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Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds. Chapter 20. Learning Objective 1. Review the appropriate accounting and financial reporting for proprietary funds. Proprietary Funds. The objective of proprietary funds is to

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Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

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  1. Accounting for State and LocalGovernmental Units – Proprietary and Fiduciary Funds Chapter 20

  2. Learning Objective 1 Review the appropriate accounting and financial reporting for proprietary funds.

  3. Proprietary Funds The objective of proprietary funds is to maintain capital or produce income, or both. Full accrual accounting procedures apply.

  4. Proprietary Funds Current Assets + Noncurrent Assets – Current Liabilities – Noncurrent Liabilities = Net Assets

  5. Financial Statements Statement of net assets Statement of revenues, expenses, and changes in net assets Statement of cash flows

  6. Types of Funds Internal service Enterprise

  7. Internal Service Funds Internal service funds (ISF) are proprietary funds that a government uses to account for governmental activities that provide goods and services to other departments or agencies of the governmental unit, or to other governmental units.

  8. Sources of Financing Nonreciprocal contributions Loans

  9. Accounting for anInternal Service Fund The village of Tara creates a central motor pool fund with a cash contribution of $200,000 from the general fund and a contribution of motor vehicles with a book value of $120,000.

  10. Accounting for anInternal Service Fund Cash 200,000 Motor Vehicles 120,000 Nonreciprocal Transfer from GF 200,000 Contributed Capital from Municipality 120,000 To record establishment of the fund

  11. Accounting for anInternal Service Fund The village constructs a building for $100,000, purchases equipment for $50,000, and acquires supplies for $20,000. What is the entry?

  12. Accounting for anInternal Service Fund Building 100,000 Equipment 50,000 Supplies on Hand 20,000 Cash 170,000 To record purchase of building, equipment, and supplies

  13. Accounting for anInternal Service Fund When ISF bills user funds, individual funds will record entries at the selling price. Collection of the user charges triggers entries in the funds involved. Adjusting and closing entries are similar to those in commercial enterprises.

  14. Reporting InternalService Funds Fund Financial Statements Included with proprietary funds Never considered a major fund Aggregated into a single column

  15. Reporting InternalService Funds Government-wide Statements Reported with government activities

  16. Enterprise Funds Enterprise funds (EF) are proprietary funds that a government uses to account for activities that are financed and operated similarly to those of private business enterprises.

  17. Enterprise Funds Record business activities that... (1) are financed with debt secured solely by net revenue from fees and charges to external users,…

  18. Enterprise Funds (2) operate under laws requiring costs be recovered with fees and charges, or (3) have prices established by management to cover the costs of providing services.

  19. Accounting for an Enterprise Fund Example of entries related to customer deposits. Restricted Cash 10,000 Customer Deposits 10,000 To record customer deposits collected

  20. Learning Objective 2 Introduce the differences between a proprietary fund statement of cash flows and its commercial business counterpart.

  21. Statement of Cash Flows GASB 34 makes the direct method mandatory for statement presentation.

  22. 1 Operating activities Noncapital financing activities 2 Capital financing activities 3 Investing activities 4 Statement of Cash Flows

  23. Cash Flows fromOperating Activities Receipts from sales of goods or services, and interfund reimbursements. Payments to suppliers and employees. Payments to other governments as grants for operating activities. Payments for taxes and in lieu of taxes.

  24. Cash Inflows from NoncapitalFinancing Activities Proceeds from bonds not clearly issued specifically to finance capital assets Receipts from grants and subsidies not restricted for capital purposes or operating activities Receipts from taxes collected for the government enterprise

  25. Cash Outflows from NoncapitalFinancing Activities Repayments other than those related to acquiring or constructing capital assets Payments for grants and subsidies (except those for specific operating activities of the grantor government) Cash paid to other funds except for interfund services used

  26. Cash Flows from Capital and RelatedFinancing Activities Inflows: Capital grants Sale or disposal of fixed assets Outflows: Acquisition, construction, or improvement of capital assets Repayments and interest related to capital assets

  27. Cash Flows from Investing Activities Inflows: Collections of loans Sales of investment securities Receipt of interest and dividends Outflows: Making loans Payments to acquire investment securities Other than cash equivalents

  28. Learning Objective 3 Prepare journal entries and fund financial statements for fiduciary funds.

  29. Fiduciary Funds Governmental units use these funds to account for assets held in a trustee or agency capacity. Resources cannot be used for the benefit of the government’s own programs.

  30. Fiduciary Funds Agency Trust

  31. Private-purpose Investment Pension Fiduciary Funds Trust Funds

  32. Fiduciary Funds Agency funds are used to account for resources that governments hold in a custodial or agency capacity. Assets = Liabilities

  33. Accounting for an Agency Fund Assume that Morris County collects $200,000 taxes for its own purpose as well as for other cities. Total property taxes levied: Morris County $100,000 Other Cities 100,000 Total $200,000

  34. Accounting for an Agency Fund Taxes Receivable for Local Governmental Units 200,000 Liability to Morris County 100,000 Liability to Other Cities 100,000 To record tax levy $180,000 is collected, and $160,000 remitted.

  35. Accounting for an Agency Fund Cash 180,000 Taxes Receivable for Local Governmental Units 180,000 To record collection of taxes receivable Liability to Other Cities 900 Due to GF of Morris County 900 To charge cities a 1% fee for taxes collected for them

  36. Accounting for an Agency Fund Due to GF of Morris County 800 Liability to Morris County 80,000 Liability to Other Cities 79,200 Cash 160,000 To record remittance of taxes collected net of 1% fee

  37. Trust Funds Investment trust funds are used to account for multi-government external investment pools sponsored by the governmental entity. Private-purpose trust funds are used to account for resources that are held for the benefit of parties outside the governmental entity.

  38. Trust Funds Pension trust funds are used when a government acts as a trustee. Defined Benefit Defined Contribution

  39. Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Financial Statementsfor the Trust Fund Trust Fund

  40. Learning Objective 4 Learn about GASB guidance for pension fund accounting.

  41. Accounting for a Pension Trust Fund Pension trust fund accounting and financial requirements are set forth primarily in GASB Statement No. 25. “Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans”

  42. GASB Statement No. 25 This statement outlines the information that should be reported about each pension plan. Statement of plan net assets Statement of changes in plan net assets

  43. GASB Statement No. 25 Two schedules must be presented as RSI. 1. A schedule of funding progress 2. A schedule of employer contributions Information is included for 6 years.

  44. GASB Statement No. 25 GASB Statement No. 25 also provides disclosure requirements for defined contribution pension. Plan description Summary of accounting policies Fair value of net assets Identification of investment concentrations

  45. GASB Statement No. 27 This statement establishes standards for… – pension cost recognition – disclosures

  46. GASB Statement No. 27 Pension obligation is the cumulative difference between annual pension cost and the employer’s contribution to the plan, including the pension liability, or assets in transition, if any.

  47. GASB Statements No. 25 and 27 Plan net assets Changes in net assets 25 Reporting framework Parameters Disclosure 27 Recognition of pension costs Disclosures

  48. Learning Objective 5 Become familiar with the differences among governmental, proprietary, and fiduciary funds.

  49. Preparing the Government-WideFinancial Statements The government-wide statements include a column for business-type activities. This column includes enterprise fund amounts only. Conversion is not necessary.

  50. Preparing the Government-WideFinancial Statements Governments must either eliminate internal balances or report them as interfund balances in the asset section of the statement of net assets. Government-wide statements report internal service funds with governmental activities.

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