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1. Financial Accounting and Reporting

Update 14

A MODULE OF THE

TEXAS EDUCATION AGENCYFINANCIAL ACCOUNTABILITY SYSTEM

RESOURCE GUIDE

Published by

Texas Education AgencyAustin, TexasJanuary 2010

Note: This document is formatted primarily for use on the Internet. Certain underlined passages may appearin the paper format representing hyperlinks to sites on the Internet that are provided for the benefit of

individuals reading this document in an electronic format.

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January 2010 Texas Education Agency - Resource Guide

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Financial Accounting and Reporting . i

Contents

1. Financial Accounting and Reporting ......................................................................... 1

1.1 Financial Accounting Structure .......................................................................... 11.1.1 GAAP and Legal Compliance ................................................................ 21.1.2 Legal Requirements ................................................................................ 31.1.3 Accounting Principles and Policies ........................................................ 41.1.4 Fund Accounting .................................................................................. 16

1.1.4.1 Description of Fund Types ................................................................... 171.1.4.2 Description of Fund Code Categories and Capital Asset and Long-Term

Liability Accounts ................................................................................ 181.1.5 Basis of Accounting ............................................................................. 231.1.6 Encumbrance Accounting .................................................................... 25

1.1.6.1 Encumbrance Liquidation .................................................................... 26

1.1.6.2 Treatment at Year End ......................................................................... 261.1.7 Interfund Transactions .......................................................................... 271.1.8 Nonexchange Transactions ................................................................... 281.1.9 Accounting Changes ............................................................................. 40

1.1.9.1 Accounting Treatment .......................................................................... 411.1.9.2 Correction of Errors .............................................................................. 42

1.1.10 Hierarchy of GAAP for State and Local Governments ........................ 431.1.11 GASB Statement Summaries ............................................................... 451.1.12 Change in Fiscal Year .......................................................................... 53

1.2 Financial Statement Elements .......................................................................... 581.2.1 Cash and Investments ........................................................................... 58

1.2.1.1 Definitions ............................................................................................ 591.2.1.2 Public Funds Investment ...................................................................... 611.2.1.3 Financial Statement Presentation and Disclosures ............................... 641.2.1.4 Interest Income and Accrued Interest Receivable ................................ 701.2.1.5 Depository Contracts ............................................................................ 71

1.2.2 Accounts Receivable ............................................................................ 711.2.2.1 Accounting for Receivables in Different Fund Types .......................... 721.2.2.2 Property Taxes ...................................................................................... 721.2.2.3 Allowance for Bad Debts ..................................................................... 741.2.2.4 Other Receivables ................................................................................. 75

1.2.3 Inventory .............................................................................................. 77

1.2.3.1 Monitoring and Valuation of Inventory ............................................... 781.2.3.2 Inventory Accounting ........................................................................... 791.2.3.3 Inventory Reporting ............................................................................. 801.2.3.4 Physical Inventories ............................................................................. 81

1.2.4 Capital Assets ....................................................................................... 821.2.4.1 Capital Asset Recording ....................................................................... 831.2.4.2 Basis of Capital Assets ......................................................................... 851.2.4.3 Property Accounts for Capital Assets .................................................. 86

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ii . Financial Accounting and Reporting.

Texas Education Agency - Resource Guide January 2010

1.2.4.4 Accounting for Maintenance, Additions and Betterments ....................881.2.4.5 Accounting for Impairment of Capital Assets .......................................891.2.4.6 Depreciation ..........................................................................................941.2.4.7 Control of Capital Assets ......................................................................961.2.4.8 Inventories of Capital Assets .................................................................99

1.2.4.9 Reporting of Capital Assets ...................................................................991.2.4.10 Intangible Assets .................................................................................1001.2.5 Liabilities .............................................................................................101

1.2.5.1 Accounts Payable ................................................................................1021.2.5.2 Payroll Liabilities ................................................................................1021.2.5.3 Arbitrage Rebate Liabilities ................................................................1131.2.5.4 Accrued Expenses ...............................................................................1141.2.5.5 Due to/from Other Funds ....................................................................1151.2.5.6 Due to Student Groups ........................................................................1161.2.5.7 Contractor Withholding .......................................................................116

1.2.6 Debt .....................................................................................................116

1.2.6.1 Recording of Long Term Debt in Different Types of Funds ..............1181.2.6.2 Types of Debt Instruments ..................................................................1201.2.6.3 Debt Refundings ..................................................................................1261.2.6.4 Other Disclosure Requirements ..........................................................131

1.2.7 Risk Financing and Related Insurance Issues .....................................1311.2.7.1 Accounting for Self-Insurance, Contingencies, Claims and Judgments1331.2.7.2 Accounting of Self-Insurance and Loss Contingencies in Different

Types of Funds ....................................................................................1341.2.7.3 Participation in Public Entity Risk Pools ............................................1351.2.7.4 Participating in a Public Entity Risk Pool without Transfer of Risk ..1361.2.7.5 Participating in a Public Entity Risk Pool with Transfer of Risk ........136

1.2.8 Subsequent Events ...............................................................................1371.2.9 Fund Equity .........................................................................................138

1.2.9.1 Fund Equity Pre-GASB 54 (Fiscal years ending in 2010 and earlier) 1391.2.9.2 Post-GASB 54 (Fiscal years ending in 2011 and later) ......................1441.2.9.3 Financial Statement Presentation and Disclosure ...............................148

1.2.10 Revenues .............................................................................................1511.2.10.1 Accounting for Foundation School Program Revenues ......................1531.2.10.2 Gifts and Bequests ...............................................................................161

1.2.11 Expenditures/expenses ........................................................................1641.2.11.1 Types of Expenditures and the Accounting Treatment .......................1641.2.11.2 Expenses and Expenditures .................................................................1661.2.11.3 Cocurricular/Extracurricular Expenditure Reimbursement Issues ......1671.2.11.4 Real Property Expenditure Issues .......................................................168

1.3 Special Accounting Treatments ......................................................................1701.3.1 Shared Services Arrangements ............................................................170

1.3.1.1 General Description of Shared Services Arrangements ......................1711.3.1.2 Separate School District ......................................................................1761.3.1.3 Definitions ...........................................................................................1761.3.1.4 Administrative Guidelines and Considerations ...................................177

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Financial Accounting and Reporting . iii

1.3.1.5 Determination of Accounting and Reporting Treatment .................... 1821.3.1.6 Accounting and Reporting Treatment Guidance ................................ 1851.3.1.7 Required Components of Special Education Shared Services

Arrangements ..................................................................................... 2011.3.2 Food Service Operations .................................................................... 203

1.3.2.1 Funds .................................................................................................. 2031.3.2.2 Accounting Issues ............................................................................... 2051.3.2.3 Revenue Recognition ......................................................................... 2091.3.2.4 Fund Balance ...................................................................................... 210

1.3.3 On-Behalf Teacher Retirement System Payments ............................. 2111.3.3.1 Overview of Teacher Retirement Contributions and Payments ......... 2111.3.3.2 On-Behalf Payment Calculation and Accounting Methodology ........ 212

1.3.4 Payments to Other Educational Entities ............................................. 2151.3.4.1 Charter Schools .................................................................................. 2161.3.4.2 Public Education Grant Programs ...................................................... 2161.3.4.3 Juvenile Justice Alternative Education Programs .............................. 217

1.4 Account Codes ............................................................................................... 2181.4.1 Overview of Account Codes .............................................................. 2181.4.2 Fund Codes ......................................................................................... 2231.4.3 Function Codes ................................................................................... 2931.4.4 Asset Object Codes ............................................................................ 3401.4.5 Liability Object Codes ........................................................................ 3531.4.6 Fund Balances/Net Assets Object Codes ........................................... 3631.4.7 Clearing Account Object Codes ......................................................... 3731.4.8 Revenue Object Codes ....................................................................... 3751.4.9 Expenditure/Expense Object Codes ................................................... 4111.4.10 Other Resources/Non-Operating Revenue Object Codes .................. 459

1.4.11 Other Uses/Non-Operating Expenses Object Codes .......................... 4671.4.12 Optional Codes 1 and 2 ...................................................................... 4731.4.13 Organization Codes ............................................................................ 475

1.4.13.1 Campus Accounting/Coding .............................................................. 4761.4.13.2 Compliance Monitoring - Organization Codes .................................. 477

1.4.14 Fiscal Year Code ................................................................................ 4831.4.15 Program Intent Codes ......................................................................... 484

1.4.15.1 Basic and Enhanced Program Intent Codes ....................................... 4851.4.15.2 Athletics and Related Activities Program Intent Code ...................... 4851.4.15.3 Undistributed Program Intent Code ................................................... 4861.4.15.4 Compliance Monitoring - Program Intent Codes ............................... 487

1.4.16 Optional Code 3 .................................................................................. 5071.4.17 Optional Codes 4 and 5 ...................................................................... 5111.4.18 Data Control Codes ............................................................................ 512

1.5 Internal Control .............................................................................................. 5131.5.1 Internal Control - Defined .................................................................. 513

1.5.1.1 Control Environment .......................................................................... 5141.5.1.2 Risk Assessment ................................................................................. 5151.5.1.3 Control Activities ............................................................................... 516

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1.5.1.4 Information and Communication ........................................................5161.5.1.5 Monitoring ...........................................................................................517

1.5.2 Common Types of Control Procedures ...............................................5181.5.2.1 Controls over Unauthorized Access or Obligations ............................5181.5.2.2 Controls over Authorized Access or Obligations ................................519

1.5.2.3 Reconciliations and Comparison of Assets with Records ...................5201.5.2.4 Analytical Reviews .............................................................................5201.5.2.5 Authorization and Approval ................................................................5201.5.2.6 Reviews of Output ...............................................................................5201.5.2.7 Transactional Reviews ........................................................................5211.5.2.8 General Computer Controls ................................................................521

1.5.3 Internal Control Check List .................................................................5221.5.4 Suggested Areas for Consideration of the Internal Control Structure 527

1.5.4.1 Budgets and Planning ..........................................................................5281.5.4.2 Cash .....................................................................................................5301.5.4.3 Investments and Investment-Related Activity ....................................534

1.5.4.4 Revenues and Receivables ..................................................................5371.5.4.5 Capital Assets ......................................................................................5431.5.4.6 Expenses/Expenditures and Liabilities................................................5471.5.4.7 Employee Compensation .....................................................................5551.5.4.8 Information Technology ......................................................................5591.5.4.9 Financial Reporting .............................................................................562

1.6 Cost Accounting ..............................................................................................5651.6.1 Indirect Cost Rates ..............................................................................565

1.6.1.1 Purpose of Indirect Cost Rates ............................................................5661.6.1.2 Types of Indirect Cost Rates ...............................................................5681.6.1.3 Calculation of Indirect Cost Rates ......................................................569

1.6.1.4 Indirect Costs on TEA State-Funded Grants .......................................5801.6.2 Indirect Cost Revenue .........................................................................5801.6.2.1 Calculation ..........................................................................................5801.6.2.2 Limits ..................................................................................................5821.6.2.3 Shared Services Arrangements ............................................................5821.6.2.4 Recording Indirect Cost Revenues ......................................................583

1.6.3 Cost Accounting Methodology ...........................................................5851.6.3.1 Accounting Considerations .................................................................585

1.6.4 Salary and Fringe Benefits Allocations ...............................................5891.6.4.1 Allocation of Salaries ..........................................................................5901.6.4.2 Fringe Benefits ....................................................................................596

1.6.4.3 Cost Allocation Methodology .............................................................6011.6.4.4 Administrative Cost .............................................................................607

1.7 Reporting .........................................................................................................6081.7.1 Objectives of Financial Reporting .......................................................608

1.7.1.1 Accountability .....................................................................................6091.7.1.2 Evaluating Operating Results ..............................................................6111.7.1.3 Assessing Level of Services and Ability to Meet Obligations ............611

1.7.2 Financial Reporting and Data Submission ..........................................612

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Financial Accounting and Reporting . v

1.7.2.1 Financial Statement Elements ............................................................ 6141.7.2.2 Government-Wide Financial Statements ............................................ 6151.7.2.3 Fund Financial Statements ................................................................. 6151.7.2.4 Major Changes to Financial Statements Under GASB 34 ................. 616

1.7.3 The Financial Reporting Entity .......................................................... 624

1.7.3.1 Defining the Financial Reporting Entity ............................................ 6241.7.3.2 Reporting of Component Units .......................................................... 6261.7.3.3 Reporting Relationships with Entities other than Component Units . 629

1.7.4 Management’s Discussion & Analysis ............................................... 6361.7.4.1 Contents .............................................................................................. 6371.7.4.2 Letter of Transmittal and MD&A ...................................................... 6391.7.4.3 Sample MD&A ................................................................................... 640

1.7.5 Government-Wide Financial Statements ............................................ 6621.7.5.1 Measurement Focus and Basis of Accounting ................................... 6621.7.5.2 Statement of Net Assets ..................................................................... 6631.7.5.3 Statement of Activities ....................................................................... 666

1.7.6 Fund Financial Statements ................................................................. 6691.7.6.1 Governmental Fund Financial Statements ......................................... 6701.7.6.2 Proprietary Fund Financial Statements .............................................. 6721.7.6.3 Fiduciary Fund Financial Statements ................................................. 683

1.7.7 Notes to Financial Statements ............................................................ 6841.7.8 Required Supplementary Information (RSI) Other Than MD&A ..... 688

1.8 Federal/State Administrative Requirements and Cost Principles................... 6891.8.1 Federal Regulations ............................................................................ 690

1.8.1.1 Allowable Cost Principles .................................................................. 6901.8.1.2 Administrative Requirements ............................................................. 7331.8.1.3 Standards for Financial Management Systems .................................. 743

1.8.1.4 Special Grant Conditions for “High-risk” Grantees ........................... 7441.8.2 State Regulations ................................................................................ 7451.8.2.1 Introduction ........................................................................................ 7451.8.2.2 Nepotism ............................................................................................ 7451.8.2.3 Pecuniary Interest ............................................................................... 7471.8.2.4 Depository Transactions ..................................................................... 7471.8.2.5 Contracts and Purchases - Competitive Procurement ........................ 7501.8.2.6 Other Compliance Matters ................................................................. 7501.8.2.7 State Program Indirect Cost Rates ...................................................... 7501.8.2.8 Records Retention .............................................................................. 7511.8.2.9 Electricity, Water, & Natural Gas Consumption ................................ 751

1.9 Tax Concerns and Obligations ....................................................................... 7511.9.1 Arbitrage Rebate on Tax-Exempt Bonds ........................................... 7511.9.2 Other Tax Issues ................................................................................. 752

1.9.2.1 Salaries and Wages Reporting: Form W-2 ........................................ 7521.9.2.2 Other Federal Tax Issues .................................................................... 7541.9.2.3 Application of Texas Sales and Use Taxes ........................................ 7611.9.2.4 Exempt Organizations ........................................................................ 7611.9.2.5 List of Publications ............................................................................. 763

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1.9.3 Technical Advice on Texas House Bill 3459 ......................................7641.9.4 Treatment of Rehired Annuitants ........................................................7651.9.5 Salary Reduction Agreements .............................................................767

Acronyms Used In FAR .................................................................................................768

Bibliography ...................................................................................................................772

Index ……………………………………………………………………………….775

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Financial Accounting and Reporting . vii

List of Exhibits

Exhibit 1. Summary Statement of Principles of Accounting and Reporting (asadapted from GASB Codification Section 1100) ................................... 5

Exhibit 2. Matrix of Fund Usage ........................................................................... 19Exhibit 3. Texas Tax Code .................................................................................... 75Exhibit 4. Computation of Gain/Loss on Disposition ........................................... 93Exhibit 5. Termination Method Approach Presented in GASB Codification

Section C60 ........................................................................................ 107Exhibit 6. Vesting Method Approach Presented in GASB Codification Section

C60 ..................................................................................................... 108Exhibit 7. Recording Arbitrage Rebate Liabilities .............................................. 113Exhibit 8. Accounting Record Balances ............................................................. 115Exhibit 9. Financial Statement Balances ............................................................. 116Exhibit 10. Matrix of Debt Transactions ............................................................... 120

Exhibit 11. Elements of Fund Balance .................................................................. 140Exhibit 12. FSP Tier I Formula ............................................................................. 154Exhibit 13. Formula for the Local Share of Tier I ................................................ 155Exhibit 14. Formula for the State’s Share of Tier I ............................................... 155Exhibit 15. Sample Journal Entry to Record Receivable for State Funds ............ 158Exhibit 16. Sample Journal Entry to Defer FSP Revenues ................................... 159Exhibit 17. Sample Journal Entry to Record Reversal of FSP Revenue Deferral 159Exhibit 18. Sample Journal Entry to Record Purchase of WADA from the State 160Exhibit 19. Sample Journal Entry to Record Revenue from the Sale of WADA . 161Exhibit 20. Sample Journal Entry for District Purchasing WADA from Partner

District ................................................................................................ 161

Exhibit 21. Comparison of Shared Services Arrangements to Contracted Services.170Exhibit 22. Determining Accounting and Reporting Treatment ........................... 184Exhibit 23. Model #1 ............................................................................................. 185Exhibit 24. Model #2 ............................................................................................. 190Exhibit 25. Model #3 ............................................................................................. 194Exhibit 26. Food Service Operation Fund Decision Chart ................................... 205Exhibit 27. Accounting Issues ............................................................................... 206Exhibit 28. Possible Methodology for Calculating and Recording On-Behalf

Payment Expenditures ........................................................................ 213Exhibit 29. Account Code Structure ..................................................................... 219Exhibit 30. Fund Code Structure ........................................................................... 223

Exhibit 31. Function Code Structure ..................................................................... 293Exhibit 32. Asset Object Code Structure .............................................................. 340Exhibit 33. Liability Object Code Structure ......................................................... 354Exhibit 34. Fund Balances/Net Assets Object Code Structure ............................. 364Exhibit 35. Clearing Account Object Code Structure ........................................... 373Exhibit 36. Revenue Object Code Structure ......................................................... 376Exhibit 37. Expenditure/Expense Object Code Structure ..................................... 412Exhibit 38. Other Resource/Non-Operating Revenue Object Code Structure ...... 460

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Exhibit 39. Other Uses/Non-Operating Expenses Object Code Structure .............468Exhibit 40. Optional Codes 1 and 2 Structure .......................................................473Exhibit 41. Organization Code Structure ...............................................................475Exhibit 42. Fiscal Year Code Structure .................................................................483Exhibit 43. Program Intent Code Structure ............................................................485

Exhibit 44. Optional Code 3 Structure ...................................................................508Exhibit 45. Optional Codes 4 and 5 Structure .......................................................511Exhibit 46. Internal Control Check List .................................................................522Exhibit 47. Guide for the Analysis of Function 41 Expenditure Accounts (Audit

Report Exhibit J-2) ..............................................................................574Exhibit 48. Indirect Cost Rate Calculation ............................................................579Exhibit 49. Calculation of Indirect Cost Revenues with Adjustment for

Unallowable Costs ...............................................................................580Exhibit 50. Calculation of Indirect Cost Revenues with Program Allocation

Limitations ..........................................................................................581Exhibit 51. Salary Allocation for Teacher Providing Multiple Services ...............594

Exhibit 52. Example of Health Insurance Allocation ............................................597Exhibit 53. Allocation of TRS Matching Expenditures .........................................598Exhibit 54. Calculation of TRS Matching Expenditure Components ....................599Exhibit 55. Example of Cost Allocation Based on FTEs .......................................601Exhibit 56. A Comparative Overview of Major Changes to Financial Statements

Under GASB Statement No. 34 ..........................................................617Exhibit 57. GASB Statements No. 14 and 39 The Financial Reporting Entity

Evaluation of Potential Component Units ...........................................632Exhibit 58. Illustration of Direct Method ...............................................................678Exhibit 59. Consanguinity Relation Blood Relation to Trustee.............................746Exhibit 60. Affinity Kinship Marriage/Blood Relations of Spouse .......................746Exhibit 61. Indirect Cost Allowable Percentage ....................................................750

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Financial Accounting and Reporting . 1

1. Financial Accounting and

Reporting

1.1 Financial Accounting Structure

The purpose of financial accounting and reporting by state and local governmental entities

is to accumulate and provide information to facilitate decision making by various usergroups. Certain requirements have been established requiring school districts to maintain proper budgeting and financial accounting and reporting systems. In addition, principlesand policies to ensure uniformity in accounting have been developed. Specifically, thefollowing financial accounting and reporting topics are:

• GAAP and legal compliance

• Legal requirements

• Accounting principles and policies

• Fund accounting

• Basis of accounting

• Encumbrance accounting

• Interfund transactions

• Nonexchange transactions

• Accounting changes

• Hierarchy of GAAP for state and local governments

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2 . Financial Accounting and Reporting.


• GASB statement summaries

• Change in fiscal year

1.1.1 GAAP and Legal Compliance

Guidelines for financial accounting and reporting are derived from generally acceptedaccounting principles (GAAP). School districts are required to adhere to GAAP.

Legal and contractual considerations typical of the government environment are reflectedin the fund structure basis of accounting and are a major factor distinguishinggovernmental accounting from commercial accounting.

Governmental financial operations are regulated by various kinds of legal provisions.Other types of financial matters often are also regulated by charters, ordinances,resolutions, governing body orders, and intergovernmental grant or contract regulations.

The annual operating budget is one of the most important of all legal documents governingfinancial transactions. Upon board of trustee approval, the expenditure requests in the

budget become binding appropriations that may not legally be exceeded by the schooldistrict without an amendment. Taxes and other revenue sources that finance budgetedexpenditures usually require board enactment.

An important function of governmental accounting systems is to enable administrators toassure and report on compliance with finance-related legal provisions. This assurance andreporting means that the accounting system, its terminology, fund structure and proceduresmust be adapted to satisfy finance related legal requirements. However, the basic financialstatements of school districts should be prepared in conformity with GAAP.

In some instances legal provisions may conflict with GAAP. These differences often occur because constitutional, charter or other legal provisions governing fiscal operations aredifficult to change. Conflicts between legal provisions and GAAP do not requiremaintaining two accounting systems. Rather, the accounting system may be maintained ona legal compliance basis but should include sufficient additional reports to permit GAAP- based reporting. If a school district prepares the budget on the cash basis or another basisnot consistent with GAAP, financial management and reporting becomes complicated.

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If legal requirements dictate another basis of accounts or reports, school districts shouldmaintain the accounts and prepare budgetary reports on the legally prescribed budgetary

basis to determine and to demonstrate legal compliance and maintain sufficientsupplemental records to permit presentation of financial statements in conformity withGAAP. When financial statements prepared in conformity with GAAP do not satisfy legaland contractual requirements, the school district should present such additional schedulesand narrative explanations in the comprehensive annual financial report as may benecessary to report its legal compliance responsibilities and accountabilities.

1.1.2 Legal Requirements

The Texas Education Code (TEC) and other state statutes contain the legal requirementsfor public school finance, accounting, budgeting and reporting. In summary, the staterequirements are:

Accounting - A standard school fiscal accounting system must be adopted and installed bythe board of trustees of each school district. The accounting system must conform togenerally accepted accounting principles. This accounting system must also meet at leastthe minimum requirements prescribed by the state board of education, subject to reviewand comment by the state auditor.

Auditing - Accounting documents and records must be audited annually by an independentauditor. Texas Education Agency (TEA) is charged with review of the independent auditof the local education agencies. The Auditing and Data Collection & Reporting modules ofthis Resource Guide provide additional information regarding audits of school districts andfinancial reporting.

Budgeting - Not later than August 20 (June 19 for school districts with a July 1 fiscal yearstart date) of each year, the superintendent (or designee) must prepare a budget for theschool district. The legal requirements for funds to be budgeted are included in the

Budgeting module of the Resource Guide. The budget must be adopted beforeexpenditures can be made, and this adoption must be prior to the setting of the tax rate forthe budget year. The budget must be itemized in detail according to classification and purpose of expenditure, and must be prepared according to the rules and regulationsestablished by the state board of education. The adopted budget, as necessarily amended,shall be filed with TEA through the Public Education Information Management System (PEIMS) as of the date prescribed by TEA. The school district’s board minutes should beused to record the adoption of the budget and any amendments to the budget. Budget

http://www.statutes.legis.state.tx.us/?link=EDhttp://www.statutes.legis.state.tx.us/?link=EDhttp://www.statutes.legis.state.tx.us/?link=EDhttp://www.tea.state.tx.us/index4.aspx?id=3012http://www.tea.state.tx.us/index4.aspx?id=3012http://www.tea.state.tx.us/index4.aspx?id=3012http://www.tea.state.tx.us/index4.aspx?id=3012http://www.statutes.legis.state.tx.us/?link=ED

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amendments are to be made prior to exceeding a detailed functional expenditure category,and these amendments are to be recorded in the board minutes. Filing of the final amended budget with TEA is satisfied whenever the annual audit report, showing a comparison of budget amounts with actual amounts, is filed. The Budgeting module of this ResourceGuide provides additional information regarding budgeting issues.

Reporting - The commissioner of education may require reports concerning public schooldistricts as deemed proper and furnish necessary blanks, forms and instructions for this purpose. The budgets and reports filed with TEA will be reviewed and analyzed by TEAstaff to determine whether all legal requirements have been met and to collect data neededin preparing reports for the governor and the legislature. The law provides that the TEAmay withdraw school accreditation from any school district failing to comply with budgeting, accounting, and reporting requirements. The Auditing, Data Collection, andReporting modules of this Resource Guide provide additional information regarding audits

of school districts and financial reporting.

Expenditures - In some areas, the laws are specific in restricting expenditures. There aremany statutes, attorney general’s opinions and state board of education rules concernedwith authorized expenditures from school funds. These sources should be consulted whena question arises as to the legality of a proposed expenditure.

Other financial matters - The statutes also specify authorizations and restrictionsconcerning financial matters such as taxes, depositories, issuance of bonds and warrants,loans, investments, etc. In most cases, the school authorities should obtain competent legaladvice pertaining to the specific transaction prior to its initiation.

1.1.3 Account ing Principles and Polic ies

Principles and policies adopted by the state board of education are official rules andconstitute minimum budgeting, accounting, auditing and reporting requirements forindependent school districts. The state board of education intent in prescribing these rulesis to cause the budgeting and financial accounting and reporting system of independent

school districts to conform with generally accepted accounting principles (GAAP)established by the Governmental Accounting Standards Board (GASB) and the FinancialAccounting Standards Board (FASB) for accounting treatments not specified in GASB pronouncements. Codification of Governmental Accounting and Financial ReportingStandards (GASB Codification) Section 1100, “Summary Statement of Principles,” definestwelve principles of accounting and reporting shown in Exhibit 1.

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Exhibit 1. Summary Statement of Principles of Account ing and Report ing (as adaptedfrom GASB Codification Section 1100)

• Accounting and Reporting Capabilities - A governmental accounting system mustmake it possible both: (a) to present fairly and with full disclosure the funds andactivities of the government in conformity with generally accepted accounting principles, and (b) to determine and demonstrate compliance with finance-relatedlegal and contractual provisions.

• Fund Accounting Systems - Governmental accounting systems should be organizedand operated on a fund basis. A fund is defined as a fiscal and accounting entity witha self-balancing set of accounts recording cash and other financial resources, togetherwith all related liabilities and residual equities or balances, and changes therein,which are segregated for the purpose of carrying on specific activities or attainingcertain objectives in accordance with special regulations, restrictions, or limitations.Fund financial statements should be used to report detailed information about the primary government, including its blended component units. The focus ofgovernmental and proprietary fund financial statements is on major funds.

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• Types of Funds - The following types of funds should be used by state and localgovernments:

Governmental Funds

(1) The General Fund − to account for all financial resources except those required to be accounted for in another fund.

(2) Special Revenue Funds − to account for the proceeds of specific revenue sources(other than trust for individuals, private organizations, or other governments orfor major capital projects) that are legally restricted to expenditure for specific purposes.

(3) Capital Projects Funds − to account for financial resources to be used for theacquisition or construction of major capital facilities (other than those financed by proprietary funds or in trust funds for individuals, private organizations, or othergovernments). Capital outlays financed from general obligation bond proceedsshould be accounted for through a capital projects fund.

(4) Debt Service Funds − to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Debt service funds arerequired if they are legally mandated and/or if financial resources are beingaccumulated for principal and interest payments maturing in future years.

(5) Permanent funds – to report resources legally restricted so earnings, but not principal, may be used for purposes that support the school.

Proprietary Funds

(6) Enterprise Funds − to report any activity for which a fee is charged to externalusers for goods or services. Activities are required to be reported as enterprisefunds if any one of the following criteria is met.

a.) The activity is financed with debt that is secured solely by a pledge of the netrevenues from fees and charges of the activity. Debt that is secured by a pledge of net revenues from fees and charges and the full faith and credit of arelated primary government or component unit – even if that government isnot expected to make any payments – is not payable solely from fees andcharges of the activity.

b.) Laws or regulations require that the activity’s costs of providing services,including capital costs (such as depreciation or debt service), be recoveredwith fees and charges, rather than with taxes or similar revenues.

c.) The pricing policies of the activity establish fees and charges designed to

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recover its costs, including capital costs (such as depreciation or debtservice).

(7) Internal Service Funds − to report any activity that provides goods or services to

other funds, departments, or agencies of the primary government and itscomponent units, or to other governments, on a cost-reimbursement basis.Internal service funds should be used only if the reporting government is the predominant participant in the activity. Otherwise, the activity should be reportedas an enterprise fund.

Fiduciary Funds

To account for assets held by a governmental unit in a trustee capacity or as an agentfor individuals, private organizations, other governmental units, and/or otherfunds. Trust and agency funds therefore cannot be used to support the

government’s own programs. These include:

8) Pension (and other employee benefit) trust funds should be used to reportresources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans,other post employment benefit plans, or other employee benefit plans.

9) Investment trust funds should be used to report the external portion ofinvestment pools reported by the sponsoring government.

10) Private-purpose trust funds, such as a fund used to report escheat property,should be used to report all other trust arrangements under which principaland income benefit individuals, private organizations, or other governments.

11) Agency funds should be used to report resources held by the reportinggovernment in a purely custodial capacity (assets equal liabilities). Agencyfunds typically involve only the receipt, temporary investment, andremittance of fiduciary resources to individuals, private organizations, orother governments.

• Number of Funds - Governmental units should establish and maintain those fundsrequired by law and sound financial administration. Only the minimum number offunds consistent with legal and operating requirements should be established,however, because unnecessary funds result in inflexibility, undue complexity, and

inefficient financial administration.

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• Reporting Capital Assets - A clear distinction should be made between generalcapital assets and capital assets of proprietary and fiduciary funds. Capital assets of proprietary funds should be reported in both the government-wide and fund financial

statements. Capital assets of fiduciary funds should be reported only in the statementof fiduciary net assets. All other capital assets of the governmental unit are generalcapital assets. They should not be reported as assets in governmental funds butshould be reported in the governmental activities column in the government-widestatement of net assets.

• Valuation of Capital Assets - Capital assets should be reported at historical cost. Thecost of a capital asset should include ancillary charges necessary to place the assetinto its intended location and condition for use. Donated capital assets should be

recorded at their estimated fair value at the time of acquisition plus ancillary charges,if any.

• Depreciation and Impairment of Capital Assets

Capital assets should be depreciated over their estimated useful lives unless theyare either inexhaustible, are intangible assets with indefinite useful lives, or areinfrastructure assets using the modified approach. Inexhaustible assets such asland and land improvements should not be depreciated. Depreciation expense

should be reported in the government-wide statement of activities; the proprietaryfund statement of revenues, expenses, and changes in fund net assets; and thestatement of changes in fiduciary net assets. Capital assets should be evaluatedfor impairment when events or changes in circumstances suggest that the serviceutility of a capital asset may have significantly and unexpectedly declined.

• Reporting Long-term Liabilities - A clear distinction should be made between fundlong-term liabilities and general long-term liabilities. Long-term liabilities directlyrelated to and expected to be paid from proprietary funds should be reported in the

proprietary fund statement of net assets and in the government-wide statement of netassets. Long-term liabilities directly related to and expected to be paid from fiduciaryfunds should be reported in the statement of fiduciary net assets. All other unmaturedgeneral long-term liabilities of the governmental entity should not be reported ingovernmental funds but should be reported in the governmental activities column inthe government-wide statement of net assets.

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• Accrual Basis in Governmental Accounting - The modified accrual basis ofaccounting or accrual basis of accounting, as appropriate, should be utilized inmeasuring financial position and operating results.

(a) Governmental fund revenues and expenditures should be recognized on themodified accrual basis. Revenues should be recognized in the accounting periodin which they become available and measurable. Expenditures should berecognized in the accounting period in which the fund liability is incurred, ifmeasurable, except of unmatured interest on general long-term debt, whichshould be recognized when due.

(b) Proprietary fund statements net assets and revenues, expenses and changes infund net assets should be recognized on the accrual basis. Revenues should berecognized in the accounting period in which they are earned and become

measurable; expenses should be recognized in the period incurred, if measurable.

(c) Fiduciary funds should be reported using the economic resources measurementfocus and the accrual basis of accounting, except for the recognition of certainliabilities of defined benefit pension plans and certain post employmenthealthcare plans.

(d) Transfers should be recognized in the accounting period in which the interfundreceivable and payable arise.

• Budgeting, Budgetary Control, and Budgetary Reporting

(a) An annual budget(s) should be adopted by every governmental unit.

(b) The accounting system should provide the basis for appropriate budgetarycontrol.

(c) Budgetary comparison schedules should be presented as required supplementaryinformation for the general fund and for each major special revenue fund that hasa legally adopted annual budget. (The budgetary comparison schedule should present both (a) the original and (b) the final appropriated budgets for the

reporting period as well as (c) actual inflows, outflows, and balances, stated onthe government’s budgetary basis.)

• Transfer, Revenue, Expenditure, and Expense Account Classification

(a) The statement of activities should present governmental activities at least at thelevel of detail required in the governmental fund statement of revenues,

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expenditures, and changes in fund balances-at a minimum by function.Governments should present business-type activities at least by differentidentifiable activities.

(b) Governmental fund revenues should be classified by fund and source.Expenditures should be classified by fund and source. Expenditures should beclassified by fund, function (or program), organization unit, activity, character,and principal classes of objects.

(c) Proprietary fund revenues should be reported by major sources, and expensesshould be classified in essentially the same manner as those of similar businessorganizations, functions, or activities.

(d) Proceeds of general long-term debt issues should be classified separately fromrevenues and expenditures in the governmental fund financial statements.

(e) Transfers should be classified separately from revenues and expenditures orexpenses in the basic financial statements.

• Common Terminology and Classification - A common terminology and classificationshould be used consistently throughout the budget, the accounts, and the financialreports of each fund or activity.

• Annual Financial Reports

(a) Appropriate interim financial statements and reports of financial position,operating results, and other pertinent information should be prepared to facilitatemanagement control of financial operations, legislative oversight, and, where

necessary or desired, for external reporting purposes.(b) A comprehensive annual financial report should be prepared and published,

covering all funds and activities of the primary government (including its blendedcomponent units) and providing an overview of all discretely presentedcomponent units of the reporting entity—including introductory section,management’s discussion and analysis (MD&A), basic financial statements,required supplementary information other than MD&A, combining and individualfund statements, schedules, narrative explanations, and statistical section. Thereporting entity is the primary government (including its blended componentunits) and all discretely presented component units.

(c) The minimum requirements for MD&A, basic financial statements, and requiredsupplementary information other than MD&A are:

(1) Management’s discussion and analysis.

(2) Basic financial statements. The basic financial statements should include:

(a) Government-wide financial statements.

(b) Fund financial statements.

(c) Notes to the financial statements.

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(3) Required Supplementary information other than MD&A.

(d) The financial reporting entity consists of (1) the primary government, (2)organizations for which the primary government is financially accountable, and

(3) other organizations for which the nature and significance of their relationshipwith the primary government are such that exclusion would cause the reportingentity’s basic financial statements to be misleading or incomplete (See GASB39). The reporting entity’s government-wide financial statements should displayinformation about the reporting government as a whole distinguishing betweenthe total primary government and its discretely presented component units as wellas between the primary government’s governmental and business-type activities.The reporting entity’s fund financial statements should present the primarygovernment’s (including its blended component units, which are, in substance, part of the primary government) major funds individually and nonmajor funds inthe aggregate. Funds and component units that are fiduciary in nature should be

reported only in the statements of fiduciary net assets and changes in fiduciary netassets.

(e) The nucleus of a financial reporting entity usually is a primary government.However, a governmental organization other than a primary government (such asa component unit, joint venture, jointly governed organization, or other stand-alone government) serves as the nucleus for its own reporting entity when itissues separate financial statements.

Overall summaries of the state mandated principles and policies are:

Generally accepted accounting principles (GAAP) - School district accounting systemsmust be kept in accordance with generally accepted accounting principles and shall presentfairly and with full disclosure the funds and activities and results of financial operations insuch a manner to determine and demonstrate compliance with finance-related legal andcontractual provisions. Whenever conflicts exist between legal requirements and generallyaccepted accounting principles, the financial statements shall be prepared in conformitywith generally accepted accounting principles, and additional schedules and/or narrative

explanations shall be attached as necessary to satisfy or report legal complianceresponsibilities and accountabilities. See Statutory Modified Accrual Method for theexception regarding GASB 45, OPEB.

Fund accounting - The accounting system shall be organized and operated on a fund basis.All funds of school districts shall be accounted for and included on the end-of-yearcombined balance sheet. A fund is defined as a fiscal and accounting entity with a self-

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balancing set of accounts recording cash and other financial resources, together with allrelated liabilities and residual equities or balances, and changes therein, which aresegregated for the purpose of carrying on specific activities or attaining certain objectivesin accordance with special regulations, restrictions, or limitations. All school districts shallestablish and maintain only the minimum number of funds required for efficient operations,limited to those fund types presented in the Account Code section of this module of the Resource Guide.

Central accounting - Accounting for public funds of independent school districts shall beon an organization-wide basis covering all funds. Governmental, proprietary and fiduciaryfund types shall be the accounting responsibility of a centralized unit or office within theorganizational structure of a school district.

Capital assets - Capital assets shall be accounted for at historical cost (which includes anyancillary charges necessary to place in its location and condition for use). Donated capitalassets shall be recorded at their estimated fair value at the time received. Capital assetsshall include land, buildings, improvements other than buildings, vehicles, machinery,infrastructure, works of art and historical treasures, furniture and equipment that:

• Are not consumed as a result of use.

• Have a useful life of at least one year and a per-unit cost of $5,000 or more.

• Can be controllable, identified by a permanent or assigned number or label, and bereasonably accounted for through a fiscal inventory system. Groups of like items may be included in the inventory system.

Depreciation - Depreciation of capital assets should be over their estimated useful livesunless they are either inexhaustible or are infrastructure assets using the modifiedapproach.

• Depreciation of capital assets should be reported in the government-wide statement ofactivities; the proprietary fund statement of revenues, expenses, and changes in fund netassets; and the statement of changes in fiduciary net assets.

Basis of accounting - Generally accepted accounting principles (GAAP) shall be followedfor financial budgeting, accounting and reporting purposes in PEIMS except for foundationschool program (FSP) revenues. FSP revenues must be accounted for under a budgetary

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basis of accounting as explained below. This budgetary basis must be reported in theannual financial report and reconciled to GAAP in the notes to the financial statements.Materiality is considered in GAAP requirements, and the determination of materiality is anexercise of the professional judgment of the independent auditor.

Modified accrual or accrual method - The basis of accounting shall be on the modifiedaccrual or accrual method, as appropriate for the fund.

• Revenues and expenditures of governmental fund types shall be budgeted, recorded andrecognized on the modified accrual basis. Revenues shall be recognized in theaccounting period in which they become available and measurable. Additionally, FSPrevenues earned for days of instruction for the new academic year occurring prior to theclose of the current fiscal year as a ratio to the total days of instruction may be accruedas revenue if collectible within 60 days of fiscal year-end. Expenditures shall be

recognized in the accounting period in which the fund liability is incurred (as servicesare rendered or title to property is transferred to the school district), if measurable,except for unmatured interest on general long-term debt, which shall be recognizedwhen due. The annual financial reports and federal quarterly and final completionreports must be prepared on this same basis of accounting. Cash basis or reconciliationtype reports may supplement modified accrual and accrual basis reports.

• Revenues and expenses of proprietary fund types shall be recognized on the accrual basis. Revenues shall be recognized in the accounting period in which they are earnedand become measurable. Expenses shall be recognized in the accounting period in

which they are incurred and become measurable.

• Agency funds shall be accounted for on the accrual basis (however, agency fundsmaintain only assets and liabilities).

• Interfund transfers shall be recognized in the accounting period in which the receivableand payable arise.

Statutory modified accrual method - GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, supersededGASB Statement No. 12. Since most districts don’t offer post-employment benefits otherthan through TRS, there is not much of an impact on most school districts. HB 2365 passed by the 80th Legislature made the implementation of GASB 45 optional for Texasgovernmental entities, with accounting guidance regarding a statutory modified accrual basis to be provided by the Comptroller. Please refer to the Comptroller’s OPEB websitefor additional guidance.

Budgetary basis of accounting - The budgetary basis of accounting shall be consistentlyapplied in budgeting, recording and reporting foundation school program (FSP) revenues in

http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=80R&Bill=HB2365http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=80R&Bill=HB2365http://www.window.state.tx.us/lga/opeb/http://www.window.state.tx.us/lga/opeb/http://www.window.state.tx.us/lga/opeb/http://www.window.state.tx.us/lga/opeb/http://www.window.state.tx.us/lga/opeb/http://www.window.state.tx.us/lga/opeb/http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=80R&Bill=HB2365

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PEIMS information. Under the budgetary basis, earned and material FSP revenues that arecollectible beyond 60 days are to be treated consistently for budgeting, recording, andreporting through PEIMS and for tax rollback rate calculation purposes.

Budgetary control/encumbrance accounting - The official school district budget, asadopted, shall be recorded in the general ledger. Revenues and expenditures authorized inthe budget shall be controlled in the accounting records and reported in the financialstatements. Only the General Fund, Debt Service Fund and Food Service Fund must beincluded in the official school district budget. If the child nutrition program (Food Service)is accounted for in an Enterprise Fund, the fund must be budgeted and the budget must bereported through PEIMS.

To control budgeted fund commitments as a result of unperformed executory contracts for

goods or services, the accounting system shall employ a method of encumbranceaccounting. Encumbrances shall be documented by contracts, purchase orders, or otherevidence showing binding commitments for goods or services.

• Encumbrances outstanding at year end represent the estimated amount of theexpenditures ultimately to result if unperformed contracts in process at year end arecompleted.

• Appropriations lapse at year end. A school district may intend to honor theencumbrance contracts in progress at year end (unless prohibited to do so by law or

program regulations) or to cancel them. If there is intent and legal authorization tohonor them, encumbrances outstanding at year end shall be a reservation of fund balance, and the subsequent year’s appropriations shall provide the authority tocomplete these transactions.

Uniform classifications and terminology - Fund codes, mandatory account classificationsand terminology prescribed in the Account Code section of this module of the ResourceGuide shall be used by school districts. General ledger accounts prescribing a double entrysystem and distribution of related payroll expenses with payroll shall be uniformly usedthroughout the budgeting, accounting and financial reporting system.

• A school district accounting system shall use the accounting code structure presented inthe Account Code section of the Resource Guide.

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• Funds shall be classified and identified on required financial statements by the samecode number and terminology provided in the Account Code section of the ResourceGuide.

• Revenues shall be recorded on a gross basis and shall be classified by fund, source(object code), fiscal year and where fiscal integrity (separate accountability) isnecessary, by program and/or project.

• Expenditures or expenses shall be classified by fund, function, object, organization, program intent and fiscal year.

• Special Revenue Fund programs requiring project accountability are to be identified by

project through the use of the fiscal year code. Once the fiscal year code has beenassigned a project, it shall remain with the project until its termination, regardless of thefiscal year in which termination occurs. Project accountability is a requirement formost federal projects; however, it rarely applies to state grants.

• Interfund transfers and proceeds from notes or other indebtedness shall be classifiedseparately from and not recorded as fund revenues and expenditures or expenses.

− Interfund transactions (except loans or advances, interfund service provided andused transactions and reimbursements) shall be accounted for as interfund transfers.

Interfund transfers shall consist of transfers which are nonrecurring or nonroutinetransfers of equity between funds.

− Interfund service provided and used transactions and reimbursements shall not beaccounted for as interfund transfers, but shall be appropriately accounted for asfund revenues, expenditures or expenses, or adjustments thereto. An example is a billing to the General Fund by the Internal Service Fund, thus constituting anexpenditure for the General Fund and a revenue for the Internal Service Fund.Reimbursements shall be recorded as expenditures or expenses in the reimbursingfund and as reductions of the expenditure or expense in the fund that is reimbursed.

Accounting alternatives - The accounting system shall allow certain flexibility in therecognition of relatively minor amounts of certain revenues and expenditures. Applicationof alternatives in accounting methods shall be consistently applied from accounting periodto accounting period.

• Monies collected in advance and the property tax levy recorded in the school district’sopening budget entries that will ultimately be recognized as revenues shall be recorded

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as deferred revenues, and at the appropriate time shall be recognized as revenues of theaccounting period to which they apply.

• Inventory items of materials, supplies, etc., may be considered expenditures/expenseseither when purchased (purchases method) or when used (consumption method), butsignificant amounts of inventory shall be reported on the balance sheet.

• Expenditures/expenses for insurance and similar services extending over more than oneaccounting period need not be allocated between or among accounting periods, but may be accounted for as expenditures/expenses of the period of acquisition.

Fund equity and other credits - Fund equity is comprised of investments in capital assets(other credit); contributed capital; net assets; reserved fund balance; unreserved, designatedfund balance; and unreserved, undesignated fund balance.

Once GASB 54 is effective (fiscal year 2010/11), fund equity consists of investments incapital assets (other credit); contributed capital; net assets; nonspendable fund balance,restricted fund balance, committed fund balance, assigned fund balance, and unassignedfund balance. See section 1.2.9.2 for additional discussion.

1.1.4 Fund Accounting

The school district’s accounting system should be organized and operated on a fund basis.Each fund is a separate fiscal entity in the school district much the same as variouscorporate subsidiaries are fiscally separate in private enterprise. The separate funds areestablished by the school district for the specific activities and objectives in accordancewith statutes, laws, regulations, restrictions, or for specific purposes. A fund is defined inGASB Codification Section 1300 as:

. . . a fiscal and accounting entity with a self-balancing set of accountsrecording cash and other financial resources, together with all relatedliabilities and residual equities or balances, and changes therein, which aresegregated for the purpose of carrying on specific activities or attainingcertain objectives in accordance with special regulations, restrictions, orlimitations.

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The requirement for a self-balancing set of accounts means that the familiar debit andcredit framework is applied to the recording of transactions and events in the accountingsystems of each fund. But the requirement that a fund must be both a separate fiscal and

accounting entity indicates that the self-balancing feature itself is not adequate alone;accounting control and accountability for the government's general capital assets and theunmatured principal of its long-term debt are also required.

Per GASB Statement No. 34, the general long-term debt account group and the generalfixed asset account group are no longer included as part of the basic financial statements.However, school districts should continue to maintain these accounts as part of theirinternal control system. The general long-term debt fund and general capital asset fund areused to establish accounting control and accountability for the government's general capitalassets and the unmatured principal of its long-term debt.

Legal reporting requirements and the varied nature of school district’s operations precludea single set of accounts for recording and summarizing all transactions. The records must be organized on a multiple-fund basis with each of the several funds complete andindependent accounting entities. The absolute minimum number of funds appropriate for public school operations depends on the purposes and legal requirements of the variousactivities. The identified fund types are for group activities that are similar in nature or purpose. The required fund types and groups of self-balancing accounts as described inGASB Codification Section 1300.102 and 103 (excerpted) follow.

1.1.4.1 Descr ipt ion of Fund Types

The three fund types are

Governmental fund reporting focuses primarily on the sources, uses, and balances ofcurrent financial resources and often has a budgetary orientation. The governmental fundcategory includes the general fund, special revenue funds, capital projects funds, debtservice funds, and permanent funds.

Governmental funds are, in essence, accounting segregations of financial resources.Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used; current liabilities are assigned to the fund

from which they are to be paid; and the difference between governmental fund assets andliabilities, the fund equity, is referred to as "Fund Balance.”

Financial statements for governmental funds should be presented using the currentfinancial resources measurement focus and the modified accrual basis of accounting. Thegovernmental fund measurement focus is on determination of financial position andchanges in financial position (sources, uses, and balances of financial resources).

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The financial statements required for governmental funds are a balance sheet and astatement of revenues, expenditures, and changes in fund balance.

Proprietary Fund reporting focuses on the determination of net income, changes in netassets (or cost recovery), financial position, and cash flows. The proprietary fund categoryincludes enterprise and internal service funds.

Proprietary fund statements of net assets and revenues, expenses, and changes in fund netassets should be presented using the economic resources measurement focus and theaccrual basis of accounting.

Required financial statements for proprietary funds are a statement of net assets or balancesheet; a statement of revenues, expenses, and changes in fund net assets or fund equity; anda statement of cash flows.

Fiduciary fund reporting focuses on net assets and changes in net assets. Fiduciary fundsshould be used to report assets held in a trustee or agency capacity for others and thereforecannot be used to support the government’s own programs. The fiduciary fund categoryincludes pension (and other employee benefit) trust funds, investment trust funds, private- purpose trust funds, and agency funds. The three types of trust funds should be used toreport resources held and administered by the reporting government when it is acting in afiduciary capacity for individuals, private organizations, or other governments. Thesefunds are distinguished from agency funds generally by the existence of a trust agreementthat affects the degree of management involvement and the length of time that theresources are held.

Financial statements of fiduciary funds should be reported using the economic resourcesmeasurement focus and the accrual basis of accounting, except for the recognition ofcertain liabilities of defined benefit pension plans and certain post employment benefit plans.

1.1.4.2 Descr ipt ion of Fund Code Categories and Capital Asset and Long-Term Liabi lit y Accounts

Accountability for and control of the government’s general capital assets and long-termliabilities are accomplished through a separate category of accounting entries, called the“account groups” prior to GASB 34. Since many accounting systems may not be modifiedfor a while, many districts may continue their use.

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Account Groups – may continue to be used to establish accounting control andaccountability for the government’s capital assets and the unmatured principal of its long-term liabilities due to accounting system limitations.

Account groups have no place in the new reporting model; nowhere are they reported.School districts will continue to maintain their accounting systems on a fund basis. Somemay find account groups a convenient means of keeping track of their long-lived assets andlong-term liabilities-items that they will now have to incorporate in their government-widestatements

The government’s general capital assets – all capital assets except those accounted for in proprietary funds or fiduciary funds – are not financial resources available for expenditure.The unmatured principal of its general long-term liabilities – long-term liabilities notaccounted for in proprietary funds or fiduciary funds – does not require an appropriation or

expenditure . . . during the current accounting period. Hence, neither is accounted for inthe governmental funds, but in self-balancing capital asset and long-term liability accounts.These accounts are not funds; they do not reflect available financial resources and relatedliabilities but are accounting records of the general capital assets and general long-termliability accounts, respectively, and certain associated information . . . . Exhibit 2 belowdescribes some specific fund type uses.

Exhibit 2. Matrix of Fund Usage

FUND DESCRIPTION *EXAMPLES

GOVERNMENTAL TYPEFUNDS

General Fund - Accounts for all financialresources except those required to beaccounted for in another fund.

Effective with implementation of GASB 54 – Accounts for all financial resources notaccounted for and reported in another fund.

General Fund, including the Local Maintenance Fund, FoodService Fund, etc.

Special Revenue Funds - Account forthe proceeds of specific revenue sources thathave been restricted to expenditure forspecific purposes

Effective with implementation of GASB 54 – Account for the proceeds of specificrevenue sources that have been restricted or

ESEA Title I, Part A, National School Breakfast and LunchProgram Fund, Career and Technical Education Fund,Campus Activity Fund, Shared Services ArrangementsFunds, etc.

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committed to expenditure for specific

purposes not including capital project ordebt service funds

Capital Project Funds - Account forfinancial resources to be used for theacquisition or construction of major capitalfacilities (other than those financed by proprietary funds or in trust funds forindividuals, private organization, or othergovernments.) Capital outlays financedfrom general obligation bond proceedsshould be accounted for through a capital projects fund.

Effective with implementation of GASB 54 – Account for financial resources to be usedfor the acquisition or construction of majorcapital outlays, including capital facilitiesand other capital assets (other than thosefinanced by proprietary funds or in trustfunds for individuals, private organization,or other governments.) This includesamounts restricted, committed, or assigned.Capital outlays financed from generalobligation bond proceeds should beaccounted for through a capital projectsfund.

Locally Defined Capital Project Funds

Debt Service Funds - Account forresources set aside to pay interest and principal on long-term debt.

Effective with implementation of GASB 54 – Account for and report resources set asideto pay interest and principal on long-termdebt. This includes amounts restricted,committed, or assigned. Debt service fundsshould be used if legally mandated or justaccumulating resources for principal andinterest payments in future years.

Locally Defined Debt Service Funds

Permanent Funds – should be used toreport resources that are legally restricted tothe extent that only earnings, and not principal, may be used for purposes thatsupport the reporting government’s programs – that is, for the benefit of thegovernment or its citizenry.

Scholarship Funds (limited to the use of only earned interestor revenue), etc.

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PROPRIETARY TYPE FUNDS

Enterprise Funds - Account foroperations (a) that are financed with debtthat is secured solely by a pledge of the netrevenues from fees and charges of theactivity. Debt that is secured by a pledge ofnet revenues from fees and charges and thefull faith and credit of a related primarygovernment or component unit – even if thatgovernment is not expected to make any payments – is not payable solely from feesand charges of the activity, or (b) laws orregulations require that the activity’s costs

of providing services, including capital costs(such as depreciation or debt service), berecovered with fees and charges, rather thanwith taxes or similar revenues, or (c) the pricing policies of the activity establish feesand charges designed to recover its costs,including capital costs (such as depreciationor debt service).

National School Breakfast and Lunch Program Fund (foodservice operations are to be accounted for in this fund whena school district intends for the food service operations to befinanced from the NSLP program and user charges, ratherthan from General Fund subsidies), State Defined EnterpriseFunds, Locally Defined Enterprise Funds

Internal Service Funds - Account forthe financing of goods or services provided by one department or funds to otherdepartments or funds within the same school

district on a cost reimbursement basis.

Transportation Fund, Print Shop Fund , insurance Fund,Computer Operation Fund, etc.

FIDUCIARY TYPE FUNDS

Fiduciary Funds - should be used toreport assets held in a trustee oragency capacity for others andtherefore cannot be used to supportthe district’s own programs.

• Private-purpose trust funds used toreport all other trust arrangementsunder which principal and income benefit individuals, privateorganizations, or other governments.

Scholarship Funds (both principal and earned interest onrevenue can be distributed)

• Investment Trust Funds - Account forfunds received from the external

Investments held on behalf of another district, an investment pool.

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portion of investment pools reported by

the sponsoring government.

• Pension (and other employee benefit)Trust Funds - Account for defined benefit pension plans other than theTeacher Retirement System of Texas,defined contribution plans, other postemployment benefit plans, or otheremployee benefit plans.

Locally Defined Pension Trust Funds

• Agency Funds - Account for thecollection and disbursement of assetsheld in a custodial capacity by a schooldistrict consisting of clearing accountsand funds that are the property ofstudents or others.

Tax Collection Fund, Textbook Waiver Refund Fund,Payroll Clearing Account Fund, etc.

LONG-TERM LIABILITY ACCOUNTS AND GENERALCAPITAL ASSET ACCOUNTS

Long-term liability accounts -Account for non-current debts. Long-termliabilities will be offset by a debit to eitheramounts to be provided and/or amountsavailable in other funds. Long-termliabilities of Proprietary Fund Types andFiduciary Funds are accounted for throughthose fund types and are not included in this

account group.

Formerly referred to as General Long-Term Debt AccountGroup

General capital asset accounts -Account for those general capital assets notrecorded in proprietary fund and fiduciaryfunds. This account group is for specific

Formerly referred to as General Fixed Assets Account Group

8/15/2019 TEA Rules

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• Governmental Funds - Revenues and expenditures of Governmental Fund Types should be budgeted, reported, and recognized on the modified accrual basis. Revenues shall berecognized in the accounting period in which they become susceptible to accrual, thatis, when they become both available and measurable. In this instance, the termavailable generally means collectible within the current period or soon enoughthereafter to be used to pay liabilities of the current period. School districts generallyconsider all revenues available if they are collected within 60 days after year end.Measurable refers to the ability to quantify in monetary terms the amount of ther

tea rules

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