Accounting For State and Local Governmental Units - Governmental Funds

Accounting for State and Local
Governmental Units –
Governmental Funds
Chapter 19
©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 1

Objective 1
Prepare journal entries for

governmental funds.

Accounting for the General Fund
Grantville Town
Post-Closing Trial Balance
June 30, 2001
Debits
Cash $310,000
Taxes receivable-delinquent 150,000
Accounts receivable 30,000
Supplies inventory 60,000
Total debits $550,000

Credits
Allowances for uncollectible
taxes – delinquent $ 10,000
Vouchers payable 140,000
Note payable (short-term) 150,000
Reserve for encumbrances 90,000
Unreserved fund balance 160,000
Total credits $550,000

General Fund Budget Summary

For Fiscal Year 7/1/01 to 6/30/02
Revenue Sources
Taxes $2,075,000
Licenses and permits 205,000
Other 1,220,000
$3,500,000

Expenditures
Current services
General government $ 477,500
Public safety 897,750
Other 1,945,000
Total appropriations $3,320,250
Other financing sources (uses) 115,000
Budgeted increase in fund balance $ 64,750
Recording the Budget
Estimated Revenues 3,500,000

Appropriations 3,320,250
Estimated Other Financing
Uses – Transfers Out 115,000
Unreserved Fund Balance 64,750
To record the budget for the year July 1, 2001,
to June 30, 2002

Subsidiary Ledgers
Recording estimated revenues for individual

items as debits in the subsidiary revenue ledger
and recording actual revenue items as credits
allows the outstanding subsidiary account
balances during the year to reveal differences.

Accounting for Property Taxes
$2,000,000 tax bills are mailed.

Taxes Receivable – Current 2,000,000
Allowance for Uncollectible
Taxes – Current 20,000
Revenue 1,980,000
To record the property tax levy

The town records collection of $1,760,000 current

property taxes and past-due taxes of $140,000.
Cash 1,900,000
Taxes Receivable – Current 1,760,000
Taxes Receivable – Delinquent 140,000
To record collection of property taxes

Specific tax bills totaling $10,000 were

determined to be uncollectible.
Taxes – Delinquent $10,000
To record write-off of uncollectible account

Derived Tax Revenues
Governments recognize sales tax revenue when

tax returns are received from merchants and the
taxes are expected to be remitted to the government
by year end (or within 60 days thereafter).
What is the entry to record $150,000 in sales
taxes, of which three equal payments are
required by 7/15, 8/15, and 9/15?

Derived Tax Revenues
Accounts Receivable 150,000

Revenue 100,000
Deferred Revenue 50,000
To record sales tax activity

Recording Expenditures
Under modified accrual accounting, governmental

funds normally recognize expenditures when
they incur the related liability.

Objective 2
Learn about accounting methods

unique to governmental
accounting – budgetary issues,
encumbrance accounting,
interfund transactions.
Accounting for Encumbrances
During the year, the town orders snow-removal

equipment expected to cost $150,000.
What is the journal entry?
Encumbrances 150,000
Reserve for Encumbrances 150,000
To record a purchase order for equipment
What is the unencumbered balance
of the appropriations?
Appropriations $3,320,250
Less encumbrances 150,000
Unencumbered appropriations $3,170,250
Assume that the actual cost of the
equipment purchased is $140,000.
What are the journal entries?


To reverse the encumbrance entry for snow-removal
equipment
Expenditures 140,000
Vouchers Payable 140,000
To record expenditures

Supplies
Purchases
Purchases Method
Method
Consumption
Consumption Method
Method

Supplies
The town orders supplies

expected to cost $60,000.
What is the journal entry under
the consumption method?
Encumbrances 60,000
To record the purchase order for operating
supplies
Supplies

Encumbrances 60,000
To reverse the encumbrance entry upon receipt
of the operating supplies
Inventory of Supplies 60,000
Vouchers Payable 60,000
To record receipt of operating supplies

Capital Lease
The Town of Grantville enters into a general

government capital lease agreement with
a down payment of $5,000.
The present value of the lease is $50,000.
What is the entry at the inception of the lease?

Capital Lease
Expenditures (capital outlay) 50,000

Cash 5,000
Other Financing Sources –
Capital Lease 45,000

Interfund Transactions
Other Financing Uses –

Nonreciprocal Transfer to CPF 100,000
Reciprocal Transfer to SRF 50,000
Nonreciprocal Transfer to DSF 14,250
Cash 164,250
To record transfers to CPF, SRF, and DSF

Year-End Procedures
Supplies inventory of $90,000

are on hand at year end.
$60,000 BI + Purchases $60,000 = $120,000

$120,000 – $90,000 = $30,000

Year-End Procedures
The $240,000 uncollected taxes are past due.

Taxes – Current 20,000
Taxes Receivable – Current 240,000
Taxes – Delinquent 20,000

Closing Entries
Dr. Cr.
Appropriations Estimated Revenues
Estimated Other Expenditures
Financing Sources Encumbrances
Revenues Other Financing Uses
The budgeted and actual Unreserved Fund

Balance can be either a debit or credit.

Objective 3
Determine the appropriate

governmental fund
to be used.

Special Revenue Funds
A SRF is the entity that a government uses

to account for the proceeds of
specific revenue sources.
Typically, all or part of

resources are restricted.

Special Revenue Funds: Grants
Governments often receive grants from

other governments or private sources.
Grant revenues can be recognized when all

eligibility requirements have been met.

Permanent Funds
They account for contributions for which

the grantor specifies that a principal
amount must be maintained but for
which interest accumulation or
asset appreciation or both are to
be used for a specified purpose.

Capital Projects Funds
The purpose of capital projects funds

(CPF) is to account for resources that
are used to acquire major long-lived
general government capital facilities.

Sources of Financing
Proceeds of Grants and

bond issues shared revenues
Contributions
Transfers from
from property
other funds
owners

Accounting for a Capital
Project Fund
On 9/1/2001, the Town of Grantville

authorized the construction of a new
town hall expected to cost $1,000,000.
Sources of financing:
Bond issue proceeds $ 500,000
Federal grant 400,000
Transfer from GF 100,000
Total $1,000,000
Project Fund
Creation of the CPF requires a memorandum entry.
The town transfers $100,000 from the
general fund to the CPF.
Cash 100,000
Nonreciprocal Transfer 100,000
To record receipt of funds from the GF

Project Fund
Planning and architect’s fees are paid.

Expenditures 40,000
Cash 40,000
To record payments for planning and
architect’s fees

Project Fund
A contract is awarded for $950,000.

To record encumbrances for the amount of the
contract

Project Fund
Bonds were issued at a premium of $2,000.

Cash 502,000
Proceeds from Bond Issue 502,000
To record sale of bonds

Project Fund
Premium is transferred to the debt service fund.

Nonreciprocal Transfer to DSF 2,000
Cash 2,000
To transfer the premium to DSF

Project Fund
Construction is certified to be 50% complete and

a bill for $475,000 is received from the contractor.
To reverse half of the amount encumbered

Project Fund
Contracts Payable 427,500
Retained Percentage 47,500
To record expenditures and a 10% retained
percentage on the construction

Project Fund
Contracts payable, less a 10%

Retained percentage, is paid.
Contracts payable 427,500
Cash 427,500
To record partial payment to the contractor

Project Fund
At the end of the year the CPF books are closed.

The town hall construction project has not
been completed and the statements for the
CPF are interim statements from the
standpoint of the project.

Project Fund
Intergovernmental revenue
Due from Federal Government 400,000
Revenue 400,000
To recognize revenue from the federal grant

Closing Entries
Revenues – federal grant 400,000

OFS – nonreciprocal
transfer from general fund 100,000
OFS – bond proceeds 502,000
OFU – nonreciprocal
transfer to DSF 2,000
Unreserved fund balance 10,000
To close the books at the end of 2001
Other Items
Special assessment
activities
Debt service
funds

Objective 4
Prepare governmental
fund financial statements.

Governmental Fund Statements
Statement of net assets or balance sheet

Statement of revenues, expenditures, and
changes in fund balance (GAAP basis)
Statement of revenues, expenditures, and
changes in fund balance – budget and actual

Governmental Fund Statements
An original budget column is required as

well as the final revised budget column.
Budgetary comparisons are required for
the general fund and for each annually
budgeted major special revenue fund.

Objective 5
Convert fund financial

statements to government-wide
financial statements.

Preparing the Government-Wide
Financial Statements
–– Fund
Fund basis
basis –– Aggregate
Aggregate basis
basis
–– Financial
Financial resources
resources –– Economic
Economic resources
resources
measurement
measurement focus
focus measurement
measurement focus
focus
–– Modified
Modified accrual
accrual –– Accrual
Accrual accounting
accounting

Conversion of
Governmental Activities
Statement 34 requires a reconciliation between

the changes in fund balance reported on the
fund statement of changes in revenues,
expenditures, and changes in fund balance
and the changes in net assets reported in
the statement of activities.

End of Chapter 19

Accounting For State and Local Governmental Units - Governmental Funds

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Accounting for State and Local

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 1

Prepare journal entries for

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 2

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 3

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 4

General Fund Budget Summary

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 5

Estimated Revenues 3,500,000

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 7

Recording estimated revenues for individual

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 8

$2,000,000 tax bills are mailed.

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 9

The town records collection of $1,760,000 current

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 10

Specific tax bills totaling $10,000 were

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 11

Governments recognize sales tax revenue when

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 12

Accounts Receivable 150,000

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 13

Under modified accrual accounting, governmental

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 14

Learn about accounting methods

During the year, the town orders snow-removal

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 17

Reserve for Encumbrances 150,000

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 18

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 19

The town orders supplies

Reserve for Encumbrances 60,000

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 21

The Town of Grantville enters into a general

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 22

Expenditures (capital outlay) 50,000

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 23

Other Financing Uses –

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 24

Supplies inventory of $90,000

$60,000 BI + Purchases $60,000 = $120,000

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 25

The $240,000 uncollected taxes are past due.

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 26

The budgeted and actual Unreserved Fund

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 27

Determine the appropriate

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 28

A SRF is the entity that a government uses

Typically, all or part of

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 29

Governments often receive grants from

Grant revenues can be recognized when all

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 30

They account for contributions for which

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 31

The purpose of capital projects funds

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 32

Proceeds of Grants and

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 33

On 9/1/2001, the Town of Grantville

©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 19 - 35

Planning and architect’s fees are paid.