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Advanced Accounting 1510-96B Government and Nonprofit Accounting Page 1
GOVERNMENTAL AND NONPROFIT ACCOUNTING
I. CHARACTERISTICS AND OBJECTIVES OF NONBUSINESS ORGANIZATIONS IN ACCORDANCE WITH SFAC 4--OBJECTIVES
OF FINANCIAL REPORTING BY NONBUSINESS ORGANIZATIONS
A. Characteristics:
- Receipts of significant amounts of resources from those who do not expect to receive either repayment or economic benefits proportional to resources provided.
- No intention to provide goods or services at a profit or profit equivalent.
- Absence of a defined ownership interest that can be sold, transferred, redeemed or convey entitlement to a share of a residual distribution of resources in the event of liquidation. Non-business organizations B. Objectives of Financial Reporting: Provide information that is useful to present and potential resource providers and others in making:
- rational decisions about the allocation of resources;
- assessing the services provided and ability to continue to provide said services;
- assess how managers have discharged their stewardship and other aspects of their performance;
- information @ economic resources, obligations, and net resources and the events that may affect these items
- performance of the organization including: a. inflows and outflows of resources b. why and how resources changed presented by operations and other on an accrual basis c. information @ the type and amount of resources spent of various programs offered d. information @ the service accomplishments including quantitative (output) and qualitative (program results) information
- how the organization obtains and spends liquid resources
- explanations and interpretations to help users understand the information provided
II. GENERAL METHODOLOGY
A. Each major activity is to be accounted for separately with its own self balancing set of accounts.
- Each activity is accounted for as a separate FUND while keeping the total number of funds at the minimum number necessary to meet legal and operational requirements. **B. There are three categories of funds:
- Governmental Funds** : Account for all activities not assigned to proprietary or fiduciary funds. Governmental funds are essentially "working capital" funds. These funds are monitored in terms of sources and uses of working capital. a. The General Fund: accounts for resources with no specific restrictions and available for operational expenditures not relegated to one of the other four governmental funds. b. Special Revenue Funds: account for resources that are legally restricted to expenditures for specific operational purposes. c. Capital Projects Funds: account for resources to be used for the acquisition or construction of major capital facilities. d. Special Assessment Funds: account for resources to be used to finance improvements or services that primarily benefit only a limited segment of the public, and will be paid for by that segment. e. Debt Service Funds: account for resources to be used for payment of general long-term debt and interest.
NOTE: Investments in fixed assets are not recorded in the governmental funds (they are normally recorded only in Enterprise, Internal Service, Trust and Agency funds) but in the "general fixed asset group"; This is not a fund but a momorandum account. Its purpose is to keep a record of fixed assets not appropriately recorded in these other funds. The general fixed assets are recorded at cost in appropriately titled asset accounts (see below) and the entry is balanced by a credit to Investment in General Fixed Asset-(financing source). No Depreciation is recorded to this account group. Machinery and equipment................................... xxx Land...................................................... yyy Building.................................................. zzz Investment in general fixed assets--general revenues....... xxx Investment in general fixed assets--bond issues............ yyy Investment in general fixed assets--federal grants......... zzz
When assets are recorded in the non-governmental funds depreciation is recorded and the appropriate fund is credited. (Study Exhibit 1 of this handout)
Advanced Accounting 1510-96B Government and Nonprofit Accounting Page 2
2. Proprietary Funds: Account for sales of goods or services for which a fee is charged (trash, gas, water etc.) ***a. Enterprise Funds: Funds that serve the general public; account for profit activities (utilities) ***b. Internal Service Funds: Funds that serve other governmental units. 3. Fiduciary Funds : Account for resources for which the governmental unit is acting as a trustee or agent. a. Trust Funds: Trust funds are used to account for monies held for other (pensions, bonds etc.) for a long period of time. There are three types of trust funds: 1. Expendable: account for as a governmental fund *** 2. Non-expendable: account for as a proprietary fund *** 3. Pension: account for as a proprietary fund. *** b. Agency Funds: Agency funds are used to account for temporary deposits such as employee withholdings.
III. ACCOUNTING FOR GOVERNMENTAL FUNDS A. Three types of account:
- Permanent (Balance Sheet): Cash; Taxes Rec; Investments; Inventory
- Temporary (Revenue & Expenditure): Rev; Exp; Encumbrances
- Budgetary (Estimated Rev and Appropriations) B. Two broad types of fund : Expendable (not concerned w/ preserving capital or measuring net income) and Non-expendable.
- Expendable funds use the Modified Accrual Method: revenue is recognized when it is both measurable and available to meet liabilities of the current period. Expenditures are normally recognized when the liability is incurred (an exception is taxes, which become revenue when levied, less allowance for bad debts). The following definitions apply: a. Revenues: inflows of resources for external parties that do not have to be repaid. b. Expenditures: outflows of resources to external parties. *** 2. Non-expendable funds use accrual accounting (recognize revenues when earned; expenses when incurred) (Enterprise funds; Internal service; non-expendable trusts) C. THE BUDGETARY ACCOUNTS (estimated revenues and appropriations)
- represent anticipatory assets and liabilities that are the result of the budgeting process. This process results in the adoption of a budget which is a formal plan of receipts and disbursements prepared for each fund. Budget Estimated Revenues............ 500,000 (anticipated) Adopted Appropriations........... 480,000 (anticipated) Fund Balance ............ 20,000 (plug)
Fund Balance : This is a special "balancing" account designed to keep the double entry system in balance by adjusting the fund to its anticipated year-end balance. It is similar the equity account of a profit oriented concern. It represents an amount available to be spent in future periods.
Assets - (Liabilities and Reserves) = Fund Balance = Net Financial Resources
Estimated Revenues : This is an anticipatory asset account. At the end of the period actual revenues are compared to estimated revenues. If revenues exceeded estimated revenues (surplus) the fund balance is increased (credit). Actual revenues are considered a contra account to estimated revenues on interim financial statements. Revenue....................... 490,000 │ Fund balance.................. 10,000 │ Closing entry Estimated Revenue........ 500,000 │ │ Appropriations: This is an anticipatory liability (expenditure) account. Expenditures and encumbrances are closed to appropriations at the end of the period and are both considered contra accounts to appropriations on interim financial statements. Appropriations................ 480,000 │ Fund balance.................. 5,000 │ Closing entry Expenditures............. 450,000 │ Encumbrances............. 35,000 │
Encumbrances : A control account used to insure that expenditures do not exceed appropriations. When goods and services are ordered, appropriations are encumbered as follows: Goods or services ordered: Encumbrances.................. 35, Reserve for encumbrances. 35, Goods received: Reserve for encumbrances...... 35, Encumbrances............. 35, Expenditures.................. 37, Vouchers payable......... 37,
(NOTE #1: encumbrances are based on estimated amounts; expenditures are based on actual amounts)
(NOTE #2: if expenditures had been $32,000 then there would be $3,000 of unencumbered appropriations that could still be spent.)
Advanced Accounting 1510-96B Government and Nonprofit Accounting Page 4
C. Comprehensive Annual Financial Report (CAFR)
- "Combined" general purpose financial statements (GPFS); five required statements a. Combined balance sheet- all fund types and account groups (follows GAAP) b. Combined statement of revenues, expenditures, and changes in fund balances—all governmental (and similar fiduciary) fund types (follow GAAP) c. Combined statement of revenues, expenditures, and changes in fund balances, budget and actual -- general and special revenue fund types (and similar governmental and fiduciary fund types for which an annual budget is legally adopted. (follows budgetary disclosure) d. Combined statement of revenues, expenses and changes in retained earnings/fund equity -- all proprietary (and similar fiduciary) fund types. e. combined statement of changes in financial position -- all proprietary (and similar fiduciary) fund types
- "Notes" to the financial statements. These include only notes the GPFS. Any explanations accompanying the combining statements (see below), individual fund statements or narratives are referred to simply as "narrative explanations".
- Combining statements -- statements in which separate columns present the data for each fund of a fund type. Combining statements are in more detail than the combined statements (above) and are intended to provide supporting data in greater detail than necessary in the combined statements
- Individual fund statements -- statements of greater detail than the combining statements (#3 above) by fund.
- Schedules--may be used to provide even greater detail are deemed appropriate.
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V. HOSPITAL ACCOUNTING
A. More similar to financial accounting; use accrual accounting and include depreciation (revenues, expenses and net income are accounted for and reported. B. Hospital financial statements include three sections:
- Balance Sheet
- Statement of Revenues and Expenses
- Statement of Changes in Fund Balances C. Hospitals have only two categories of funds: restricted and unrestricted. The differences between restricted and unrestricted funds is emphasized.
- restricted funds are: a. specific purpose fund: resembles a municipal special revenue fund.
- used to account for financial resources and liabilities that are externally restricted e.g., federal research grants that are restricted for specific operating purposes.
- Revenues and expenses are not recognized in Specific Purpose funds. Specific purpose fund resources are credited to fund balance and expenditure (1) decrease Specific Purpose Fund net assets and fund balance and (2) are recorded as hospital revenues and expenses in the Unrestricted Fund. b. plant replacement and expansion fund: similar to a municipal Capital Projects Fund.
- Used to account for financial resources that are externally restricted for capital outlays e.g., capital gift donations for building expansion.
- Increases in this funds assets are credited to fund balance (not revenues), and expenditures (1) decrease the net assets and fund balance and (2) result in fixed assets and contributed capital being recorded in the Unrestricted Fund.
c. endowment funds: similar to the a municipal Nonexpendable Trust Fund.
- Used to record the principal (corpus) of endowment gifts.
- Endowment fund earnings are not recognized in the Endowment Fund but as (a) Unrestricted Fund revenues (if unrestricted as to use) (b) Specific Purpose Fund increases in fund balance if restricted for specific operating purposes. (c) Plant Replacement and Expansion fund increases in fund balance if restricted for capital outlays.
- The Unrestricted Fund -- The primary hospital fund. a. Used to account for all assets and liabilities that are not required to be accounted for in a restricted fund, together with the contributed capital, retained earnings, expense and loss and net income balances.
**Governmental units use enterprise funds to account for governmental hospitals.
VI. COLLEGES AND UNIVERSITIES A. Major characteristics
- Combines characteristics of both municipal and hospital accounting
- Uses modified accrual as in municipal
- Divides a few fund groups into major subdivisions (8-57 Theory) as in municipal
- Uses budgetary accounts and encumbrances as in municipal accounting
- Account for interfund transfers as do municipal entities
- Recognize restricted revenues only when the restricted assets are actually expended for the specified purpose as in hospital accounting.
- follow hospital procedures when recognizing donated goods and professional services.
B. Financial statements
- Balance Sheet:
- Statement of Current Funds Revenues, Expenditures, and Other Changes:
- Statement of Changes in Fund Balances:
VII. VOLUNTARY HEALTH AND WELFARE ORGANIZATIONS
A. Major characteristics
- Fund structure is identical to that used by universities but VHWOs use only one fund of each type;
- Use accrual accounting (as do hospitals) but records revenues and expenses in each fund whereas hospitals account for all revenues and expenses in a single unrestricted fund;
- Do not defer recognition of restricted support and revenues (as do universities and hospitals) but recognize them immediately unless they are restricted to expenditure in a future period;
Note: Neither the fixed assets acquired nor long-term debt issued are accounted for in this fund!
Advanced Accounting 1510-96B Government and Nonprofit Accounting Page 7
(AICPA) MUNICIPAL ACCOUNTING--COMPREHENSIVE
The general fund trial balance of the city of Solna at 12/31/20x2 was as follows: Dr. Cr. Cash......................................... $ 62, Taxes receivable-delinquent.................. 46, Estimated uncollectible taxes delinquent..... $ 8, Stores inventory program operations.......... 18, Vouchers payable............................. 28, Fund balance reserved for stores inventory... 18, Fund balance reserved for encumbrances........ 12, Unreserved undesignated fund balance......... 60, $ 126,000 $ 126,
The following data pertain to 20X3 general fund operations:
- BUDGET ADOPTED: Revenues and other financing sources Expenditures and other financing uses Taxes......................................... $ 220,000 Program operations........................... $ 300, Fines, forfeits, and penalties................. 80,000 General administration....................... 120, Miscellaneous revenues........................ 100,000 Stores-program operations.................... 60, Share of bond issue proceeds.................. 200,000 Capital outlay............................... 80, $ 600,000 Periodic transfer to special assessment fund: 20, $ 580,
- Taxes were assessed at an amount that would result in revenues of $220,000, after deduction of 4% of the tax levy as uncollectible.
- ORDERS PLACED BUT NOT RECEIVED: Program operations.................. $ 176, General administration.............. 80, Capital outlay...................... 60, $ 316,
- The city council designated $20,000 of the unreserved undesignated fund balance for possible future appropriation for capital outlay.
- CASH COLLECTIONS AND TRANSFER: Delinquent taxes.............................................. $ 38, Current taxes................................................. 226, Refund of overpayment of invoice for purchase of equipment.. 4, Fines, forfeits, and penalties................................ 88, Miscellaneous revenues........................................ 90, Share of bond issue proceeds.................................. 200, Transfer of remaining fund balance of a discontinued fund..... 18, $ 664,
- CANCELLED ENCUMBRANCES: Estimated Actual Program operations..... $ 156,000 $ 166, General administration. 84,000 80, Capital outlay......... 62,000 62, $ 302,000 $ 308,
- ADDITIONAL VOUCHERS: Program operations....................... $ 188, General administration................... 38, Capital outlay........................... 18, Transfer to special assessment fund. 20, $ 264,
- Albert, a taxpayer, overpaid his 20X3 taxes by $2,000. He applied for a $2,000 credit against his 20X4 taxes. The city council granted his request.
- Vouchers paid amounted to $580,
- Stores inventory on 12/31/83 amounted to $12,
REQUIRED : Prepare journal entries to record the effects of the foregoing data. Omit explanations.
Collectible delinquent taxes are expected to be collected within 60 days after the end of the year. Solna uses the "purchases" method to account for stores inventory.
(AICPA) Solution: MUNICIPAL ACCOUNTING--COMPREHENSIVE
Advanced Accounting 1510-96B Government and Nonprofit Accounting Page 10
(AICPA) COLLEGE AND UNIVERSITY ACCOUNTING
The following transactions of LBSU occurred during 20x2. The funds involved are the Endowment Fund, the Annuity Fund, the Plant Fund Unexpended, Plant Fund Investment in Plant, Student Loan Fund, Unrestricted Current fund, and the Restricted Current Fund.
January 1 LBSU, which previously held no endowment funds, received five gifts as a result of an appeal for funds. The campaign closed 12/31/x2 and all gifts received are to be recorded as of January 1. Gifts are as follows: a. From A.B. Smith, $10,000, the principal to be held intact and the income to be used for any purpose that the Board of Trustees of LBSU should indicate.
b. From C.D. Jones, $20,000, the principal to be held intact and the income to be used to endow scholarships for worthy students.
c. From E.F. Green, $30,000, the principal to be held intact and the interest only to be loaned to students. All income is to be re-loaned; all losses from student loans are to be charged against income.
d. From G.H. White, $200,000. During the lifetime of the donor, semiannual payments of $2,500 are to be made to the donor. After white's death, the fund is to be used to construct or purchase a residence hall for students. Since White is seriously ill, no present value of the annuity is established.
e. From I.H. Brown, 1,000 shares of XYZ stock, which had a market value on this date of $150 per share. Such shares are to be held for not more than five years and all income received there from held intact. At any date designated by the Board of Trustees during this period, all assets are to be liquidated and the proceeds used to build a student hospital.
f. The Board of Trustees consolidated the assets of the Smith and Jones funds into a pooled investments account (in the proportion of their principal accounts) and purchased $30,000 of Electric Power Company bonds at par. Interest rate, 4%. Interest dates January 1 and July
g. The cash of the Green fund is used to purchase $30,000, 5%bonds of the Steam Company at par plus accrued interest. Interest dates April 1 and October 1.
h. The $200,000 cash of the White fund is used to purchase $200,000, 2% U.S. Treasury notes at par. Interest dates, January 1 and July 1.
April 1 -- July 1 i. All interest has been received as stipulated on bonds and notes owned and have been transferred to the proper fund when necessary. Dividends of $4,000 are received on XYZ stock.
j. Payment is made to G.H. White in accordance with the terms of the gift. A loan of cash is authorized from the Endowment Fund to cover the overdraft created.
k. $20,000 par of Electric Power Company bonds are sold at 102. No commissions are involved. Gain is an addition to principal.
l. Loan made to M.N. Black, $300, from the Green student loan fund.
October 1 m. Notice is received of the death of G. H. White. Since there is no liability to the estate, no entry need be made at this point.
n. An award of $200 is made from the Jones scholarship fund.
o. $200,000 pay of U.S. Treasury notes held by the White fund are sold at 101 and accrued interest. The Endowment Fund loan is repaid.
p. Interest due on bonds is received.
December 31 q. M.N. Black paid $100 principal and $5 interest on student loan. r. The board of Trustees purchased a building suitable for a residence hall for $250,000, using the available funds from the G.H. White gift as part payment therefore and giving a 20-year mortgage payable from the balance.
REQUIRED:
Prepare the journal entries to record the previous events, indicating in what fund each entry would appear. Do not prepare year-end adjusting entries. Use the following format:
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EVENT FUND JOURNAL ENTRY Explanation
- Advanced Accounting 1510-96B Government and Nonprofit Accounting Page
- Estimated revenues................................ 220, 1. (a) Record adoption of the budget:
- Estimated revenues-fines, forfeits,penanlties..... 80,
- Estimated revenues-miscellaneous.................. 100,
- Estimated revenues-other sources (bond proceeds).. 200,
- Appropriations-program operations............ 360,
- Appropriations-general administration........ 120,
- Appropriations-capital outlays............... 80,
- Appropriations-other uses:transfer to SAF.... 20,
- Fund balance (unresearved and undesignated).. 20,
- Encumbrances-prior year........................... 12, 1. (b) Carry over reserve for encumbrances to 20X4 assuming no expenditure was recorded in 20X3.
- Appropiations-prior years.................... 12,
- Taxes receivable-current (220,800/.96)............ 230, 2. Record tax levy
- Estimated uncollectible taxes-current........ 9,
- Revenues-taxes............................... 220,
- Encumbrances...................................... 316, 3. Record orders placed but not received
- Fund balance reserved for encumbrances....... 316,
- Fund balance (unreserved and undesignated)........ 20, 4. Record appropriation for capital outlays
- Fund balance designated for capital outlays.. 20,
- Cash.............................................. 664, 5. Record cash collections and transfers:
- Taxes receivable-delinquent.................. 38,
- Taxes receivable-current..................... 226,
- Expenditures-capital outlays................. 4,
- Revenues-fines,forfeits,penalties............ 88,
- Revenues-miscellaneous....................... 90,
- Revenues-other sources (bond proceeds)....... 200,
- Fund balance (unreserved/undesignated)....... 18,
- Fund balance reserved for encumbrances............ 302, 6. Record cancelled encumbrances
- Encumbrances-prior year...................... 12,
- Encumbrances-current year.................... 290,
- Expenditures-program operations................... 166,
- Expenditures-general administration............... 80,
- Expenditures-capital outlays...................... 62,
- Vouchers payable............................. 308,
- Expenditures-program operations................... 188, 7. Record additional vouchers
- Expenditures-general administration............... 38,
- Expenditures-capital outlays...................... 18,
- Other use-transfer out of SAF..................... 20,
- Vouchers payable............................. 244,
- Special Assessment Fund (SAF)................ 20,
- Tax receivable.................................... 2, 8. Record $2,000 tax credit to Albert, a taxpayer
- Revenues-taxes............................... 2,
- Advanced Accounting 1510-96B Government and Nonprofit Accounting Page
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(AICPA) Voluntary Health and Welfare Organizations
Following are the adjusted current funds trial balances of Community Association for Handicapped Children, a voluntary health and welfare organization, at June 30, 20X4: Community Association For Handicapped Children ADJUSTED CURRENT FUNDS TRIAL BALANCES June 30, 20X
Unrestricted Restricted Dr. Cr. Dr. Cr. Cash.................................... $ 40,000 $ 9, Bequest receivable...................... 5, Pledges receivable...................... 12, Accrued interest receivable............. 1, Investments (at cost that approx Market) 100, Accounts payable and accrued expenses... $ 50,000 $ 1, Deferred revenue........................ 2, Allowance for uncollectible pledges..... 3, Fund balances, July 1, 20X3: Designated......................... 12, Undesignated....................... 26, Restricted......................... 3, Transfers of endowment fund income. 20, Contributions...................... 300,000 15, Membership dues.................... 25, Program service fees............... 30, Investment income.................. 10, Deaf children's program............ 120, Blind children's program........... 150, Management and general services.... 45,000 4, Fund raising services.............. 8,000 1, Provision for uncollectible pledges 2, $ 478,000 $ 478,000 $ 19,000 $ 19,
Required: a. Prepare a statement of support, revenue, and expenses and changes in fund balances, separately presenting each current fund, for the year ended June 30, 20X4. b. Prepare a balance sheet separately presenting each current fund as of June 30, 20X4.
