The General Fund and Special Revenue Funds

Chapter 3

Learning Objectives

Discuss similarities & differences between GF and SRFs

Explain MFBA used for these funds

Understand and prepare budgetary entries

Analyze common journal entries for transactions, including interfund activity

Prepare adjusting & closing entries

Define special items and extraordinary items

Prepare GF and SRF financial statements

General Fund

Used to account for all financial resources

that are not restricted to specific purposes

or otherwise required to be accounted for in

another fund.

Only fund that all governments have.

Special Revenue Funds

Used to account for general government

financial resources that are restricted by

law or contractual agreement to specific

purposes other than debt service or major

capital projects.

Exist as long as the government has

resources dedicated to specific purposes.

MFBA

Measurement Focus (MF) is on current

financial resources – what is expendable

Basis of Accounting (BA) is modified

accrual – recognition occurs for

Revenues when measurable & available

Expenditures when underlying liability is incurred,

except for long-term debt principal and interest

payments (when due)

Basic Accounting Equation

Related

Liabilities

Fund

Balance

Financial

Assets

Assumptions for this Chapter

Transactions do not address budgetary accounting, reporting, & control issues

Accounts maintained on GAAP basis during the year

Second assumption rarely holds in practice, but makes instruction easier and more uniform

Illustrative Entries

Property tax levy

Other revenues

Orders and contracts

Salary expenditures

Interfund activity

Short-term borrowing

Extraordinary and special items

Other transactions and events

#1 Property Tax Levy [Page 72]

Taxes Receivable – Current

Allowance for Uncollectible

Current Taxes

Revenues – Property Taxes

200,000

3,000

197,000

Property Tax Levy

Notice use of allowance account in entry

No bad debts expense – remember, a

governmental fund does not use expenses

Records revenue at the amount government

expects to collect

This form of entry assumes net amount will

be available – other options discussed in

Chapter 5

Other Revenues

Some revenues will be accrued when

services are provided

Other revenues may be recognized only

when cash is received – no allowance

necessary since all of revenue received

#2 Other Revenues [Page 73]

Accounts Receivable

Allowance for Uncollectible

Accounts Receivable

Revenues

36,000

1,000

35,000

#3 Orders and Contracts [Page 74]

Expenditures

Vouchers Payable

29,900

29,900

Orders and Contracts

Preceding slide showed the general journal entry

However, the details are in the subsidiary ledger

effects – not demonstrated in slide show

Most accounts are for current operating

expenditures

Last account affects capital assets, resulting in

accounting in GCA-GLTL accounts

GCA-GLTL Accounts

GCA (Equipment) Net AssetsGLTL

+$6,100 +$6,100

#5 Salary Expenditures [Page 74]

Expenditures

Vouchers Payable

29,900

29,900

Salary Expenditures

Comprise about 75% of city General Fund

expenditures and 85% of school board

General Fund expenditures

Effective control over these expenditures is

essential

Interfund Activity

Nonreciprocal transactions

Interfund reimbursements

Interfund transfers

Reciprocal transactions

Interfund services provided

Interfund loans

Interfund Reimbursements

Underlying event:

Transaction initially recorded in one fund

Should have been accounted for and reported in

a different fund

May also be used to distribute costs from

one from to others

Will not separately reported in financial

statements

#6 Interfund Reimbursement

Receiving fund [Page 75]

Due from SRF

Expenditures

Paying fund (not in textbook)

Expenditures

Due to General Fund

1,500

1,500

1,500

1,500

Interfund Transfers

Usually involve moving assets (cash or

inventory) from one fund to another

Do not involve requirement or expectation

or subsequent repayment

May also result from one fund providing

services to another without charging for

those services

Common examples

GF resources transferred to DSF for principal and interest payments

GF resources transferred to CPF to pay for government’s portion of capital project

SRF resources transferred to GF to finance expenditures for which SRF resources are restricted

GF resources transferred to EF to provide initial permanent financing

Residual assets of CPF or DSF transferred upon completion of purpose of fund

PF resources transferred to other funds to subsidize operations

#7 Principal & interest [Page 76]

Transfer to DSF

Cash

5,000

5,000

Financial

Assets

Fund

Balance

Related

Liabilities

+$5,000 +$5,000 (OFS)

Effect on DSF

#8 Routine unpaid transfer [Page 77]

Transfer from SRF

Due from SRF

10,000

10,000

Financial

Assets

Fund

Balance

Related

Liabilities

+$10,000 +$10,000 (OFU)

Effect on SRF

#9 Transfer to EF [Page 77]

Transfer to EF

Cash

6,000

6,000

Assets Net AssetsLiabilities

+$6,000 +$6,000 (Transfer)

Effect on EF

Interfund Services

Defined as “sales and purchases of goods and services between funds for a price approximating their external market value

Accounting: Seller fund sells goods or services to external

party (recognizes revenues)

Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)

#10 Interfund services [Page 78]

Expenditures

Due to ISF

30,000

30,000

Assets Net AssetsLiabilities

+$30,000 +$30,000 (Revenues)

Effect on Stores ISF

Interfund Loans

One fund loans cash to another

Transaction does not change Fund Balance

Reporting

Lender fund recognizes a receivable

Receiving fund recognizes a liability

Interfund Loan Terminology

Lender Fund

Short-term loan – Due from

Long-term loan – Advance to (normally causes

Reservation of Fund Balance)

Receiving Fund

Short-term loan – Due to

Long-term loan – Advance from

#11 Payment of short-term loan [Page 78]

Due from SRF

Cash

1,250

1,250

Financial

Assets

Fund

Balance

Related

Liabilities

+$1,250 +$1,250

Effect on SRF

#12 Loan repayment [Page 78]

Cash

Due from SRF

1,250

1,250

Financial

Assets

Fund

Balance

Related

Liabilities

– $1,250 – $1,250

Effect on SRF

Short-term external borrowings

Usually made with banks

Receipt of loan and principal repayment do

not affect Fund Balance; however,

payment of interest does affect Fund

Balance

#13 Short-term borrowing [page 79]

Cash

Short-Term Notes Payable

20,000

20,000

#14 Partial loan repayment [page 79]

Short-Term Notes Payable

Expenditures [Interest]

Cash

5,000

600

5,600

Extraordinary & Special Items

Extraordinary item Used by FASB & GASB

Event is not under control of management and is both (1) unusual in nature and (2) infrequent in occurrence

Special Item Unique to GASB

Event is under control of management and is either unusual or infrequent

#15 Special item [Page 80]

Cash

Special Item – Proceeds from

Sale of Beach Property

8,000

8,000

GCA

(Land)Net AssetsGLTL

– $2,000 – $2,000

Effect on GCA – at historical cost

#16 Extraordinary item [Page 80]

Cash

Extraordinary Item – Insurance

Recovery Proceeds

5,750

5,750

GCA

(Land)Net AssetsGLTL

– $6,000 – $6,000

Effect on GCA – at historical cost

Other Transactions and Events

Preceding entries were for events common

to all governments

Following entries may or may not occur for

every government

#17 Collecting taxes and other receivables [Page 81]

Cash

Taxes Receivable – Current

Accounts Receivable

175,000

160,000

15,000

Reclassify taxes as delinquent [Page 81]

#18 Receivable account

Taxes Receivable – Delinquent

Taxes Receivable – Current

#19 Allowance account

Allowance for Uncollectible Taxes –

Current

Allowance for Uncollectible

Taxes – Delinquent

40,000

3,000

40,000

3,000

#20 Other Revenues [Page 81]

Cash

Revenues

205,000

205,000

#21 Ordering goods & services [Page 81]

No journal entry required until goods

or services are received.

#22 Collecting delinquent accounts [Page 82]

Cash

Taxes Receivable – Delinquent

Revenues

20,200

20,000

200

Revenues are for interest and penalties not previously accrued.

#23 Purchase of investments [Page 82]

Investments

Cash

10,000

10,000

The GASB has issued two standards in the last few years addressing

accounting for investments: #31 and #40. #31 addresses marking investments

to fair value. #40 addresses risk issues related to the investment. These and

related issues are discussed in Chapter 5.

#24 Accruing other expenditures [Page 82]

Expenditures

Vouchers Payable

300,000

300,000

GCA

(Equipment)Net AssetsGLTL

$23,000 $23,000

Effect on GCA

#25 Paying amounts owed [Page 82]

Vouchers Payable

Cash

360,000

360,000

#26 Interfund transaction: Payment to ISF of balance owed [Page 82]

Due to Internal Service Fund

Cash

22,500

22,500

#27 Collect accounts receivable [Page 83]

Cash

Accounts Receivable

13,000

13,000

#28 Write-off an account [Page 83]

Allowance for Uncollectible Accounts

Receivable

Accounts Receivable

400

400

#29 Correcting an error [Page 83]

Correction of Prior Year Error

Vouchers Payable

300

300

Using the CPYE Account

Some wonder about using the Correction of Prior Year Error Account (CPYE)

Since the previous year’s expenditure accounts have been closed, it can’t be charged to that account

The use of the Unreserved Fund Balance account is an option, but doing so would hide the error

Besides, remember to where the CPYE account will be closed: Unreserved Fund Balance

Year-End Adjustments

Revenue Adjustments

Interest on investments and delinquent taxes

Unbilled charges for services

Unrestricted intergovernmental grants that are

due but haven’t been received

Expenditure Adjustments

Interest on short-term debt

Accrued payroll

A1 Interest & Penalties [Page 83]

Interest & Penalties Receivable

Allowance for Uncollectible

Interest & Penalties

Revenues – Interest & Penalties

550

50

500

A2 Accrued interest on investments [Page 84]

Accrued Interest Receivable

Revenues

400

400

A3 Accrued interest on short-term debt[Page 84]

Expenditures

Accrued Interest Payable

250

250

Closing Entry Process

Close the operating accounts and update

Unreserved Fund Balance

Close subsidiary revenue and expenditure

accounts

C Close the Actual [Page 85]

Revenues

Transfer from SRF

Special Item – Proceeds from Sale of

Beach Property

Extraordinary Item – Insurance

Recovery Proceeds

Unreserved Fund Balance

Expenditures

Transfer to DSF

Transfer to EF

Correction of Prior Year Error

438,100

10,000

8,000

5,750

51,300

399,250

5,000

6,000

300

Reserve for Encumbrances

Reserves indicate that portion of Fund

Balance not available for appropriation

Reserve for Encumbrances indicates

amount that must be appropriated next

year for transactions started in current year

#30 Outstanding orders [Page 84]

Unreserved Fund Balance

Reserve for Encumbrances

20,000

20,000

General Fund Financial Statements

Balance Sheet

Statement of Revenues, Expenditures, and Changes in Fund Balance

___ Revenues, Expenditures, and Changes in Fund Balance – Budget-to-Actual Statement of . . ., if part of the Basic Financial

Statements

Schedule of . . ., if placed in Required Supplementary Information (RSI)

Balance Sheet

Standard Report FormatCurrent Assets = Current Liabilities + Fund Balance

Fund Balance presented in two sections

Reserved – with specific reserves identified

Unreserved – which may be further divided into

Designated – with specific designations identified

Undesignated

Reserves of Fund Balance

Indicate that some amounts are not available for

appropriation or expenditure

Creation requires action by governing council

Common reserves:

Encumbrances

Petty Cash

Inventories

Advances

Long-Term Loan [Page 91]

“The Loan”

Advance to SRF

Cash

“The Reserve”

Unreserved Fund Balance

Reserve for Advance to SRF

5,000

5,000

5,000

5,000

Unreserved Fund Balance

Available for appropriation and expenditure

May be designated for some specific

purpose

Normally done by Finance Director

Less formal than a reserve

Statement of Revenues, Expenditures, & Changes in Fund Balance

May be referred to as the operating

statement

Format specified by the GASB (there had

been optional formats prior to 1999)

Operating Statement Format

Notes on the “Statement” [Page 94]

Beginning Fund Balance shown “as previously reported” and than corrected for error

Transfers reported separately from revenues and expenditures

Special item and extraordinary item reported between Other Financing Sources (Uses) and Net Change in Fund Balance

Statement explains changes in fund balance for the year

Classification of Expenditures

Function

Organizational Unit (including Department

and Subunit)

Activity

Object Class

Character