CHAPTER FOUR- PART I

ACCOUNTING FOR GOVERNMENTAL

FUNDS

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 4.1. ACCOUNTIGN FOR GENERAL FUNDS

General ledger budgetary control accounts include

 Estimated revenue
 Estimated other financing sources

 Appropriations

 Estimated other financing uses

 Encumbrances

And related Operating Statement control accounts include:

 Revenue
 Other financing sources

 Expenditures

 Other financing uses

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 4.1. ACCOUNTIGN FOR GENERAL FUNDS

Classification of Appropriations and Expenditures

 According to GASB’s Principles, Expenditures should
be classified by: -
1. Fund

2. Function or program

3. Organization unit

4. Activity

5. Character

6. Object

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 4.1. ACCOUNTIGN FOR GENERAL FUNDS

Classification of Estimated Revenues & Revenues

1. Taxes

2. Licenses & permits

3. Inter governmental revenues

4. Charges for services

5. Fines & forfeits

6. Miscellaneous revenues

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4.1. ACCOUNTIGN FOR GENERAL FUNDS

Illustrative case:
Balance Sheet of town of X General fund on June 30,
2010 and the annual budgets adopted for the year
ended June 30, 2011 are given below.
Town of X General Fund
Balance Sheet June 30, 2010
Assets :   Liabilities & Fund Balance  

Cash 1,600,000.00 Vouchers Payable 800,000.00

Inventory of
Supplies 400,000.00 Fund Balance  

Total Assets 2,000,000.00 Reserve for Encumbrance 400,000.00

    Unreserved & Undisignated 800,000.00

    Total Liabilities & Fund balance 2,000,000.00

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4.1. ACCOUNTIGN FOR GENERAL FUNDS
Approved budget for the fiscal year ended on June 30, 2011
Estimated revenues  Appropriations: 

General property taxes 7,000,000.00 General government 4,700,000.00

Licenses and permits 400,000.00 Public safety 1,900,000.00

Charges for services 500,000.00 Health and welfare 1,100,000.00

Fines and for fits 300,000.00 Culture and recreation 400,000.00
Miscellaneous revenues 200,000.00
Estimated other financing Estimated other financing uses
sources (transfer from EF)
100,000.00 (transfer to DSF
100,000.00
The following transactions were occurred during 2011
1. Property taxes were billed in the amount of 7,200,000 of which
140,000 was of doubtful collect ability.
2. A total of 6,500,000 amount of Property tax were collected and a
total of 1,020,000 amount of cash from other revenue sources like
licenses and permits, fines and forfeits, miscellaneous sources
were also collected. 1-6
 4.1. ACCOUNTIGN FOR GENERAL FUNDS

3. Property tax in the amount of 130,000 were

uncollectible.
4. Purchase orders for non recurring expenditures were
issued to outside suppliers in the total amount of
3,600,000.
5. Expenditures for the year totaled 7,600,000 of which
900,000 applied to the acquisitions of supplies and
3,500,000 applied to 3,550,000 of the purchase orders
in the total amount of 3,600,000 issued during the year.
(Assume consumption method).
6. Billings for services and supplies received from EF and
ISF totaled 300,000 and 200,000 respectively. 1-7
 4.1. ACCOUNTIGN FOR GENERAL FUNDS

7. Cash payments on vouchers payable totaled 7,700,000.

Cash payment to the EF and the ISF were 250,000 and
140,000 respectively.
8. The town of X general fund made an operating transfer
of 110,000 to the debt service Fund for the matured
principal and interests.
9. A payment of 400,000 in lieu of property taxes and a
subsidy of 100,000 were received from the EF.
10. Supplies at a cost of 800,000 were used during the year
11. All uncollected property taxes on June 30 2011 were
delinquent.
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 4.1. ACCOUNTIGN FOR GENERAL FUNDS

12.The town council designated 250,000 of the

unreserved and the undesignated fund balance for the
replacement of equipment during the year ending June
30, 2012.
Required:
 Prepare the necessary journal entries

 Prepare closing entries.

 Prepare for the General Fund of the town of X

a. A Statement of Revenues, Expenditures, and Changes

in Fund Balance for the year ended June 30, 2011.
b. A Balance Sheet as of June 30, 2011.
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4.1. ACCOUNTIGN FOR GENERAL FUNDS

Recording the Budget

A budget should be recorded in the account of each fund
for which a budget is legally adopted.

Description Dr Cr
Estimated revenues 840,000.00  
Estimated other financing sources
100,000.00
Appropriations 810,000.00
Estimated other financing uses
100,000.00
Budgetary fund balance
  300,000.00
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 4.1. ACCOUNTIGN FOR GENERAL FUNDS
NO.
Description Dr Cr
1.
Property tax receivable- current 7,200,000.00  
Allowance for uncollectibles current taxes
140,000.00
Revenue
7,060,000.00
(To accrue property taxes billed and to provide for estimated uncollectible portion)

2.
Cash 7,520,000.00  

Property taxes receivable-current 6,500,000.00

Revenue
1,020,000.00
(To record collection of property taxes and other revenues for the year)

3.
Allowance for uncollectable current taxes 130,000.00
Property taxes receivable- current
130,000.00
(To write off receivables for property taxes that are uncollectable)
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 4.1. ACCOUNTIGN FOR GENERAL FUNDS
NO.
Description Dr Cr
4.
Encumbrances 3,600,000.00
Fund Balance reserved for Encumbrances
3,600,000.00

(To write off receivables for property taxes that are uncollectable)
5a.
Expenditures 6,700,000.00  

Inventory of supplies 900,000.00  

Vouchers payable   7,600,000.00

(To record expenditures for the year)

5b.
Fund Balance reserve For Encumbrance  355,000.00

Encumbrances    355,000.00
(To reverse encumbrances applicable to vouchred expenditures)

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 4.1. ACCOUNTIGN FOR GENERAL FUNDS
Description Dr Cr
6.
Expenditures 500,000.00  

Payable (Due) to Enterprise fund 300,000.00

Payable (Due) to Internal Service fund 200,000.00

(To record billings for services and supplies received from other funds)

7.
Vouchers payable 7,700,000.00  

Payable to Enterprise fund 250,000.00

Payable to Internal service fund 140,000.00

Cash 8,090,000.00
(To record payment of liabilities during the year)

8.
Other financing uses 110,000.00

Cash 110,000.00
(To record transfer to debt service fund for maturing principal and interest)
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 4.1. ACCOUNTIGN FOR GENERAL FUNDS
NO.
Description Dr Cr
9.
Cash 500,000.00

Revenue 400,000.00

Other Financing Sources 100,000.00

(To record payment in lieu of property taxes and subsidy received from Enterprise fund)
10a
Expenditures 800,000.00  
.
Inventory of supplies 800,000.00

(To record cost of supplies for the year)

10b
Unreserved and undesignated fund balance  100,000.00
.
Fund balance reserved for inventory of supplies   100,000.00

(To increase inventory of supplies reserve d)

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 4.1. ACCOUNTIGN FOR GENERAL FUNDS
NO.
Description Dr Cr
11.
Taxes Receivable- Delinquent 570,000.00

Allowance for uncollectable Current Taxes 10,000.00

Taxes Receivable- Current
570,000.00

Allowance for Uncollectable Delinquent Taxes 10,000.00

(To transfer delinquent taxes and related estimated uncollectable amounts)

12.
Unreserved and Undesignated Fund Balance 250,000.00

Fund Balance Designated for replacement of Equipment. 250,000.00

To designate a portion of the fund balance for the replacement of equipment

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4.1. ACCOUNTIGN FOR GENERAL FUNDS
Adjusting entries for inventory of supplies
 Governments that account for their supplies within the
General Fund can use either the purchases method or
the consumption method.
Purchases method,
 Under this method expenditures for supplies equals
the total amount purchased for the year, even if the
amount of supplies consumed is less than or greater
than the amount purchased.
 It is consistent with the modified accrual basis of
accounting used by the General Fund and other
governmental funds 1-16
 4.1. ACCOUNTIGN FOR GENERAL FUNDS
 The purchases method is generally associated with a
periodic inventory system, so the balance of the
Inventory of Supplies account is increased or decreased
as necessary at year-end to agree with the valuation
based on a physical count.
 In addition, a Reserve for Inventory of Supplies account,
having a credit balance equal in amount to the balance of
the inventory account, is required to indicate that the
inventory reported on the balance sheet is not available
for spending.

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4.1. ACCOUNTIGN FOR GENERAL FUNDS
Consumption method
 It is consistent with the accrual basis of accounting, as
resources (i.e., supplies) consumed in providing services
is the essence of an expense.
 Using this method, the General Fund recognizes
expenditures equal to the amount of supplies consumed
during the year rather than the amount purchased.
 Accordingly, budgetary appropriations for supplies are
based on estimated consumption rather than estimated
purchases.
 When using the consumption method, reporting of a
reservation of fund balance is optional, though
recommended
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4.1. ACCOUNTIGN FOR GENERAL FUNDS
Town X General Fund
Trial Balance
June 30,2011
Account title Debit Credit
Cash 1,420,000.00
Taxes Receivable- Delinquent 570,000.00
Allowance for Uncollectable Delinquent Taxes
10,000.00
Inventory of Supplies 500,000.00
Vouchers Payable
700,000.00
Payable to Enterprise Fund
50,000.00
Payable to Internal Service Fund
60,000.00
Fund Balance Reserved for Encumbrances
50,000.00
Fund Balance Reserved for Inventory of Supplies
500,000.00
Fund Balance Designated for Replacement of Equipment
250,000.00
Unreserved and undesignated fund balance
450,000.00
Budgetary Fund Balance
300,000.00
Estimated Revenues 8,400,000.00 1-19
 4.1. ACCOUNTIGN FOR GENERAL FUNDS
Year end financial statements
 The General Fund of every government is considered a major
fund. Accordingly, all governmental fund financial statements
will include a separate column for the General Fund financial
information.
 For internal management purposes, a government may find it
useful to prepare additional financial statements for the
General Fund that are more detailed than the governmental
fund statements.

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4.1. ACCOUNTIGN FOR GENERAL FUNDS

Town X General Fund

Statement of Revenues, Expenditures & Change in Fund Balance
For the Year ended June 30, 2011
Variance-
Favorable
  Budget Actual (unfavourable)
Revenues: 8,400,000.00 8,480,000.00 80,000.00
Expenditures: 8,100,000.00 8,000,000.00 -100,000.00
Excess of revenue over expenditure 300,000.00 480,000.00 180,000.00
Other Financing sources (Uses):     0.00
Operating Transfers In 100,000.00 100,000.00 0.00
Operating Transfers Out -100,000.00 -110,000.00 -10,000.00
Excess of Revenue and O.F.S.-Over
Expenditures and O.F.U 300,000.00 470,000.00 170,000.00
Add fund balance July 1, 19x5 1,200,000.00 1,200,000.00 0.00
Fund balance June 30,19x6 1,500,000.00 1,670,000.00 170,000.00

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 4.1. ACCOUNTIGN FOR GENERAL FUNDS

Closing entries
 The budgetary accounts are closed at the end of the fiscal
year because they are no longer required for control
over revenues, expenditures, and other financing
sources and uses.
 revenues, expenditures, and other financing sources and
uses should be also closed to unreserved and
undesignated fund balance account.
 Encumbrance account should be also closed to
unreserved and undesignated fund balance account.

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4.1. ACCOUNTIGN FOR GENERAL FUNDS

Closing entries
Dr Cr
Unreserved and undesignated fund balance  50,000.00
Encumbrances
  50,000.00
(To close encumbrance ledger account)
Appropriations 810,000.00
Estimated Other Financing Uses
100,000.00
Budgetary Fund Balance
300,000.00
Estimated Revenues
840,000.00
Estimated Other Financing Sources
100,000.00
To close budgetary ledger Accounts
Revenue 848,000.00
Other Financing Sources
100,000.00
Expenditures 1-23
 4.1. ACCOUNTIGN FOR GENERAL FUNDS
General Fund Balance Sheet
 Reports only current financial resources and current
liabilities to be paid from current financial resources
 Reports only recourses and obligations of the General
Fund only Traditional balance sheet format – Assets equals
liabilities and fund equity
 The arithmetic difference between total financial
resources and total liabilities of the fund is the fund equity.
 A portion of fund equity that is reserved for the purchases
order outstanding is shown in the balance sheet as
Reserve for Encumbrance.
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4.1. ACCOUNTIGN FOR GENERAL FUNDS

A portion of fund equity not reserved for expenditure is

known as Fund Balance (Available for Appropriation).
This is the excess of financial resources over actual
liabilities and amounts expected to become liabilities
when good and services on order at balance sheet data
are received.

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 4.1. ACCOUNTING FOR GENERAL FUNDS
Town X General Fund
Balance Sheet
June 30,Year 6
Assets    
Cash   1,420,000.00
Taxes Receivable- Delinquent
570,000.00  
Allowance for Uncollectable
Delinquent Taxes
-10,000.00 560,000.00
Inventory of Supplies
  500,000.00
Total Assets   2,480,000.00
Liabilities and fund Balance    
Liabilities:    
Vouchers Payable
700,000.00  
Payable to Enterprise Fund
50,000.00  
Payable to Internal Service Fund
60,000.00  
Total Liabilities   810,000.00
Fund Balance    
Reserved for Encumbrances
50,000.00   1-26
 4.2. ACCOUNTIGN FOR SPECIAL
REVENUE FUND
 The distinguishing feature of a special revenue fund is that
its revenues are obtained primarily from tax and non-tax
sources not directly related to services rendered or
facilities provided for use.
 Separate SRF are established by governmental units as
mandated by legislative enactments, to account for the
receipts and expenditures associated with specialized
revenue sources that are earmarked by law or regulation
to finance specified governmental operations.
 Ledger account titles, budgetary processes and financial
statements for a special revenue funds are similar to those
of General funds.
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