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ACC 322

City of Springfields
Government Accounting
Your Name
8/5/2016

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Part Two Prepare an informational report to taxpayers

a) Interpret and discuss the governmental funds section of your workbook.

i. Define governmental funds.

ii. Identify and summarize activities in governmental funds.

iii. Explain how the governmental funds section of your workbook tells the taxpayers about the
financial position of the government.

b) Interpret and discuss the proprietary funds section of your workbook.

i. Define proprietary funds.

ii. Identify and summarize activities in proprietary funds.

iii. Explain how the proprietary funds section of your workbook tells the taxpayers about the
financial position of the government.

c) Interpret and discuss the fiduciary funds section of your report.

i. Define fiduciary funds.

ii. Identify and summarize activities in fiduciary funds.

iii. Explain how the fiduciary funds section of your workbook tells the taxpayers about the
financial position of the government.

Solution Contents
Governmental Fund....................................................................................................3
Proprietary Fund ........................................................................................................6
Fiduciary Fund ...........................................................................................................8

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Governmental Fund
Governmental Fund in Government accounting refers to those funds which are set up for

reporting and accounting for Governmental activities and not meant for profit and loss earned. A

Government fund can have a general fund and can set up other funds for other Government

activities that are common in nature but has not objective of profit or loss. (FMX Fiscal

Management, 2016)

For instance, funds other than general funds that can be set up as Government fund are:

a. Special Revenue Fund These are funds where the activities are governed by the

law or donor of the fund. Law or Donor can govern the operations on which the

Government can spend money. Money can be spent for specific activities for which

the Fund has been set up. For instance, fund for promoting education, tourism,

highway maintenance etc. Financial Statements which are prepared for this fund are

Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund

Balance.

b. Permanent Fund These are funds which report resources whose uses are legally

restricted to the extent that only earnings, and not principal, can be used for

supporting Government program for which the fund has been set up. These funds

benefits Governmental program or function or citizens but do not benefit external

individuals or organization or Government. For instance, funds like trust funds to

support park, cemetery etc. Often both Special Revenue Fund and Permanent Fund

are set up together. Permanent Funds holds the principal and earn revenue thereon

and transfer earnings to Special Revenue Fund. Financial Statements which are

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prepared for this fund are Balance Sheet and Statement of Revenues, Expenditures

and Changes in Fund Balance.

c. Capital Projects Fund These are funds formed for accounting for major general

capital assets for their purchase, constructions or capital lease. Funds required for

such capital assets are transferred to capital project fund from either general fund or

raised through bond offering. Any deficiency is generally met by way of additional

transfer from general fund and any surplus left post completion of project is

transferred back to general fund or debt service fund. Financial Statements which are

prepared for this fund are Balance Sheet and Statement of Revenues, Expenditures

and Changes in Fund Balance.

d. Debt Service Fund These are funds formed for accounting of restricted, committed

or assigned to expenditure for principal and interest. Interest and principal are

recognized when due. Budgets entries are rarely used as the obligations are known

upfront. The entire fund balance is used only for servicing Government debt.

Financial statements are balance sheet and statement of revenues, expenditures and

change in fund balances. (California State University) (FMX Fiscal Management,

2016)

In case of City of Springfield, Government Fund made total revenues of $3.30 million of

which 65% was through General Fund, 15% was through Special Revenue Fund, 9% was

through Capital Project Fund and 11% was from Debt Service Fund.

General Fund earned total revenues of $2.14 million of which 7% or $1.55 million was

from taxes. At end of period, after incurring expenditures for the purpose (general, public safety,

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highways and streets, health and sanitation and parks and recreation), the fund had a surplus

balance of $405,520. The Fund had an opening balance of $1.44 million and ended the year 2004

with a balance of $1.78 million indicating a change in fund balance of $337,320.

Special Revenue Fund was set up for the purpose of addiction prevention. The fund

earned $500,000 from interGovernmental grants and incurs expenditure of $525,000 towards

public safety. Also the fund received a transfer of $60,000 from general fund and at end of the

year fund had a balance of $35,000.

Capital Project Fund was set up for the purpose of developing a Parks and Recreation

facility. Fund received an interGovernmental grant of $300,000. Total outlay during the year was

$1.31 million and the same has been funded largely through $1.55 million of bond issue and a

transfer of $200,000 from general fund. At end of year the balance lying in the fund was

$725,000.

In case of Debt Service Fund, the company earned $295,050 through taxes, minor

$67,000 through investment income and $5,230 from interest and penalties on taxes. During the

year company raised $1.55 million of debt and has repaid $1.1 million and balance at end of year

was $479,230.

Overall in Government Funds, the expenses were higher than the revenues and the Fund

had a deficit of $1.58 million, financing from other sources was $1.74 million resulting in net

change of $164,600 in Fund balance during the year and balance at end of the year grew to 3.02

million.

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Proprietary Fund
Proprietary Fund is used for reporting those activities of the Government where they act

like a business. When Government provides goods and services to private parties the reporting is

done under Enterprise Fund and when it is provided to other Government entities the reporting is

done under Internal Service Fund. The method of accounting followed here is similar to normal

business which is accrual accounting and the expenses recorded here are those which are

generally not recorded in Governmental Fund like depreciation expense etc. Transaction between

Proprietary Fund and Governmental Fund are treated as transaction between external entities

wherein billing from Proprietary Fund to Governmental Fund are treated as revenue by the

former and expense by the latter. Generally Proprietary Fund focuses on whether or not the

enterprise is economically better off or not as a result of several events and transactions that

occurred during the reported fiscal period. Transactions and events that improved the financial

position are reported as revenues or gains and the ones which diminish are reported as expenses

or losses. (FMX Fiscal Management, 2016). Funds that are reported under Proprietary Fund are:

a. Enterprise Fund These are funds which report entries for goods or services which

are provided by the Government for a fee to general public which can be like public

housing, utilities public parking, airports, railways, public transport etc. Any activity

for which fees are charge to citizens are reported under this Fund. Such Funds are

used only if the following criteria are met:

i. Activity is financed solely with revenue for specific activity and debt is

secured by such revenue

ii. Cost for providing services (including capital cost) is recovered only from

fees and charges instead of recovering in the form of charges

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iii. There is a dedicated pricing policies to recover costs in the form of charges

These funds often have restricted assets which are assets used only for identified or

designated purpose and are shown separately as a class of assets for instance

customer deposits, long term debt proceeds for water sewer facility etc. Equity here is

called as Net Assets and Net Assets are divided into Invested in Capital Assets,

Restricted Assets and Unrestricted Assets. Financial Statements used for reporting

under Fund are Statement of Revenues, Expenses, and Changes in Net Position,

Statement of Net Position, Computation of Net Position Components and Statement

of Cash Flows. (California State University)

b. Internal Service Fund These funds are created to record goods and services

provided by Government to other funds, departments or agencies of the primary

Government or other Government units on a cost reimbursement basis. For instance,

printing services, call center services, central purchasing services etc. These funds

also follow accrual method of accounting similar to other normal businesses. The

financial statements used for reporting under Fund are Statement of Revenues,

Expenses, and Changes in Net Position, Statement of Net Position and Statement of

Cash Flows.

In case of City of Springfield, Water and Sewer facility had been provided to citizens on

chargeable basis whose revenue and expenses are recorded under Enterprise Fund and

central communication network facility was provided to internal departments which were

recorded under Internal Service Fund. Overall the Proprietary Fund made total revenue of

$931,895 during the year of which $841,825 or 90% came from Enterprise Fund. While

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Internal Service Fund worked on a cost reimbursement basis and hence had no profit or

loss, the Enterprise Fund reported profit of $266,075 during the year of which $47,950

was earned in the form of non operating income from investments and interest. Enterprise

Fund had $2.147 million invested in capital assets and $458,875 as unrestricted assets

and nil balance under restricted assets resulting in a net position of $2.6 million at the end

of year including change in net position during the year at $166,075. In case of Internal

Service Fund $90,070 has been spend on multiple services and the same was recovered

during the year resulting in no change in net position. End of year net position of Internal

Service Fund was at $772,000.

Fiduciary Fund
Fiduciary Funds are also called as Private Purpose Trust Funds. These are Funds used to

report assets held in trustee or agency capacity and which cannot be used for Government own

programs. Resources held in Trust for the benefit of Government own programs are accounted

for in Governmental Fund and not in Fiduciary Fund. These Funds do not benefit individuals or

Organizations or Governments rather they benefits public general like Funds for maintaining

public park, library, hospitals, airports etc. Some examples of these Fiduciary Funds are Pension

Trust Funds, Public Endowment Funds, Investment Trust Funds, Scholarship Funds for students

etc. Fiduciary Funds also follow accrual method of accounting similar to businesses. However,

separate Funds are maintained for accounting revenues if any and principal if any. Financial

Statements prepared are Statement of Changes in Net Position and Statement of Net Position.

(California State University) (FMX Fiscal Management, 2016)

In case of City of Springfields, the Government had Police and Fire Pension Trust and

assets and liabilities attached to this Trust which were held by the Government in fiduciary

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capacity. During the year, the Fund saw $60,200 addition as employer contributions and

$142,000 as income from investments resulting in total addition of $202,200 and $97,000 as

deductions towards retirement benefits, refunds, and administrative costs. Overall the net

additions during the period were $105,200. The Fund had an opening balance of $1.4 million and

at end of the year the balance grew to $1.505 million.

Overall the Government of Springfields had net assets of $9.37 million of which $6.87

million was invested in capital assets, $0.525 million was in restricted assets for capital projects,

$0.479 million was in restricted assets for debt service and $1.495 million was in unrestricted

assets.

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References

1. California State University, Governmental Accounting, Chapter 16

http://web.csulb.edu/~mconstas/acct400/slide16.pdf

2. FMX Fiscal Management, Government Reporting Overview 2016

https://fmx.cpa.state.tx.us/fmx/pubs/afrrptreq/gen_acct/index.php?section=overview&pag

e=gov_funds

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