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Chapter 17

Governmental Entities:

General Fund

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Governmental Entities in United States include:

Federal Government State Government Counties Townships Municipalities School districts Special districts

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Objectives of Financial Reporting (GASB issued Concept Statement No. 1):

Should enable users to assess Government’s accountability Should assist users in evaluating the operating result of

Governmental Entity Should assist users in assessing the level of service provided and

Government’s ability to meet its obligation

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The principal accounting unit is fund. GASB has identified eleven types of funds group in three categories:

Governmental Funds General Fund Special Revenue Funds Capital Projects Funds Debt Service Funds Permanent Funds

Proprietary Funds Enterprise Funds Internal Service Funds

Fiduciary Funds Pension Trust Funds Investment Trust Funds Private-Purpose Trust Funds Agency Funds

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General Fund

The general fund accounts for the general activities of a government that are not accounted for by any other fund.

There is only one general fund per reporting entity.

The general fund is created at beginning of the “Unit” and it exists throughout the life of that unit.

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Governmental Fund of Governmental entities use Modified Accrual Basis of Accounting

Revenues are recognized only when they become both measurable and available

Expenditure are recognized when the related liabilities are incurred

Short term prepayments are not recognized as assets

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Budgets are legislative control over Governmental Entities

Annual Budget (Include estimated revenue

and appropriations for specific fiscal Year)

Capital Budget

(used to control expenditure for construction projects, appropriate for capital project fund)

Basic Classification of Budgets

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Budgetary accounting is used to control expenditures and to account for the levy of taxes sufficient to cover estimated expenditures.

Budgetary accounts are “estimated accounts” that are the opposite (in terms of debit and credit) from real accounts.

Entry to record budgetary accounts are made twice during the year.

At the beginning of the year to record budget. And at the end of the year to reverse and close budget.

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Journal Entry at the beginning of the year to Record Budget:

Dr Estimated Revenues

Dr Estimated Other Financing Sources

Cr Appropriations

Cr Estimated Other Financing Uses

Cr/Dr Budgetary Fund Balance

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Journal Entry at the end of the year to Reverse and close Budget:

Dr Appropriations

Cr Estimated Other Financing Uses

Dr/Cr Budgetary Fund Balance

Cr Estimated Revenues

Cr Estimated Other Financing Sources

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Entries for Recording Revenue:

Billed

Dr Taxes Receivable – Current

Cr Allowances for Uncollectible Taxes

Cr Revenue Collections

Dr Cash

Cr Taxes Receivable – Current Taxes Determined Uncollectible

Dr Allowances for Uncollectible Taxes

Cr Taxes Receivable - Current

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Journal Entry to transfer uncollected taxes to a delinquent category:

Journal entry to reclassify receivable to delinquentDr Taxes Receivable – delinquent

Cr Taxes Receivable – current

Journal entry to reclassify current allowance for uncollectible taxes to delinquent

Dr Allowance for uncollectible taxes – current

Cr Allowances for uncollectible taxes - delinquent

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Encumbrances

It is necessary to reflect not only the expenditures, but also the obligations to spend (Purchase Order).

This is done to prevent overspending of appropriations.

Subsidiary Ledgers are used to record the details of budgetary accounts, encumbrances and other general ledger accounts

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An encumbrance should not be viewed as an expenditure. Similarly the reserve for expenditure is not a liability.

Example : 1. Assume a purchase order is issued to purchase two sanitation

trucks by the City of A.The estimated Cost is $45000 each.

2. The invoice is received for one to the trucks, at an actual cost of $44000.

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Example for Encumbrance Accounting: 1. Assume a purchase order is issued to purchase two sanitation trucks by the City of A.The estimated Cost is $45000 each.2. The invoice is received for one to the trucks, at an actual cost of $44000. Assume that second truck is backordered.

1. Set up EncumbranceDr Encumbrance 90,000Cr Reserve for Encumbrance 90,000

2. Record invoice and Reverse estimated encumbrance(a) Dr Expenditure 44,000

Cr Vouchers Payable (or Cash) 44,000(b) Dr Reserve for Encumbrance 45,000

Cr Encumbrance 45,0003. At year end if encumbrance (Purchase Order) is still outstanding

(a) Dr Reserve for Encumbrance 45,000Cr Encumbrance 45,000

(b) Dr Unreserved fund balance 45,000Cr Fund Balance reserved for encumbrance 45,000

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Inventory of Supplies (The Inventory of Supplies is evidence of the availability of resources to benefit future periods and the reserve for inventory of supplies account serves as a reservation of fund balance.)

Entry when invoice received

Dr Inventory of Supplies

Cr Vouchers Payable

Entry for Use of SuppliesDr Expenditures

Cr Inventory of Supplies

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Transfers Between Funds

Types of transfers between funds can be grouped as under.

Quasi – External TransfersOperating TransfersReimbursement TransferRoutine fund transfer of Loan or Advance Nature

(Cash needed by one fund may be obtained from other funds.)

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Entry to Record Routine Transfer

Dr Due from other fund

Cr Cash

Or

Dr Cash

Cr Due to other fund

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Entry to Record Operating Transfer

Dr Other Financing Uses

Cr Cash/Other Fund

Or

Dr Cash/Other Fund

Cr Other Financing Sources

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Financial Statements for the General Fund of a Governmental Entity

Balance Sheet

And Statement of Revenues,Expenditures and

Changes in Fund Balance. (Budgeted amounts, actual amounts and variances from budgeted amounts are included in this statement)

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Closing entries for a general fund at the end of a fiscal year:

Journal entry to close the budget at year end (reverse for the same amount)

Journal entry to close Encumbrances ledger account to the Unreserved and Undesignated Fund balance account

Journal entry to close the Revenues, Other Financing Sources, Expenditures, and Other Financing Uses Ledger to the Unreserved and Undesignated Fund Balance account