Overview of Governmental Fund AccountingBudget, Accounting, and Reporting CouncilMay 29, 2014, Columbia Basin CollegeStuart Trippel, CPA, CGMA, Executive Director, Business and Student Support Services, Shoreline Community College

Concepts• Basic concepts of fund accounting are common to both

government entities and not-for-profit organizations• Contrast with for-profit organizations (businesses)• “How much money did we make?” versus “How did we spend

the money?”• Fund accounting is now primarily used in governmental

reporting; earlier it was also used by not-for-profits• FAS 117 (issued 1993) changed to reporting by net asset

classification for not-for-profits• Some not-for-profit organizations still use fund accounting

internally• Government-owned colleges and universities account by fund

but may report like not-for-profits (BTAs)

Sources of Authority• Governmental Accounting Standards Board (GASB)• Statements• Interpretations• Technical bulletins• Implementation guides• Concepts statements

• Law (RCW 43.88, appropriations acts)• Regulation (State Administrative and Accounting Manual)• Documented internal policies and procedures• Accounting literature

The Accounting Entity• For purposes of fund accounting and reporting, the accounting

entity for community and technical colleges is the State of Washington

• Comprehensive annual financial report (CAFR) prepared annually and audited by the state auditor’s office

• CAFR includes financial statements by fund as well as government-wide financial statements (intended to be more “user-friendly” and paint a broader picture)

Colleges as “Entities”• Individual CTCs are not accounting entities for purposes of the

CAFR; the state is the entity• Balances of individual accounts used by most CTCs are usually

not material to the CAFR (some larger colleges’ accounts may be material)

• College financial statements are titled “_______ College, A Component Unit of the State of Washington”

• College statements present only the portion of activities of the state that is attributable to the transactions of the college

• Audit opinion letter will state that college financial statements “do not purport to, and do not, present fairly the financial position of the state of Washington . . .”

What is a Fund?• Self-contained accounting entity• Own set of accounts• Asset• Liability• Revenue• Expenditure or expense• Fund balance or other equity

• Each fund must balance individually• In some sense, individual pro-orgs in CTC accounting are

“mini-funds”

Categories of Funds• Governmental funds• FMS Fund Types 1, 2, and 3

• Governmental non-fund accounts (not self-balancing)• FMS Fund Type 3

• Proprietary funds• FMS Fund Type 4

• Fiduciary funds• FMS Fund Type 5

Governmental Funds• General fund• FMS Fund Type 1, Fund 001

• Special revenue funds• FMS Fund Type 3; examples include Funds 145, 147, 148, 149,

846, and 860• Capital projects funds• FMS Fund Type 1, Funds 057 and 060

• Debt service funds (not used at CTC level)• Permanent funds• FMS Fund Type 2, Funds 843 (exceptional faculty endowment if

held by college) and 859 (local endowment)

Governmental “Non-Funds”• General capital assets account• FMS Fund Type 3, Fund 997

• General long-term liabilities account• FMS Fund Type 3, Fund 999

Proprietary Funds• Internal service funds• FMS Fund Type 4; examples include Fund 443 (data processing),

Fund 448 (printing), and Fund 460 (motor pool)• Enterprise funds• FMS Fund Type 4; examples include Fund 522 (associated

students), Fund 524 (bookstore), Fund 528 (parking), and Fund 570 (other auxiliary enterprises)

Fiduciary Funds• Pension trust funds (not used by CTCs)• Private-purpose trust funds (not used by CTCs)• Investment trust funds (not used by CTCs)• Agency funds• FMS Fund Type 5, Funds 790 and 840

Fund Reference Manual• www.ofm.wa.gov/fund• Generally not necessary to consult, but can sometimes be

useful • Provides links to statutory authority (which may be very

general)• Provides description of fund and sources of revenue• May not always be completely up-to-date or entirely accurate• Always fun to look at!

Measurement Focus and Basis• Measurement focus — what is being measured?• Flow of current financial resources• Flow of economic resources

• Basis of accounting — when are we recognizing events?• Modified accrual

• Revenue when measurable and available• Expenditures when liability is incurred

• Accrual• When revenue is earned• When expense is incurred or asset consumed

Application to Funds• Governmental funds• Current financial resources measurement focus• Modified accrual basis of accounting

• Proprietary and fiduciary funds• Economic resources measurement focus• Accrual basis of accounting

What’s the Difference?• Consider the issuance of bonds under two different scenarios• Scenario 1• General fund• Current financial resources measurement focus• Modified accrual basis of accounting• Government issues $2,000,000 bonds

• Scenario 2• Electric utility enterprise fund• Economic resources measurement focus• Accrual basis of accounting• Government issues $2,000,000 bonds

What’s the Difference?Dr. Cr.

Scenario 1 (General Fund)

One entry in the fund:

Cash 2,000,000

Other Financing Sources—Bond Proceeds 2,000,000

Plus entries in the GLTL non-fund account:

Current Portion of Bonds Payable 200,000

Long-Term Portion of Bonds Payable 1,800,000

Scenario 2 (Enterprise Fund)

Entry in the fund only:

Cash 2,000,000

Bonds Payable 2,000,000

What’s the Difference?• Consider the purchase of capital equipment under two

different scenarios• Scenario 3• General fund• Current financial resources measurement focus• Modified accrual basis of accounting• Government purchases $300,000 capital asset

• Scenario 4• Electric utility enterprise fund• Economic resources measurement focus• Accrual basis of accounting• Government purchases $300,000 capital asset

What’s the Difference?Dr. Cr.

Scenario 3 (General Fund)

One entry in the fund:

Expenditures—Capital Outlay 300,000

Cash 300,000

Plus an entry in the GCA non-fund account:

Equipment 300,000

Scenario 4 (Enterprise Fund)

Entry in the fund only:

Equipment 300,000

Cash 300,000

Expenditures versus Expenses• It’s the same money, the same checks being written, the same

things being purchased• The words are different• Under the modified accrual basis, we speak of expenditures• Under the accrual basis, we speak of expenses• Governmental funds record expenditures• Other funds record expenses

Budgetary Accounting• Funds sometimes use “budgetary accounting”• We actually record the budget in journal entries• This is used to allow ledgers to be prepared to assist in

preventing overspending, which can have legal ramifications• Initial budget and modifications• Estimated revenues (GL 3110)• Appropriations (or allotments) (GL 6210)• Budgetary fund balance (GL 9100)

• Encumbrances are used for purchasing control• Encumbrances (GL 6410)• Reserve for encumbrances (GL 9510)

What About Our Statements?• CTCs operate as agencies of the state of Washington and

therefore use fund accounting• We have no choice whether to use governmental fund

accounting• Since we are engaged only in business-type activities, we

report as if we were a single enterprise fund• We account one way and report another way• We need to get from one way to another• The alternative would be to keep two sets of books and enter

every transaction twice• This would truly be double-entry bookkeeping!• The state board has prepared a worksheet for us to use

Working an Example• We’re going to work a very brief, very simple example for a

general fund of a city• Remember that the general fund uses the current financial

resources measurement focus and the modified accrual basis of accounting

• This is the approach most different from what we do in our BTA-only college financial statements and in enterprise funds

• The same measurement focus and basis would apply to special revenue funds (e.g., Fund 145, Fund 148, Fund 149)

• Source: Martin Ives, Terry K. Patton, and Suesan R. Patton, Introduction to Governmental and Not-for-Profit Accounting, 7th ed. (Upper Saddle River, N.J.: Pearson Education, 2013), Exercise 4-8 (p. 120), © 2013 Pearson Education, Inc.

Transaction 1• The approved budget for the year follows• Estimated Revenues• Property tax revenues $600,000• Licenses and fees 30,000

• Appropriations• Public safety salaries $550,000• Public safety, other expenditures 90,000

Transaction 1 Journal EntryDr. Cr.

Estimated revenues—property taxes 600,000

Estimated revenues—licenses and fees 30,000

Budgetary fund balance 10,000

Appropriations—public safety salaries 550,000

Appropriations—public safety other expenditures 90,000

Transaction 2• Property taxes of $600,000 were levied, and bills totaling that

amount were mailed at the beginning of the year.• During the year, $590,000 of property taxes were collected.• Licenses and fees collected amounted to $28,000.

Transaction 2 Journal EntryDr. Cr.

Property taxes receivable 600,000

Revenues—property taxes 600,000

Cash 590,000

Property taxes receivable 590,000

Cash 28,000

Revenues—licenses and fees 28,000

Transaction 3• Salaries paid during the year amounted to $580,000;• police officers earned an additional $12,000 that will be paid

in January.

Transaction 3 Journal EntryDr. Cr.

Expenditures—public safety salaries 580,000

Cash 580,000

Expenditures—public safety salaries 12,000

Accrued salaries payable 12,000

Transaction 4• Purchase orders for supplies were placed in the amount of

$60,000.• The entire amount ordered was received during the year,

together with invoices totaling $56,000.• The invoices were approved for payment.

Transaction 4 Journal EntryDr. Cr.

Encumbrances 60,000

Budgetary fund balance reserved for encumbrances 60,000Budgetary fund balance reserved for encumbrances 60,000

Encumbrances 60,000

Expenditures—public safety other expenditures 56,000

Vouchers payable 56,000

The End• Questions• Discussion