Essentials of Accounting for Governmental and NotforProfit Organizations

1
Essentials of Accounting for Governmental and
Not-for-Profit Organizations

• Chapter 4 Accounting for the General and Special
  Revenue Funds

2
Overview of Chapter 4

• Accounting for Nonexchange Transactions
• Modified Accrual Basis
• Common Entries during the year
• The closing process

3
Exchange vs Nonexchange Transactions

• GASB Statement No. 33 indicates the timing will
  be different for
• Exchange and exchange-like transactions
• These are like true sales you pay a certain
  amount and receive equivalent value in return
• nonexchange transactions
• For taxes and certain other transactions you pay
  more or less than the value of services received

4
Exchange Transactions

• Revenue resulting from exchange transactions is
  recognized in the period(s) that it is earned

• For example, revenue from the rental of
  government property would be recognized over the
  term of the lease

5
Types of Nonexchange Transactions

• Derived tax revenues
• sales, income, motor fuel taxes
• Imposed nonexchange revenues
• property tax, special assessments,
  fines/forfeits
• Government mandated (expenditures)
• federal requires lower level expenditures
• Voluntary nonexchange transactions
• grants, donations

6
Revenue Recognition for Derived Taxes

• Derived Tax Taxes assessed on exchange
  transactions. These include sales taxes, income
  taxes, and motor fuel taxes.
• Tax revenue on derived tax revenues is recognized
  when the underlying transaction occurs (for
  example, record sales taxes as retail sales are
  made) or when the tax is received by the
  government, whichever is earlier.

7
Revenue Recognition for Imposed Taxes

• Imposed Tax Revenues Taxes and fines imposed by
  governments but not related to specific
  transactions. These include property taxes,
  special assessment property taxes, and fines and
  forfeits.
• Recognize the asset (generally a tax receivable)
  when an enforceable claim exists or when the tax
  is received by the government, whichever is
  earlier.
• Revenues for property taxes should be recognized
  in the period for which the taxes are levied.

8
Revenue Recognition for Intergovernment Grants

• Intergovernment Grants These revenues result from
  the Federal or State Government making grants to
  other governments. The grants are given to
  support specific activities.
• Recognize the revenue when the eligibility
  requirements are satisfied.

9
Revenue Recognition for Voluntary Grants

• Voluntary Grants Typically these are resources
  provided by individuals to support specific
  activities (e.g. expanding the book holdings at
  the library).
• Recognize the revenue when the eligibility
  requirements are satisfied.

10
Review Modified Accrual vs. Accrual

• Accrual
• Recognize revenues when earned
• Match expenses against the revenues
• Modified Accrual
• Recognize revenues when measurable and available
  (available to pay this years bills for example,
  property taxes received within 60 days of year
  end)
• Recognize expenditures when the liability is
  incurred no attempt to match to revenues, match
  to period of occurrence only
• Exception recognize interest and principal
  payments as expenditures when DUE

11
Modified Accrual Revenue Cycle

• Property tax for 2004 levied 1,000,000
• 800,000 is collected in calendar year 2004
• 120,000 is collected in January and February
  2005
• 80,000 in collected in March and April 2005
• ENTRIES DURING 2004
• Record levy Taxes receivable
  1,000,000
• Revenue (tentative) 1,000,000
• 2004 collections Cash 800,000
• Taxes Receivable
  800,000
• Year end adjustment Revenue 80,000
• Deferred Revenue 80,000
• (Receipts of property taxes over 60 days after
  year end will be a 2005 revenue)

12
Modified Accrual Expenditure Cycle

• Supplies are ordered at an estimated cost of
  3,000
• Supplies are received with an actual cost of
  3,000 plus shipping of 250
• Invoice from the supplies is paid
• Journal Entries
• Place Order Encumbrances 3,000
• Budgetary Fund Balance
• Reserve for Encumbrances 3,000
• Receive Goods Expenditures 3,250
• Accounts Payable 3,250
• Budgetary Fund Balance
• Reserve for Encumbrances 3,000
• Encumbrances 3,000
• Payment Accounts Payable 3,250
• Cash 3,250

13
Quasi-External Transactions

• These are between funds but they are
  exchange-like transactions with an objective
  basis for determining the amount
• Treated as revenue and expense or expenditure
• Example, sale of electricity by the Electricity
  Enterprise fund to the General Fund
• Would be treated as revenue for Enterprise Fund
  and expenditure for General Fund
• GASB 34 calls these Interfund Services Provided
  Used instead of quasi-external

14
Reimbursements

• Assume the UPS delivers a 10,000 shipment of
  supplies which are initially recorded in the
  General Fund as follows
• GF Expenditures 10,000
• Liability 10,000
• Later, it is discovered that 2,000 of these
  supplies were for the Electricity Enterprise
  fund, and the supplies are given to the
  Electricity fund. The following would be
  recorded
• GF Due from Electricity 2,000
• Expenditures 2,000
• EF Expenditures 2,000
• Due to General Fund 2000

15
Reimbursements Contd

• Reimbursements do not show up separately on the
  Activity or Budget statement, but are internal
  balance corrections

• When the reimbursement is made, the expense or
  expenditure is recorded in the correct fund and
  the incorrect expense or expenditure is decreased

16
Transfers

• Any shifting of resources from one fund to
  another where there is no expectation that the
  amounts will be repaid.
• Transfers In are considered Other Financing
  Sources
• Transfers Out are considered Other Financing Uses
• Recurring Transfers such as for debt service may
  be built into the budget

17
The Closing Process - Slide 1

• Background the business closing process
• Close revenues and expenses to income summary,
  close income summary and withdrawals to Retained
  Earnings or Capital

18
The Closing Process - Slide 2

• Closing process for government type funds needs
  to accomplish the following
• Get rid of budgetary accounts
• Close Revenues, expenditures, encumbrances, and
  related other financing sources or uses to Fund
  Balance
• Reclassify the Budgetary Fund Balance Reserved
  for Encumbrances to Fund Balance Reserved for
  Encumbrances