Ch 5: General and Special Revenues Fund

Revenue Recognition: Property Taxes

• Debit Revenues if more discounts are taken than initially recorded in the Allowance.
• Credit Revenues if fewer discounts are taken than initially recorded in the Allowance.

Interest on Delinquent Property Taxes

• Recognize as revenue when available, usually upon cash receipt.
• Governments often don't record receivables for interest on delinquent taxes if immaterial.
• If recorded, an Allowance for uncollectible interest and penalties is also needed.

Tax Liens

• A government's legal right to prevent property sale to satisfy a tax claim.
• Recording a tax lien involves debiting Tax liens receivable, crediting Property taxes receivable—delinquent, and crediting Interest and penalties receivable.

Property Tax Sale

• If the lien isn't satisfied, the government may seize and sell the property.
• The government receives the amount owed plus sale costs; the remainder goes to the former owner.

Derived Tax Revenues

• Taxes "derived" by governments by applying tax rates to underlying exchange transactions (e.g., sales taxes, income taxes, taxes on specific items).
• Assets (cash or receivables) are recognized when an exchange occurs.
• Revenues (net of refunds and uncollectible amounts) are recognized when the exchange occurs AND resources are available (collected in the current period or soon enough to pay current liabilities). The "available" timeframe may exceed the 60-day rule for property taxes.

Sales Tax Revenues and Receivables

• Asset and revenue recognition involves debiting Cash or Sales taxes receivable and crediting Revenues—sales taxes.
• If some sales taxes aren't "available," credit Deferred inflow of resources—sales taxes for the unavailable amount.

Income Tax Revenues and Receivables

• Similar accounting rules to sales taxes, but with more estimates due to potential delays in payment and the possibility of tax refunds (requiring an Income tax refunds payable account).

Recording Income Tax Transactions

• Accrue income taxes for the current fiscal year based on actual receipts in the first month of the next fiscal year (debit Income taxes receivable, credit Revenues—income taxes).
• Account for additional expected receipts and refunds during the "availability" period (adjusting Income taxes receivable, Income tax refunds payable, and Revenues—income taxes).
• Record additional expected receipts that aren't "available" (debit Income taxes receivable, credit Deferred inflow of resources—income taxes).

Intergovernmental Grants

• Revenue recognition depends on meeting eligibility requirements AND resource availability.
• Grants may have time requirements (specifying usage periods) and purpose restrictions (specifying allowable activities).

Intergovernmental Grants: Expenditure-Driven Grants

• Reimbursement-based grants require incurring allowable costs to meet eligibility requirements. Example provided: Journal entries illustrating interfund transfers related to expenditure-driven grants.

Acquiring and Disposing of Capital Assets

• Acquiring a capital asset: Debit Expenditures—capital outlay, Credit Cash or Vouchers payable.
• Selling a capital asset: Debit Cash, Credit Other financing sources—proceeds from sale of general capital assets.

Inventories: Accounting Methods

• Consumption method: Inventory treated as a financial asset. Purchase: Debit Supplies inventory, Credit Cash or Vouchers payable. Use: Debit Expenditures—supplies, Credit Supplies inventory.
• Purchases method: Inventory not treated as a financial asset. Purchase: Debit Expenditures—supplies, Credit Cash or Vouchers payable. Year-end closing entry (if material): Debit Supplies inventory, Credit Nonspendable fund balance.

Statement of Revenues, Expenditures, and Changes in Fund Balance

• Revenues: Inflows of financial resources available to finance current-period expenditures, generally increasing net assets.
• Expenditures: Outflows of financial resources due and payable in the current period or shortly thereafter, for operations, capital outlays, or debt service.
• Other financing sources or uses: Increases or decreases in fund assets that generally don't affect the entity's net assets (e.g., interfund transfers, debt proceeds, proceeds from asset sales).

Balance Sheet & Fund Balance

• The balance sheet presents the financial position of a governmental fund.
• Fund balance classifications: Nonspendable, Restricted, Committed, Assigned, Unassigned.

Nonspendable Fund Balance

• Amounts not available for appropriation because they are not in spendable form (inventory, prepaid items, long-term loans) or legally required to remain intact (e.g., corpus of a Permanent Fund).

Restricted Fund Balance

• Amounts usable only for specified purposes due to constitutional provisions, enabling legislation, or contractual provisions. Restrictions may be externally imposed.

Committed Fund Balance

• Amounts constrained by formal action of the government's highest decision-making authority.

Assigned Fund Balance

• Amounts constrained by the government's intent to spend resources for specific purposes, expressed by the governing body or a designated entity. For funds other than the General Fund, amounts not classified as nonspendable, restricted, or committed are considered assigned. In the General Fund, encumbered amounts from unassigned resources are also classified as Assigned.

Unassigned Fund Balance

• Amounts available for any legal purpose; the residual classification for the General Fund.

This quiz covers the principles of revenue recognition related to property taxes, including discounts, delinquent interests, and tax liens. You'll explore how these elements impact government accounting and reporting. Dive into the complexities of recording and recognizing tax revenues in compliance with standard practices.