Governmental Accounting - Government and Nonprofit Accounting - Lecture Notes, Study notes of Accounting

Download Governmental Accounting - Government and Nonprofit Accounting - Lecture Notes and more Study notes Accounting in PDF only on Docsity! Lecture #1 Introduction to Governmental Accounting Page 1 of 8 Class Comments 1. Adding the class 2. Class web page → access from the faculty web page. This is not the same as the class SacCT/WebCT page. 3. Syllabus 4. Accounting review – do exercises on SacCT/WebCT page – key is there as well – posted later this week. 5. Nature of the class – theory and analysis, not memorization 6. The class notes, handouts, online quizzes, and exercises are the basis for the majority of the material found in the exams General Comments on Governmental Accounting Accountability “Accountability is the cornerstone of all financial reporting in government…Accountability requires governments to answer to the citizenry – to justify the raising of public resources and the purposes for which they are used.” – GASB Concept Statement #1. → So when in doubt, give the answer that uses accountability. See page 6 of text. Example:  Accounting  Auditing  Public Administration  Legislative Oversight  Public Oversight  Executive Oversight  Finally, Governmental Services So accountability has reach beyond the financial statements docsity.com Lecture #1 Introduction to Governmental Accounting Page 2 of 8 Fund Accounting 1. A fund is a _________________________ and __________________________ entity – see pages 42 and 752. a. GASB accounting principles: #2, #3, #4 for examples on pages 52+ b. Major funds – see page 49 c. Nonmajor funds – see page 50 d. We use a modified-accrual basis of accounting for funds – more on this later. See page 44 2. Generally a fund has a defined purpose and often this purpose is more narrow than general. 3. The purpose of fund accounting is for governmental operations and control. 4. This is a good time to introduce you to the dual-track in governmental accounting: the fund track and the government-wide track. See inside cover of your text: Fund track and modified accrual accounting Budgetary accounting Operational or transaction accounting on the fund basis Government-wide track: aggregated and full accrual accounting a. GASB principles #10 and #11 require budgetary controls which means in practical terms the budgetary amounts need to be incorporated into the general ledger system. 5. Examples On the next two pages examples of fund financial statements. Here are some points we want to see. Do not be concerned about “memorizing” these points now. This is what we will be covering over the next two weeks. We just want to get an example in front of us. It will be helpful to have your text open as we do this from page 8 to 13 in the new edition and pages 8 to 21 in the previous edition. This all covered again in Chapter 9.  Balance sheet: no long-term assets or long-term liabilities.  All are fund assets and fund liabilities → almost like current assets and current liabilities.  The “standard” accounting equation is: Assets = Liabilities + Fund Balance for governmental accounting on the fund basis.  The “other” accounting equation is: Accounting = Economic Reality + Biases + Errors → we will discuss this later today.  Use of the term “reserved” in the fund balance accounts.  Income statement called “Schedule of Revenue, Expenditures. and Changes in Fund Balance.  Use of the term expenditures and not expenses.  Use of the term combining and not consolidated. docsity.com Lecture #1 Introduction to Governmental Accounting Page 5 of 8 Terms to Know As you read the first two chapters of the text keep an eye out for these terms. When you come to them go to the glossary and get familiar with both these terms and the glossary. The glossary is going to be an important part of the your studying for this class. As you will see during the first few classes there is a significant amount of new material in this class. That generally has been the hardest part of the class for the students. The material is not so difficult as it is new to you, the student. 1. Budgetary accounting _______________________________________________________ 2. Dual tracking _______________________________________________________ 3. Fund balance _______________________________________________________ 4. Appropriations _______________________________________________________ 5. Encumbrances _______________________________________________________ 6. Expenditures _______________________________________________________ 7. Expenses _______________________________________________________ 8. Fund liabilities _______________________________________________________ 9. Primary government _______________________________________________________ 10. Component units _______________________________________________________ 11. Expendable fund _______________________________________________________ 12. Nonexpendable fund _______________________________________________________ 13. Control accounts _______________________________________________________ 14. Subsidiary ledgers _______________________________________________________ 15. Interperiod equity _______________________________________________________ Nature of Governmental Entities 1. What governments do: a. Public good: ___________________________________________________________ b. Private good: __________________________________________________________ docsity.com Lecture #1 Introduction to Governmental Accounting Page 6 of 8 2. Characteristics of governmental entities: a. Receipt of significant amounts of resources from resource providers who do not expect to receive benefits proportionate to the resources provided b. Operating purposes other than to provide goods and services at a profit c. Absence of defined ownership that can be sold or transferred d. Separation of powers and the process of governmental accounting Fund Summary Comments Fund as defined by Statement 1 of the National Council on Governmental Accounting (NCGAS 1), entitled Governmental Accounting and Financial Reporting Principles, is as follows: A fund is defined as – and to see this, lets go back to example on the previous page: 1. a fiscal and accounting entity 2. with a self-balancing set of accounts 3. recording cash and other financial resources, 4. together with all related liabilities and residual equities or balances, and changes therein, 5. which are segregated for the purpose of carrying on specific activities or attaining certain objectives 6. in accordance with special regulations, restrictions, or limitations. docsity.com Lecture #1 Introduction to Governmental Accounting Page 7 of 8 This definition requires some explanation and clarification to be useful.  First, a fund is a separate entity for accounting and financial reporting purposes but:  Second, a fund is not a separate legal entity, although it may be established to comply with laws that require that certain transactions be segregated and accounted for as a separate "fund,” it is not a separate legal entity, but rather part of a larger legal entity – the governmental entity, and:  Third, a fund has a self-balancing set of accounts that record assets, liabilities, fund balance, and the operating activities1 of the fund. In other words, a balance sheet and operating statement can be prepared for individual funds. But these statements are prepared on a fund basis that differs – and we will see these difference in the next lecture – from your financial statements from Accountancy 111, 112, and 113. Why do we use funds? This should help you understand funds so you can figure them out, rather than having to memorize what happens in fund accounting. The use of funds by governments was developed in response to the need for governments to be fully accountable for their collection and use of public resources. The use of funds is an important for governments to demonstrate their compliance with the lawfully permitted use of resources. Before fund accounting was used, governments used separate bank accounts for separate purposes. Up until the early part of the last century, each time a government got a new source of money, they opened a new bank account. This was done because there were significant problems with government officials not using funds for their intended purpose. One day, someone discovered that you could combine all of the separate bank accounts into one so long as you kept track of each account’s (fund’s) share. Since this one bank account was made up of funds (monies) from all accounts, the term fund stuck. The finer the degree of financial reporting, management, accountability, and segregation of resources – all by way of fund accounting and fund reporting, the less likely that governments would overspend budgets or not be as candid in financial reporting as they should be. In fact, in certain areas of the country if you were responsible for the “fund” and you overspent you could be incarcerated and have your personal assets seized to cover the fund’s deficit. Clearly, maintaining separate bank accounts for all of the different revenue sources and types of expenditures for the complex governments of today is not practical. Thus, separate bank accounts were replaced by the use of separate funds. GASB 34 What is the GASBS 34 reporting model discussed in the text? First, we will discuss this in our next lecture, but some preliminary comments are of use now. 1 By operating activities we mean income statement items. But for terminology for governmental accounting we will see soon that we use revenue, expenditures, other financing sources, other financing uses for operating activities. For now we just want to see what a fund is from a top-down perspective. docsity.com