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Essentials of
Accounting for
Governmental
and Not-for-Profit
Organizations
Fourteenth Edition
Paul A. Copley,
Ph.D., CPA, CGFM
Professor School of Accounting
James Madison University
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Contents
Preface iii Chapter Two
OVERVIEW OF FINANCIAL
Chapter One REPORTING FOR STATE AND
INTRODUCTION TO LOCAL GOVERNMENTS 18
ACCOUNTING AND The Governmental Reporting Entity 19
FINANCIAL REPORTING Reporting by Major Funds 21
FOR GOVERNMENTAL Overview of the Comprehensive Annual
AND NOT-FOR-PROFIT Financial Report (CAFR) 21
ORGANIZATIONS 1 Introductory Section 22
Financial Section: Auditor’s Report 23
Generally Accepted Accounting Management’s Discussion and Analysis
Principles 3 (MD&A) 24
Sources of Generally Accepted Statement of Net Position 26
Accounting Principles 5 Government-wide Statement of
Definition of Government 7 Activities 28
Objectives of Accounting and Financial Governmental Funds: Balance Sheet 30
Reporting 8 Governmental Funds: Statement of
Objectives of Accounting and Financial Revenues, Expenditures, and Changes
Reporting for State and Local in Fund Balance 32
Governmental Units 8 Proprietary Funds: Statement of Net
Objectives of Financial Reporting by the Position 34
Federal Government 9 Proprietary Funds: Statement of
Objectives of Financial Reporting by Revenues, Expenses, and Changes in
Not-for-Profit Entities 10 Fund Net Position 36
State and Local Government Financial Proprietary Funds: Statement of Cash
Reporting 10 Flows 38
Comprehensive Annual Financial Fiduciary: Statement of Fiduciary Net
Report 10 Position 40
Measurement Focus and Basis of Fiduciary: Statement of Changes in
Accounting 12 Fiduciary Net Position 40
Fund Structure for State and Local Notes to the Financial Statements 42
Government Accounting and Required Supplementary Information
Reporting 13 Other Than MD&A 44
Number of Funds Required 16 Combining Statements 46
Statistical Information 46
Summary 47
ix
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x Contents
Chapter Three Re-establishment of Encumbrances 88

MODIFIED ACCRUAL Recording Prior-Year Property Taxes as
Revenues 88
ACCOUNTING:
Tax Anticipation Notes Payable 88
INCLUDING THE ROLE Payment of Liabilities as Recorded 89
OF FUND BALANCES Issue Purchase Orders 89
AND BUDGETARY Recording Property Tax Levy 89
AUTHORITY 53 Collection of Delinquent Taxes 89
Modified Accrual Accounts 54 Collection of Current Taxes 90
Balance Sheet Accounts 54 Other Revenues 90
Financial Statement Activity Repayment of Tax Anticipation
Accounts 59 Notes 91
Budgetary Accounts 59 Recognition of Expenditures for
Expenditure Cycle 61 Encumbered Items 91
Revenue Recognition for Nonexchange Payrolls and Payroll Taxes 91
Transactions 63 Payment on Account and Other
Summary 66 Items 92
Appendix: Budgetary Accounting Correction of Errors 92
Illustrated 66 Amendment of the Budget 93
Budgets and Budgetary Accounts 66 Interfund Transactions 93
Accounting for Revenues 68 Write-off of Uncollectible Delinquent
Accounting for Encumbrances and Taxes 95
Expenditures 69 Accrual of Interest and
Budget Revisions 73 Penalties 96
Budgetary Comparison Schedule 73 Deferral of Property Tax Revenue 96
Special Item 96
Preclosing Trial Balance 96
Chapter Four Closing Entries 98
ACCOUNTING FOR THE Year-End Financial Statements 100
Illustrative Case—Special Revenue
GENERAL AND SPECIAL
Fund 101
REVENUE FUNDS 82 Motor Fuel Tax Revenues 104
Overview of Modified Accrual Expenditures for Road Repairs 104
Accounting 83 Reimbursement to General Fund 104
Interfund Transactions 84 Reimbursement Grant
Interfund Loans 84 Accounting 104
Interfund Services Provided and Closing Entry 105
Used 86 Year-End Financial
Interfund Transfers 86 Statements 105
Interfund Reimbursements 86 Recognition of Inventories in
Illustrative Case—General Fund 86 Governmental Funds 106
Use of Budgetary Accounts 87 Summary 108
Recording the Budget 87
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Contents xi
Chapter Five Enterprise Funds 153

ACCOUNTING FOR OTHER Illustrative Case—Water Utility
Fund 155
GOVERNMENTAL FUND
Proprietary Fund Financial
TYPES: CAPITAL PROJECTS,
Statements 160
DEBT SERVICE, AND Statement of Net Position 162
PERMANENT 117 Statement of Revenues, Expenses,
Capital Projects Funds 118 and Changes in Fund Net
Illustrative Case 120 Position 164
Debt Service Funds 125 Statement of Cash Flows 164
The Modified Accrual Basis—As Applied Environmental Liabilities 166
to Debt Service Funds 125 Accounting for Municipal Solid Waste
Additional Uses of Debt Service Landfills 166
Funds 126 Pollution Remediation Costs and Asset
Debt Service Accounting for Serial Retirement Obligations 167
Bonds 126 Summary 167
Illustrative Case—Regular Serial
Bonds 126
Other Issues Involving Payment of Long- Chapter Seven
Term Debt 129 FIDUCIARY FUNDS 181
Debt Service Accounting for Deferred
Serial Bonds 129 Private-Purpose Trust Funds 184
Debt Service Accounting for Term Accounting for Investments 184
Bonds 129 Illustrative Case—Private-Purpose Trust
Bond Refundings 129 Funds 186
Permanent Funds 130 Public Employee Retirement
Financial Reporting for Governmental Systems (Pension Trust
Funds 132 Funds) 187
Financial Statements—Governmental Accounting and Reporting for Defined
Funds 132 Benefit Pension Plans 188
Summary 136 Additional Disclosures 192
Other Postemployment Benefit Trust
Funds 194
Chapter Six
A Note about IRS 457 Deferred
PROPRIETARY FUNDS 145 Compensation Plans 196
Internal Service Funds 147 Investment Pools 196
Establishment and Operation of Internal Custodial Funds 198
Service Funds 148 Section 529 College Savings
Illustrative Case—Supplies Plans 198
Fund 148 Tax Collection Funds 199
Other Issues Involving Internal Service A Note about Escheat
Funds 152 Property 201
Risk Management Activities 152 A Final Comment on Fund
Implications for Other Accounting and
Funds 153 Reporting 202
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xii Contents
Chapter Eight Chapter Nine

GOVERNMENT-WIDE ADVANCED TOPICS
STATEMENTS, CAPITAL FOR STATE AND LOCAL
ASSETS, LONG-TERM GOVERNMENTS 260
DEBT 212 Reporting by Special-Purpose
Conversion from Fund Financial Records Entities 261
to Government-wide Financial Special-Purpose Governments Engaged in
Statements 213 Governmental Activities 261
Capital Asset–Related Entries 215 Special-Purpose Governments Engaged
Long-Term Debt–Related Only in Business-type Activities 263
Entries 220 Special-Purpose Governments Engaged
Adjusting to Convert Revenue Only in Fiduciary-type Activities 265
Recognition to the Accrual Special Assessments 265
Basis 222 Leases 266
Adjusting Expenses to the Accrual Employer Reporting for Pensions 267
Basis 223 Illustrative Example 270
Adding Internal Service Funds to Changes in Actuarial Assumptions and
Governmental Activities 226 Net Pension Liability 271
Eliminating Interfund Activities and Other Items Affecting Net Pension
Balances within Governmental Liability 274
Activities 228 A Final Note: Pension Discount Rates 274
Worksheet to Illustrate the Employer Reporting for Other
Adjustments 229 Postemployment Benefits 275
Government-wide Financial Summary 275
Statements 232
Statement of Net Position 232 Chapter Ten
Statement of Activities 234 ACCOUNTING FOR
Required Reconciliation to Government- PRIVATE NOT-FOR-PROFIT
wide Statements 235
ORGANIZATIONS 283
Appendix: Accounting for Capital
Assets and Long-Term Debt in Organizations Covered in this
Governmental Activities 241 Chapter 284
Accounting for General Capital Assets, Overview of Not-for-Profit
Including Infrastructure 241 Accounting 285
The Modified Approach for Reporting Financial Reporting 285
Infrastructure 242 Accounting for Contributions 287
Collections 243 Illustrative Transactions and Financial
Asset Impairment 244 Statements 293
Accounting for Long-Term Beginning Trial Balance 293
Debt 244 Transactions 294
Types of General Long-Term Financial Statements 303
Debt 245 Performance Evaluation 306
Debt Disclosures and Mergers and Acquisitions 310
Schedules 245 Summary 311
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Contents xiii
Chapter Eleven Chapter Thirteen

COLLEGE AND UNIVERSITY AUDITING, TAX-EXEMPT
ACCOUNTING 321 ORGANIZATIONS,
Overview of College and University
AND EVALUATING
Accounting 322 PERFORMANCE 378
Financial Statements 323 Governmental Auditing 379
Revenue and Expense Classification 323 The Single Audit Act and
Illustrative Case—Comparison of Public Amendments 383
and Private Colleges 326 The Sarbanes-Oxley Act 385
Illustrative Case—Journal Entries 327 Tax-Exempt Organizations 386
Illustrative Case—Closing Entries 334 Applying for Tax-Exempt Status 387
Illustrative Case—Financial Federal Filing Requirements 387
Statements 335 Unrelated Business Income Tax
Split-Interest Agreements 339 (UBIT) 390
Summary 343 IRS Oversight 390
Summary and Some Conclusions Related
to Exempt Entities 391
Chapter Twelve Evaluating Performance 391
ACCOUNTING FOR Analysis of Not-for-Profit Organization
HOSPITALS AND Financial Statements 391
OTHER HEALTH CARE Analysis of State and Local Government
Financial Statements 392
PROVIDERS 349
Service Efforts and Accomplishments
Accounting and Reporting Requirements Reporting 396
of the Health Care Guide 351
Financial Statements 351
Patient Service Revenue 353 Chapter Fourteen
Classifications 356 FINANCIAL REPORTING
Illustrative Transactions 356 BY THE FEDERAL
Beginning Trial Balance 356
GOVERNMENT 403
Illustrative Transactions—Operating
Activities 357 Federal Government Accounting
Illustrative Transactions—Nonoperating Standards 404
Activities 359 Financial Reporting by Federal
Illustrative Transactions—Closing Agencies 405
Activities 361 Balance Sheet 406
Illustrative Statements for Private Statement of Net Cost 406
Sector Not-for-Profit Health Care Statement of Changes in Net
Entities 365 Position 408
Financial Reporting for Governmental Statement of Budgetary
and Commercial Health Care Resources 408
Entities 367 Statement of Custodial Activity 410
Summary: Accounting for Health Care Consolidated Financial Report of the
Organizations 370 U.S. Government 410
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xiv Contents
Budgetary and Proprietary Glossary: Governmental and

Accounting 413 Not-for-Profit Accounting
Budgetary Accounts 413 Terminology G-1
Proprietary Accounts 414
Summary 416 Index I-1
Appendix: Illustrative Example 416
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Chapter One
Introduction to Accounting
and Financial Reporting
for Governmental
and Not-for-Profit
Organizations
No Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law; and a regular Statement and Account of the
Receipts and Expenditures of all public Money shall be published from time
to time. Article 1, Section 9: The United States Constitution
If men were angels, no government would be necessary. If angels were to

govern men, neither external nor internal controls on government would be
necessary. James Madison, fourth president of the United States and principal
author of the U.S. Constitution
Learning Objectives
• Obtain an overview of financial reporting for nonbusiness entities.
• Distinguish between private and public sector organizations.
• Identify the sources of authoritative accounting standards for various public and
private sector organizations.
• Define the 11 fund types used by state and local governments.
I n its relatively short existence, the United States has grown to be the largest and
most successful economy in history. Why then would a country founded on the
principles of free markets and private investment rely on governments to provide
many goods and services? The answer lies in understanding the incentives of a
free enterprise economy. There are many services that simply cannot be priced in a
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2 Chapter 1
way that naturally encourages commercial entrepreneurs to enter the marketplace.

Commonly this is because the service is subject to free-riding. For example, public
safety and a clean environment benefit all citizens, whether or not they contribute to
its cost. In other instances, free market incentives do not align with public interest.
For example, society finds it desirable to provide a K–12 education to all its citi-
zens, not just those with the ability to pay. Because there is no practical means for
businesses to sell these services, governments are called upon through the political
process to provide those services that citizens demand.1
Although the majority of products and services are provided by either businesses
or governments, in some circumstances private organizations are formed to pro-
vide goods or services without the intent of earning a profit from these activities.
Examples include public charities, trade associations, and civic groups. Again, the
goods or services they provide often cannot be priced in a way that encourages
commercial entrepreneurship. For example, a public radio broadcast cannot be
effectively restricted to only those individuals choosing to support the public radio
station. While this explains why the services are not provided by businesses, why
aren’t governments called upon to provide them?
In some instances, obstacles exist that prevent government involvement. For
example, the U.S. Constitution provides for separation of church and state. Therefore,
any group that wishes to promote religious activities must do so through private
organizations rather than through government. More commonly the reason is lack
of political influence. Support for the arts may be important to a group of individu-
als but unless that group is sufficiently large to influence the political process, it is
unlikely that elected officials will use government funds for that purpose. However,
support for the arts could still be provided by forming a charitable foundation with
no relationship to the government and having the foundation solicit donations from
that segment of the public that finds the arts important.
The organizations introduced in the preceding paragraphs are the focus of this book:
governmental and not-for-profit organizations. They are distinguished from commer-
cial businesses by the absence of an identifiable individual or group of individuals
who hold a legally enforceable residual claim to the net resources. Throughout the text
a distinction will be made between public and private organizations. Public organiza-
tions are owned or controlled by governments. Private organizations are not owned
or controlled by governments and include businesses as well as private not-for-profit
organizations. Not-for-profit organizations lack a residual ownership claim and the
organization’s purpose is something other than to provide goods and services at a profit.
Because significant resources are provided to governments and not-for-profit
organizations, financial reporting by these organizations is important. To para-
phrase the James Madison quotation provided at the beginning of the chapter,
because humans (not angels) operate governments, controls are necessary. Financial
reports that reflect the policies and actions of governmental managers are an effec-
tive means to control the actions of those entrusted with public resources. To be
effective, external financial reports must be guided by a set of generally accepted
1
The branch of economics that studies the demand for government services is termed public choice.
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Introduction to Accounting and Financial Reporting 3
accounting principles. The generally accepted accounting principles for govern-

mental and private not-for-profit organizations are the subject of this book. The
first nine chapters of the text deal with public sector (state and local government)
organizations and Chapters 10, 11, and 12 deal primarily with private not-for-profit
organizations. Chapter 13 discusses auditing and tax-related issues unique to gov-
ernments and private not-for-profits and also evaluates performance of these enti-
ties. Chapter 14 describes financial reporting by the federal government.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Biologists tell us that organisms evolve in response to characteristics of their environ-
ment. Similarly, accounting principles evolve over time as people find certain practices
useful for decision making. Further, we expect organisms in different environments to
evolve differently. Similarly, if the environments in which governments and not-for-
profits operate differ in important ways from that of commercial enterprises, we would
expect the accounting practices to evolve differently. It is important to understand how
governments and not-for-profit organizations differ from commercial businesses if we
are to understand why the accounting practices of these nonbusiness organizations
have evolved in the manner we will see throughout the remainder of this text.
The Governmental Accounting Standards Board published a document titled Why
Governmental Accounting and Financial Reporting Is—and Should Be—Different
(http://www.gasb.org/white_paper_full.pdf). This white paper identifies five envi-
ronmental differences between governments and for-profit business enterprises and
describes how those differences manifest in differences in the objectives and practice
of financial reporting.
1. Organizational Purposes. While the purpose of a commercial business is to
generate a profit for the benefit of its owners, governments exist for the well-being
of citizens by providing public services—whether or not the services are profitable
undertakings. The result is that government accounting practices are not focused
on the measurement of net income for the purpose of measuring return to investors.
Rather they are intended to satisfy the information needs of a variety of users.
While the purpose of government operations differs greatly from commercial
businesses, the purpose of governmental accounting is the same—to provide infor-
mation that is useful to stakeholders in making decisions. However, governments
have vastly different sets of users of accounting information. Like businesses, gov-
ernments have creditors who are interested in assessing the creditworthiness of the
government. Citizens and businesses, both within the government’s jurisdiction
and those considering relocation to the jurisdiction, are also stakeholders who rely
on governmental reporting to make economic decisions. In addition, governments
receive resources from other governments and grantors who may require financial
reports and audits as a condition of the grant. Since this diverse set of resource
providers have varying interests, the information needs of one group may not meet
the needs of another. The result is that governments report far more disaggregated
information than commercial enterprises.
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4 Chapter 1
2. Sources of Revenues. Net income is a universally accepted measure of busi-

ness performance. The calculation of net income begins with sales. A sale occurs
when an independent party perceives that the service offered both provides value
and is fairly priced. Net income then simply determines whether this measure of
demand (sales) exceeds the cost of providing the service and is an accepted measure
of performance for business organizations. In contrast, governments derive many of
their resources from taxes. Individuals and businesses pay taxes to avoid penalty,
not voluntarily because they perceive government services to be of value and fairly
priced. Since taxes do not involve an earnings process, the timing of the recognition
of tax revenue is not always clear.
3. Potential for Longevity. Because the U.S. and state constitutions grant state
and local governments the ability to tax, governments very rarely go out of busi-
ness. This long-term view of operations changes the focus of accounting from one
of near-term recovery of amounts invested in assets to a longer-term focus on the
sustainability of services and the ability to meet future demand. As a result, govern-
ments may elect not to depreciate some capital assets but expense improvements
that extend an asset’s useful life.
4. Relationship with Stakeholders. Taxes are levied through the legislative
process by officials elected by the citizens. Because citizens and businesses are
then required to pay these taxes, governments have an obligation to demonstrate
accountability for these public funds. While a business can use its resources as it
deems appropriate, governments frequently receive resources that are restricted to
a particular purpose. For example, a city may collect a telephone excise tax legally
restricted to operating a 911 emergency service. In an effort to provide assurance
that resources are used according to legal or donor restrictions, governments use
fund accounting. A fund represents part of the activities of an organization that is
separated from other activities in the accounting records to more easily demonstrate
compliance with legal restrictions or limitations.
5. Role of the Budget. Many businesses prepare budgets, but these are for plan-
ning and control purposes and are rarely made available to creditors or investors. In
contrast, government budgets are expressions of public policy and often carry the
authority of law, preventing public officials from spending outside their budgetary
authority. The increased importance of budgets is reflected in government financial
reports by a required report comparing budgeted and actual amounts.
For these and other reasons, the accounting practices of governmental organiza-
tions evolved differently from those of businesses. As you will see in later chapters,
the accounting practices of not-for-profit organizations more closely resemble those
of commercial businesses. However, the not-for-profit environment shares some
important characteristics with governments. Similar to governments, not-for-profits
do not have residual owners. “Investors” in not-for-profits are diverse and include
donors, volunteers, and members. In addition, as with governments, the excess of
revenues over expenses is not an effective measure of organizational performance.
Finally, like governments, not-for-profits commonly receive resources with donor-
imposed restrictions.
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Sources of Generally Accepted Accounting Principles

Further complicating accounting issues is the fact that we have three levels of
government (federal, state, and local) and not-for-profits may be either publicly
or privately owned. This is important because different standards-setting bodies
have authority for establishing reporting standards for these groups. Illustration 1-1
summarizes the various organizational types and the bodies with primary standard-
setting authority.
Accounting and financial reporting standards for the federal government are
published by the Federal Accounting Standards Advisory Board (FASAB). The
standards are technically “recommendations” since, as a sovereign nation, the federal
government cannot relegate authority to an independent board. Recommendations
of the FASAB are reviewed and become effective unless objected to by one of the
principals, the U.S. Government Accountability Office (GAO), the U.S. Department
of the Treasury, or the U.S. Office of Management and Budget. These standards apply
to financial reports issued by federal agencies and to the Consolidated Financial
Report of the United States Government. Accounting and financial reporting stan-
dards for the federal government are illustrated in Chapter 14.
Accounting and financial reporting standards for state and local governments in the
United States are set by the Governmental Accounting Standards Board (GASB).
The GASB also sets accounting and financial reporting standards for governmentally
related not-for-profit organizations, such as colleges and universities, health care enti-
ties, museums, libraries, and performing arts organizations that are owned or controlled
by governments. Accounting and financial reporting standards for profit-seeking busi-
nesses and for nongovernmental not-for-profit organizations are set by the Financial
Accounting Standards Board (FASB).
The GASB and the FASB are parallel bodies under the oversight of the Financial
Accounting Foundation (FAF). The FAF appoints the members of the two boards
and provides financial support to the boards by obtaining contributions from busi-
nesses; professional organizations of accountants and financial analysts; CPA firms;
debt-rating agencies; and state and local governments. Because of the breadth of
support and the lack of ties to any single organization or government, the GASB and
the FASB are referred to as “independent standards-setting bodies.” Standards set
by the FASAB, GASB, and FASB are the primary sources of generally accepted
accounting principles (GAAP) as the term is used in accounting and auditing
literature.
ILLUSTRATION 1-1 Summary of Standards-Setting Organizations

Reporting Organization Standards-Setting Board
Federal government Federal Accounting Standards Advisory Board (FASAB)
State and local governments Governmental Accounting Standards Board (GASB)
Public not-for-profits Governmental Accounting Standards Board (GASB)
Private not-for-profits Financial Accounting Standards Board (FASB)
Investor-owned businesses Financial Accounting Standards Board (FASB)
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6 Chapter 1
GASB standards are set forth in documents called Statements of Financial

Accounting Standards. Although no longer used, in the past the GASB also issued
Interpretations that provided guidance on previously issued statements. From time
to time, the Board finds it necessary to expand on standards in Technical Bulletins
and Implementation Guides. The sources of authoritative GAAP for state and local
governments therefore are
∙ Category A: GASB Statements (and Interpretations)
∙ Category B: GASB Implementation Guides, GASB Technical Bulletins, and
literature of the American Institute of Certified Public Accountants (AICPA)
specifically cleared by the GASB
If the accounting treatment for a given transaction is not specified by a statement
in Category A, a state and local government should consider whether it is covered
by one of the sources identified in Category B. If the accounting treatment is not
specified within one of these authoritative sources, the government should consider
whether the transaction is sufficiently similar to ones covered by one of the authori-
tative sources that a similar accounting treatment can be applied. If not, the govern-
ment may use nonauthoritative sources for guidance, including
∙ GASB Concept Statements,
∙ FASB, FASAB, or International Standards Board pronouncements,
∙ AICPA literature not specifically cleared by the GASB,
∙ Other sources provided by professional organizations, regulatory agencies, text-
books, and published articles, or
∙ Prevalent practices that evolved among governments without specific authorita-
tive action.
Both the FASB and FASAB have similar hierarchies of GAAP for entities fall-
ing within their jurisdictions. The GASB, FASB, and FASAB publish codifica-
tions (organized versions) of accounting standards. The GASB also publishes a
comprehensive collection of its implementation guides. The advantage of using the
codified versions of standards is that all relevant standards for a particular topic are
presented together and any superseded segments of standards have been removed.
Codification references are presented in two parts: the first (section) identifies a
topic and the second identifies a paragraph within the codification. Letters typically
give a clue as to the topic (e.g., L for leases and Ho for hospitals). Paragraph num-
bers may be used to determine the level of authority within the GAAP Hierarchy.
These are summarized as follows:
Section #s Topics
1000–1900 General Principles
2000–2900 Broad Financial Reporting Requirements
Letters (A–Z) Specific Balance Sheet or Operating Accounts
Double letters Specialized Industries or Reporting Units
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Paragraph #s Level of Authority

100–499 GASB Statements
500–599 Definitions
600–699 GASB Technical Bulletins and AICPA Audit and Accounting
Guides and Statements of Position
700–799 AICPA Practice Bulletins
900–999 Nonauthoritative discussions
For example:
Codification
Reference Section Paragraph
1000.101 Section 1000 indicates this Paragraphs 101–104 present the GAAP
pertains to general principles Hierarchy and since the paragraph number
(in this case GAAP Hierarchy). is <500, it comes from a GASB Statement
(in this case Statement No. 76).
1700.601 Section 1700 indicates this Paragraph 601 states what to disclose if a
pertains to reporting of government is not legally required to adopt
budgetary information. a budget. Since the paragraph number is
600–699, this is Level B GAAP.
F60.101 The single letter (F) identifies a The paragraph number (<500) indicates this
specific account (in this case standard comes from a GASB Statement.
Food stamps).
Co5.902 The double letters (Co) identify The paragraph number (>900) indicates
a specialized industry these are nonauthoritative examples of
(Colleges and universities). financial statements for a state university.
Definition of Government
Some organizations possess certain characteristics of both governmental and non-
governmental not-for-profit organizations. Since there are different standard-setting
boards, it is important to identify which board’s standards apply to a given entity.
For this reason, the FASB and GASB agreed upon a definition of governmental
organizations:
Public corporations and bodies corporate and politic are governmental organizations.
Other organizations are governmental organizations if they have one or more of the
following characteristics:
a. Popular election of officers or appointment (or approval) of a controlling major-
ity of the members of the organization’s governing body by officials of one or
more state or local governments;
b. The potential for unilateral dissolution by a government with the net resources
reverting to a government; or
c. The power to enact and enforce a tax levy.
Furthermore, organizations are presumed to be governmental if they have the
ability to issue directly (rather than through a state or municipal authority) debt that
pays interest exempt from federal taxation.
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8 Chapter 1
OBJECTIVES OF ACCOUNTING
AND FINANCIAL REPORTING
All three standards-setting organizations—the Federal Accounting Standards
Advisory Board, the Financial Accounting Standards Board, and the Governmental
Accounting Standards Board—take the position that the establishment of account-
ing and financial reporting standards should be guided by conceptual considerations
so that the body of standards is internally consistent and the standards address broad
issues. The cornerstone of a conceptual framework is said to be a statement of the
objectives of financial reporting.
Objectives of Accounting and Financial Reporting
for State and Local Governmental Units
GASB has issued six concept statements. Concepts Statement No. 1 identifies three
primary user groups of government accounting information: creditors, citizens, and
oversight bodies (including granting agencies and the legislature). The information
needs of government creditors are not greatly different from their counterparts in the
corporate world, namely to evaluate the likelihood the government will continue to
make its debt payments as they come due. Citizens and oversight bodies have a very
different purpose, which is to determine whether elected officials have raised and
expended the public’s money in a manner consistent with law and the public’s best
interest. Satisfying this citizen “right to know” objective is not easily accomplished
and commonly requires government financial reports to provide much greater detail
than can be found in corporate annual reports.
One difficulty governments have in meeting the information needs of citizens
is that traditional financial statements, which measure events in dollars, are not
well designed to evaluate the government’s effectiveness in delivering services. For
example, consider a public school system. A traditional financial report will show
the sources of revenues and amounts expended, but does little to tell the reader
whether the schools are doing a good job. In many cases nonfinancial measures
are better indicators of performance. These might include the number of students
advancing to the next grade, graduation rates, and scores on college entrance exams.
Concepts Statements No. 2 and No. 5 relate to the reporting of nonfinancial mea-
sures, called service efforts and accomplishments reporting. Service efforts and
accomplishments reporting will be more fully described in Chapter 13.
Concepts Statement No. 3 defines methods of presenting information in financial
reports and develops the following disclosure hierarchy:
1. When items (assets, liabilities, revenues, etc.) can be measured with sufficient
reliability, they should be reported in the basic financial statements.
2. The notes to the financial statements are intended to enhance the understand-
ing of items appearing in the financial statements but are not a substitute for rec-
ognition when a transaction or event can be measured with sufficient reliability.
3. Occasionally the GASB determines that additional information is necessary to
provide context and understanding of information in the statements or notes.
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In such cases, the GASB requires the presentation of required supplementary

information (RSI). RSI appears most commonly in the form of schedules or
tables. Management’s Discussion and Analysis is also an example of RSI.
4. The final level of disclosure includes other supplementary information that is not
required by GASB standards but which the reporting government feels is useful
in understanding the operations of the government.
Concepts Statement No. 4 provides key definitions of items appearing in financial
statements. Not surprisingly, assets, liabilities, and net position (residual equity) are
each defined. However, GASB utilizes two additional elements that do not appear in
the balance sheets of nongovernmental organizations: deferred inflows and deferred
outflows of resources. The most common deferred inflows are taxes that have
been deferred to a future period when they are expected to be available for opera-
tions. Deferred inflows and outflows are also used by GASB to record events and
transactions that appear in Accumulated Other Comprehensive Income (AOCI) in
commercial organizations. For example, prior service costs resulting from changes in
pension terms and changes in the value of hedging derivatives are recognized as AOCI
by business organizations and as deferred inflows and outflows by governments.
Finally, Concepts Statement No. 6 examines the issue of when it is most appropri-
ate to measure assets and liabilities at historical cost and when it is more appropriate
to remeasure assets to fair value or settlement amount. In general, remeasurement
is appropriate for assets that will be converted to cash and liabilities where there is
uncertainty over the timing and amount of payments.
Objectives of Financial Reporting by the Federal Government

The Federal Accounting Standards Advisory Board (FASAB) was established to
recommend accounting and financial reporting standards to the principals—the
U.S. Office of Management and Budget, the U.S. Department of the Treasury,
and the U.S. Government Accountability Office. The FASAB has issued eight
Statements of Federal Financial Accounting Concepts (SFFACs). These con-
cepts apply to financial reporting for the federal government as a whole and for
individual reporting agencies.
SFFAC 1, Objectives of Federal Financial Reporting, outlines four objectives
that should be followed in federal financial reporting. The first, budgetary integrity,
indicates that financial reporting should demonstrate accountability with regard to
the raising and expending of moneys. The second, operating performance, suggests
that financial reporting should enable evaluation of the service efforts, costs, and
accomplishments of the federal agency. The third, stewardship, reflects the concept
that financial reporting should enable an assessment of the impact on the nation of
the government’s operations and investments. Finally, the fourth, systems and con-
trols, indicates that financial reporting should reveal whether financial systems and
controls are adequate.
Other federal government accounting concept statements include
∙ SFFAC 2—Entity and Display,
∙ SFFAC 3—Management’s Discussion and Analysis,
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10 Chapter 1
∙ SFFAC 4—Intended Audience and Qualitative Characteristics for the

Consolidated Financial Report of the United States Government,
∙ SFFAC 5—Definitions of Elements and Basic Recognition Criteria for Accrual-
Basis Financial Statements,
∙ SFFAC 6—Distinguishing Basic Information, Required Supplementary
Information, and Other Accompanying Information,
∙ SFFAC 7—Measurement of the Elements of Accrual Basis Financial Statements
in Periods After Initial Recording, and
∙ SFFAC 8—Federal Financial Reporting.
Objectives of Financial Reporting by Not-for-Profit Entities

FASB has issued eight concepts statements, including one dedicated to nonbusi-
ness entities. In its Statement of Financial Accounting Concepts No. 4, the FASB
identifies the information needs of the users of nonbusiness financial statements.
These include providing information that is useful to present and potential resource
providers who are
∙ Making decisions about the allocation of resources to those organizations,
∙ Assessing the services that a nonbusiness organization provides and its ability to
continue to provide those services,
∙ Assessing management’s stewardship and performance, and
∙ Evaluating an organization’s economic resources, obligations, and effects of
changes in those net resources.
STATE AND LOCAL GOVERNMENT

FINANCIAL REPORTING
GASB Concepts Statements stress that accounting and reporting standards for state
and local governments should meet the financial information needs of many diverse
groups: citizen groups, legislative and oversight officials, and investors and cred-
itors. The primary report for meeting these diverse needs is the Comprehensive
Annual Financial Report.
Comprehensive Annual Financial Report

GASB Codification Sec. 2200 sets standards for the content of the Comprehensive
Annual Financial Report of a state or local government reporting entity. A
Comprehensive Annual Financial Report (CAFR) is the government’s official
annual report prepared and published as a matter of public record. In addition to
the basic financial statements and other financial statements, the CAFR contains
introductory material, an auditor’s report, certain RSI, schedules necessary to dem-
onstrate legal compliance, and statistical tables. Chapter 2 presents an extensive
discussion and illustration of the basic financial statements and the other major
components of the CAFR.
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Illustration 1-2 presents an overview of the financial reporting process for state
and local governments. While a business will typically have a single general led-
ger, the activities of governments are broken down into accounting subunits called
funds. A typical town or county government could have a dozen funds while cities
and states generally have many more. Each fund requires its own general ledger and
general journal. These are represented at the bottom of Illustration 1-2. In addition,
records are kept of general fixed assets and long-term debt.
ILLUSTRATION 1-2 Financial Reporting Process for State and Local Governments
Government-wide
Statement of Net Position
and Statement of Activities
Combining
Worksheet and
Journal Entries
Enterprise Funds
Internal Service Funds
Change to the
Accrual Basis
from Modified
Accrual
Fund-Basis Financial Fund-Basis Financial Fund-Basis Financial

Statements: Statements: Statements:
Governmental Activities Proprietary Activities Fiduciary Activities
Accounting Ledgers: Records of General Accounting Ledgers: Accounting Ledgers:

Governmental Fixed Assets and Business-type Fiduciary
Activities Long-Term Debt Activities Activities
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12 Chapter 1
Governments have two levels of financial statement reporting. The first is the
fund-basis financial statements. Fund-basis statements are presented for three cat-
egories of activities: governmental, proprietary, and fiduciary. These categories and
the funds that comprise each category are described in detail later in this chapter.
While the fund-basis statements present an in-depth record of individual activi-
ties of the government, it is difficult for the financial statement user to pull this
disaggregated information together and form an overall view of the government’s
finances. For that reason, governments are also required to present government-
wide financial statements. The government-wide statements combine the govern-
mental and business-type activities of the government for the purpose of presenting
an overall picture of the financial position and results of operations of the govern-
ment. An important feature of the government-wide financial statements is that they
are prepared using a common measurement focus and basis of accounting.
Measurement Focus and Basis of Accounting

State and local governments prepare their financial reports using two general
accounting methods. 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.
Each of these two methods is discussed below.
Economic Resources Measurement Focus and the Accrual Basis of Accounting

The government-wide statements and the fund statements for proprietary funds and
fiduciary funds use the economic resources measurement focus and the accrual
basis of accounting. Measurement focus refers to what items are being reported in
the financial statements. An economic resources measurement focus measures both
current and long-term assets and liabilities and is the measurement focus used by
commercial businesses. A balance sheet prepared on the economic resources focus
reports the balances in fixed assets and long-term liabilities. Basis of accounting
determines when transactions and events are recognized in the accounting records.
The accrual basis of accounting recognizes revenues when they are earned (and are
expected to be realized) and recognizes expenses (including depreciation) when the
related goods or services are used up. Accruals are commonly required for interest
and other expenses, regardless of when cash is to be transferred. Again, this is the
basis of accounting used by commercial businesses.
Current Financial Resources Measurement Focus and the Modified Accrual

Basis of Accounting The fund statements for governmental funds are presented
using the current financial resources measurement focus and modified accrual basis
of accounting. Many of the transactions in governmental funds are nonexchange in
nature; that is, they are activities undertaken in response to the needs of the public.
Activities reported in governmental funds are heavily financed by taxes and other
involuntary contributions from persons (and organizations) who do not receive ser-
vices in direct proportion to the contribution they make. GASB standards provide
that accounting systems of governmental funds are designed to measure (a) the
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extent to which financial resources obtained during a period are sufficient to cover
claims incurred during that period against financial resources and (b) the net finan-
cial resources available for future periods. Thus, governmental funds are said to
have a flow of current financial resources measurement focus, as distinguished
from the government-wide, proprietary fund, and fiduciary fund statements, which
have an economic resources measurement focus. Activities of governmental
funds are said to be expendable; that is, the focus is on the receipt and expenditure
of resources. These resources are generally restricted to current assets, investments,
and short-term liabilities.
Modified accrual accounting, as the term implies, is a modification of accrual
accounting. As will be discussed much more fully in Chapters 3, 4, and 5, revenues
are generally recognized when measurable and available to finance the expendi-
tures of the current period. Expenditures (not expenses) are recognized in the period
in which the fund liability is incurred. Long-term assets, with minor exceptions,
are not recognized; the same is true of most long-term debt. Capital (fixed) assets
and long-term debt are not reported in governmental fund balance sheets. It should
be noted that governmental funds are reported using the modified accrual basis of
accounting; however, governmental-type activities are reported in the government-
wide statements using the accrual basis of accounting, including fixed assets and
long-term debt. As shown in Illustration 1-2, the governmental activities fund-basis
financial statements and the records of general fixed assets and long-term debt serve
as inputs to the government-wide financial statements. In Chapter 8 we will see that
the governmental activities balances are changed through combining worksheets
and journal entries to reflect an economic resources measurement focus and the
accrual basis of accounting before being presented in the government-wide finan-
cial statements.
Fund Structure for State and Local Government
Accounting and Reporting
Traditionally, state and local government financial reporting has been based on
fund accounting. A fund is (1) a self-balancing set of accounts that (2) separately
reports the resources and activities of a part of the government and (3) is segregated
because of the existence of restrictions or limitations on the use of some resources.
Note that two conditions must be met for a fund to exist: (1) there must be a fiscal
entity—assets set aside for specific purposes, and (2) there must be a double-entry
accounting entity created to account for the fiscal entity. This second condition
requires that debits equal credits within each fund. Therefore no journal entry may
debit an account in one fund and credit an account in another fund. Every jour-
nal entry must be within a single fund (debits = credits). If there are transactions
between funds, two journal entries are required—one for each of the affected funds.
State and local governments use 11 fund types. These fund types are organized
into three categories: governmental funds, proprietary funds, and fiduciary funds.
The first issue in recording a transaction is determining where (in which fund) to
record the event. Governmental accounting is definition driven; that is, where we
account for a transaction is determined by the definition of the 11 fund types.
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14 Chapter 1
Governmental Funds Five fund types are classified as governmental funds:

1. The General Fund accounts for most of the basic services provided by the
government. Technically, it accounts for and reports all financial resources not
accounted for and reported in another fund.
2. Capital projects funds account for and report financial resources that are restricted,
committed, or assigned to expenditure for capital outlays. As such, it accounts for
the purchase or construction of major capital improvements, except those pur-
chased or constructed by a proprietary (and less commonly, fiduciary) fund.
3. Debt service funds account for and report financial resources that are restricted,
committed, or assigned to expenditure for principal and interest, other than inter-
est or principal on proprietary or fiduciary activities.
4. Special revenue funds account for and report the proceeds of specific revenue
sources that are restricted or committed to expenditure for a specified purpose
other than debt service or capital projects. These include activities funded by
federal or state grants or by taxes specifically restricted to certain activities.
5. Permanent funds account for and report resources (typically provided under trust
arrangements) that are restricted to the extent that only earnings, and not princi-
pal, may be used for purposes that support the reporting government’s programs.
Every government will have a single General Fund but may have multiple funds
in each of the other categories. Accounting for the General Fund and special rev-
enue funds is discussed in Chapters 3 and 4, while capital project, debt service, and
permanent fund accounting is illustrated in Chapter 5.
Proprietary Funds This category of funds is used to account for a government’s

activities that are businesslike in nature. Specifically they operate to provide ser-
vices to customers who pay for the services received. Proprietary funds are dis-
cussed in Chapter 6. There are two types of proprietary funds:
1. Enterprise funds are used when resources are provided primarily through the
use of sales and service charges to parties external to the government. Examples
of enterprise funds include water and other utilities, airports, swimming pools,
and transit systems.
2. Internal service funds account for services provided by one department of a
government to another, generally on a cost-reimbursement basis. In some cases,
these services are also provided to other governments. Examples of internal ser-
vice funds include print shops, motor pools, and self-insurance funds.
Fiduciary Funds Fiduciary funds account for resources that are held by the
government in a trustee capacity. A fiduciary position exists when one party pru-
dently takes care of money or other assets for another party. Commonly, these
funds involve a trust agreement, which is a formal agreement through which
the government is given custody of assets on behalf of one or more beneficiaries.
Under a trust agreement, resources are received and held by the governmental unit
as trustee, to be expended or invested in accordance with the conditions of the
trust. Fiduciary funds are covered in Chapter 7. Four types of fiduciary funds exist:
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1. Pension (and other employee benefit) trust funds are used to account for pen-
sion and employee benefit funds for which the governmental unit is the trustee.
2. Investment trust funds account for the external portion of investment pools
governed by a trust agreement in which the sponsoring government is the trustee.
3. Private-purpose trust funds report all other fiduciary activities governed by
trust arrangements under which principal and income benefit individuals, private
organizations, or other governments.
4. Custodial funds are used to account for all other fiduciary activities, including
activities where a trust agreement is not in effect. An example would be a county
tax custodial fund, where the county collects property taxes on behalf of towns
located within the county.
Illustration 1-3 summarizes the fund types, basis of accounting, and required
fund-basis financial statements for each fund category. The table is presented in
reverse order from the earlier presentation to assist in identifying the appropri-
ate fund to record a given transaction. Starting at the top, determine whether a
given transaction is a fiduciary activity. If it is, identify which of the four fiduciary
fund types is appropriate and do not consider the proprietary or governmental-type
funds. If the transaction is not fiduciary, determine whether it is a proprietary activ-
ity, and if it is, determine whether it is internal service or enterprise. Any transac-
tion that is not fiduciary or proprietary must be a governmental activity. Again,
start at the top of the governmental activity funds and determine first whether the
transaction meets the definition of a permanent fund. If it does not, move down
through the list. Any transaction that has not been identified as a permanent, debt
service, capital projects, or special revenue fund transaction must be accounted for
in the General Fund.
ILLUSTRATION 1-3 Summary of Funds Used by State and Local Governments

Fund Basis of Fund-Basis
Category Fund Accounting Financial Statements
Fiduciary Private-Purpose Trust Accrual • Statement of Fiduciary
Investment Trust Net Position
Pension Trust • Statement of Changes in
Custodial Fiduciary Net Position
Proprietary Internal Service Accrual • Statement of Net Position

Enterprise • Statement of Revenues,
Expenses, and Changes
in Fund Net Position
• Statement of Cash Flows
Governmental Permanent Modified accrual • Balance Sheet
Debt Service • Statement of Revenues,
Capital Project Expenditures, and
Special Revenue Changes in Fund
General Balances
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16 Chapter 1
Number of Funds Required

The GASB Summary Statement of Principles states that governmental units should
establish and maintain those funds required by law and sound financial administra-
tion. If state law and/or agreements with creditors do not require a separate fund for
the receipt of revenues that are raised solely for a defined purpose and if administra-
tors do not feel that use of a separate fund is needed to be able to demonstrate that
revenues were raised solely for that particular purpose, the General Fund should be
used to account for the revenue and related expenditures.
Questions and Exercises

1–1. Obtain a copy of a recent Comprehensive Annual Financial Report (CAFR).
These may commonly be obtained from the website of a city or county of your
choice. It would be best, but not absolutely necessary, to use a CAFR that
has a Certificate of Excellence in Financial Reporting from the Government
Finance Officers Association. You will be answering questions related to the
CAFR in Chapters 1 through 8. Answer the following questions related to
your CAFR.
a. What are the inclusive dates of the fiscal year?
b. Identify the name and address of the independent auditor. Is the auditor’s
opinion unmodified? If not, describe the modification. Is the opinion lim-
ited to the basic financial statements, or does the opinion include combin-
ing and individual fund statements?
c. Does the report contain an organization chart? A table of contents? A list
of principal officials? A letter of transmittal? Is the letter of transmittal
dated and signed by the chief financial officer? List the major items of
discussion in the letter of transmittal.
d. Does the report include a Management’s Discussion and Analysis? List
the major items of discussion.
e. Does the report include the government-wide statements (Statement of
Net Position and Statement of Activities)?
f. Does the report reflect fund financial statements for governmental, proprie-
tary, and fiduciary funds? List those statements. List the major governmental
and proprietary funds (the funds that have separate columns in the govern-
mental and proprietary fund statements).
1–2. Identify and describe the five environmental differences between govern-
ments and for-profit business enterprises as identified in the Governmental
Accounting Standards Board’s Why Governmental Accounting and Financial
Reporting Is—and Should Be—Different.
1–3. Identify and briefly describe the three organizations that set standards for
state and local governments, the federal government, and nongovernmental
not-for-profit organizations.
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1–4. What is the definition of a government as agreed upon by the FASB and
GASB?
1–5. Describe the “hierarchy of GAAP” for state and local governments.
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.
1–7. Distinguish between private and public sector organization.
1–8. Go to the GASB website (www.gasb.org). What is the mission of GASB?
1–9. For each of the items below, identify which fund(s) would be used to account
for the item and provide a justification for your answer.
a. A city government issued general obligation bonds to finance the con-
struction of a new jail.
b. A tax of $1.00 per residential phone number is collected by a city govern-
ment from the phone company. This amount is required by state law to be
used for the operation of the 911 emergency phone system.
c. A county government expended $1 million to expand the water treatment
plant.
d. A donor signed a trust agreement and provided investments totaling $4
million to create an endowment, the earnings of which will be used to
provide scholarships.
e. A donor provided $50,000 to be used to purchase newspaper and maga-
zine subscriptions for the public library. There is no requirement that the
original principal may not be spent.
f. A city government sold surplus street maintenance trucks for $10,000.
g. A city government contributed $500,000 to a pension trust administered
by the city for its teachers, public safety employees, and employees of the
water department.
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Chapter Two
Overview of Financial
Reporting for State and
Local Governments
Budgets that don’t balance, public programs that aren’t funded, pension funds
that are running out of money, schools that aren’t funded—How does that help
anyone? Gina Marie Raimondo, a former venture capitalist who was the first
woman to serve as the governor of Rhode Island
Detroit’s financial challenges—the decline of the American auto industry, the

impact of the global economic recession, declining population and an erosion of
the municipal tax base—are key to understanding what led this great city to an
inability to provide basic city services . . . Ron Dellums, 48th mayor of Oakland,
CA, and 13-term congressman from California’s 9th Congressional District
Learning Objectives
• Obtain an overview of the contents of a governmental financial report.
• Define the governmental reporting entity.
• Illustrate the basic financial statements for a state or local government.
C hapters 3 through 9 of this text describe and illustrate detailed accounting and
financial reporting requirements for state and local governments. The purpose
of this chapter is to provide an overview so students may better understand the mate-
rial that follows. This chapter presents a detailed look at financial statements and
certain required schedules.
State and local governments are encouraged to prepare a Comprehensive
Annual Financial Report (CAFR). In addition to the required financial statements
and supplementary information, the CAFR contains additional items, including
combining and individual fund statements, schedules, narrative explanations, and a
statistical section. While governments are encouraged to prepare a complete CAFR,
the GASB has identified a (minimum) set of statements and disclosures that are
required to be in compliance with generally accepted accounting principles (GAAP).
The required contents of a governmental financial report appear in Illustration 2-1.
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Overview of Financial Reporting for State and Local Governments 19
ILLUSTRATION 2-1 Required Contents of Governmental Financial Reports

1. Management’s Discussion and Analysis
2. Basic Financial Statements
a. Government-wide Financial Statements
Government-wide Statement of Net Position—Illustration 2–5

Government-wide Statement of Activities—Illustration 2–6
b. Fund-Basis Financial Statements
Governmental Type Funds

Balance Sheet—Illustration 2–7b
Statement of Revenues, Expenditures, and Changes in
Fund Balances—Illustration 2–8b
Reconciliation of governmental statements to
government-wide statements—Illustration
2–7a and Illustration 2–8a
Proprietary Funds
Statement of Net Position—Illustration 2–9
Statement of Revenues, Expenses, and Changes in
Fund Net Position—Illustration 2–10
Statement of Cash Flows—Illustration 2–11
Fiduciary Funds
Statement of Fiduciary Net Position—Illustration 2–12
Statement of Changes in Fiduciary Net Position—Illustration 2–13
c. Notes to the Financial Statements—Illustration 2–14

3. Required Supplementary Information (other than MD&A)
Information about infrastructure assets using the modified

approach—Illustration 2–15
Budgetary comparison schedule (General and major Special
Revenue Funds)—Illustration 2–16
Funding schedules required for defined benefit pension plans
Schedules required for external financing pools
The remainder of this chapter presents (1) a discussion of the financial reporting
entity, (2) an overview of the CAFR contents, and (3) a detailed presentation of the
Comprehensive Annual Financial Report, including illustrative statements.
THE GOVERNMENTAL REPORTING ENTITY

One of the most fundamental issues in accounting for any organization is identifying the
accounting entity. This is made more difficult by the fact that general-purpose govern-
ments, such as states and large cities and counties, typically are complex organizations
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20 Chapter 2
that include semiautonomous boards, commissions, and agencies created to accom-

plish projects or activities that (for one reason or another), may not be carried out by
a government as originally constituted. Very often each legal entity issues a separate
annual report. But there are times when it is appropriate to combine these entities with
a general-purpose government in order to give an overall picture of government opera-
tions. For example, state universities issue separate financial statements but also appear
as component units within the state government’s annual report.
GASB Codification Sec. 2100 establishes that the financial reporting entity is
the primary government together with its component units. The primary govern-
ment 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. Component
units are legally separate organizations for which the elected officials of the pri-
mary government are financially accountable. In addition, 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.
GASB provides guidance for determining when a primary government should
include a legally separate organization in its financial report. First, the relationship
with the related entity must have one of the following characteristics: (1) the primary
government controls a voting majority of the other organization’s governing board
or otherwise may impose its will on the organization; or (2) the other organization
is fiscally dependent upon the primary government. An entity is fiscally dependent
on a primary government if that government approves or modifies its budget, sets
charges for its services, or if the government’s approval is required to issue debt.
Second, the related organization must represent a financial benefit or burden to the
primary government. A financial burden exists, for example, if the primary government
is responsible for liabilities of the other organization. In contrast, a financial benefit
exists if the government is entitled to or may access the other organization’s resources.
Governments occasionally acquire a controlling interest in the ownership of
a commercial business. A government that holds a controlling equity interest is
deemed to be financially accountable for that organization and should report the
organization as a component unit. An exception is permitted if the equity interest is
an investment (i.e., the purpose is solely to earn income or profit).
Once it is determined that an organization is a component unit of a primary gov-
ernment, the issue becomes how to include its financial information in the primary
government’s financial reports. GASB standards provide two methods for including
component unit financial information with that of the primary government. The
first is known as blending, because the 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. Blending is appropriate
when the component unit is so intertwined with the primary government that they
are in substance the same entity. This may be the case if the two entities have the
same governing boards, the primary government is the sole corporate member of
the board, or management of the primary government has operational responsibility
for the component unit. Additionally, blending is appropriate if the component unit
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Overview of Financial Reporting for State and Local Governments 21
provides services solely to the primary government or if the component unit’s debt
is expected to be paid by the primary government.
More commonly, component units are reported using discrete presentation. In
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. Most discretely presented component units appear as
separate columns in the government-wide statements. Pension plans that are admin-
istered through trusts are frequently legally separate entities from the government.
If a primary government has a legal obligation to make contributions to the pen-
sion plan, the plan is deemed to be a financial burden to the government and is
reported as a component unit. Unlike other component units, these pension trusts
are reported as separate columns within the fiduciary fund statements.
REPORTING BY MAJOR FUNDS

In addition to the government-wide statement, governments report fund-level finan-
cial statements for each of the three categories of funds: governmental, proprietary,
and fiduciary. Because governments may have many governmental and proprietary
funds, governments are only required to present separate columns for each major
fund. The General Fund is always considered a major fund. Other governmental
funds are considered major when both of the following conditions exist:
1. total assets, liabilities, revenues, or expenditures of that individual governmental
fund constitute 10 percent of the total for the governmental funds category, and
2. total assets, liabilities, revenues, or expenditures of that individual governmental
fund are 5 percent of the total of the governmental and enterprise categories,
combined.
Deferred outflows are included with assets and deferred inflows are included
with liabilities for purposes of applying these criteria. Similar tests are applied to
determine major enterprise funds. Additionally, a government may designate any
fund as a major fund if reporting that fund separately would be useful. Any funds
not reported separately are aggregated and reported in a single column under the
label nonmajor funds. If the reporting government is preparing a complete CAFR, a
schedule showing the detail of nonmajor funds is provided in the other supplemen-
tary information section.
OVERVIEW OF THE COMPREHENSIVE ANNUAL

FINANCIAL REPORT (CAFR)
The Comprehensive Annual Financial Report has three major sections: introductory,
financial, and statistical. An outline of the CAFR was presented in Illustration 2-1.
Information appearing in the CAFR is described and illustrated in the following
sections, beginning with the Introductory Section, Illustration 2-2.
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fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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(eBook PDF) Essentials of Accounting

for Governmental and Not-for-Profit

cop01384_fm_i-xiv.indd i 07/02/19 03:35 PM

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Chapter Three Re-establishment of Encumbrances 88

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Chapter Five Enterprise Funds 153

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Chapter Eight Chapter Nine

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Chapter Eleven Chapter Thirteen

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Budgetary and Proprietary Glossary: Governmental and

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If men were angels, no government would be necessary. If angels were to

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way that naturally encourages commercial entrepreneurs to enter the marketplace.

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 Introduction to Accounting and Financial Reporting 3

accounting principles. The generally accepted accounting principles for govern-

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

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2. Sources of Revenues. Net income is a universally accepted measure of busi-

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 Introduction to Accounting and Financial Reporting 5

Sources of Generally Accepted Accounting Principles

ILLUSTRATION 1-1 Summary of Standards-Setting Organizations

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GASB standards are set forth in documents called Statements of Financial

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 Introduction to Accounting and Financial Reporting 7

Paragraph #s Level of Authority

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 Introduction to Accounting and Financial Reporting 9

In such cases, the GASB requires the presentation of required supplementary

Objectives of Financial Reporting by the Federal Government

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∙ SFFAC 4—Intended Audience and Qualitative Characteristics for the

Objectives of Financial Reporting by Not-for-Profit Entities

STATE AND LOCAL GOVERNMENT

Comprehensive Annual Financial Report

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 Introduction to Accounting and Financial Reporting 11

Fund-Basis Financial Fund-Basis Financial Fund-Basis Financial

Accounting Ledgers: Records of General Accounting Ledgers: Accounting Ledgers:

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Measurement Focus and Basis of Accounting

Economic Resources Measurement Focus and the Accrual Basis of Accounting

Current Financial Resources Measurement Focus and the Modified Accrual

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 Introduction to Accounting and Financial Reporting 13

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Governmental Funds Five fund types are classified as governmental funds:

Proprietary Funds This category of funds is used to account for a government’s

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 Introduction to Accounting and Financial Reporting 15

ILLUSTRATION 1-3 Summary of Funds Used by State and Local Governments

Proprietary Internal Service Accrual • Statement of Net Position

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Number of Funds Required

Questions and Exercises

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Introduction to Accounting and Financial Reporting 3

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Introduction to Accounting and Financial Reporting 5

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Introduction to Accounting and Financial Reporting 7

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Introduction to Accounting and Financial Reporting 9

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Introduction to Accounting and Financial Reporting 11

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Introduction to Accounting and Financial Reporting 13

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Introduction to Accounting and Financial Reporting 15

Proprietary Internal Service Accrual • Statement of Net Position

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Introduction to Accounting and Financial Reporting 17

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Overview of Financial Reporting for State and Local Governments 19

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Overview of Financial Reporting for State and Local Governments 21

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