ACCT 3404 / BSAC 3111

Accounting for Government and Nonprofit Organization

ACCOUNTING:
“Accounting is an art of recording, classifying and summarizing the transactions in a significant
manner, which are in part at least of financial in character and interpreting the results thereof”
- American Institute of Certified Public Accountants, 1941
1. Recording – Journal
2. Classifying – Ledger
3. Summarizing – Trial Balance
4. Interpretation – Financial Statements: Income Statement, Balance Sheet, Statement of Cash
Flows etc.
5. Income Statement reveals the financial soundness of Business/Organization i.e. whether an
organization earns profits or incurs loss
6. Balance Sheet shows the financial position of the Business / Organization i.e. Assets are
equal to liabilities and capital on a particular date
7. Statement of Cash Flows enable the organization to check its liquidity position
Government Organization
An organization owned and operated by Government is called a
Government Organization
Examples: Government Schools, Government Hospitals, Government Colleges, SQU, UTAS, CBO,
Defense, ROP, Ministries etc.
Nonprofit Organization
An organization commenced to provide service to the society without any expectations of returns is
called a nonprofit organization
Examples: Home for Old-aged people, Home for Orphan children, Home for mentally retarded
children, Mosques, Charities etc.
The Primary Objective of Government is:
1. To provide WELFARE to people of Oman
2. Welfare means to do GOOD for the people of Oman or to provide service without cost to
people
3. To Develop the Nation
4. To provide the best infrastructure to the people
5. To provide employment and good standard of living to people
6. The aim of government is to maximize the service to people and not to make profit
Income Statement of Government Organizations

 Income Statement shows Revenues, Expenses, Profit or Loss

 Expenses are always greater than Revenues
 The result will be DEFICIT – shortage of funds
 The Deficit in Income Statement reveals a good sign for the growth of nation in terms of
providing better service to society

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 October 21, 2020 (Wednesday, 12 noon to 2 pm)
(Question 2–9, Page )
Solution
General Journal of Amber City
Date Account Debit Credit
1. Borrowed $ 1,000,000 by a 5 year mortgage note
GF Cash 1,000,000 -
Other Financing Sources: 5 year Notes - 1,000,000

GA Cash 1,000,000 -
Notes payable - 1,000,000
2. Purchased a Building for Garage
GF Expenditure – Capital Outlay 1,000,000 -
Cash - 1,000,000

GA Building 1,000,000 -
Cash - 1,000,000
Golden Rules of Accounting
1. Assets: Debit when Assets Increases, Credit when Assets Decreases
2. Liabilities: Debit when Liabilities Decreases, Credit when Liabilities Increases
3. Owner’s Equity: Debit when OE Decreases, Credit when OE Increases
4. Revenues: Debit when Revenues Decreases, Credit when Revenues Increases
5. Expenses: Debit when Expenses Increases, Credit when Expenses Decreases
(Problem 2–6 )
Solution
General Journal of Village of Nassau
Date Account Debit Credit
1. Borrowed $ 100,000 by a 3 year 6% note
GF Cash 100,000 -
Other Financing Sources: 3 year Notes - 100,000

GA Cash 100,000 -
Notes payable - 100,000
2. Purchased a Vehicle for PWD
GF Expenditure – Capital Outlay 100,000 -
Cash - 100,000

GA Equipment 100,000 -
Cash - 100,000

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 3. Differences between GF and GA General Journal
Points of General Fund Governmental Activities
Difference
1. Inflow Other Financing Sources Notes payable
2. Outflow Capital Expenditure Non-Current Asset
3. Depreciation No calculation of depreciation Depreciation is calculated
4. GASB Modified Accrual Basis of Accrual basis of Accounting
Accounting

(Problem 2–7 )
Solution
Rule of GAAP
According to GAAP, a fund is a Major Fund when it constitutes at least 10% (≥ 10%) of all
Governmental Funds (GF) and / or at least 5% (≥ 5%) of all the Governmental and Enterprise
Funds (GEF)
Calculations
I. Gas Tax Revenue Fund (GTRF)
Total Assets (TA) = (TA of GTRF / TA of GF) * 100
Total Assets = (160,748 / 1,563,867) * 100 = 10.2% - YES
TA = (TA of GTRF / TA of GEF) * 100
TA = (160,748 / 3,497,398) * 100 = 4.5% - NO
Total Liabilities (TL) = (TL of GTRF / TL of GF) * 100
TL = (72,551 / 867,533) * 100 = 8.36% - NO
TL = (TL of GTRF / TL of GEF) * 100
TL = (72,551 / 1,487,225) * 100 = 4.87% - NO
Total Revenue (TR) = (TR of GTRF / TR of GF) * 100
TR = (148,336 / 1,537,399) * 100 = 9.6% - NO
TR = (TR of GTRF / TR of GEF) * 100
TR = (148,336 / 2,987,487) * 100 = 4.9% - NO
Total Expenditure (TE) = (TE of GTRF / TE of GF) * 100
TE = (124,225 / 1,496,223) * 100 = 8.3% - NO
TE = (TE of GTRF / TE of GEF) * 100
TE = (124,225 / 2,684,531) * 100 = 4.6% - NO

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Elements of Accounting GTRF HUDF LF
≥ 10% ≥ 5% of ≥ 10% ≥ 5% of ≥ 10% of ≥ 5% of
of GF GEF of GF GEF GF GEF
1. Total Assets YES NO YES YES NO NO
2. Total Liabilities NO NO NO YES NO NO
3. Total Revenues NO NO YES YES NO NO
4. Total Expenditure NO NO NO NO NO NO

October 26, 2020

To: The Manager, Town of Trenton
From: The External Auditor
Subject: Identification of MAJOR FUND

Dear Mr. Manager,

After Compliments

The Total Assets and Total Revenues of Housing and Urban Development Fund fully qualifies to be a
MAJOR FUND as per the standards of GAAP. The total assets of Gas Tax Revenue Fund and Total
Liabilities of Housing and Urban Development Fund partially qualifies to be a MAJOR FUND. All other
elements of given funds do not qualify to be a MAJOR FUND.

GASB # 34 declares that the Town shall consider any fund to be a MAJOR FUND, if it is significant to
the operations of the town.

Thank You
Omaima Al Muqimi
External Auditor

October 28, 2020 (Wednesday, From 12 noon to 2 pm)

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 CHAPTER – 3
PROBLEMS & SOLTIONS
(E3.3 Solution) (a)
State Budget Law is
(Beginning Budgetary Fund Balance + Estimated Revenues) ≥ Appropriations
(600,000 + 3,150,000) > 3,185,000
3,750,000 > 3,185,000
Therefore, the authorities of Village ‘W’ didn’t violate the State Budget Laws and they
were prudent enough while preparing the Budget for Fiscal Year ended June 30, 2013
(b)
Ending Budgetary Fund Balance = (Beginning Fund Balance + Revenues) –
Expenditures
= (600,000 + 3,190,000) – 3,175,000
Ending Budgetary Fund Balance = $ 615,000

November 02, 2020 (Monday, 10 am to 12 noon)

Guidelines for Assignment
1. Select a Company/Organization – DONE
2. Download the financial statements (Income Statement, Balance Sheet and Cash Flow
Statement) of the company for the past two years (2018 & 2019) ALONG WITH THE
NOTES TO FINANCIAL STATEMENTS from the websites of the Company or the
website of MSM (msm.gov.om)
3. Download the company profile from the website of the company or website of MSM
4. Chapter: 1
* Brief Profile of the company – 1 to 2 pages (website of the company or MSM)
* Accounting Policies and Procedures followed by the Company – NOTES
* Accounting Methods – NOTES

Golden Rules of Accounting

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 Double Elements of Accounting
Entry Assets Liabilities Owner’s Revenues Expenses
System Equity
DEBIT

Increases Decreases Decreases Decreases Increases

CREDIT

Decreases Increases Increases Increases Decreases

(E3.4 Solution)
(a)
Minimum Budgetary Fund Balance = Total Appropriations – Total Estimated
Revenues
= 4,850,000 – 4,650,000
Minimum Budgetary Fund Balance for FY 2014 = $ 200,000
(b)
City of Jackson
General Journal Entries
Date Account Debit Credit
01/01/2014 Estimated Revenues 4,650,000 -
Budgetary Fund Balance 200,000 -
Appropriations - 4,850,000
Journal Entries of Subsidiary accounts
Date Account Debit Credit
01/01/2014 Taxes 3,000,000 -
Intergovernmental Revenues 1,000,000 -
Licenses and Permits 400,000 -
Fines and Forfeits 150,000 -
Miscellaneous Revenues 100,000 -
General Government - 1,000,000
Public Safety - 2,000,000
Public Works - 950,000
Health & Welfare - 850,000
Miscellaneous - 50,000

(E 3-5 Solution) (a)

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 City of Jackson
General Journal Entry
Date Account Debit Credit
01/07/2014 Encumbrances 395,000 -
Reserve for Encumbrances - 395,000
Subsidiary Journal Entries
Date Account Debit Credit
01/07/2014 General Government 50,000 -
Public Safety 200,000 -
Public Works 75,000 -
Health & Welfare 65,000 -
Miscellaneous 5,000 -

(E 3-5 Solution) (b)

State and Local Governments record purchase orders in the budgeted Governmental Funds
because:
1. Purchase order (Encumbrance) is the first step of governmental expenditure
2. Government officials are accountable to make orders within the limits of appropriation
3. Recording appropriations and encumbrances help the administrators to avoid unnecessary
expenditure
Business organizations do not record purchase orders. They only follow-up the purchase orders
made to ensure that goods are received on time

November 04, 2020 (Wednesday, 12 noon to 2 pm)

(E 3-6, Pp. 3-4, )Solution
(a) Balance of the Estimated Revenue Control (Total) account
= 9,600,000 + (20,000) + 1,600,000 + 3,200,000 + 600,000
Balance of the Estimated Revenue Control account = $ 14,980,000
(b) Original Approved Budget for Estimated Revenue for 2011
= 9,600,000 + 1,600,000 + 3,200,000 + 600,000
Original Approved Budget for Estimated Revenue for 2011 = $ 15,000,000
(c)

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(i) YES
(ii) February 28
(iii) $ 20,000
(iv) Decreased
(d) Balance of Revenue Control (Total) Account
= 9,580,000 + 640,000 + 200,000 + 1,500,000 + 160,000
Balance of Revenue Control (Total) Account = $ 12,080,000
(e) The revenue from the licenses and permits, intergovernmental revenues and charges for
services are first recognized in cash receipts journal because they follow modified accrual
basis of accounting
Whereas, the revenues from property taxes follow accrual system of accounting (Revenues
are yet to be received / Receivables)

(E3-7, P.4)
(a) Final Amended Amount of the appropriation for Office Supplies for the Year = $ 62,200
(b) The Valid amount of encumbrances outstanding against the appropriation at the end of
the year = 0

November 09, 2020 (Monday, 10 am to 12 noon)

(c) Net Amount of Expenditure = Total Expenditure on Office Supplies –
Refunds / Reimbursements / Returns
= (605 + 420 + 425) – (330 + 10)
Net Amount of Expenditure = $ 1,110

(d) Unencumbered, unexpended balance of appropriation = Final Amended Amount – Net

Amount of Expenditure
= 62,200 – 1,110
Unencumbered, unexpended balance of appropriation = $ 61,090

(E 3-8) Solution

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2016 6 84 017
Year College (CAS, Nizwa) New Study Plan Student Number
Of BA Program
(a) Solution
01 08-00 6110

General FundParks and Recreation Department Personnel Services

Yes, Of course the coding system used is as per the Governmental Accounting Standards
Board (GASB) Standards
Yes, the coding system allows for more detailed expenditure classifications if desired. For
Example, the Account Number for Materials and Supplies is 01 08-00 7110 and the account
number of Conferences and Training is 01 08-00 7210. In between these two accounts there
are a difference of 100 numbers to be allotted for any kind of classification of Materials and
Supplies like recreational supplies, office supplies, building supplies etc.
(b) The accounts like Personnel Services, Conferences and Training, Utilities are normally
not ordered. So, the outstanding encumbrances remain zero. There is no delay between the
time of placing orders and receiving the services. In some cases, the payment is made at the
time of registration or after consumption
November 11, 2020 (Wednesday, 12 noon to 2 pm)
(c) At the mid-point of Fiscal Year 2010 (July 01, 2010), Parks and Recreation Department
has over-expended the following accounts:
The Percentage of Expenditure as on July 01, 2010 =
[(Expenditures 2010 to date + Encumbrances Outstanding) / FY 2010 Budget] * 100
1. Personnel Services = [(533,472 + 0) / 1,172,661] * 100 = 45.5%
2. Materials & Supplies = [(207,683 + 27,424) / 376,457] * 100 = 62.5%
3. Conferences & Training = [(1,426 + 0) / 3800] * 100 = 37.5%
4. Contractual Services = [(102,687 +89,642) / 276,840] * 100 = 69.5%
5. Utilities = [(98,249 + 0) / 192,248] * 100 = 51.1%
6. Capital Outlay = [(21,387 + 3,600) / 57,924] * 100 = 43.1%
7. Other = [(172,538 + 6,742) / 248,673] * 100 = 72.1%
Materials & Supplies, Contractual Services, Utilities and Other accounts are Over-expended i.e.
the accounts which has spent more than 50% of the budget

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(d) Personnel Services, Conferences & Training and Capital Outlay accounts are under-expended
i.e. these accounts have spent less than 50% of the budget during the first six months and they
have excessive spending authority during the next half of the year
(e) Analyzing the past spending patterns and evaluating the future spending plans is essential to
justify the spending pattern of an account. The budgeted spending rate may be compared with
actual spending rate in order to establish the control mechanism

CHAPTER – 4
Accounting for Governmental Operating Activities
(E 4-3 (a) Solution)
Particulars $ $
Budgeted Expenditure for the remainder of FY2014 2,500,000
Current Liabilities 830,000
Estimated Expenditure Requirements 3,330,000
Cash on hand 770,000
Collections of FY 2014 from Revenues 1,100,000
Estimated Resources Available (1,870,000)
Estimated Amount of Tax Anticipation Financing 1,460,000

November 16, 2020 (Monday, 10 am to 12 noon)

(b) Journal Entry to record the issuance of Tax Anticipation Notes (TAN) $
Date Account Debit Credit
02/04/2014 Cash – Asset Increases 1,460,000 -
TAN Payable – Liability Increases - 1,460,000

(c) Journal Entry to record the repayment of TAN Payable $

Date Account Debit Credit
General Fund
01/10/2014 TAN Payable – Liability Decreases 1,460,000 -
Expenditure (5/100 * 1,460,000 * 6/12) 36,500 -
Cash – Asset Decreases - 1,496,500
Governmental Activities
01/10/2014 TAN Payable – Liability Decreases 1,460,000 -
Expenses (5/100 * 1,460,000 * 6/12) 36,500 -
Cash – Asset Decreases - 1,496,500

(E 4-4 Solution)

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 (a) Tax Rate
Tax Rate * (Assessed Value of Property / 100) = Budgeted Tax Revenues
Tax Rate * (135,714,300 / 100) = 2,660,000
Tax Rate = (2,660,000 / 135,714,300) * 100
Tax Rate = $ 1.96 per $100 of assessed value of the property
(b) Taxes Levied
Taxed Levied = [Budgeted Tax Revenues / (1 - % of Tax not collected)]
Taxes Levied = [2,660,000 / (1 – 0.03)]
Taxes Levied = $ 2,742,268
Journal for Taxes Levied in General Fund
Date Account Debit Credit
01/01/2014 Taxes Receivable – Asset Increases 2,742,268 -
Estimated Uncollectible Taxes – Asset Decreases - 82,268
(2,742,268 – 2,660,000)
Revenues - 2,660,000

(c) Journal for Taxes Collected in General Fund

Date Account Debit Credit
31/12/2014 Cash – Asset Increases 2,540,000 -
Taxes Receivable – Asset Decreases - 2,540,000

31/12/2014 Delinquent Taxes (2,742,268 – 2,540,000) 202,268 -

Taxes Receivable – Asset Decreases - 202,268

31/12/2014 Interest and Penalties Receivable (6/100 * 202,268) 12,136 -

Estimated Uncollectible Interest and Penalties (10/100 * - 1,214
12,136)
Revenues from Interest & Penalties (12,136–1,214) - 10,922

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