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Accounting for State and Local Governmental Units – Governmental Funds

Accounting for State and Local Governmental Units – Governmental Funds. Chapter 19. 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

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Accounting for State and Local Governmental Units – Governmental Funds

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  1. Accounting for State and LocalGovernmental Units –Governmental Funds Chapter 19

  2. Objective 1 Prepare journal entries for governmental funds.

  3. 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

  4. Accounting for the General Fund 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

  5. Accounting for the General Fund 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

  6. Accounting for the General Fund 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

  7. 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

  8. 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.

  9. 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

  10. Accounting for Property Taxes 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

  11. Accounting for Property Taxes Specific tax bills totaling $10,000 were determined to be uncollectible. Allowance for Uncollectible Taxes – Delinquent $10,000 Taxes Receivable – Delinquent 10,000 To record write-off of uncollectible account

  12. 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?

  13. Derived Tax Revenues Accounts Receivable 150,000 Revenue 100,000 Deferred Revenue 50,000 To record sales tax activity

  14. Recording Expenditures Under modified accrual accounting, governmental funds normally recognize expenditures when they incur the related liability.

  15. Objective 2 Learn about accounting methods unique to governmental accounting – budgetary issues, encumbrance accounting, interfund transactions.

  16. 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?

  17. Accounting for Encumbrances 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?

  18. Accounting for Encumbrances Reserve for Encumbrances 150,000 Encumbrances 150,000 To reverse the encumbrance entry for snow-removal equipment Expenditures 140,000 Vouchers Payable 140,000 To record expenditures

  19. Supplies Purchases Method Consumption Method

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

  21. Supplies Reserve for Encumbrances 60,000 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

  22. 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?

  23. Capital Lease Expenditures (capital outlay) 50,000 Cash 5,000 Other Financing Sources – Capital Lease 45,000

  24. Interfund Transactions Other Financing Uses – Nonreciprocal Transfer to CPF 100,000 Other Financing Uses – Reciprocal Transfer to SRF 50,000 Other Financing Uses – Nonreciprocal Transfer to DSF 14,250 Cash 164,250 To record transfers to CPF, SRF, and DSF

  25. 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 Dr. Expenditures and Cr. Supplies Inventory.

  26. Year-End Procedures The $240,000 uncollected taxes are past due. Taxes Receivable – Delinquent 240,000 Allowance for Uncollectible Taxes – Current 20,000 Taxes Receivable – Current 240,000 Allowance for Uncollectible Taxes – Delinquent 20,000

  27. Closing Entries Dr. Appropriations Estimated Other Financing Sources Revenues Cr. Estimated Revenues Expenditures Encumbrances Other Financing Uses The budgeted and actual Unreserved Fund Balance can be either a debit or credit.

  28. Objective 3 Determine the appropriate governmental fund to be used.

  29. 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.

  30. 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.

  31. 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.

  32. 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.

  33. Sources of Financing Proceeds of bond issues Grants and shared revenues Transfers from other funds Contributions from property owners

  34. Accounting for a CapitalProject 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

  35. Accounting for a CapitalProject Fund Creation of the CPF requires a memorandum entry. The town transfers $100,000 from the general fund to the CPF. Cash 100,000 Other Financing Sources – Nonreciprocal Transfer 100,000 To record receipt of funds from the GF

  36. Accounting for a CapitalProject Fund Planning and architect’s fees are paid. Expenditures 40,000 Cash 40,000 To record payments for planning and architect’s fees

  37. Accounting for a CapitalProject Fund A contract is awarded for $950,000. Encumbrances 950,000 Reserve for Encumbrances 950,000 To record encumbrances for the amount of the contract

  38. Accounting for a CapitalProject Fund Bonds wereissued at a premium of $2,000. Cash 502,000 Other Financing Sources – Proceeds from Bond Issue 502,000 To record sale of bonds

  39. Accounting for a CapitalProject Fund Premium is transferred to the debt service fund. Other Financing Uses – Nonreciprocal Transfer to DSF 2,000 Cash 2,000 To transfer the premium to DSF

  40. Accounting for a CapitalProject Fund Construction is certified to be 50% complete and a bill for $475,000 is received from the contractor. Reserve for Encumbrances 475,000 Encumbrances 475,000 To reverse half of the amount encumbered

  41. Accounting for a CapitalProject Fund Expenditures 475,000 Contracts Payable 427,500 Retained Percentage 47,500 To record expenditures and a 10% retained percentage on the construction

  42. Accounting for a CapitalProject Fund Contracts payable, less a 10% Retained percentage, is paid. Contracts payable 427,500 Cash 427,500 To record partial payment to the contractor

  43. Accounting for a CapitalProject 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.

  44. Accounting for a CapitalProject Fund Intergovernmental revenue Due from Federal Government 400,000 Revenue 400,000 To recognize revenue from the federal grant

  45. Closing Entries Revenues – federal grant 400,000 OFS – nonreciprocal transfer from general fund 100,000 OFS – bond proceeds 502,000 Expenditures 515,000 OFU – nonreciprocal transfer to DSF 2,000 Encumbrances 475,000 Unreserved fund balance 10,000 To close the books at the end of 2001

  46. Other Items Special assessment activities Debt service funds

  47. Objective 4 Prepare governmental fund financial statements.

  48. 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

  49. 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.

  50. Objective 5 Convert fund financial statements to government-wide financial statements.

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