BAKER LEMBKE KING advanced financial accounting 8e chapter 018

18
Governmental
Entities:
Special Funds and
Government-wide
Financial
Statements

McGraw-Hill/Irwin

© 2009 The McGraw-Hill Companies, Inc. All rights reserved.


Overview
•

•

A government should establish those funds
required by law and the specific operating and
management needs of the government entity
A general rule is that all activities should be
accounted for in the general fund unless
specifically required by law or the different
measurement focus used for proprietary and
fiduciary funds

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Overview

18-3


Governmental Funds Worksheets
•

Each of the five governmental funds will report
two fund-based financial statements:
– The balance sheet
– The statement of revenues, expenditures,
and changes in fund balance

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Special Revenue Funds
•

•

•

Special revenue funds account for the

proceeds of specific revenue sources that are
restricted for specified purposes
Includes resources and expenditures for
operations, such as public libraries, when a
separate tax is levied for their support
Accounting for special revenue funds is the
same as for the general fund

18-7


Capital Projects Funds
•

Capital projects funds account for financial
resources that are specified for the acquisition
or construction of major capital facilities or
improvements that benefit the public
– A separate capital projects fund is created at
the time the project is approved and ceases at
its completion
– Uses the modified accrual basis of accounting

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Capital Projects Funds
– No fixed assets or depreciation are recorded
– No long-term debt is recorded
– Typically do not have annual operating

budgets
– A capital budget is prepared as a basis for
selling bonds to finance a project, and the
capital budget is the control mechanism for
the length of the project
– The capital budget for the project may, or may
not, be formally recorded in the accounts
– The fund records capital outlays as
expenditures

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Debt Service Funds
•

Debt service funds account for the
accumulation and use of resources for the
payment of general long-term debt principal
and interest
• General long-term debt obligations:
– Serial bonds
– Term bonds
– Special assessment bonds
– Notes and warrants
– Capital leases
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Debt Service Funds

•

The accounting and financial reporting for debt
service funds are the same as for the general
fund
• The modified accrual basis of accounting is
used
– Only that portion of the long-term debt that
has matured and is currently payable is
recorded
– Interest payable on long-term debt is not
accrued; interest is recognized as a liability
only when it comes due and payable
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Permanent Funds
•

•

Permanent funds are established in those
cases in which there is a donor restriction that
the fund principal must be preserved but the
income from these permanent funds is required
to be used to benefit the government’s
programs or its general citizenry
The modified accrual basis of accounting is
used in this fund and the financial statements
for the permanent funds are the same as for all

other governmental funds

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Governmental Funds Financial
Statements
•

The required financial statements are (1) the
governmental funds balance sheet and (2) the
governmental statement of revenues,
expenditures, and changes in fund balance
– The statements will be prepared for each
individual governmental fund and these
individual fund statements are the foundation
for the financial statements prepared for the
governmental entity

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Governmental Funds Financial
Statements
– The fund-based financial statements for the
governmental entity’s annual report separately
report only major governmental funds, not
necessarily individually each of the five
governmental funds
– GASB 34 specifies that the general fund is

always a major fund
– Some of the other governmental funds may
not be determined to be major funds, and
these non-major funds are aggregated and
reported in a single column as other
governmental funds
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Governmental Funds Financial
Statements
•

Both of the following criteria should be met to be
classified as major :
1. 10 percent criterion: Total assets, liabilities, revenues,
or expenditures/expenses of that individual
governmental or enterprise fund are at least 10
percent of the corresponding total for all funds of that
category or type
2. 5 percent criterion: Total assets, liabilities, revenues,
or expenditures/expenses of the individual
governmental fund or enterprise fund are at least 5
percent of the corresponding total for all governmental
plus enterprise funds combined
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Enterprise Funds
•

Enterprise funds accounts for operations of
governmental units that charge for services
provided to the general public
– They have a measurement focus of all
economic resources and use the accrual
basis of accounting
– They report fixed assets, which are
depreciated, and long-term debt, if issued,
– They focus on income determination and
capital maintenance
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Enterprise Funds
•

The financial statements for proprietary funds
are very similar to those for commercial
entities:
1. The statement of net assets (balance sheet),
2. The statement of revenues, expenses, and
changes in fund net assets (income
statement)
3. The statement of cash flows
• Budgeting in the proprietary funds also has the
same role as in commercial entities
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Enterprise Funds
•

Financial statements for the proprietary funds
– If a governmental entity has more than one
enterprise fund, each must be individually
assessed by both the 10 percent criterion and
the 5 percent criterion tests to determine
whether it is a major fund

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Enterprise Funds
•

Statement of net assets
– Proprietary funds report their own fixed
assets, investments, and long-term liabilities
– GASB 34 specifies that the net assets section
be separated into three components:
1. Invested in capital assets, net of related debt
2. Restricted because of restrictions beyond the
government’s control
3. Unrestricted

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Enterprise Funds

•

Statement of revenues, expenses, and
changes
– A separation of operating and nonoperating
revenues and expenses is made to provide
more information value regarding the
operations of the proprietary funds

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Enterprise Funds
•

Statement of cash flows
– Because of the large number of capital asset
acquisition and financing transactions, the
GASB specified four sections:
1. Cash flows from operating activities
2. Cash flows from noncapital financing activities
3. Cash flows from capital and related financing
activities
4. Cash flows from investing activities

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Internal Service Funds
•

Internal service funds account for the financing
of goods or services provided by one
department or agency to other departments or
agencies on a cost-reimbursement basis
– These services are not available to the
general public, making it different from the
enterprise fund
– Accounting and financial reporting for internal
service funds are the same as for enterprise
funds or for commercial entities

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Internal Service Funds
•

The accrual basis is used to measure revenue
and expenses
– The balance sheet may include fixed assets,
which are depreciated, and long-term debt, if
issued
– The statement of revenue, expenses, and
changes in fund net assets reports the
income for the period
– The statement of cash flows is also required
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Trust Funds
•

•

Trust funds are a fiduciary fund type that
accounts for resources held by a government
unit in a trustee capacity
The governmental unit acts as a fiduciary for
monies or properties held on behalf of
individuals, employees, or other governmental
agencies

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Trust Funds
•

The accrual basis of accounting is used
– The financial statements required are the
statement of fiduciary net assets, and the
statement of changes in fiduciary net assets
– The statement of fiduciary net assets includes
all trusts and agency funds
– The statement of changes in fiduciary net
assets includes only the trust funds because
agency funds do not have a net asset balance

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