1-6

Accounting and financial reporting for state and local governments use, in different places either
the economic resources measurement focus and the accrual basis of accounting or the current
financial resources measurement focus and the modified accrual basis of accounting. Discuss the
differences in measurement focus and basis of accounting related to (a) the conceptual
differences, (b) differences in revenue recognition, (c) differences in expense/expenditure
recognition, (d) differences in recognition of fixed assets, and (e) differences in the recording of
long-term debt.

a. The conceptual differences

One method assumes an economic resources measurement focus and the accrual basis of
accounting, and the other method assumes a flow of current financial resources measurement
focus and modified accrual accounting. The accrual basis of accounting is used by commercial
businesses and the modified accrual basis of accounting undertakes activities in response to the
needs of the public

b. differences in revenue recognition

The accrual basis of accounting recognizes revenues when they are earned (and are expected to
be realized)

The modified accrual basis of accounting revenues are generally recognized when measurable
and available to finance the expenditures of the current period.

c. The accrual basis of accounting recognizes expenses when the related goods or services are
used up.

The modified accrual basis of accounting recognizes expenditures (not expenses) in the period in
which the fund liability is incurred.

d. Under the accrual basis of accounting, a balance sheet is prepared on the economic resource
focus reports the balances in fixed assets. Governmental-type activities are reported in the
government-wide statements using the accrual basis of accounting, including fixed assets.

The modified accrual basis of accounting, fixed assets are not reported in governmental funds.

e. Under the accrual basis of accounting, long term debt is reported in the government wide
statements.

The modified accrual accounting method are not reported in governmental funds. Long term
debt is not recognized in the period in which the debt occurred.

1-9
Go to the GASB Web site (www.gasb.org) . What is the mission of GASB?

According to the GASB Web site their mission is to establish and improve standards of state and
local governmental accounting and financial reporting that will result in useful information for
users of financial reports, and guide and educate the public, including issuers, auditors, and users
of those financial reports.

The mission is accomplished through a comprehensive and independent process that encourages
broad participation, objectively considers all stakeholder views, and is subject to oversight by the
Financial Accounting Foundation’s Board of Trustees.

http://gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1175804850352

2-2

With regard to GASB rules for the financial reporting entity, answer the following:

a. Define the financial reporting entity.

GASB Statement 14. The Financial Reporting Entity, establishes that the financial reporting
entity is the primary government together with its component units.

b. Define and give an example of a primary government.

The primary government can be a state government, a general-purpose local government such as
a city or county, or a special purpose government such as a school district.

c. Define and give an example of a component unit.

Component units are legally separate organizations for which the elected officials of the primary
government are financially accountable. A component unit can be an organization for which the
nature and significance of its relationship with a primary government are such that exclusion
would cause the reporting entity’s financial statements to be misleading or incomplete.

d. Define and describe the two methods of reporting the primary government and component
units in the financial reporting entity.

Blending – financial information becomes part of the financial statements of the primary
government. Blended organizations are reported as though they were funds of the primary
government.

Discrete presentation – the financial information of the component is presented in a column,

apart from the primary government and not included in the totals reported for the primary
government. Discretely presented component units appear as separate columns in the
government-wide statements.
All information above was taken directly from our text in chapters 1 and 2.

Reference

Copley, Paul, A. (2011). Essentials of Accounting for Governmental and Not-For-Profit

Organizations (10th ed.). New York, NY: McGraw-Hill/Irwin.

Discussion 2

2-3.

With regard to the Comprehensive Annual Financial Report (CAFR):

a. What are the three major sections?

The Comprehensive Annual Financial Report has three major sections which are introductory,
financial, and statistical.

b. List the government-wide statements. Indicate the measurement focus and basis of accounting
used for the government-wide statements.

The government wide statements include Statement of net assets, statement of activities,

The government wide financial statements use the accrual basis of accounting and all revenues
and expenses are reported, regardless of when cash is received or paid.

c. List the governmental fund statements. Indicate the measurement focus and basis of
accounting used for the governmental fund statements.

Government fund statements include statement of revenue, expenditures, and changes in fund
balance.

The measurement focus and basis of accounting used for governmental fund statements is the
current financial resources measurement focus and the modified accrual basis of accounting.

d. List the proprietary fund statements. Indicate the measurement focus and basis of accounting
used for the proprietary fund statements.

Proprietary fund statements include statement of net assets, statement of cash flows, statement of
revenues, expenses, and changes in fund net assets.

The proprietary funds report using the economic resources measurement focus and the accrual
basis of accounting.
e. List the fiduciary fund statements. Describe the measurement focus and basis of accounting
used for the fiduciary fund statements.

Fiduciary fund statements include statement of fiduciary net assets and changes in fiduciary net
assets.

Fiduciary funds use the economic resources measurement focus and accrual accounting, but the
activities are not labeled.

f. Outline the reports and schedules to be reported as required supplementary information.

Required supplementary information includes the following: information required when using
the modified approach to infrastructure, budgetary comparison schedule, pension schedules, and
schedules of risk management activities.

Reference

Copley, Paul, A. (2011). Essentials of Accounting for Governmental and Not-For-Profit

Organizations (10th ed.). New York, NY: McGraw-Hill/Irwin.

3-5

For each of the summarized transactions for the Village of Sycamore General Fund, prepare the
general ledger journal entries. The year is Jan 1-December 31, 2012.

a. The budget was formally adopted, providing for estimated revenues of $1,000,000 and
appropriations of $980,000.

General Ledger
Debit Credit
Estimated revenues control $1,000,000
Appropriations control $980,000
Budgetary Fund Balance $ 20,000

b. Revenues were received, all in cash, in the amount of $1,010,000.

General Ledger
Debit Credit
Cash $1,010,000
Revenues Control $1,010,000
c. Purchase orders were issued in the amount of $500,000.

General Ledger
Debit Credit
Reserve for Encumbrances $500,000
Encumbrances Control $500,000

d. Of the $500,000 in (c), purchase orders were filled in the amount of $490,000; the invoice
amount was $480,000 (not yet paid).

General Ledger
Debit Credit
Reserve for Encumbrances $490,000
Encumbrance Control $490,000
Expenditures Control $480,000
Accounts payable $480,000

e. Expenditures, not encumbered, amounted to $460,000 (not yet paid).

General Ledger
Debit Credit
Expenditure Control $460,000
Accounts Payable $460,000

f. Amounts from (d) and (e) are paid in cash.

General Ledger
Debit Credit
Accounts Payable ($480,000 + $460,000) $940,000
Cash $940,000
3-10

The Budgetary Comparison Schedule for the City of Vienna appears below. Several items of
information are missing (denoted).

CITY OF VIENNA
Budgetary Comparison Schedule
General Fund
For the Year Ended December 31, 2012

Budgetary Amounts Actual Amounts Variance with Final

(Budgetary Basis) Budget Positive
Original Final (Negative)
Revenues:
Taxes $3,200,000 $3,300,000 $3,400,000 $100,000
Licenses 900,000 900,000 898,000 (2,000)
Intergovernmental 500,000 500,000 500,000 0
Miscellaneous 100,000 104,000 105,000 1,000
Total Revenues 4,700,000 4,804,000 4,903,000 99,000
Expenditures and
encumbrances
General government 950,000 940,000 925,000 15,000
Parks 2,500,000 2,500,000 2,400,000 100,000
Health and welfare 1,200,000 1,204,000 1,150,000 54,000
Total expenditures 4,650,000 4,644,000 4,475,000 169,000
and encumbrances
Net change in fund 50,000 160,000 428,000 268,000
balance
Fund balance- 332,000 350,000 350,000 0
beginning
Fund balance- ending $382,000 $510,000 $778,000 $268,000
b)

Budget revision entry Debit Credit

Estimated Revenues Control ($4,804,000-$4,700,000) $104,000
Appropriations Control ($110,000-$104,000) $ 6,000
Budgetary Fund Balance ($160,000-$50,000) $110,000

Reference

Copley, Paul, A. (2011). Essentials of Accounting for Governmental and Not-For-Profit

Organizations (10th ed.). New York, NY: McGraw-Hill/Irwin.