Understanding Governmental Accounting: Key Concepts and Case
School
Toronto Metropolitan University**We aren't endorsed by this school
Course
AFA 615
Subject
Accounting
Date
Dec 10, 2024
Pages
4
Uploaded by CorporalFreedomReindeer38
Week 3, Feb 1st 2024March 23 Midterm exam - likely at 9 or 10 AM (will provide more information later on)Two accountability focuses - fiscal, operational. Determines measurement focus.Government wide - accrual basis accountingFund FS - modified accrual basisCase 2-11 - Solutions will be posted-Town of Fordville financial history (100+ years)-Statements: cash receipts, cash disbursements (treasurer)-Funds: general, road tax, (special revenue), utility (enterprise)-Hiring emily Ramirez: CPA supervising financial operations-Due to growing population increasing financial complication-Has background in accounting for business not so much in governmental accounting-a. Do not have capital assets under modified accrual basis, thus the method used isaccrual basis-B.-C. The titles are wrong, the statements are incomplete, no required supplementarystatements. Statement of activities is wrong, should start with revenues then expenses.Expenses are not classified by activityCase 2-12“Business type activities - alI the city’s enterprise and internal service fund activities are includedhere.”-Both priority funds, but internal service funds are considered governmental activity funds.They sell goods and services to the government, thus they are considered so despitebeing technically …..“Fiduciary funds—The city does not include its fiduciary fund activities in its financialstatements.”-We do have to report on fiduciary activities on the government wide level.“Because this information does not encompass the long-term focus of the government-widefinancial statements, additional information is provided to explain the differences between them.”Question:A certain city has a General Fund and Enterprise Fund. During the year a $60,000 liability claimand judgments is incurred for both funds, but settling claims of this kind is usually a two yearprocess.How much should be reported as a liability in each fund's balance sheet at the end of the year?-Answer: Long-Term liability of 60,000State whether these statements are true or false1.Assets of the Capital Projects Fund include cash and investments, but not capital assets.a.TRUE2.It is not possible for expenditures of the Special Revenue Fund to exceed revenues in aparticular year.
a.FALSE - governments are not supposed to overspend. Revenues are not theonly source of financial resources (often have fund balances they can transferbetween years). Thus because they are able to gather funds from other sourcesit is possible for expenditures to exceed revenues in a particular year.3.Capital asset acquisitions are always financed with Capital Projects Funds resourcesa.FALSE - Capital Assets can be financed through many different fund sources.Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting“Operating Statement Accounts” - operations of an organization, expenses, revenues, etc.Budget --Planning what to spend and earn-About estimated revenues and expense for a specific period of timeFormat of Government Wide Statement of Activity-Different from usual FS-Starts with title, continue ons with functions and programs-Classification of expenses are different because it gives insights on governmentalactivity-Must report business type activities as well in this statements-Functions represent the major responsibilities of the government-Direct expense vs indirect expenses-Debt is difficult to link to specific program or function and thus usually isconsidered an indirect expense-Functions vs programs-Function: program, program, program-Programs are within a function (example below)-Health: health services general population > promoting training for healthcareworkforce > direct healthcare-Major differences between program revenues:-Charges for services--Operating grants and contributions--Capital grants and contributions-Grants are not contributions-Have to apply for grants-Grants have eligibility requirements-Contributions are donations (sometimes under specific requirements)-General revenues-Taxes are the main ones but not the only one-Revenues that are not classified as sometimes else go in general revenues-Both restricted or unrestricted revenues are considered general revenue
Multipurpose Grants and Contributions-Grants and revenues do not have to be categorized as specific programs or functions. Ifunable to categorize can link them with general revenues.Reporting Special Items and Transfers-Under IFRS we are not supposed to report special items, special items are supposed tobe reported on the operational section. We do not have extraordinary items becausemanagers are expected to consider multiple outcomes-HOWEVER, in governmental reporting we are able to report extraordinary and specialitems (since management is considered complicated)-Special items are something that management can control, but they are eitherunusual OR infrequent in occurrence (not both)-One time revenue from the sale of a significant government asset-Extraordinary items are BOTH unusual and infrequent in occurrence-Ex. natural disasters like volcano eruption-Transfer-Transfer of funds (interfund transfer)-Non exchange transactionGovernmental Funds-Revenues-Other financing sources - sources of financial inflow other than revenue such as fundtransfersFormat: Governmental Funds operating statement accounts-Revenues Sources-Expenditures-functions/programs-Other financing sources (users)-Extraordinary and special itemsBalance sheet:-Close to fund balancesBudgetary accounts:-For governments budgets are public statements and have to be published. Whereasprivate companies do not have to share their budgets-It is illegal for gov to overspendbudgetary accountsEstimated revenues (normal balance: debit)Appropriation (credit)Estimated other financing sources (credit)Estimated other financing uses (credit)Encumbrances (debit)
Encumbrances outstanding (credit)Adjustment for first 4 accounts closes to the budgetary fund balanceWhat are encumbrances?Cost of goods and services not yet receivedAppropriation?Legal authorization to incur expenditures for various purposes