Hence, as shown in chapter4, any increase in an unfunded annual leaveliability creates a situation in which obligationsare less than net cost of operations, and thedifference is reconciled by adding the increase inannual leave as financing sources yet to beprovided.

129. When the annual leave liability decreases,the expense for annual leave decreasesaccordingly, and the net cost of operations isless as a result. Reporting is not symmetrical tothat for increases in the annual leave liability.Assume, for example, the following situation:

Annual Leave Liability, October 1 $ 40

Annual Leave Accrued for the Year 600

Annual Leave Paid During the Year (605)

Annual Leave Liability, September 30 $ 35

130. In this instance, obligations of $605 wouldhave been recorded for the leave paid. However,net cost of operations would be increased by only$600 for annual leave, the expense of leaveaccrued. The $5 decrease in the annual leaveliability is a reconciling item which must besubtracted from obligations to yield net cost ofoperations. Because that $5 of the $605 inobligations did not fund the net cost ofoperations, which was only $600, it is subtractedunder the caption "resources that do not fund netcost of operations."

131. An abbreviated Statement of Financing for thesituation is shown below. Note that, based solelyon the transaction described above, obligationsare $605 and net cost of operations is $600.


86 CHAPTER 5��



Obligations Incurred $605

Resources That Do Not Fund Net Costof Operations

Decrease in Annual Leave Liability (5)


ASSETS ACQUIRED BY CAPITAL LEASE

132. The Government may enter into an agreement tolease the use of assets in such a way that thebenefits and risks of ownership are substantiallytransferred from the lessor to the Government. Insuch cases, the economic substance of thetransactions is that the assets are effectivelypurchased. These agreements are called "capitalleases" in financial accounting. The standards foraccounting for leases are prescribed in SFFAS No.5, Accounting for Liabilities of the FederalGovernment, pp. 14-15, and SFFAS No. 6, Accountingfor Property, Plant, and Equipment, pp. 5, 6 and10.

133. Such leases have been treated distinctivelyin the budget for new leases since FY 1991, whenguidance relating to the leases was phased in overa two-year period. The budgetary rules have manysimilarities in substance with the financialaccounting standards, though there are differencesin terminology. The budget classifies these leasesas "lease-purchases without substantial privaterisk," "lease purchases with substantial privaterisk," and "capital leases." These categoriescover approximately the same leases that financialaccounting terms "capital leases." The budgetaryrules and terminology are prescribed in OMB'sCircular A-11, Preparation and Submission ofBudget Estimates (1995), Appendix B.

134. The budgetary requirements for obligatingwhat the budget calls capital leases and leasepurchases are the same. They are discussedtogether here. There are differences in how theoutlays related to these lease types aredetermined for purposes of budgetary reporting,but this does not affect the Statement ofFinancing. Because OMB's guidance grandfathersbudgetary accounting practice for leases enteredinto prior to the current guidance, this section





discusses preparing the Statement of Financingunder both the current guidance and priorpractice. The more generic financial accountingterm, "capital leases," is used in the discussionand illustrations that follow.

135. Current Guidance. When an asset is purchasedunder a capital lease arrangement, the budget isobligated in the amount of the present value ofthe lease payments. The difference between thepresent value of the lease and the total of thelease payments represents interest expense and isamortized over the term of the lease using presentvalue techniques. The interest expense determinedfor each year is recognized as an obligation inthe budget for that year. Depreciation expense isnot recognized in the budget. Financial accountingtreats the present value of the lease payments asan asset when acquired, recognizes interestexpense over the term of the lease, and reportsdepreciation expense over the useful life of theasset. Accordingly, the difference betweenobligations incurred and net cost of operations isthe amount of the present value of the lease inthe year of acquisition and the amounts ofdepreciation expense over the life of the asset.

136. Assume, for example, that a 3-year lease isentered into that calls for payments of $100 ineach year. The present value of the lease paymentsis $250; interest expense amortized is $25, $15,and $10 for years 1, 2, and 3 respectively; anddepreciation expense is $30, $30, and $30 foryears 1, 2, and 3, respectively. (Note thatdepreciation is charged over the life of theasset, which may be different from the term of thelease.) Thus, obligations incurred are $275 (the$250 present value of the lease payments plus thefirst year interest of $25) in Year 1, and $15 and$10 for years 2 and 3, respectively--the amount ofthe interest expense for those years. The net costof operations for each year is the sum of theinterest and depreciation expenses. The resultingStatements of Financing for the three years areshown below.


88 CHAPTER 5��



Year 1 Year 2Year 3

Obligations Incurred $275 $ 15 $ 10

Resources That Do Not FundNet Cost of Operations:

Capitalized assets acquired (250) 0 0

Costs That Do Not RequireResources:

Depreciation expense 30 30 30

Net Cost of Operations $ 55 $ 45 $ 40

137. Note that this presentation has the samereconciling items as would be the case for anasset acquired by direct purchase. This is becausethe resulting interest expense on the capitallease, which is the principal difference betweenan asset acquired by capital lease and an assetacquired by direct purchase, is recognized as anobligation by the budget and as an expense in thecost of operations.

138. Prior Practice. For capital leases enteredinto prior to the current guidance, the budget isobligated in the amount of the annual leasepayments and the interest expense is notrecognized as an obligation. This is the same asfor operating leases in financial accounting.Under prior practice, the budget often did notdistinguish between capital and operating leases,but rather treated them all like operating leases.Depreciation expense, not recognized in the budgetunder current guidance, was also not recognized onassets acquired through leases reported in thebudget under prior practice. The financialaccounting treatment for capital leases is thesame whether they fall under current budgetaryreporting guidance or prior practice. Thus, theitems required to reconcile obligations incurredwith net cost of operations are the annual leasepayments, interest expense, and depreciationexpense.

139. Assume, for example, that there are three





$100 payments remaining on a capital lease enteredinto prior to FY 1991. Interest expense on thecapital lease for financial accounting purposes is$25, $15, and $10 and depreciation expense is $30,$30, and $30, respectively, for the three years.(Again, note that depreciation is charged over thelife of the asset, which may be different from theterm of the lease.) The net cost of operations isthe sum of the depreciation and interest expense.The Statement of Financing for those years wouldappear as shown below.

Year 1 Year 2 Year 3

Obligations Incurred $100 $100 $100

Resources That Do Not FundNet Cost of Operations:

Payments on capital leases (100) (100)(100) Costs That Do Not RequireResources:

Depreciation expense 30 30 30Interest expense 25 15 10

Net Cost of Operations $ 55 $ 45 $ 40

TRANSFERS OF ASSETS IN AND OUT WITHOUTREIMBURSEMENT

140. Assets are sometimes transferred from oneagency to another without reimbursement. In suchcases, the donating agency reports the transactionas a transfer-out (a negative financing source) inits Statement of Changes in Net Position, whichreduces its cumulative results of operations andtotal net position. The receiving agency reportsthe transaction as a transfer-in (a positivefinancing source that increases its cumulativeresults of operations and total net position) onits Statement of Changes in Net Position.Treatment on the Statement of Financing isdescribed below:

(a) Obligations are notaffected for either agency, but the donating


90 CHAPTER 5��



agency reports a decrease in itsnonbudgetary resources and a decrease in itscosts capitalized on the Balance Sheet inthe amount of the book value of the assettransferred on its Statement of Financing.The transaction has no effect on net cost ofoperations of the donating agency. Thereceiving agency reports an increase in itsnonbudgetary resources in the amount of thebook value of the asset, if known, or forthe fair market value of the asset, if not.Whether adjustments to obligations, asadjusted, and nonbudgetary resources arerequired on the receiving agency's Statementof Financing depends on whether thereceiving agency capitalizes the asset orexpenses it on receipt.

(b) If the receivingagency capitalizes the asset on receipt, theamount capitalized is subtracted fromobligations, as adjusted, and nonbudgetaryresources under the caption "resources thatdo not fund net cost of operations." Thetransaction does not affect net cost ofoperations.

(c) If the asset isexpensed on receipt, no adjustment toobligations, as adjusted, and nonbudgetaryresources is required, since the amount ofthe expense would be part of net cost ofoperations. In this case, the net cost ofoperations would be financed by thetransfer-in of the assets withoutreimbursement.

141. Assume, for example, that a donating agencygives an asset with a book value of $5,000 to areceiving agency, which knows the book value. Thetransaction would be reported on the Statements ofFinancing for the agencies as shown below underthe following scenarios: (a) the receiving agencycapitalizes the asset, and (b) the receivingagency expenses the asset. Note that the reportingis the same under both scenarios for the donatingagency, but it differs for the receiving agency.

a. If the receiving agency capitalizes the asset on receipt, theStatements of Financing would be prepared in this manner:

Receiving Agency Donating Agency





Obligations Incurred $ 0 $ 0

Nonbudgetary Resources:

Transfers of Assets from (to) Others without Reimbursement 5,000 (5,000)

Obligations, as adjusted, and Nonbudgetary Resources 5,000 (5,000)

Resources That Do Not FundNet Cost of Operations

Costs capitalizedon the Balance Sheet (5,000) N/A

Capitalized costs removed from the Balance Sheet N/A 5,000

Net Cost of Operations $ 0 $ 0

b. If the receiving agency expenses the asset on receipt, theStatements of Financing would be prepared in this manner:

Receiving Agency Donating Agency


Nonbudgetary Resources:

Transfers of assets from (to) others without reimbursement 5,000 (5,000)

Obligations, as adjusted, and Nonbudgetary Resources 5,000 (5,000)


Costs capitalizedon the Balance Sheet 0 N/A

Capitalized costs removed from the Balance Sheet N/A 5,000

Net Cost of Operations $5,000 $ 0


92 CHAPTER 5��



SALE OF CAPITALIZED ASSETS

142. An agency may sell its capitalized assets ata gain, a loss, or for book value (which wouldresult in no gain or loss). The budget wouldrecognize the amounts collected from the sale,regardless of whether they resulted in gains andlosses, and would subtract those amounts asadjustments to yield obligations, as adjusted.Thus, the reconciling factor for each instancewould be the book value of the capitalized assetssold.

143. Assume, for example, three scenarios in whichan agency has a piece of equipment with a bookvalue of $25 and sells it for (a) $30, (b) $15,and (c) $25. Obligations would be -$30, -$15, and-$25, and net cost of operations would be -$5,+$10, and $0 for each of the scenarios,respectively. The Statements of Financing are illustrated as follows.

Scenarios: (A) (B) (C)

Obligations Incurred $ 0 $ 0 $ 0

Spending authority from offsettingcollections (30) (15) (25)

Obligations, as adjusted, and Nonbudgetary Resources ($30) ($15) ($25)

Resources That Do NotFund Net Cost of Operations

Capitalized costs removed from the Balance Sheet 25 25 25

Net Cost of Operations ($5) $10 $ 0

144. Note in this example that the capitalizedcosts removed from the Balance Sheet were added toobligations. Costs capitalized on the BalanceSheet are subtracted from obligations, becausethose obligations do not fund costs (see theillustrations in chapter 4). When capitalizedcosts are removed, they must be treated in theopposite manner and added back in the recon-ciliation between obligations and net cost of





operations.

145. The present illustration provides a line itemfor Acapitalized costs removed from the BalanceSheet.@ An alternative display might net thosecosts removed against the costs of assets acquiredand capitalized on the Balance Sheet. If the costsremoved are not material, it might present the netas a single line item entitled "net costscapitalized on the Balance Sheet."

EXCHANGE REVENUE FROM THE PUBLIC

146. OMB Circular A-34 provides that when anagency performs reimbursable services for others,receivables from work performed are normallyconsidered budgetary resources if the work isperformed for another Government agency. If thework is performed for the public, however,budgetary resources are recognized only to theextent receivables are collected. Financialaccounting recognizes revenue accrued from bothintragovernmental and public receivables. Thus,the change in accrued receivables relating toexchange revenue from the public is a reconcilingitem between obligations and net cost ofoperations.

147. Assume, for example, that at the beginning ofYear 1, receivables were zero. During Year 1, $100was collected from the public for servicesperformed and $15 additional was billed but notyet collected at year-end. In Year 2, $125 wascollected, including the $15 owed at the beginningof the year, and an additional $10 was accrued.

148. The collections of $100 and $125 aresubtracted from obligations incurred on theStatement of Financing for Years 1 and 2,respectively. However, the amounts subtracted fromexpenses on the Statement of Net Cost are $115 forYear 1 and $120 for Year 2. This is becausefinancial accounting, on which the Statement ofNet Cost is based, essentially recognizes revenuewhen it is earned by providing goods or servicesregardless of when collections are made.


94 CHAPTER 5��



149. The $15 of receivables from the public at theend of Year 1 is part of the revenue recognizedfor financial accounting purposes. Thus, the Year1 revenue reported on the Statement of Net Cost isthe sum of the collections, $100, and the $15receivable from the public at year-end: $115. InYear 2, only $110 of the $125 in collections isrecognized as revenue for financial accountingpurposes, because the $15 collected forreceivables from the public as of the end of Year1 was already counted as revenue in Year 1. The$10 of receivables from the public accrued at theend of Year 2 is also recognized as revenue forfinancial accounting purposes. The $110 and $10together equal $120: the Year 2 revenue reportedon the Statement of Net Cost.

150. The Statements of Financing reconciling thedifferences between obligations and net cost ofoperations are illustrated and explained below:

Year 1 Year 2


Spending Authority fromOffsetting Collections (100) (125)

(Increase) Decrease in Exchange Revenue Receivable From the Public (15) 5

Obligations, as adjusted, and Nonbudgetary Resources ($115) ($120)

Net Cost of Operations ($115) $(120)

151. Note that in Year 1, collections were $100,which was recognized as spending authority fromoffsetting collections in the budget. This issubtracted from obligations incurred. However, thenet cost of operations is -$115 (indicating anexcess of exchange revenue over expenses). The $15difference is explained by the $15 increase inaccounts receivable from the public. This is notconsidered to be spending authority for budgetarypurposes, but is recognized and accrued as revenueon the Statement of Net Cost. It was not includedin spending authority from offsetting collections,but it was subtracted from expenses to yield netcost of operations. Hence, to reconcile





obligations incurred with net cost of operations,it must be subtracted in the reconciliation on theline for exchange revenue accrued from the public.

152. In Year 2, collections were $125 and wererecognized as spending authority from offsettingcollections in the budget. However, the net costof operations is -$120, indicating an excess ofrevenue over expenses. In this case the differenceis explained by two factors. First, for the samereasons as explained for Year 1, the ending $10 inaccounts receivable from the public must besubtracted in the reconciliation. Second, thecollections would have included the $15 ofreceivables accrued at the end of Year 1. This isconsidered spending authority from offsettingcollections, but it is not recognized as revenueon the Statement of Net Cost in Year 2 because itwas already recognized there in Year 1. Because itwas subtracted in the line for spending authorityfrom offsetting collections but was not subtractedfrom expenses to yield net cost, it must be addedback in the reconciliation. The difference betweenthe $10 subtraction and $15 addition is reflectedin the $5 addition on the line for exchangerevenue accrued from the public.

SPECIAL TOPICS RELATED TODISCRETIONARY DIRECT LOAN AND LOANGUARANTEE PROGRAMS

Introduction

153. Reporting loans made subsequent to theCredit Reform Act of 1990 on the Statement ofFinancing is illustrated in chapter 4. Thefollowing paragraphs set forth some importantobservations about the illustrations andinformation regarding these and additionaltransactions related to credit reform and pre-credit reform loans. The transactions areapplicable to direct loans and loan guaranteesin programs operated under both credit reformand pre-credit reform authority unlessotherwise specified. They include:

o making direct loans;

o collecting loan principal for direct loansand for defaulted guaranteed loans assumedby the Government for direct collection;


96 CHAPTER 5��



o making upward and downward subsidy re-estimates for direct loan and loanguarantee programs (credit reform only)

o writing off defaulted loans; and

o accruing bad debts expense (pre-creditreform only).

154. The transactions discussed in thefollowing sections are only for normalsituations applicable to the program,financing, and liquidating funds ofdiscretionary credit programs under the CreditReform Act, which constitute most creditprograms. Mandatory credit programs havedifferent accounting requirements for sometransactions, which would be reporteddifferently on the Statement of Financing. Inaddition, some credit programs may operate inpart under separate legislation which also hasdifferent accounting and reportingrequirements. Authoritative information oncredit program terminology and relatedaccounting and reporting is found in SFFAS No.2, Accounting for Direct Loans and LoanGuarantees, in Section 12 of OMB Circular A-34,Instructions on Budget Execution (December1995), in Section 33 of OMB Circular A-11,Preparation and Submission of Budget Estimates,and in OMB Bulletin 94-01, Form and Content ofAgency Financial Statements (or its successor).

Reconciliations and the chapter 4 case

155. The results of budgetary and proprietaryaccounting for direct loans require severalfactors on the Statement of Financing toreconcile between obligations and net cost ofoperations. Three reconciling factors are (1)loans made, (2) subsidy expense other than forreestimates, and (3) collections of loanprincipal. The reason for these reconcilingfactors is that, for budgetary purposes, loansmade are obligations, and collections of loanprincipal are offsetting collections which aresubtracted from obligations to obtainobligations, as adjusted. On the other hand,for financial (proprietary) accountingpurposes, loans made are considered increasesin assets (specifically, loans receivable),





collections of loan principal are considereddecreases in assets, and a subsidy expense isrecognized for the amount of the loans financedby the subsidy (not including reestimates,which are discussed later).

156. Thus, the reconciliation requires that theloans made, less the subsidy expense (otherthan for reestimates), be subtracted fromobligations, since this is the amount of loansmade that has not been recognized as an expenseand, therefore, does not affect net cost ofoperations. The reconciliation also requiresthat collections of loan principal must beadded back in reconciling net cost ofoperations to obligations. This is becausethese collections are subtracted fromobligations in calculating "obligations, asadjusted," as explained above, but do not enterinto the computation of the net cost ofoperations for financial accounting purposes(although they reduce the asset "loansreceivable"). The same reconciliation is alsoneeded for collections of the loan principal ofguaranteed loans assumed for direct collectionby the Government when the lender declares themin default. These three reconciling factors aretypes of "resources that do not fund net costof operations" in the Statement of Financing.They explain the crosswalk regarding loansprovided in figure 11 of the chapter 4 caseillustration: "4800 Obligations for Loans Made(D) minus 4262 Collections of Loan Principalminus 6100 Subsidy Expense other than forreestimates (D)."


98 CHAPTER 5��



157. The fourth reconciling factor betweenobligations incurred and net cost of operationsfor direct loans is interest income fromamortization of the allowance for subsidy. Thereconciliation is required because the interestis recognized as an exchange revenue forfinancial accounting purposes and reduces netcost of operations, but it is not included inobligations for purposes of the budget. Theinterest is reported on the Statement ofFinancing as a subtraction under "exchangerevenue not in the budget" in the section onobligations and nonbudgetary resources. Thereporting is illustrated in figure 11 ofchapter 4 (the $5 of "Interest Income--SubsidyAmortization"). The same reconciliation isneeded for the amortization of subsidy relatedto loans under loan guarantee programs assumedfor direct collection by the Government whenthe lender declares them in default.

158. The chapter 4 case also illustratedproprietary accounting for an upward reestimateof the subsidy as of the end of the year and anaccompanying accrual of interest expense andinterest income on the reestimate amount. Thebudget did not recognize these transactions inthe year of accrual, and other reconcilingfactors between obligations and net cost ofoperations arose as a result. Of course,downward reestimates can also occur, withsimilar need for reconciliation. Reportingupward and downward subsidy reestimates andrelated interest on the Statement of Financingfor the year of accrual and the succeeding yearis discussed in the next sub-section, whichdeals with subsidy reestimates (see page 99).

159. The chapter 4 case covered loans madeunder the Credit Reform Act. However, agenciesstill operate liquidating funds for programsauthorized under legislation prior to that Act.Because the proprietary rules for recognizingexpenses are different for loans made underpre-credit reform authority, the reconciliationbetween obligations incurred and net cost ofoperations is different. This is discussed inmore detail in the subsection on pre-creditreform loans (see page 104).

160. The chapter 4 case did not illustratewriteoffs of defaulted loan principal. Such





writeoffs--under both the Credit Reform Act andauthority prior to the Act--do not enter intothe reconciliation between obligations incurredand net cost of operations. This is becausethey do not affect obligations, nor are theyrecognized in the Statement of Net Cost. Forfinancial accounting purposes, they reduce bothloans receivable and (for Credit Reform Actloans) the related allowance for subsidyaccount, which are offset in the assets sectionof the Balance Sheet, as shown in figure 9 ofchapter 4. For loans made prior to the CreditReform Act, the related allowance account istermed "allowance for uncollectible accounts"(or an equivalent title) rather than "allowancefor subsidy." Although an allowance foruncollectible accounts is computed differentlythan an allowance for subsidy, the nature ofthe reporting display is the same--it is offsetagainst loans receivable. The same recon-ciliation is needed for the writeoff ofguaranteed loans assumed for direct collectionby the Government when the lender declares themin default.

Subsidy reestimates

161. When an upward subsidy reestimate forcredit reform loans is made as of the end ofthe year, it is accrued in the program fund asadditional subsidy expense payable to thefinancing fund, along with interest expense onthe subsidy, which is also payable to thefinancing fund. The financing fund accrues arelated receivable for the total of thereestimate and interest, recognizes an increasein the allowance for subsidy in the amount ofthe re-estimate, and recognizes an exchangerevenue for the interest on the subsidy. Thepayable in the program fund is eliminatedagainst the receivable in the financing fundbefore proprietary financial statements areprepared. Although monies will come from apermanent indefinite appropriation in thefollowing year, the amount is not apportionedin the year of accrual, and, accordingly, noreceivable from the appropriation may beaccrued. For budgetary purposes, the obligationfor the subsidy reestimate and interest isrecognized in the succeeding year. The tablebelow summarizes this information:


100 CHAPTER 5��



Current Year Succeeding Year

Budgetary Accounting

Recognition of obligations No Yes

Proprietary Accounting

Recognition of expenses Yes No

Recognition of exchange revenue Yes No

162. Because of this difference in timing, thereconciliation between obligations incurred andnet cost of operations for an upward revision ofsubsidy is different both for the year of accrual,in which the subsidy and interest expense andrelated interest revenue are recognized forfinancial accounting purposes, and for thesubsequent year, in which the related obligationsare recognized for budgetary purposes. Using theinformation in chapter 4, assume, for example,that in Year 1, an upward subsidy reestimate of$8, with interest of $1, is recorded as of the endof the year. Because the budget does not recognizethis until the following year, obligations arezero in Year 1 and $9 in Year 2. Net Cost ofOperations will be $8 in Year 1 ($9 in expensesless $1 of interest income) and zero in Year 2.The Statement of Financing reconciliation for thisis shown below. Note that the additional interestincome to offset interest expense on the subsidyreestimate is recognized in the financing fund,which is nonbudgetary. Accordingly, it is shownunder the caption "exchange revenue not in thebudget."





Year 1 Year 2



Less Exchange Revenue Not in the Budget: Interest Income on Subsidy Reestimate (1) N/A

Obligations, as adjusted, and Nonbudgetary Resources (1) 9


Financing Sources That Fund Costs of Prior Periods N/A (9)

Financing Sources Yet to Be Provided 9 N/A

Net Cost of Operations $ 8 $ 0

163. When a recomputation of the subsidy as of theend of the year results in a smaller amount thanpreviously recognized, the reestimate is downward.For proprietary accounting purposes, threeadjustments are required for this. They arerecognized in the year for which the reestimate ismade. First, the excess subsidy and interest onthat excess must be paid to a special receiptaccount of the Treasury. Second, more allowancefor subsidy must be amortized to interest income.Amortization is based on the amount of interestexpense from all sources less interest expenseother than the reestimate. Had the subsidyinitially been calculated correctly, it would havebeen less, and correspondingly more would havebeen borrowed from Treasury. This would havecaused interest expense on the borrowing to begreater, and more would have been amortized fromthe subsidy as a result. However, because thesubsidy was greater than it should have been, lesswas borrowed from Treasury, and less was amortizedfrom the allowance for subsidy account. Hence, theallowance for subsidy is overstated and must befurther amortized to interest income in the amountof interest expense from the reestimate--just asit would have been had more been borrowed fromTreasury in the first place and more interestexpense had been incurred. Third, both subsidy


102 CHAPTER 5��



expense and the related financing source"appropriations used" must be reduced by theamount of the excess subsidy received.

164. The result of the adjustments discussed abovewhich affect the Statement of Financing is thatnet cost of operations is reduced by the amount ofthe excess subsidy. This is because of thefollowing effects of the adjustments. First,interest expense is recognized in the amount ofthe actual interest incurred on the borrowing fromTreasury plus the amount of the interest on thereestimate. This provides for the same amount ofinterest expense as would be the case if thesubsidy had initially been estimated correctly,the borrowing from Treasury greater, and theinterest on that borrowing greater. The interestis divided into two parts--interest expense on theborrowing from Treasury and interest expense onthe downward reestimate. Second, the adjustmentsprovide for the same amount of interest incomethat would have been amortized from the allowancefor subsidy if the interest expense had been basedon a greater borrowing from Treasury. Thatinterest income is also divided into two parts--interest income from the basic amortization andinterest income from the reestimate. The totalinterest expense and total interest income (whichwould also include interest income fromborrowers), both of which appear on the Statementof Net Cost, will be the same. Hence, the net costof operations is unaffected by interest.

165. Third, the allowance for subsidy is reducedby the amount to be paid to the special receiptaccount, and that amount is shown as a liability.Neither the allowance for subsidy nor theliability to Treasury appears on the Statement ofNet Cost, and, again, the net cost of operationsis unaffected. Finally, both subsidy expense andappropriations used are reduced in the amount ofthe excess subsidy. The reduction in subsidyexpense appears on the Statement of Net Cost.However, the reduction in appropriations used,which is not an expense or an exchange revenue,does not. Thus, the net cost of operations isreduced by the amount of the excess subsidyreceived. (Net results of operations, whichincludes appropriations used and additionalfinancing sources other than exchange revenue, isunchanged by the transactions, as is net position.This is appropriate, because the adverse effects





on cash flows from returning the excess subsidyand interest should be offset by increased cashinflows from other sources over the life of theloans. These sources might include a lower defaultrate on loans than originally estimated or otheritems which were factors in reestimating thesubsidy.)

166. Under budgetary accounting rules, anobligation for the excess subsidy and interestwould be recorded in the year following thereestimate rather than in the year the reestimatewas made. In the year following the reestimate,the amount of the obligation, which is paid to aspecial receipt account of the Treasury, is alsoreported in the budget as an offsetting receipt (which does not adjust obligations) rather than asan offsetting collection credited to anexpenditure account (which does). Hence, thefactors necessary to reconcile obligations withnet cost of operations involve (1) the timing ofthe recognition of obligations for budgetarypurposes and of expenses and revenues forproprietary purposes, (2) the additional interestincome to offset interest expense on thereestimate, and (3) the decrease in subsidyexpense from the reestimate. Assuming the samefacts as in paragraph 0, except that thereestimate is downward rather than upward, netcost of operations would be -$8 in Year 1 (the $1of interest expense less the $8 reduction insubsidy expense and less the $1 of interestincome) and zero in Year 2. Obligations would bezero in Year 1 and $9 Year 2. The credit agency'sStatement of Financing for the two years would beas shown below. Note that the interest incomeappears under the caption "exchange revenue not inthe budget."27

27For purposes of the Statement of Financing, exchange revenuescategorized in the budget as offsetting receipts, which do not providespending authority from offsetting collections credited to an expenditureaccount, are treated as nonbudgetary exchange revenues.


104 CHAPTER 5��



Year 1 Year 2



Less Exchange Revenue Not in the Budget: Interest Income on Subsidy Reestimate (1) N/A

Other Nonbudgetary Resources: Reduction in Subsidy Expense from Downward Reestimate (8) N/A

Obligations, as adjusted, and Nonbudgetary Resources (9) 9


Obligations for payment of excess subsidy and interest N/A (9)


Interest Expense-Downward Reestimate 1 N/A

Net Cost of Operations $ (8) $ 0

167. The observations and illustrations inparagraphs 0-0 would also be applicable to subsidyreestimates for loan guarantee programs, exceptthat the loan guarantee liability rather than theallowance for subsidy would be involved in thejournal entries and computations, and direct loanswould not be made. If the Government assumesdefaulted guaranteed loans for direct collection,both the loan guarantee liability and theallowance for subsidy would be involved.

Pre-credit reform loans

168. There are many similarities in accountingfor loans under credit reform and pre-creditreform rules. For budgetary accountingpurposes, the making of pre-credit reform loansalso results in an obligation, albeit theobligation is against different budgetauthority. Collection of loan principal is alsorecorded as an offsetting collection. There isno subsidy appropriation connected with pre-credit reform loans, however, and no obligationis recognized for defaults when they occur. For





financial accounting purposes, loans issuedunder pre-credit reform authority are accountedfor as assets, and collections of loanprincipal are recorded as decreases in thoseassets. However, instead of a subsidy expense,a bad debts expense for defaults is recognized.

169. Accordingly, for pre-credit reform loans,the reconciliation between obligations and netcost of operations requires that bad debtsexpense be added to obligations, as adjusted.Assume, for example, that during a year $500 ofpre-credit reform loans are made; $30 ofprincipal is collected; and $100 of bad debtsexpense is recognized. In this case,obligations, as adjusted, are $470 ($500 inloans made less $30 in principal collections),and the net cost of operations is $100 (theamount of the bad debts expense). The resultingreconciliation on the Statement of Financing isshown in the pre-credit reform column below.Loans made, less collections of principal, aresubtracted from obligations, as adjusted, underthe caption "resources that do not fund netcost of operations"--the same reconciliationadjustment as for credit reform loans; and baddebt expenses are added under "costs that donot require resources." The next columncontrasts that with the reconciliation forcredit reform loans (assuming for sake ofillustration a subsidy expense of $100 ratherthan a bad debts expense of $100).


106 CHAPTER 5��



Pre-Credit Credit Reform Reform

Obligations Incurred $500 $500

Spending Authority from Offsetting Collections (30) (30)

Obligations, as adjusted, and Nonbudgetary Resources $470 $470


Loans Made (500) (500)

Less: Subsidy Expense N/A 100 Collections of Loan Principal 30 30


Bad Debts Expense 100 N/A

Net Cost of Operations $100 $100

170. The lines for spending authority fromoffsetting collections and for collections of loanprincipal in the illustration above would also beapplicable to both credit reform and pre-creditreform guaranteed loans assumed for directcollection by the Government when the lenderdeclares them in default. Note that the negative$30 and the positive $30 for those two lines wouldcancel and result in zero net cost of operationsunder both credit reform and pre-credit reformprograms. Net cost of operations from thistransaction is zero because, as explained above,the collection of loans does not affect net costof operations.

171. The line for bad debts expense would alsoapply to the recognition of the expense related topre-credit reform defaulted guaranteed loans thathave been assumed. Considering only the bad debtsexpense in the illustration above, net cost ofoperations would be $100, but, because the budgetdoes not recognize bad debts expense as anobligation, obligations would be zero. Thereconciling factor would be the $100 of bad debtsexpense, as shown in the pre-credit reform columnof the illustration.





172. Bad debts expense is not applicable toprograms operating under authority of the CreditReform Act.

Subsidy expense for defaulted guaranteedloans: credit reform

173. Subsidy expense related to defaultedguaranteed loans assumed for direct collectionby the Government would not be a reconcilingitem between obligations and net cost ofoperations, as it is for loans made in a directloan program under the Act. This is because theonly accounting requirement for subsidyrelating to the assumed loans in the guaranteeprogram is that a portion of the loan guaranteeliability be reclassified as "allowance forsubsidy," which is subtracted from the asset"loans receivable" on the Balance Sheet. Such areclassification does not involve expenses orexchange revenue and, accordingly, would notaffect net cost of operations. Thereclassification is also not recognized as anobligation under budgetary accounting rules.Since neither net cost of operations norobligations is affected, no reconciliation isrequired.


108

APPENDIX: CIRCULAR A-134


FASAB TASKFORCE ON REVENUE AND OTHER FINANCING SOURCES

Donald H. Chapin, Taskforce Chair--FASAB Member/GAO*

Peter BenEzra--AgricultureChristine Bonham--GAODebra Carey--Interior

Christine Chang--TreasuryRobert Dacey--GAO*

Lowell Dworin--TreasuryRobert Hamilton--Customs Service

Gregory Holloway--GAOLinda Hoogeveen--OMB

Martin Ives--FASAB Member/New York UniversityRobert Kilpatrick--OMB*

Allan Lund--TreasuryThomas Luter--Treasury*

JoEllen McCormack--GAO*

Dennis Mitchell--TreasuryRichard Nieman--Energy Department

Marvin Phaup--CBOJoel Platt--Treasury

Darlene Schongalla--InteriorCharles Sims--InteriorDeborah Taylor--GAO

Dana Thiebeau--TreasuryWilliam Truitt--JusticeEllen Waterhouse--IRS

*working group member

Individual members of the task force do not necessarily agree with allaspects of the Board's recommendations.


THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD

Elmer B. Staats, Chairman James L. Blum Gerald Murphy Donald H. Chapin James E. Reid Martin Ives Cornelius E. Tierney Norwood Jackson Alvin Tucker

The Secretary of the Treasury, the Director of the Office ofManagement and Budget, and the Comptroller General established theFederal Accounting Standards Advisory Board (the FASAB or "theBoard") in October 1990 to consider and recommend accountingprinciples for the United States Government.

The Board communicates its recommendations by publishing recommendedaccounting standards after considering the financial and budgetaryinformation needs of Congress, executive branch agencies, and otherusers of Federal financial information. The Board also considerscomments from the public on its proposed recommendations, which arepublished for comment as "exposure drafts." The Board's sponsors,i.e., the officials who established the Board, then decide whether toadopt the recommendations. If they do, the standard is published byOMB and the GAO and then becomes effective.

Additional background information is available from the FASAB,including: (1) the "Memorandum of Understanding among the GeneralAccounting Office, the Department of the Treasury, and the Office ofManagement and Budget, on Federal Government Accounting Standards anda Federal Accounting Standards Advisory Board" and (2) the "MissionStatement of the Federal Accounting Standards Advisory Board."

Federal Accounting Standards Advisory BoardRonald S. Young, Executive Director750 First Street, NE, Room 1001

Washington, DC 20002Telephone (202) 512-7350

Fax (202) 512-7366


implementation guide, accounting for revenue and …files.fasab.gov/pdffiles/impguid7.pdf ·...

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