Essentials of Accounting for Governmental and

Not-for-Profit OrganizationsChapter 9

Accounting for Special Purpose Entities, Including Public Colleges and Universities

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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Special Purpose Entities General Purpose

Governments include: States, counties, cities, towns, and villages.

Special Purpose Entities include: Fire protection districts, park districts, and public authorities.

A Special Purpose Entity may be a component unit of a General Purpose government.

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Special Purpose Entity Reporting

If the entity is engaged in governmental and business type activities Use general GASB 34 reporting model (chapters 3-8) and report

both fund basis and government-wide financial statements

If the entity is engaged in multiple governmental activities Use general GASB 34 model, just omit enterprise funds

statements which are not applicable. Again, report both fund basis and government-wide financial statements

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Special Purpose Entity Reporting If the entity is engaged in single governmental activity

The entity can prepare governmental fund, government-wide statements, and reconciliation effects all on one statement

If the entity is engaged only in business-type activities The entity can prepare enterprise fund financial statements (no

need for government-wide)

If the entity is engaged only in fiduciary type activities The entity can prepare fiduciary fund financial statements (no

need for government-wide)

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General Fund Capital

Projects FundTotal Governmental

FundsAdjustments to

Government-wideStatement of Net Assets(position)

Assets          

Cash $ 1,500,000 $ 4,800,500 $ 6,300,500   $ 6,300,500

Investments 500,000 500,000   500,000 Taxes Receivable - Gross 200,000 200,000   200,000 Interest Receivable 5,000 5,000   5,000 Prepaid Items 12,000 12,000   12,000 Capital Assets - 35,000,000 35,000,000 Accumulated Depreciation - (7,500,000) (7,500,000)

Total Assets $ 2,217,000 $ 4,800,500 $ 7,017,500 $ 27,500,000 $ 34,517,500

Liabilities and Fund Balances  Liabilities  Accounts Payable 840,000 62,500 902,500   902,500 Accrued Liabilities 250,000 250,000   250,000 Deferred Property Taxes 65,000 65,000 (65,000) - Contracts payable - Retained % 700,000 700,000   700,000 Long-term Notes Payable - 15,000,000 15,000,000

Total Liabilities 1,155,000 762,500 1,917,500 14,935,000 16,852,500

Fund Balances  Nonspendable 12,000 12,000  Assigned -   Capital projects 58,000 4,038,000 4,096,000  Unassigned 992,000 992,000   Total Fund Balances

1,062,000 4,038,000 5,100,000         

Net Assets(position)   Net Investment in capital assets   11,800,000 Unrestricted   5,865,000

  $ 17,665,000

Example – Combined Balance Sheet, Statement of Net Assets(position)

Adjustments to convert to accrual

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PUBLIC Colleges and Universities Public Colleges and Universities are owned by a

government. Public College financial reporting is covered by GASB.

Private Colleges are not owned by a government and their reporting falls under FASB guidance -- covered in chapter 11. Although there are more private than public colleges in the

US, roughly 3/4 of the students attend public institutions.

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Public Colleges and Universities – GASB 35

GASB 35 requires statements similar to those of special purpose governments under GASB 34.

The effect is to require colleges to use the accrual basis and record long-term assets, including infrastructure, along with depreciation.

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Public College Financial Reports Although public colleges may have

governmental type activities, business type activities, or both Most public colleges, will report as governmental

units with “business activities only”. Therefore they will prepare enterprise fund

statements Exception: some community colleges that have

power to levy property taxes, and may prepare both fund level and government-wide statements

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Public College Statement of Net Assets(position)

Assets and Liabilities Are classified as current and noncurrent.

Net Assets(position) are Classified as 1) Net Investment in capital assets

2) Restricted

-- Nonexpendable and Expendable

3) Unrestricted

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Unrestricted Net Asset Deficits

Note: Deficits in unrestricted assets are common because: Colleges are not accustomed to setting aside funds for

depreciation. States seldom fund compensated absences in advance.

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Public College Statement of Revenues, Expenses and Changes in Net Assets(position)

Format: Operating Revenues include:Student Tuition net of scholarship

allowancesFederal and State GrantsAuxiliary

Less: Operating Expenses including depreciation

Plus or minus: Nonoperating Revenues and Expenses Includes state appropriations, gifts, investment income, interest on capital debt

Plus or minus: Capital appropriations, gift, endowment additions

Equals: Increase in net assets(position)Plus: Beginning net assets(position) Equals: Ending net assets(position)

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Public College Statement of Cash FlowsGASB Format

Cash flows from Operating activities must be presented using the direct method

Four Parts (described on next slide) Reconciliation of Operating income to cash flows from

operations May also have noncash financing and investing section

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Public College Statement of Cash FlowsGASB Format

Classification of Cash Flows – GASB Format Operating items: Excludes interest and dividend revenues and

expenses Noncapital Financing: Includes state appropriations and gifts

including endowments Capital Financing: Purchase of long-term assets and related

gifts, appropriations and debt repayment including interest Investing: Includes interest revenues, endowment and other

investments kept separate