Essentials of Accounting for Governmental and NotforProfit Organizations

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

• Chapter 8 Government-Wide Financial Statements
• Fixed Assets and Long-term Debt

2
Overview of Chapter 8

• Overview of entity-wide conversion process
• Example of conversion process
• Reconciliation schedules
• Fixed Assets
• Long-term Debt

3
Overview of entity-wide conversion process

• Basic entries made during the year on a fund by
  fund basis.
• Entity-wide statements are prepared at year end
  by
• converting government type funds to full accrual
  basis including inclusion of depreciation,
  long-term assets and long-term liabilities,
• Adding in the asset and liability balances from
  internal service funds along with any income
  earned through transactions with external
  parties,
• consolidating fund statements (other than
  fiduciary funds).

4
Conversion adjustments Fixed Assets

• 1. Beginning of the year long-term assets of
  government funds net of accumulated depreciation
  added to the governmental activities.
• 2. The balance in Capital expenditures is
  eliminated and replaced with fixed assets
  acquired during the year - treat as asset instead
  of expenditure.
• 3. Depreciation for the current period is
  recorded.
• 4. The balance in Proceeds from sale of fixed
  assets is eliminated, assets and depreciation
  are removed, and gain and loss are recorded.

5
Conversion adjustments Long-term Debt

• 1. Beginning of the year long-term liabilities of
  government funds are added to the governmental
  activities.
• 2. Convert this years bond proceeds to bond
  liability (and premium if applicable)
• 3. Eliminate balance in expenditure - bond
  principal and reduce the balance of the
  liability
• 4. Amortize premium/discount amortization
• 5. Accrue interest on bonds outstanding

6
Conversion adjustments Other

• 1. Deferred Rev. Property taxes deferred under
  the 60 day rule may need to be recognized under
  the accrual basis
• 2. Expenses not recorded in government funds per
  current economic resources model may need to be
  accrued (e.g. The long-term portion of
  compensated absences )
• 3. Other accruals as necessary

7
What do you think we do with Internal Service
Funds?

• Internal Service Funds are included in the
  Government-Wide Financial Statements as (select
  the best answer)
• Governmental Activities
• Business-like Activities
• It depends on whether the fund primarily serves
  the general government or enterprise funds

8
Answer What to do with Internal Service
Funds

• Answer It Depends. Generally they are included
  with the Governmental Activities. However
• Although internal service funds are reported as
  proprietary funds, the activities accounted for
  in them are usually more governmental than
  business-type in nature. If enterprise funds
  are
• the predominant or only participant in an
  internal service fund, however, the government
  should report that internal service funds
  residual assets and liabilities with the
  business-type activities. (GASB 34)

9
Worksheet entries for internal service funds
included in governmental activities

• 1. Add Internal Service Funds Assets and
  Liabilities to the Governmental Activities
  section of the Government-wide Statement of Net
  Assets.
• 2. Income of the Internal Service Fund with
  entities external to the governmental activities
  should be brought into the Statement of
  Activities.
• 3. Eliminate Interfund activities between the
  Internal Service Fund and other Funds represented
  within Governmental Activities.

10
Statement of Net Assets

• Separate columns for Government and Business type
  activities (statements are consolidated within
  columns)
• Would have another column for component units if
  needed.
• Government Activities column includes government
  type funds and (most) Internal service funds.
• Fiduciary Net Assets are not included because the
  overall SLG cannot use these to fund day to day
  operations.

11
Statement of Activities

• Net cost approach
• Functional expenses less allocable program
  revenues shows net cost.
• Net cost less general revenues, special items and
  transfers shows overall change in net assets for
  Governmental and Business type activities.
• Change plus beginning net assets ending balance

12
Required Reconciliation of Governmental Fund
Balances to Government-wide Net Assets

• Starts with Government fund balances
• Summarizes all the changes made to get
  entity-wide government net assets
• Note typical reconciliation items include
• Addition of long-term assets ()
• Inclusion of ISF net assets (usually )
• Handling of deferred revenue as revenue instead
  of as liability ()
• Addition of long-term liabilities (-)

13
Required Activity Statement Reconciliation

• Shows difference in accrual vs. modified accrual
• Examples
• Excess of depreciation over capital outlay
  expenditures
• Gain/loss on sale of assets vs. full proceeds as
  a OFS
• Deferred revenue items treated as revenues under
  accrual
• Difference in bond proceeds and retirements
• Net ISF profit from government funds
• GF to ISF transfers
• Difference in bond premium as OFS for government
  type fund vs difference in expense vs.
  expenditure because of premium amortizations

14
General Fixed Assets Accounting

• While no specific method of keeping track of
  long-term assets is required, obviously some type
  of records should be kept on the cost, location,
  source of funding, and life of all fixed assets
  in order to support amounts reported in the
  Entity Wide Stmts.
• Historically this was done in the General Fixed
  Asset Account Group

15
GASB 34 Transition infrastructure assets

• During the transition to GASB 34 some governments
  will begin reporting Infrastructure Assets
  prospectively and add past assets later in a
  four year transition period.
• Appraisals and other estimations may be needed to
  approximate original costs of existing assets
  back to 1980.
• SLGs under 10 M will have the option of
  recording these long-term assets on a prospective
  basis only ignoring prior years long-term
  assets.

16
Collections

• Capitalized, exhaustible
• Record as asset and depreciate
• Capitalized, inexhaustible
• Record as asset, do not depreciate
• Noncapitalization option (reported as expense if
  not capitalized)
• Must be held for public exhibit, education or
  research
• Protected
• Proceeds of any sale must be put back into other
  collections

17
Infrastructure

• Examples include roads, bridges, drainage
  systems, sewer systems, dams, lighting
• Capitalization was optional before GASB 34
• Once capitalized may depreciation or use
  modified approach which does not require
  depreciation if assets adequately maintained

18
Modified Approach to Infrastructure Accounting

• Must
• Maintain inventory
• Do condition assessments every 3 yrs
• Estimate annual cost to maintain at target level
• And,
• Document that target maintenance level met
• Under modified approach, cost of maintaining
  charged to expense rather than taking
  depreciation.
• Cost to extend the life of existing assets is
  charged to expense, rather than capitalized under
  either option

19
Long-term Debt

• Common Types
• Most general obligation bonds
• Long-term lease obligation amounts
• Compensated absence amounts
• Claims and judgments
• Pension liabilities
• Landfill closure liabilities

20
Long Term Debt Additional Reporting

• Schedule of Changes in Long-Term (LT) Debt
• Shows difference in new debt vs. amount paid off.
• Schedule of Debt Service Requirements to Maturity
  
• Helps users see any future ballooning of debt
  service that may require tax increases.
• Computation of Legal Debt Margin
• (Shows additional debt that can be legally
  issued.)
• Schedule of Direct and Overlapping Debt
• Helps citizens see their total debt obligation.