Governmental

Accounting
from
Easy Street to
Life in the Fast
Lane
Agenda
 Modified Accrual vs. Full Accrual
• Governmental Funds

• Government Wide

 Reconciliations
• Balance Sheet to the Statement of Net Position

• Statement of Revenues and Expenditures to the Statement

of Activities
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Basis of Accounting
Modified Full
Cash basis
accrual Accrual
Records effects of
Revenues recognized
Transactions recorded transactions/events
when measurable and
when cash is when they occur,
available; expenditures
exchanged regardless of the timing
when incurred
of related cash flows

Used by business
Unique to state and
Not GAAP enterprises and non-
local governments
profits

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Overview
Governmental Government-
Fund f/s wide f/s

Modified
Full accrual
accrual

Current
Economic
financial
resources
resources
4
Measurement Focus
Current financial Economic
resources resources

Reports all near-term Reports all inflows,

inflows, outflows, and outflows, and
balances of balances affecting net
expendable resources position

Used by business
Unique to state and
enterprises and non-
local governments
profits

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FUND Financial Statements
Overview
Fund Financial Statements
-Governmental funds
- Balance Sheet
- Revenues, Expenditures, and Changes in Fund
Balances

Current financial
Modified accrual
resources
basis of accounting
measurement focus
 FUND Financial Statements
Overview

The fund financial statements focus on

near-term inflows of spendable
resources and are useful in evaluating
the government’s near-term financing
requirements.
Basic Financial Statements
Overview
Fund Financial Statements
-Proprietary funds
- Statement of net position
- Statement of revenues, expenses and changes
in fund net position
- Statement of cash flows

Accrual basis of
accounting
Statement of Revenues and
Expenditures
 Revenues and expenditures
• Revenues – inflows that are measurable and
available
• Expenditures – are measurable and should
be recorded when the exchange takes place
 Debt service expenditures recorded before
payment is due if it is due and payable in one to
several days after year end
 Other financing sources (uses)
• Interfund Transfers
• General obligation and/or refunding bond
issuances
• Capital lease agreements
Basic Financial Statements
Overview
Fund Financial Statements
-Fiduciary funds
- Statement of fiduciary net position
- Statement of changes in fiduciary net position

Accrual basis of
accounting
Government-wide Financial
Statements Overview
Government-wide Financial Statements

- Statement of Net Position

- Statement of Activities
Accrual basis of Economic resources
accounting measurement focus
GASB Statement No. 34
Government-wide financial statements
help users…
 Assess the finances of the government in its
entirety
 See the cost of providing services to its
citizenry
 Understand the extent to which the
government has invested its capital assets,
including buildings, equipment, and
infrastructure
Government-wide Financial
Statements Overview
Statement of Net Position

-Assets
-Deferred outflows of resources
-Liabilities
-Deferred inflows of resources
-Net position
Statement of Net Position

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Fund Balance to Net Position
Fund Balance

Deferred Inflows (Period of Availability)

Long term Assets (Capital Assets, Restricted Cash)

Long term Liabilities (Bonds, Capital Leases, Pension)

Long Term Deferred Inflow/Outflow (Pension, Refunding)

Net Position

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Net Position

 Net Investment in Capital Assets (NICA) – Capital assets,

net of depreciation, less any debt used to acquire the
capital assets.
 Restricted net position to the lowest level possible.
 Unrestricted – deficit balances and remainder.

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Government-wide Financial
Statements Overview
Statement of Activities

-Expenses
-Program revenues
-General revenues
-Extraordinary/special items
-Change in net position
Statement of Activities
Program Revenues
General Revenues
Reconciliations

Balance Sheet – Governmental Funds

to the Statement of Net Position

Statement of Revenues, Expenditures and Changes in Fund Balance –

Governmental Funds
to the Statement of Activities
Modified accrual vs. full accrual – main
differences between Balance Sheet and
Statement of Net Position

Statements
include Capital assets
NONCURRENT reported and
assets and depreciated
liabilities

Differences
Net position highlighted on a
reported rather reconciliation in
than fund balance the basic financial
statements
Reconciliation Items – BS to SNP

Capital (Fixed) Assets

Capital Leases Payable

Notes or Bonds Payable

Unavailable Revenues

Certain deferred inflows/outflows of resources

Modified accrual vs. full accrual – main differences
between the Statement of Revenues, Expenditures and
Changes in Fund Balances and the Statement of
Activities

Debt payments Unavailable

recorded as revenues deferred
reduction of in governmental
associated liability statements may be
– NOT as an recognized as
expense revenue

Differences
Other financing highlighted on a
sources and uses reconciliation in
eliminated the basic financial
statements
Reconciliation Items – R/E to Activities
Capital outlay expenditures

Donations of assets

Depreciation & amortization expense

Unavailable Revenues

Repayments on long-term debt

Debt issuance costs

 Government-Wide Elimination of Internal
Activity
 Eliminate Interfund Balances and Transfers between
Governmental Funds.
 Eliminate Interfund Balances and Transfers between
Business Type Funds.
 Internal Service Funds
• Include assets and liabilities except interfund balances.
• Allocate the “net income/loss” of the fund before significant
investment income, interest expense, and with transactions
outside the primary government.

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Capital Assets

Capital outlay recorded On the government-wide

as expenditures on the statements, assets are
fund financial statements recorded

Dr Capital Outlay Dr Asset (Building,

Expenditures VF&E)
Cr Cash Cr Cash
Capital Assets
Long-term Debt – Bonds Payable

Principal retirement
recorded as expenditures On the government-wide
on the fund financial statements, long-term
statements liabilities are reduced

Dr Principal Retirement Dr Bonds Payable

Dr Interest expense Dr Interest expense
Cr Cash Cr Cash
Long-term Debt – Bonds Payable
Amortization of Bond Premium

On the government-wide
Bond is issued above par
f/s, premium is amortized
value - premium
over the life of the debt

In the fund financials, Dr Bond Premium

proceeds from the sale of (liability)
the bond are recorded, but Cr Interest expense
no premium
 Miscellaneous Items

On the government-wide
Federal Loan Program is
f/s, repayment of debt is
Transferred/Given Back a reduction of a liability

Dr Loan Payable
In the fund financials, (liability)
Debit other financing Cr Other Financing
source, Credit cash Source
 Timing of Revenues
Revenue received in Revenue is recorded when
October; year end is June earned on government-
30 wide f/s

Revenue is measurable, but

not available (to pay
“current” obligations) – Record revenue
record as unavailable
revenue (DI)
Are we done yet?
Not quite……..
Governmental
Accounting:
A Dive Into
Revenues
Agenda
1. Exchange vs. Nonexchange revenues
2. Revenue Recognition
3. Revenue Sources
1. Accounting
2. Financial Statement Presentation
3. Reporting Complexities
Exchange vs. Nonexchange Revenues
• Transaction between two parties
in which things that are equal
value are exchanged
Exchange • Revenue is recognized when the
exchange takes place

• Transaction in which the

government gives a benefit to
another party without directly
Nonexchange receiving equal value in exchange
• Revenue is recognized in
accordance with GASBS 33

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Revenue Recognition Under
Basis of Accounting
Modified Accrual Basis
• Current financial resources measurement focus – used in
governmental fund financial statements
 Recognize revenues when they become measurable and available

Accrual Basis
• Economic resources measurement focus – used in
government-wide and proprietary financial statements
 Recognize revenues when earned

All revenues are reported net of related discounts and allowance for
uncollectible amounts.

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Deferred Inflows and Unearned Revenue
Under Modified Accrual revenues not meeting recognition
criteria are accounted for in two ways:

Revenues that do not meet the availability criteria

• Deferred Inflow of Resources
 Revenue is recognized on the government wide statements

Revenues received prior to meeting eligibility criteria

• Unearned Revenues
 Revenue is not recognized on the government wide statements.

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Four Classes of Nonexchange
Transactions
Derived-tax • assessments on exchange transactions
• examples include sales and use taxes

Imposed • assessments on non-exchange transactions

• examples include property taxes and fines

• entered into willingly between governmental or non-

Voluntary governmental entities
• examples include certain grants and donations

Government- • government requires another government to provide

funding for a program
mandated • examples include state mandated road improvements
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Derived tax revenues
• Asset – When underlying exchange
has occurred or resources received,
whichever is first
• Revenue – When underlying
exchange has occurred
Imposed nonexchange
• Asset – When enforceable legal
claim has arisen
• Revenue – First period that use is
permitted (for example, period for
which levied)

Government-mandated
and Voluntary
• Asset – When all eligibility
requirements have been met
• Revenue – When all eligibility
requirements have been met

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Revenue Sources for Local Governments
 Taxes
• Property taxes
• Sales taxes
 Special Assessments
 Licenses, permits, fees, fines and forfeits
 Intergovernmental revenues (entitlements, shared
revenues, grants, and on-behalf payments)
 Contributions
 Sales and services charges
 Miscellaneous revenues
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Property Taxes
 Imposed nonexchange revenue
 Also called ad valorem taxes
 Levied on real (land, buildings) or
personal property (vehicles, machinery)
 Property is subject to a lien
 Allowances are generally minimal

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Property Tax Calendar in Arizona
August – 3rd Monday of the Month – Taxes are levied
October 1 – First half of taxes are due
November 1 – First half of taxes are delinquent if not paid
March 1 – Second half of taxes are due
May 1 – Second half of taxes are delinquent if not paid

January 1 - Lien attaches to the property

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Accounting for Property Taxes
Modified Accrual basis
 Receivable should be recognized in the period for which
it is levied
 Revenue recognized when levied provided they are also
available
 GASB Cod. Sec. P70 defines availability period –
should not exceed 60 days after year-end
 Report deferred inflows for assets not received within
period of availability
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Accounting for Property Taxes
Accrual basis
 Revenue should be recognized in the period for which it
is levied, regardless of when it is due or collected

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Presentation of Property Taxes in the
Financial Statements
Government-wide Financial Statements
• General Revenues

Proprietary Fund Financial Statements

• Nonoperating Revenues

Governmental Fund Financial Statements

• May be reported within Tax Revenues or broken out into a
separate line item.

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Property Tax Financial Reporting
Considerations
1. Since property taxes are collected by the County,
there is a lag in receipt of the revenues.
2. Receivable and unavailable should be reported for
revenues not received within the period of availability.
3. Review receivable to ensure it is adjusted when the
County adjusts the levy.

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 Sales Taxes
 Derived: Imposed by government based
on underlying exchange transaction
(such as sale of retail items)
 May be imposed on all good or services
sold (except those that are exempt)
 May be imposed on specific items (ex.
hotel occupancy)

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Accounting for Sales Taxes
Modified Accrual basis
 Should be recognized when the underlying exchange
(sale of goods) takes place and the resources are
available
 Purpose restrictions do not affect revenue recognition,
but may require reporting in a specific fund
 Report revenues net of estimated refunds and
uncollectible amounts

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Accounting for Sales Taxes
Accrual basis
 Should be recognized when the underlying exchange
(sale of goods) takes place

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Presentation of Sales Taxes in the
Financial Statements
Government-wide Financial Statements
• General Revenues

Proprietary Fund Financial Statements

• Nonoperating Revenues

Governmental Fund Financial Statements

• May be reported within Tax Revenues or broken out into a
separate line item

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Sales Tax Financial Reporting
Considerations
1. Receivable and unavailable should be reported for
revenues not received within the period of availability.
This may require consultation with sales tax
department regarding delinquent accounts/tax audits.
2. Review lag schedule of sales taxes receivable to
determine if allowance is reasonable

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Special Assessments
 Service-type – Exchange Transactions
• Examples include: charges for street cleaning, snow
removal, landscape maintenance
 Capital – May be Exchange or Imposed Nonexchange
• Improve or add infrastructure related to specific properties
• Examples include: roads, sidewalks, curbs

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Accounting for Service-Type
Special Assessments
Modified Accrual basis
 Report revenue when the service is provided and
amounts are available
 Report deferred inflows for revenues not received
during period of availability

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Accounting for Service-Type
Special Assessments
Accrual basis
 Report revenue when the service is provided
 GASB Implementation Guide No 2015-1, Question
7.36.1, report with charges for services on Government-
Wide Statements

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Accounting for Capital
Special Assessments
Modified Accrual basis
 If debt is issued and government is obligated in some
manner for the debt – record receivable and unavailable
revenue/revenue
 If government is not obligated – no receivable is
recorded, activity is recorded in an agency fund
 If capital improvements are financed with existing funds
– record receivable and unavailable revenue/revenue in
the fund that provided the resources
 Recognize prepayments as revenue when collected
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Accounting for Capital
Special Assessments
Government-Wide Reporting
 When government is obligated: Recognize revenue
when the government has an enforceable legal claim
 When government is not obligated: Report a capital
contribution equal to the debt proceeds

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Presentation of Special Assessments in
the Financial Statements
Government-wide Financial Statements
• Capital Contributions

Proprietary Fund Financial Statements

• Capital Contributions

Governmental Fund Financial Statements

• Typically reported as a separate line item

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Intergovernmental Revenues
 Government mandated or voluntary nonexchange
transactions

 Revenues should be recognized when all four types of

eligibility requirements specified in GASBS No. 33
• Required characteristics of recipients
• Time requirements
• Reimbursements
• Contingencies

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Intergovernmental Revenue Types
 Shared Revenues
• Example – Highway User Revenues, State Shared Sales Tax
 Entitlement
• Payment based on an allocation formula
 Grants and Other Financial Assistance
• Usually restricted
• Generally must be applied for
• Example – federal grant for police equipment

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Shared Revenues
Considered continuing appropriations “once established,
are automatically renewed without further legislative
action, period after period, until altered or revoked”.
• The time eligibility is continuously (automatically) met and
revenues are reported in the period in which the sales take
place.

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Accounting for Intergovernmental
Revenues
Modified accrual
 Report revenue when all eligibility requirements have
been met and amounts are available
 Report unearned revenues for resources received prior
to meeting eligibility requirements
 GASB No. 33 provides that governments should not
delay revenue recognition pending completion of purely
routine requirements such as filing of claims for
allowable costs for reimbursement-type grants

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Accounting for Intergovernmental
Revenues
Accrual
 Report revenue when all eligibility requirements have
been met
 Report unearned revenues for resources received prior
to meeting eligibility requirements

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Presentation of Intergovernmental
Revenues in the Financial Statements
Government-wide Financial Statements
• If restricted – Operating or Capital Grants
• If not restricted - General Revenue

Proprietary Fund Financial Statements

• Nonoperating Revenues

Governmental Fund Financial Statements

• Typically reported as a separate line item and the various types of
intergovernmental revenues are broken out
 Taxes - Intergovernmental
 Federal Grants
 State Grants

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Intergovernmental Revenue Financial
Reporting Considerations
1. Review receivables at year end to ensure all are
included even if the revenues did not come in by FYE
or shortly thereafter
• Unrecorded receivables have unfortunate side effects on
recognition of federal awards
2. Investigate funds with deficit balances at fiscal year
end to ensure that no receivable exists.

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 Licenses, Permits, Fees, Fines and
Forfeits
 Revenue can be reported on the cash basis in the
governmental fund financial statements
 Typically not a significant source of revenues
• Exception could be courts
 Fines – GASB Implementation Guide No. 2015-1
• Undisputed fines should be recognized when they are paid
or when the statutory time allowed for dispute lapses,
whichever occurs first.

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Presentation of Licenses, Permits, Fines
in the Financial Statements
Government-wide Financial Statements
• Charges for Services

Governmental Fund Financial Statements

• Typically reported as a separate line item

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Contributions
 Most are voluntary nonexchange transactions

 Revenues should be recognized when all eligibility

requirements are met (and available in governmental
funds)

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Presentation of Contribution Revenues in
the Financial Statements
Government-wide Financial Statements
• If restricted – Operating or Capital Grants
• If not restricted - General Revenue

Proprietary Fund Financial Statements

• Nonoperating Revenues

Governmental Fund Financial Statements

• Either miscellaneous line item or separately classified as
contributions, gifts or donations

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Sales and Service Charges
 Exchange Transactions
 Recognize revenue when the exchange takes place
 Report revenues net of discounts and allowances
 Primary source of revenue for proprietary funds
 Unbilled services charges require accrual

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GASB Projects
Financial Reporting Model
• Invitation to Comment issued December 2016
• Presents potential improvements to recognition approaches
(measurement focus and basis of accounting)

Revenue and Expense Recognition

• Currently in Initial Deliberations
• Addresses exchange transactions not specifically addressed
in existing statements
• Post-implementation review of Statements 33 and 36
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Questions?
Michael L. Lauzon, CPA, MBA
michael.lauzon@heinfeldmeech.com

Jill A. Shaw, CPA

jill.shaw@heinfeldmeech.com

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