ACCT338_Topic_two-Fund_Accounting+(2)

8/21/2019 ACCT338_Topic_two-Fund_Accounting+(2)

1/68

Chapter two

Fund Accounting

1


2/68

OBJECTIVES The nature of funds

Basic types of funds used by governments

The main components of a government’scomprehensive annual nancial report

How the fund structures and nancial reports of

notforprots di!er from those of governments"

How the nancial reports of notforprots di!er

from those of governments"#


3/68

WHAT IS A FUND?$ and %& organi'ations establish their

accounting systems on a fund basis"

A fund is a scal and accounting entity "(ach fund has its own selfbalancing set of

accounts from which nancial statements

can be prepared" )ie"* chart of accounts *

general +ournal* general ledger* trial

balances* and nancial statements,-


4/68

WHAT IS A FUND?$ . %& usually use several funds to

account for their resources and activities"

(/ample0 A church may useFund 1 to account for its general operating

revenues and e/penses*

Fund # to account for resources set aside to

construct a new building* andFund - to account for its religious school"


5/68

WHAT CHARACTERIZES A FUND?

Fund accounting uses the e2uation0

Assets 3 4iabilities 5 Fund Balance

Fund balance is the di!erence between fund’s

assets and the claims against those assets"

Fund balance is the amount left to the parties

with rights to the assets after all other claimshave been li2uidated"

Fund balance is often referred to as net assets"

6


6/68

WHAT CHARACTERIZES A FUND?

Funds use the same double entry system of boo77eeping"

A balance sheet of a fund can detail the specic assets,

liabilities and the elements of funds balance that underlie

the accounting e2uation as of any point in time"

A statement of revenue, expenditures, and other

changes in fund balance can e/plain the reasons for

changes in fund balance during a specied period of time"

A statement of cash ows can reconcile the changes

in cash between the end and the beginning of a period"

8


7/68

Use of multiple funs to !""ountfo# !n entit$

$ . %& separate resources into funds to

ensure that they adhere to the restrictions

placed upon them by legislators* grantors*

and donors* or other outside parties"

E%!mple& when B9: receives a donation

that must be used only for scholarships* itwould account for the resources received in

a special scholarship fund"

;


8/68


$ and %& use establish funds to account for

certain activities that are di!erent in nature

from their usual activities"


9/68


Fund accounting promotes both

control and accountability over

restricted resources"

?


10/68

Use of multiple funs to !""ountfo# !n entit$ To appreciate the relationship between the two or

more funds used to account for a single entity*

one must remember that each fund is a separate

accounting entity"

(very transaction that a!ects a fund must be

recorded by at least one debit and one credit"

Any transaction that a!ects two or more funds must

be accounted for as if it a!ected two or more

independent businesses and must be recorded

individually in each fund"1@


11/68


E%!mple& a city maintains two funds" a general

fund accounts for its unrestricted resources and

general operations* and a utility fund accounts

for its electric utility * which sells electricity to city

residents and other government departments"

The electric utility bills the other city

departments* all of which are accounted for in the

general operating fund* for 1@*@@@" The following

entries would be recorded0

11


12/68


Utilit$ Fun 'oo(sAccounts eceivable )from general fund,1@*@@@

evenue from sale of electricity 1@*@@@

To record the sale of electricity to general fund

)ene#!l Fun 'oo(s(lectricity e/penditure 1@*@@@

Accounts &ayable )to utility fund, 1@*@@@To record the use of electricity

1#


13/68

B!sis of A""ountin* !n+e!su#ement Fo"us

Basis of accounting determines

when transactions and events are

recognised"

The measurement focus of an entity

determines what is being reported

upon" hich assets and liabilities will be

given accounting recognition and

reported on the balance sheet"1-


14/68


Full A""#u!lB!sis

1

evenues

recogni'ed when

earned* e/penses

recogni'ed when

incurred"

Measurement focus

is upon all

economic

resources"

evenues

recogni'ed when

availableD

e/pensesEe/pendit

ures recogni'ed

when paid"

Measurement focus

is upon cash"

evenues

recogni'ed when

available and

measurableD

e/penditures when

incurred"

Measurement focus

on short term

nancial assets and

liabilities"

+oi,eA""#u!l B!sis C!s- B!sis


15/68


f an entity adopted Full A""#u!l basis of

accounting* then its me!su#ement fo"us will be

on all economic resources"

ts balance sheet will report on all assets and liabilities*

both current and noncurrent"

ncreases or decreases in net capital assets and long

term obligations are recognised as revenues or

e/penses" (/ample0 an organi'ation purchased a

vehicle by giving a note0

Gr" ehicle #6*@@@16


16/68


$ . %& maybe primarily concerned with the

assets needed to satisfy current year obligations*

they may adopt ! moi,e !""#u!l basis of

accounting and a measurement focus on mainly

short term nancial assets and liabilities"

Capital assets and long term liabilities would be

e/cluded form the balance sheet* and net

changes in short term nancial assets and

liabilities would be recogni'ed as revenues or18


17/68


1;

(/ample0 if a government borrows #6*@@@

)issuing a long term note, and uses the

proceeds to purchase a vehicle0

Gr" Cash #6*@@@

Cr" &roceeds from borrowings #6*@@@

Gr" (/penditure for vehicle #6*@@@

Cr" Cash #6*@@@


18/68


1>

The government would report neither the vehicle nor the long

term note on its fund balance sheet"

nstead it would record both the increase and the decrease in a

nancial asset )cash, on the funds’ statement of revenues and

e/penditures"

From an accounting standpoint neither the vehicle nor the related

liability would be recogni'ed"

The vehicle would be written o! )e/pensed, at the time ac2uired"

The proceeds from the note would be recorded as proceeds from

borrowing* an increase in fund balance )li7e a revenue,"


19/68


1?

For the purposes of internal management

and control* %& may adopt a modied

accrual basis of accounting* FAIB re2uires

that they prepare their generalpurpose

e/ternal reports on a full accrual basis"


20/68

E%!mple& Fun A""ountin* in AS"-ool Dist#i"t

#@

A newly school district accounts for its operations on a modiedaccrual basis" t maintains four funds0

A *ene#!l fun0 this fund accounts for ta/es and otherunrestricted resources"

A "!pit!l p#o.e"ts fun0 this fund accounts for the proceedsof bonds that are restricted to the construction of buildings and

similar assets"

A e't se#/i"e fun0 this funds accounts for resources that

are to be set aside each year to ensure that the district has the

ability to ma7e its re2uired payment of interest and principal on

its long term debt"

A spe"i!l #e/enue fun0 it accounts for state grants that

must be used for specic purposes"


21/68


#1

The district imposed ?"@ m of general property

ta/es of which it actually collected >"> m" it

e/pects to collect the balance shortly after year end"

These ta/es are unrestricted general fund

)ene#!l Fun

Cash $8.8

Property Taxes Receivable .!Property taxes revenue $".


22/68


##

The district received a state grant of @"# m to

purchase computers" This grant is restricted to a

specic purpose and therefore must be recorded in a

restricted fund the special revenue fund"

Spe"i!l Re/enue Fun

Cash $.!

#rant Revenue $.!


23/68


#-

The district issued 1# m in long term bonds to construct a new

building" The proceeds must be used for the intended purpose

and therefore must be recoded in the capital pro+ect fund"

Because the district is on a modied accrual basis of accounting*

which e/cludes the recognition of both long term assets and long term

liabilities* the proceeds are recognised in a revenue type account"

The district must maintain a record of both its long lived assets and

obligations in the ledgers or other o! the balance sheet lists"

C!pit!l 0#o.e"ts Funr. Cash $%!.

Cr. Proceeds from &orro'ing $%!.


24/68


#

The district constructed the school building for

11m" The construction of the school building must

be accounted for as an e/penditure rather than a

capital asset"

The assets must be recorded in a supplementary

ledger list"

C!pit!l 0#o.e"t Fun

r. Construction of building (expenditure) $%%.

Cr. Cash $%%.


25/68


#6

The district incurred 8"@ m in general

operating e/penditures of which it actually

paid 6"6 m"

)ene#!l Fun

r. #eneral *perating +xpenditure$.

Cr. Cash $-.-

Cr. ccounts Payable .-


26/68


#8

:sing its state grant* the district

purchased computers for @"1 m"

Spe"i!l Re/enue Funr. c/uisition of computers (expenditure) $.%

Cr. Cash $.%


27/68


#;

The district transferred 1"1 m from the general fund to the

debt service fun to ma7e the rst payment of both principal

and interest that are due in the following year" entries in

both funds

)ene#!l Fun

r. Transfer0out to debt service fund $%.%

Cr. Cash $%.%

De't Se#/i"e Fun

r. Cash $%.%

Cr. Transfer0in from general fund $%.%


28/68


#>

S"-ool Dist#i"t1s Fun B!l!n"e S-eet 2inmillions3)ene#

!lSpe"i!

l

Re/enue

C!pit!l

0#o.e"ts

De'tSe#/i

"e

Assets

Cash #"# @"1 1"@ 1"1

&roperty Ta/eseceivable

@"#

Tot!ls 4567 4869 4968 49694iabilities and fundbalances

Accounts &ayable @"6


29/68


#?

S"-ool Dist#i"t1s St!tement of Fun Re/enues:E%penitu#es: !n Ot-e# C-!n*es in Fun B!l!n"es 2in

millions3

)ene#!l Spe"i!lRe/enu

e

C!pit!l0#o.e"ts

De'tSe#/i"

e

&roperty ta/ revenue ?"@

evenue from state grant @"#

Total Revenues ". .! 0 0

Jperating (/penditures 8"@

Construction of building 11"@

Ac2uisition of computers @"1

Total +xpenditures . .% (%%.)

Jther increases anddecreases in fundbalances

Transfer in E )Jut, )1"1, 1"1


30/68

Ho; "!n funs 'e "om'ine !n"onsoli!te?

$AIB mandates governments to prepare two sets of

nancial statements0

$overnmentwide statements0 presented on a full

accrual basis and consolidates all of a government’s

operations"

Fund nancial statements0 government and business

type funds are reported on separate schedules"$overnment funds are prepared on a modied accrual

basis while business type fund is prepared on a full

accrual basis"-@


31/68


-1


32/68


FAIB permits %& to consolidate the assets and liabilities

of funds into a single balance sheet" However* the net

assets of the entity must be reported in three categories

of restrictiveness0 unrestricted* temporarily restricted*

permanently restricted"

FAIB also re2uires that on its statement of activities

)similar to business income statement, the entity display

separately those revenues that are unrestricted*

temporarily restricted* and permanently restricted"

-#


33/68

+!in T$pes of )o/e#nmentFuns

$overnments engage in three broad categories of

activities0

96 )o/e#nment!l !"ti/ities are those nanced

predominantly through ta/es and

intergovernmental grants"

56 Business t$pe !"ti/ities those nanced

through user charges"


34/68

+!in T$pes of)o/e#nment Funs

-

96 )o/e#nment!l Funs

a" $eneral fund

b" Ipecial revenue

funds

c" Gebt Iervice fund

d" Capital pro+ects

funds

e" &ermanent funds

56 0#op#iet!#$ funs

a" (nterprise funds

b" nternal service

fund


35/68

96 )o/e#nment!l Funs

)o/e#nment!l funs =>>@

=G

$overnmental Funds are maintained to account

for $ operating and nancing activities"

There are ve primary types of governmental

funds

-6


36/68

96 )o/e#nment!l Funs& )ene#!lFun

)ene#!l fun =K =>>@

This fund accounts for all unrestricted resources"

t embraces ma+or governmental functions* police*re* street maintenance* sanitation* and

administration"

$overnment nance their general operations mainly

with unrestricted resources* such as property ta/es"

$eneral fund is accounted for on a modied accrual

basis"-8


37/68

96 )o/e#nment!l Funs& )ene#!lFun

W-$ oes one sin*le fun "o/e# so m!n$fun"tions?

A government fund structure rarely mirrors its

organi'ational structure"

Funds are established mainly to ensure that

governments adhere to resource restrictions"

Funds divide the government into categories of

resource restriction* not functional

departments"-;


38/68

96 )o/e#nment!l Funs& Spe"i!lRe/enue Fun

Spe"i!l Re/enue Fun =L =>>@

These funds account for resources that are legally

restricted to specic purposes" (/amples0$asoline ta/ revenue that must be used for highway

maintenance"

4ottery fund proceeds that must be used for

education"

&rivate donation that must be used to repair par7s"

->


39/68

96 )o/e#nment!l Funs& De'tSe#/i"e Fun

De't Se#/i"e Fun M = =>>@

These funds are used to account for resources set

aside for the payment of interest and principal onlong term debt"

Gebt service fund derive their resources from otherfunds


40/68

96 )o/e#nment!l Funs& De'tSe#/i"e Fun

hen $ accumulate resources to service their

long term obligations* they commonly invest

them in commercial paper* treasury bills* and

other nancial instruments provide reasonable

return"

Therefore* debt service fund transactions relate

to the purchase and sale of mar7etable

securities and the recognition of investment

earnings and related costs"@


41/68

96 )o/e#nment!l Funs& C!pit!l0#o.e"ts Fun

C!pit!l 0#o.e"ts Fun PQ =>>@

=G@

These funds are used to account for resources

held for the ac2uisition or construction of ma+or

capital facility"

Capital pro+ects funds derive their resources from

the proceeds of bonds J

may receive resources from other funds

1


42/68

96 )o/e#nment!l Funs& C!pit!l0#o.e"ts Fun

The assets are reported only in the

government wide statements )full accrual,

and in supplementary schedule"

$overnments may invest any e/cess cash

awaiting for capital pro+ects"

#


43/68

96 )o/e#nment!l Funs&0e#m!nent Fun

&ermanent fund are used to report

resources provided by trust in which the

earnings but not the principal must beused for public purposesD i"e" to benet

the government and its citi'enry"

-


44/68

56 0#op#iet!#$ Funs

0#op#iet!#$ Fun @@ =>>@

&roprietary funds are used to account for

business type activities"

$overnment intend to recover costs through

user charges" )brea7even,

&roprietary funds employ a full accrual basis

and their measurement focus is on all economic

resources"


45/68

56 0#op#iet!#$ Funs

The nancial statements of proprietary nds are

di!erent from those of the governmental funds"

The statement of net assets )BI, and the

statement of revenues* e/penses* and changes

in net assets )I, loo7 li7e those of business"

The statement of net assets reports capital

assets and long term debt and the statement of

revenues and e/pended include depreciation"

6


46/68

56 0#op#iet!#$ Funs& Ente#p#iseFuns

Ente#p#ise Funs =>@ XY@ =>>@

=K

$overnmental activities accounted for in enterprise

funds provide services to the public at large" Iuch as

:tilities )electricity* gas* and water,

Hospitals &ar7ing garages

Airports

Transportation

8


47/68

56 0#op#iet!#$ Funs& Ente#p#iseFuns

$overnment enterprise does not issue

stoc7 but issues bonds"

The principal and the interest of the bonds

are payable e/clusively out of the

revenues of the fund itself" %JT out of the

general fund"

;


48/68

56 0#op#iet!#$ Funs& Inte#n!lSe#/i"e Funs

Inte#n!l Se#/i"e Fun = =>>@

=G [

Gepartments accounted for in internal service

funds provide goods or services to other

departments within the same government"

They bill the receiving departments at rates

intended to cover the cost of the goods or

services">


49/68

56 0#op#iet!#$ Funs& Inte#n!lSe#/i"e Funs

nternal service funds are typically established with

contributions of resources from the general or

other fund" Thereafter* they are e/pected to be self

sustaining"

Because IF sell their goods to other departments"

Kost of their transactions are with other funds"

A vehicle repair service that maintains and services

the cars and truc7s of the police department* re

department* sanitation department"

?


50/68

>@

Fiduciary funds benet parties other than the

government itself"

These include employees* other governments*

specic individuals* or corporations"

Their activities do not result in revenues or

e/penses to the government"

6@


51/68


52/68


53/68


54/68


55/68


56/68

Comp#e-ensi/e Annu!lFin!n"i!l Repo#t

68

Annual report of governments* 7nown asComprehensive Annual Financial eport CAF

The nancial section of the CAF contains

#overnment 'ide 1tatements0 consolidates the entityLs

governmental funds and proprietary funds into

governmental activities and business type activities and

report both 7inds on a full accrual basis"

2und 1tatements $overnmental funds modied accrual basis

&roprietary funds full accrual basis

Fiduciary funds full accrual basis

A l t f t f


57/68

Annu!l #epo#ts of notafo#p#o,ts

6;

FAIB is the rulema7ing authority for

nongovernmental entities"

FAIB established standards as to how %&

must aggregate and display their nancial

information in general purpose* e/ternal

nancial reports"FAIB standards are di!erent from $AIB’s"

A l t f t f


58/68


6>

$AIB m!n!tes fund based reporting forgovernments"

FAIB did not oblige %& to use fund accounting"

%& need to distinguish between resources that

are restricted and unrestricted"

%evertheless* for the purpose of internal

accounting and control* most %& do employ

fund accounting"

A l t f t f


59/68


6?

%otfor&rot maintains

Current fund similar to government’s general fund

Current restricted fund similar to $’ special revenue

fund&lant funds related to capital assets and related debt

:ne/pended plant fund capital pro+ects fund

etirement of indebtedness debt service fund

nvestment in plant fund accounts for both capital

assets and long term debts"

A l t f t f


60/68


8@

Financial reports of %& entities are more closelyresemble those of business than of governments"

Financial report consists of three statements0

Itatement of position )Balance sheet, Itatement of activities )statement of revenues and

e/penses,

Itatement of cash Xows

:nli7e $* %o need not prepare data on their ma+or

funds or even funds type"

A l t f t f


61/68


81

Although the FAIB imposes some accounting andreporting re2uirements that are uni2ue to notfor

prots* not for prots are generally sub+ect to business

standards"

FAIB re2uires %& to classify their net assets into three

categories based on the restriction from donors0

:nrestricted

Temporarily restricted

&ermanently restricted

Annu!l #epo#ts of not fo#


62/68


8#

Temporarily restricted resources are those that

must be used from specic purpose or can not

be spent until some time in the future"

&ermanently restricted resources are typically

endowments* only the income of which can be

spent"

FAIB permits %& considerable Xe/ibility as to

the form of primary statements"


63/68

(nd of Topic Two

8-


64/68

E%!mple& Funs of ! Uni/e#sit$

8

Current Funds

Current fund 0 funds available for day to day

e/penditures and it is unrestricted

Current restricted funds0 represent resourceslimited by outside parties )donors, for specic

purposes"

Current Designated funds0 represent resourcesset aside by the university own governing board

)board of trustees, designated fund is unrestricted"


65/68


86

oan funds account for resources dedicated tostudent loans"

!ndowment funds <


66/68


88

"ua#i$!ndowment funds it is li7e the currentdesignated funds* accounts for resources set aside

for specic activities by the university governing

board* only the income and not the principal ise/pendable"

Annuity Funds are used to account for gifts that

provide a return to the donor or a persondesignated by the donor for a specied term or for

the reminder of his life"


67/68


8;

0l!nt funs%nexpended plant fund accounts for resources

reserved for the construction or purchase of plant assets"

&enewals and replacements represent resources

committed to the renewal and replacement for e/isting

plant and e2uipment"

&etirement of indebtedness0 the assets of this fund

are held for the retirement of the dent and the payment

of the interest"


68/68


Agency funds are maintained to account

for resources that the institution holds as a

custodian for outsiders such as employees *

student organi'ation"

Accounting for business type activities are

accounted for in separate proprietaryfunds"

ACCT338_Topic_two-Fund_Accounting+(2)

Documents

Transcript of ACCT338_Topic_two-Fund_Accounting+(2)