Governmental And National Accounting PDF

2-1 Governmental And National Accounting McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-2 Governmental And National Accounting Part...

2-1 Governmental And National Accounting McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-2 Governmental And National Accounting Part one Part two Governmental Accounting State Budget and National Income (Fund & Nonprofit Accounting) Accounting USA Egypt McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-3 References Part one 1- Advanced Accounting. Fund and Nonprofit Accounting : Ch 17: Introduction to Fund Accounting. http://higheredbcs.wiley.com/legacy/college/jeter/0470553081/online/ch17.pdf Jeter_int_Ch17_802-850hr.qxd - ch17.pdf McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-4 References Part two 2- State Budget and National Income Accounting. Ch 1: State budget in Egypt. Ch 2: Comprehensive form of the state budget. Ch 8: National Income Accounting (basic concepts and. variables of national accounts) McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-5 Part one Advanced Accounting. Chapter 17: Introduction to Fund Accounting McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-6 Learning objectives 1. Distinguish between a Nonbusiness Organization and a Profit-Oriented Enterprise. 2. Explain the role of Fund Accounting. 3. Distinguish among the concepts of Revenues, Expenses, and Expenditures as used in Profit- Oriented Entities and as used for Expendable fund entities. 4. Understand the classification of Revenues and other resource Inflows for fund accounting. 5. Understand the classification of Expenditures and other resource Outflows for fund accounting. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-7 Learning objectives 6. Describe the critical events in the use of financial resources of an expendable fund. 7. Explain how capital expenditures are recorded in an expendable fund. 8. Understand the role of a general fund. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-8 Chapter 17: Introduction to Fund Accounting Accounting for Nonbusiness Organizations is referred to as Fund Accounting. Nonbusiness organizations are economic entities that are organized to provide a socially desirable service without regard to financial gain. In contrast, Business enterprise are designed to earn a return on investment for equity investors, operate in a competitive market, and face liquidity concerns. Accounting for Profit-Oriented Enterprises is referred to as Financial Accounting. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-9 Classification of Nonbusiness Organizations Nonbusiness Organizations can be separated into five major classifications, as follows: 1. Governmental units (federal, state, and local governmental entities.) 2. Hospitals and other health care providers. 3. Colleges and universities. 4. Voluntary health and welfare organizations. 5. All other Nonbusiness organizations. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-10 Distinctions between Nonbusiness Organizations and Profit-Oriented Enterprises. (Main Characteristics of Nonbusiness Organization) 1. The most obvious characteristic that distinguishes a Nonbusiness organization from a Profit-Oriented Enterprise is the absence of a primary goal to earn a profit. 2. The services performed by Nonbusiness organizations are based on social need rather than on the profit motive. Thus, their financial statements are sometimes referred to as not-for profit or non-profit financial statements. 3. Nonbusiness organizations seldom finance their operations through charges to the individuals benefiting from the service. Thus they must rely on political action (ex: tax levies) or fund raising campaigns. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-11 Main Characteristics of Nonbusiness Organization 4. Persons who contribute resources to nonbusiness organization do not receive equity interests in the net assets of the organization, and do not necessarily benefit proportionately or at all from the services provided by such organizations. 5. There is no relationship between voluntary contribution (or Tax levies) and the value of the services introduced by nonbusiness organizations to the individuals contributing the money. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-12 Main Characteristics of Nonbusiness Organization  Because of these characteristics, the Net income concept cannot be used to measure the effectiveness of the management of resources dedicated to Nonbusiness objectives.  Therefore the income determination model of accounting is generally not applicable to such organizations. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-13 Financial Accounting and Reporting Standard for Nonbusiness organizations The standard-setting bodies - the Governmental Accounting Standard board (GASB), and the Financial Accounting Standard Board (FASB)- primarily are responsible for determining the accounting standards for various types of Nonbusiness organizations. GASB Primary body establishing FASB accounting standards Governmental Units Nongovernmental Units 1. Federal units 1. Private colleges, universities 2. State units (state hospitals- 2. Private hospitals and voluntary state universities) health and welfare Nonbusiness 3. Local governmental units organizations organizations (counties- townships - 3. Other nongovernmental units municipalities- school districts- (private elementary schools, SD “Port authorities- sanitation labor unions) districts- - industrial development districts”) Notice: Profit-oriented enterprises apply GAAP established by FASB McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-14 Fund Accounting What is Fund Accounting? Fund accounting is a system of accounting for Nonbusiness organizations where the entities resources are accounted for by individual funds. What is Fund? A fund is a fiscal and accounting entity with a self- balancing set of accounts for recording and classifying all financial transactions. (i.e., each fund constitutes a separate accounting entity) Fund is created to carry out a specific activities and certain objectives in according with special regulations and restrictions. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-15 Fund Accounting The role of fund accounting: Fund accounting provides a basis for determining the fiscal responsibility and status of the organization and the compliance of administrators with the approved or stipulated receipt and utilization of financial resources. Therefore, Fund Accounting is an important means of meeting several of the accounting, control, and reporting objectives of most Nonbusiness Organizations. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-16 Fund Accounting Classifications of fund entities: Fund entities may be classified into: 1. Expendable fund entities. 2. Proprietary fund entities. 3. Fiduciary fund entities. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-17 Fund Entities Expendable Proprietary fiduciary Are most Are most similar Are used when closely to business the government associated with enterprises acts as an agent basic Fund or trustee for Accounting resources belong concepts. to others McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-18 1- Expendable fund entities Expendable fund entities consist of net financial resources that are dedicated to a specific use. Financial resources consist of Cash and Claims to Cash (such as receivables and investments in marketable securities -securities that can be converted into cash). Thus, separate expendable fund entities are established based on the purpose for which financial resources may or must be used. Examples: - Capital projects fund created to account for new highway construction. - Debt service fund created to account for interest and principal. payments on long-term debt. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-19 Expendable Fund Entities - The financial statements Financial statements for expendable fund entities include: A. Financial Position Statement (Balance Sheet). B. Operating Statement. A. Financial Position Statement (Balance Sheet) Financial resources of the fund xxx (Assets) (-) Claims against those financial resources xxx (Liabilities) = The Fund balance xxx McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-20 Expendable fund entities- Financial Position Statement or Balance Sheet Fund Balance The difference between the financial resources of an expendable fund entity (Assets) and claims against those resources (Liabilities). Fund balance represents the net financial resources that are available for expenditure for the specific purposes or objectives for which the fund was created. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-21 Expendable fund entities- Financial Position Statement Thus, the statement of financial position, or balance sheet, for an expendable fund entity reflects: (1) the financial resources of the fund (Assets), (2) the claims against those resources (Liabilities), (3) the fund balance. Assets and liabilities are not subdivided into current and noncurrent asset and liabilities. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-22 Expendable fund entities- Operating Statement (or Statement of Revenues, Expenditures and Changes in Fund Balance) Increases in financial resources B. Operating Statement Financial resources inflows (by source) xxx (-) Financial resources outflows (by function) xxx = Change in fund balance xxx Decreases in financial resources McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-23 Expendable fund entities- Operating statement The relevant measures of the operations of expendable fund entities are not revenue, expense, and net income, but rather increases in fund resources, decreases in fund resources, and the change in the fund balance. Increases in fund resources (Financial resources inflows) include not only revenues, but also items such as proceeds from debt issuance, and transfers from other funds. Decreases in fund resources (Financial resources outflows) include expenses, other expenditures, and transfers to other items. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-24 Expendable Fund Entities Operating Statement Increases in financial resources Decreases in financial resources (Inflows) include: - (Outflows) include: 1. Revenue 1. Expenditures 2. Proceeds from Debt issuance 2. Transfer to other funds 3. Transfer from other funds Revenues should be classified by Expenditures should be classified source, and transfer from other by function, and transfer to other funds should be distinguished and funds should be distinguished and separated from revenue. separated from expenditures. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-25 Notice: The term “expense” as defined under GAAP is typically not used with fund accounting. Instead the term “expenditures” includes expenses as well as other items giving rise to cash (or other resource) outlays, without regard to timing or the matching with revenue (that is integral part of income determination under GAAP). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-26  In summary, in accounting for expendable funds, the emphasis is changed from matching revenues and expenses to a comparison of the actual inflows and outflows of financial resources with stipulated or approved resource flows.  In other The expendable fund entity’s words, measurement focus is on the flow of current financial resources. The primary objective of accounting for expendable fund entities is to measure the extent to which management has complied with the regulations that govern the use of expendable fund resources, and to (secondary objective) assist management with such compliance. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-27 2- Proprietary Fund Entities Proprietary Fund Entities are used to account for the activities of nonbusiness organizations that are similar to those of business enterprises. Example of such activities, the operation of an electric or water utility by a municipality. Relevant accounting measurement and reports are similar to those applicable to profit – oriented enterprises and focus on the determination of net income, financial position, and cash flows. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-28 3- Fiduciary Fund Entities Fiduciary Fund Entities are funds where the government acts as an agent (ex: Tax agency) or acts as a trustee for an individual or organization (ex: pension trust fund). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-29 Budgetary Fund Entities In the traditional compliance model of reporting on the operations of governmental units, actual and approved (or stipulated) inflows and outflows of resources are compared. Approved resource flows are incorporated into annual budgets. In some instances the budget for an expendable fund entity is so important to management control of fund resources that entries for budgeted revenues and expenditures are recorded in the books. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-30 Budgetary Fund Entities Budgetary Fund Entities: Fund entities in which the budget is formally incorporated into the accounting records are sometimes referred to as Budgetary Funds. When budgeted (estimated) expenditures are enacted into law, they are referred to as Appropriations. Appropriations represent the maximum expenditures that are authorized by the legislature. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-31 Budgetary Fund Entities The accounting system must provide administrators of governmental units with timely information as to actual expenditures and allowable expenditures (appropriations). In addition, financial reports must be prepared in such a way that the legislature or its representatives can determine that the spending limits authorized by it have not been exceeded. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-32 Basis of Accounting Accrual basis of accounting Cash Basis of accounting A method of summarizing A method of summarizing operating results in terms operating results in terms of revenue earned and of cash receipts or cash expenses incurred, rather payments, rather than than cash receipts and revenue earned and cash payments. expenses incurred. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-33 Basis of Accounting the basic financial statements of government include two sections: 1. Government-wide financial statements 2. Governmental fund financial statements McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-34 Basis of Accounting 1- Governmental- Wide financial statements: Government-wide financial statements report on all the nonfiduciary activities of the government and provide both short- and long-run information about the financial status of the government. The government-wide financial statements are prepared using the economic resources management concept and the accrual basis of accounting. (this is also appropriate for proprietary and fiduciary fund entities). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-35 Basis of Accounting 2- Governmental fund financial statements: Governmental fund (expendable fund) financial statements are reported using the current financial resources concept and the Modified Accrual Basis of Accounting. Under the modified accrual basis of accounting, it is not sufficient for an economic event to occur to affect the operating statement. Instead, the related cash flow must occur within a period short enough to have an effect on current spendable resources. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-36 Basis of Accounting revenues must be both measurable In other words, and available to liquidate (finance) liabilities of the current period (i.e. Revenues are recognized when they are measurable and available). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-37 Basis of Accounting Expenditures are recorded when a liability is incurred, similar to accrual accounting. However, because governments generally do not attempt to allocate costs to periods benefited, the term modified accrual accounting is also used. Therefore, expenditures are recognizable when an event is expected to use current spendable resources. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-38 Concepts of Revenue, Expense, and Expenditure Profit-Oriented Entities (income determination) Revenues: increases in net assets resulting from the sale of goods or services (the price for goods sold and services rendered during a given accounting period). Expenses: costs of resources (goods and services) used up to produce current period revenues. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-39 Concepts of Revenue, Expense, and Expenditure Expendable Fund Entities Revenues: any increase in (source of) net current financial resources other than increases from other financing sources: (Debt Issue Proceeds and Transfers of Resources From other Funds). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-40 Concepts of Revenue, Expense, and Expenditure Expendable Fund Entities Expenditures: any decrease in (use of) net current financial resources other than decreases from other financing uses (Transfers of Financial Resources to other funds). Or the amount of financial resources expended during the period to carry out the operations and activities of the fund entity. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-41 Concepts of Revenue, Expense, and Expenditure Expendable Fund Entities Other Financing Sources: (1) Proceeds from debt issuances (2) Transfers of financial resources from other funds. Other Financing Uses: (1) Transfers of financial resources to other funds. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-42 Classification of Revenues and Other Resources Inflows Classification of Revenues Revenues: any increase in (source of) net current financial resources other than increases from other financing sources. Revenues are classified by fund and by major revenue source. Examples of major sources of revenue for state and local governmental units: - Taxes (Property taxes - Income taxes - Sales taxes) - Charges for services - Fine and penalties – Gifts and donations – Forfeits - Sales of property – Licenses and permits- Interest earned on loans and investments – Grants from federal, state, or local governmental units. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-43 Other Financing Sources (1) Debt Issue Proceeds Governmental units may finance their operations through the issuance of bonds or other debt instruments. Accordingly, debt issue proceeds should be classified separately from revenue for purposes of financial reporting. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-44 Other Financing Sources (2) Transfers of Resources from other Funds Transfers of resources from other fund entities within an organization do not represent an increase in the expendable financial resources of the organization. Accordingly, even though they represent an increase in financial resources of the recipient fund entity, they should be classified separately from revenue for financial reporting purposes. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-45 Recognition of Revenue In accounting for profit-oriented enterprises Revenue is ordinarily not recognized until: 1. A transaction has taken place (that is, the amount of revenue can be objectively measured). 2. The earnings process is complete. Criteria 2 is not applicable to expendable fund entities. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-46 Recognition of Revenue In accounting for Expendable fund entities Revenue is ordinarily not recognized until: 1. it can be objectively measured. 2. It is available to finance expenditures of the current period. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-47 Recognition of Revenue  Many revenues do not meet these criteria until they are received in cash.  On the other hand, significant amounts of revenue (ex. property tax, pledges, and charges for routine services and some types of grants) meet both criteria and are recognized as revenue prior to the receipt of cash. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-48 Recognition of Revenue The application of these two criteria to several significant resources of revenue of governmental units may be illustrated as follows. 1- Property Taxes Property taxes usually meet both criteria when levied. The amount of property taxes is precisely determinable (measurable) when levied and the amount of uncollectable taxes can be reasonable estimated on the basis of previous experience. Property Taxes are also considered to be available in the period levied to finance current period operations. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-49 Recognition of Revenue 2- Income Tax and Sales Tax Self assessed taxes such as: Income Tax and Sales Tax usually are not objectively measurable or available until the tax returns are filed with payment. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-50 Recognition of Revenue 3- Fines and Forfeits The amounts of Fines, Forfeits, parking meter receipts, and so on, are not objectively determinable or available until assessed or collected and are, therefore, not normally recognized as revenue until collected. 4- Sales of Property The entire amount of proceeds from the sale of property is treated as revenue at the time of sale (because expendable assets are increased and are available to finance current expenditures). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-51 Classification of Expenditures and other Resources Outflows Classification of Expenditures Expenditures is any decrease in net current financial resources other than transfers to other funds. Thus, expenditures are not matched to the production of current revenues as are expenses for profit-seeking enterprises. Expenditures may be classified by:  Fund  Function (Public Safety - Public Works)  Activity (Drug Control- custody of prisoners- patrol)  Organizational unit (Police Department or Fire Department)  Character or nature of expenditure (Current Operating)  Object class (Supplies or salaries) McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-52 Classification of Expenditures Classification by Function and Activity Classification by function refers to the broad purposes for which expenditures are made. Classification by activity refers to the specific types of work performed to accomplish such purposes (functions). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-53 Classification of Expenditures Classification by Function and Activity Functional and activity classifications are particularly important and are the classifications ordinarily recommended for published financial reports. Activity Classification is particularly significant because it facilitates evaluation of the economy and efficiency of operations by providing data for calculating expenditures per unit of activity. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-54 Transfer to other funds (other Resources Outflows) Transfers of resources to other fund entities within an organization do not represent decreases in the expendable financial resources of the organization as a whole. Accordingly, even though they represent a decrease in financial resources of a particular fund, they should be classified separately from expenditures for financial reporting purposes. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-55 Recognition of Expenditures An expenditure is one of four critical events in the use of the financial resources of an expendable fund entity. The sequence of events is as follows: Appropriation Authorization e.g., purchase Encumbrances Order e.g., receipt Expenditure of goods Disbursement e.g., payment McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-56 Recognition of Expenditures Appropriation: Appropriations represent the maximum amount of expenditures that entities are authorized to spend. Administrators are responsible for expending fund resources only in the amounts and for the purposes prescribed in the appropriations act. Thus, an important function of financial statements is to let administrators know how they stand relative to their appropriation authority. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-57 Recognition of Expenditures Encumbrance: Since the amount of an appropriation cannot be legally exceeded, the placing of purchase orders and signing of contracts are critical events in controlling the expenditures of expendable fund entities. The financial resources of fund are said to be encumbered when a transaction is entered into that requires performance by another party before the governmental unit becomes liable to perform its part of the transaction by spending financial resources. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-58 Encumbrance: An encumbrance is formally recorded in the accounting records. Assume that an order was placed for the purchase of goods in the amount of $ 10,000. Encumbrances are recorded as follows: Purchase order (Encumbrance) (1) Encumbrance ………………………….…….……10,000 Reserve for Encumbrance………………………………10,000 To record an order for goods in the amount of $10,000. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-59 Expenditures: An expenditure is a decrease in fund resources (or an increase in fund liabilities) that occurs when the vendor or supplier performs on a contract or purchase order and goods or services are received. Expenditures are recognized in the accounting period in which the fund liability is incurred. Thus, an expenditure and corresponding liability or cash disbursement is recorded at the time funds are granted to an authorized recipient. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-60 Expenditures: Assume that the goods ordered in (1) are received and invoiced at $12,000. When goods ordered in (1) are received, the following two entries are made: Receipt of Goods (Expenditure) (2) Expenditures ………………………………………..……12,000 Vouchers Payable ………..………………………….………12,000 To record the receipt of goods invoiced at $12,000. (3) Reserve for Encumbrance………………………………10,000 Encumbrance …………………………………….……10,000 To remove the encumbrance recoded in (1) for goods received and recorded as an expenditure in (2) In this case, the goods cost $2,000 more than was estimated when the order was placed. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-61 Expenditures: Notice: Encumbrances and expenditures are classified on the same basis (by fund, function, organizational unit, activity, character, or object class) as appropriations. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-62 Disbursement: Disbursements represent the payment of cash for expenditures. The payment for the goods purchased in (2) is recorded as follows: Payment for Goods received: (4) Vouchers payable …………………………………....12,000 Cash ………………………………..………………………12,000 To record payment of vouchers payable. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-63 Unencumbered balance At any particular time the accounting records will reflect management’s remaining available appropriation authority (unencumbered balance) as follow: Unencumbered balance = Appropriations - (Encumbrances + Expenditures) The amount of resources that can still be obligated or expended without exceeding the legal or authorized limit McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-64 Unencumbered balance ILLUSTRATION Assume that appropriation for budget category 103 is $50,000 and that the amount of expenditures in this category prior to the journal entries illustrated above was $15,000. The effects of entries (1), (2), (3), and (4) on the subsidiary ledger control card for budget category 103 are to reduce the unencumbered balance by $12,000 (the amount of actual expenditure). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-65 Unencumbered balance = Appropriations - (Encumbrances + Expenditures) Subsidiary Ledger Control Card for one Budget Category Function: sanitation; Activity: Sanitary Sewer Cleaning; Object: Operating supplies. (A) (B) (C) (D) (E) Appropriation Encumbrance Expenditure (B)+(c) Unencumbered Budget Line 103 Balance (A)- (D) Prior Balance $50,000 $ ____ $ 15,000 $15,000 $35,000 Purchase Order: [entry (1)] 10,000 10,000 (10,000) Balance 50,000 10,000 15,000 25,000 25,000 __ Expenditures: 3 2 [entries (2) & (3)] (10,000) 12,000 2,000 (2,000) Balance $50,000 $ ____ $ 27,000 $27,000 $23,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-66 Capital Expenditures In accounting for profit-oriented enterprises: Capital expenditures are recorded as assets and are distinguished from expenses. The costs of such assets are recognized in the income statement (operating statement) of such enterprises through depreciation. In accounting for an expendable fund entity: Capital expenditures, like other expenditures, are treated as an outflow of financial resources. Thus, they are not recorded or reported as assets of the fund entity. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-67 Capital Expenditures This is not to say that controls are not maintained over fixed assets acquired by means of expendable fund resources. The organization establishes records and controls beyond the records of the expandable fund entity. Although they are not reported as assets in government funds, they are reported as assets in government-wide statements required under GASB statement No. 34. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-68 Depreciation Depreciation is not accounted for in the records of an expendable fund entity for the same reason that fixed assets are excluded from the records of such entities. Depreciation expense is neither a source nor a use of the financial resources of an expendable fund entity, and thus is not properly recorded in the accounts of such entities. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-69 Recording Budgeted and actual Revenue and Expenditures - an example  Consider an expendable fund with a beginning balance, on January 1, 2008, of $100,000 in the fund balance. 1. For the year: revenues and appropriations for expenditures were estimated to be $800,000 and $780,000, respectively. 2. During the year: commitments for expenditures (purchase orders - contracts) were $775,000, and revenues were $850,000. 3. However, for the year actual expenditures were $600,000, these expenditures were related to $605,000 worth of commitments for expenditures (purchase orders – contracts). The following six entries reflect the information© The recorded in the fund. McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin  2-70 Recording Budgeted and actual Revenue and Expenditures 1- Budgeted Revenue & Budgeted Expenditures: (1) Estimated revenue …………………………800,000 Appropriations ………………………………………… 780,000 Unreserved Fund balance …………………………….. 20,000 To record budgeted revenues and expenditures adopted by legislative body. In the first journal entry, Estimated revenues are debited against Appropriations (estimated expenditures). the difference between budgeted revenue ($800,000) and budgeted expenditures ($780,000 of appropriations) is recorded as an increase (decrease) in the Unreserved Fund balance. In this case, since estimated revenues exceed estimated expenditures, the difference increases the fund balance by $20,000. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-71 2- Actual Revenue: (2) Receivable (or Cash) ………………..………… 850,000 Revenue ……………………………..……………..… 850,000 To record revenues recognized during the year. The second journal entry records the actual revenue recognized for the year. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-72 3- Encumbrances: (3) Encumbrances ………….…………………… 775,000 Reserve for Encumbrances ………………..……….. 775,000 To record commitments made against appropriations. As commitments are made, encumbrances are recorded. The third journal entry records encumbrances. These amounts would then be posted to the various appropriations expenditure subsidiary accounts, which provides information as to the amount of each appropriation category that remains available for encumbrance or expenditure. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-73 4- Actual Expenditures: (4a) Expenditures ………….…..…………………… 600,000 Vouchers Payable (or Cash) ……………..……… 600,000 To record receipt of encumbered goods or services. (4b) Reserve for Encumbrances ………………… 605,000 Encumbrances …….…………………….……….. 605,000 To remove encumbrances on goods and services that have been recorded as expenditures. Two journal entries are required to record expenditures for goods or services that have been previously encumbered. One entry is needed to record the actual expenditure amount, and One entry is needed to reverse the encumbrance made when the commitment was recorded (for the amount of the original encumbrance, which is assumed to be $605,000). Since the amounts expended will not necessarily equal the amount encumbered, the dollar amounts in the two entries may not be the same. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-74 Closing entries (5) Revenue..………………………….…………… 850,000 Estimated Revenue …….…..……………..……… 800,000 Unreserved Fund Balance ………………………. 50,000 To close budgeted and actual revenue accounts. Two closing entries (at least) are needed: The first closing entry is used to close actual revenues and estimated revenues. The excess of actual revenue over (under) budgeted revenue is recorded as an increase (decrease) in the unreserved fund balance. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-75 (6) Appropriations …………….………..……… 780,000 Expenditures …….………………………..……… 600,000 Encumbrances ($775,000-$605000) ………….……….. 170,000 Unreserved Fund Balance ………………………….. 10,000 To close appropriations, expenditures, and encumbrances accounts. The second closing entry is to close the appropriations account against expenditures and the amount of outstanding commitments remaining in the encumbrance account (170,000 = 775,000- 605,000). The excess of appropriations over (under) expenditures plus encumbrances is recorded as an increase (decrease) in the unreserved fund balance. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-76 Notice: The balance of encumbrances at year-end (outstanding encumbrances = 170,000) is matched against appropriations because, although they are not expenditures, encumbrances do represent commitments made against the current year’s appropriations and therefore represent the use of the appropriation authority of the current year. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-77 Notice: After entries (5) and (6), all account balances have been closed except : Unreserved fund balance (CR) 180,000 Reserve for encumbrances (CR) 170,000 Assets (DR) and Liabilities (CR) The balance in the reserve for encumbrance account ($170,000) is carried forward to the next year (2009). This balance is equal to the amount closed for encumbrances in entry (6) (outstanding encumbrances = 170,000). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-78 Balance Sheet of Expendable Fund Entity ___ Balance Sheet-January 1, 2008___________________ Net Financial Resources (Assets – Liabilities) $100,000 Fund Balance (Unreserved) $100,000 Balance Sheet- December 31, 2008 Net Financial Resources (Assets – Liabilities) $350,000 Fund Balance Unreserved $180,000 Reserved for Encumbrances (outstanding Commitments) 170,000 $ 350,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-79 The balances in the unreserved fund balance and reserve for encumbrances accounts may be calculated as follows: 1- Reserve for encumbrances: Reserve for encumbrances – January 1, 2008 $ -0- Total amounts encumbered during 2008 (entry 3) 775,000 Total encumbrances expended (entry 4b) (605,000) Reserve for encumbrances – December 31, 2008 (CR) $ 170,000 2- Unreserved fund balance Unreserved fund balance –January 1, 2008 $ 100,000 Excess of estimated revenue over appropriations (entry 1) 20,000 Excess of actual revenue over estimated revenue (entry 5) 50,000 Excess of appropriations over expenditures and encumbrances (entry 6) 10,000 Unreserved fund balance- December 31, 2008 (CR) $ 180,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-80 1- Reserve for encumbrances The $ 170,000 balance in the reserve for encumbrances account at December 31, 2008, represents the estimated amount of the net financial resources of the fund entity needed in the next year (2009) to pay the obligations authorized in the current year’s (2008) appropriation. Thus, Reserve for encumbrances represents a restriction on the availability of fund resources for future appropriation and is properly considered as a: “reserved portion of the total fund balance (reservation of the fund’s equity)”. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-81 In the next year (2009), the balance of the reserve for encumbrances will be charged by means of a separate expenditures account (expenditures- 2008) with the actual expenditures arising from the year- end commitments (outstanding) that are incurred in the subsequence year. Suppose that in the next year (2009), the fund incurs $160,000 of expenditures on these commitments (outstanding). The entry to record the expenditures would be: Expenditures – 2008 ………………………..……160,000 Vouchers payable (Cash) …………….…………… 160,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-82 Notice: there is no second entry to reverse the encumbrance account, since the encumbrance account for 2008 was closed at the end of 2008. Thus, at the end of 2009, this expenditure account is closed against the reserve for encumbrances account of $170,000. this closing entry (No:3) is: Reserve for encumbrance- 2008 ………………….… 170,000 Expenditures – 2008 ………………………..… 160,000 Unreserved fund balance ……………………… 10,000 The difference between the amount encumbered at the end of the year and the actual amount of the related expenditures that are incurred in the subsequent year is debited (or credited) to the unreserved fund balance. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-83 2- Unreserved fund balance The concept that the year-end balance in the Reserve for encumbrances [$170,000] account is in reality a reserved fund balance would be clearer if an analysis of the change in the total fund balance were presented as follows: Total fund balance – January 1, 2008 $100,000 + Actual revenue 850,000 (-) Actual expenditures (600,000) Total fund balance- December 31, 2008 350,000 (-) Amount reserved for commitments (170,000) Unreserved fund balance- December 31, 2008 $ 180,000 Notice: the increase in the total fund balance ($100,000 to $350,000) is always equal to the excess of actual revenues ($850,000) over actual expenditures ($600,000). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-84 General Fund The General Fund of a municipality is used to account for most of the current operations of a municipality (town, city or district with its own local government). General Fund is established at the inception of the municipality and is continued as long as the municipality exists. A government never reports more than one general fund. Other government funds are established to account for specific municipality activities (such as a capital projects fund to build new highway or a debt services fund to service debt and interest payments). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-85 General Fund Summary entries to record the activities and transactions of the General Fund may be classified into:  The Budget entries  The Revenues entries  The Expenditures entries  The Interfund Transfers entries  Closing entries McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-86 Comprehensive Illustration General Fund McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-87 The general ledger trial balance of the General Fund of Model City on January 1, 2008, is as follows: Model City The General Fund General Ledger Trial Balance January 1, 2008 Cash $ 45,000 Certificate of deposit 100,000 Property Tax Receivable 190,000 Total Debits $335,000 Estimated Uncollectable Taxes $ 20,000 Vouchers Payable 65,000  Unreserved Fund Balance 95,000  Reserve for Encumbrance__ 2007 155,000 Total Credits $335,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-88 The Budget adopted by the City council for the General Fund for the fiscal year ending December 31, 2008 is presented below: Model City The General Fund 2008 Fiscal-year budget Estimated Revenue (Classified by source) Property tax $1,158,750 License and Permits 188,250 State Grant-Education 300,000 Charges For Services 135,000 Proceeds from Sales of Equipment 78,000 Total $1,860,000 Appropriations (estimated expenditures - Classified by function) Total: (Public Safety-General Government-Education-Health & welfare) $1,944,000 Excess of Appropriations over Estimated Revenue ($84,000) Add: Transfer from Enterprise Fund 150,000 Less: Transfers to Debt service fund 96,000 Excess (deficiency) of Revenue and Transfers from other Funds over Appropriations and Transfers to other Funds $(30,000) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin  2-89 Notice: Classification of expenditures by function and activity are particularly important for published (external) financial reports. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-90 Summary entries to record the activities and transactions of the General fund during 2008 are presented below: A- Budget entries 1. At the beginning of the period, estimated revenues are debited against Appropriations (estimated expenditures). The difference recorded to Unreserved Fund balance. Budgeted Revenue and Expenditures (1) Estimated Revenue 1,860,000 Unreserved Fund balance 84,000 Appropriations 1,944,000 To record budgeted revenue and expenditures at the beginning of the period McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-91 General Fund - the Budget For financial reporting purposes, Transfers of resources from other fund entities of the same organization are distinguished from revenue of the recipient fund entity. 2. At the beginning of the period, Budgeted Transfers from other funds are recorded (CR) against “Due from other Fund”. Budgeted Transfer-From (2) Due from enterprise fund 150,000 Transfers from other funds 150,000 To record budgeted transfer of resources from other fund entities McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-92 General Fund - the Budget For financial reporting purposes, Transfers to other fund entities are distinguished from expenditures. 3. At the beginning of the period, Budgeted Transfers to other funds are recorded (DR) against “Due to other Fund”. Budgeted Transfer-To (3) Transfers to other funds 96,000 Due to debt service fund 96,000 To record budgeted transfer of resources to other funds McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-93 B- Revenues entries 4. During the period, revenues are recorded against increase in assets (i.e., against Receivables, cash) and only when received or when receipt is certain Property Tax Levied (4) Property tax receivable 1,287,500 Estimated uncollectible taxes 128,750 Revenue 1,158,750 To record property taxes at the time they are levied The estimate for uncollectable taxes is determined on the basis of collection policy and prior years’ experience (ex: 10%). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-94 General Fund - Revenues Services Rendered (other receivables) (5) Other receivables 80,000 Revenue 80,000 To record billings for routine services Collection of Fees (6) Cash 221,000 Revenues 221,000 To record collection of licenses, permits, fees, service charges, etc. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-95 General Fund - Revenues Sale of Capital expenditures (7) Cash 87,250 Revenue 87,250 To record proceeds from sale of used furniture and equipment. Note: proceeds from sale of capital expenditures are recorded as revenues McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-96 General Fund - Revenues Interest Revenue (8) Certificates of deposit 6,000 Revenue 6,000 To record interest earned and reinvested in certificates of deposit McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-97 General Fund - Revenues Grants Authorization of Grant (9) Receivable from state government 275,000 Revenue 275,000 To record municipal education grant authorized by state legislature Receipt of Grant (10) Cash 275,000 Receivable from state government 275,000 To record collection of grant from state legislature McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-98 Collection of Property tax (11) Cash 1,201,000 Property tax receivable (170,500+1030500) 1,201,000 To record collection of property tax levied in 2007 (170,500) and 2008 (1,030,500) Collection of other receivable (11) Cash 80,000 Other receivables 80,000 To record collection of other receivables McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-99 Write off uncollectible property Taxes (12 Estimated uncollectible taxes 19,500 Property tax receivable 19,500 To write off uncollectible 2007 property taxes ($190,000-$170,500). Write off uncollectible Property Taxes (13) Estimated uncollectible taxes 76,000 Property tax receivable 76,000 To write off uncollectible 2008 property taxes McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-100 C- Expenditures entries 5. During the period, when the firm makes a commitment for goods or services, the account encumbrances is debited and reserve for encumbrances is credited. (Encumbrances are future expenditures). 6. During the period, when goods that have been ordered (encumbered) are Received or contracted services are performed, two entries are made: A- Expenditures (Actual) are debited against a decrease in Assets or an increase in liabilities. This may or may not equal the amount of the original Encumbrance. B- When the expenditure is recorded, the entry to record the encumbrance (item 5 above) is reversed. (this may or may not be equal to the actual expenditure.)  Therefore, the amount remaining in the reserve for encumbrances represents the amount of funds that have been committed in the current period, but that are expected to be paid in the next period. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-101 General Fund - Expenditures Purchase Order (encumbrance) (14) Encumbrances 1,291,000 Reserve for encumbrances 1,291,000 To record commitments on goods and services ordered in current year 2008 Contract (encumbrance) (15) Encumbrances 250,000 Reserve for encumbrances 250,000 To record a contract to acquire office furnishings and equipment McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-102 General Fund - Expenditures Receipt of Goods Encumbered (expenditures) (16-A) Expenditures 1,050,000 Vouchers payable 1,050,000 (16-B) Reserve for encumbrances 1,100,000 Encumbrances 1,100,000 To record receipt of goods and services that had been encumbered And received in the current year (2008) for $1,100,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-103 General Fund - Expenditures Receipt of Goods Encumbered (expenditures) (17-A) Expenditures 250,000 contracts payable 250,000 (17-B) Reserve for encumbrances 250,000 Encumbrances 250,000 To record receipt of office equipment and furnishings encumbered Note: this purchase of capital assets is recorded in the same manner as any expenditure (i.e., as the previous purchase goods and services) not as assets in the records of the General Fund. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-104 General Fund - Expenditures Note: Not all expenditures go through the encumbrance process. For example: routine payroll expenditures are not encumbered. Receipt of Unencumbered Goods and services (18) Expenditures 210,000 Cash (or Vouchers payable) 210,000 To record receipt of goods and services that had not been previously encumbered McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-105 General Fund - Expenditures Receipt of Goods/Services ordered (encumbered) in the last year (2007) (19) Expenditure - 2007 148,000 Vouchers payable 148,000 To record receipt of goods and services ordered in last year A separate expenditure control account is used to record expenditures during the current year that were encumbered (authorized) in the prior year. At the end of the year, this expenditure account will be closed out against Reserve For Encumbrance - 2007 [$155,000] and any difference taken to the Unreserved Fund Balance [see entry 25]. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-106 General Fund - Expenditures Payment of liabilities (20) Vouchers payable 1,650,000 Cash 1,650,000 To record payment of liabilities McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-107 D- Interfund Transfers Receipt of Transfer From other funds (21) Cash 100,000 Due from enterprise fund 100,000 To record cash transferred from the enterprise fund Payment of Transfer To other funds (22) Due to debt service fund 96,000 Cash 96,000 To record authorized transfers of cash to other Model city fund entities McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-108 Preclosing Trial Balance The transactions summarized in the journal entries above are reflected in the December 31, 2008, general ledger trial balance (Preclosing Trial Balance) for the general fund of Model City presented as follows: McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-109 Model City The General Fund General Ledger Pre-closing Trial Balance December 31, 2008 Dr. ____ Cr. ____ Cash $ 63,250 Certificate of deposit 106,000 property Tax Receivable 181,000 Due from enterprise fund 50,000 Estimated revenue 1,860,000 Expenditures 1,710,000 Encumbrances 191,000 Transfers to other funds (debt service) 96,000 Expenditures – 2007 148,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-110 Model City The General Fund General Ledger Trial Balance December 31, 2008 Dr. _____ Cr. ____ Estimated uncollectible Taxes $ 53,250 Vouchers payable 73,000 Unreserved fund balance 11,000 Reserve for encumbrances 191,000 Reserve for encumbrances – 2007 155,000 Appropriations 1,944,000 Revenue 1,828,000 Transfer from other funds (enterprise fund) 150,000 ___________ _________ Total $ 4,405,250 $ 4,405,250 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-111 E- Closing Entries On December 31,2008, closing entries for the General Fund are as follows: 1- Revenues are closed against estimated revenues. The difference is recorded in Unreserved Fund Balance. 1- Revenue (23) Unreserved fund balance 32,000 Revenue 1,828,000 Estimated revenue 1,860,000 To close out actual and budgeted revenue accounts McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-112 General Fund - Closing Entries 2- Appropriations are closed against expenditures (actual expenditures for the current year) and Encumbrances (outstanding- current year- commitments). Any difference is reported in the Unreserved Fund Balance. 2- Expenditure (24) Appropriations 1,944,000 Expenditures (current year 2008) 1,710,000 Encumbrances 191,000 Unreserved fund balance 43,000 To close out appropriations and current year’s expenditures and encumbrances accounts. Notice: Recall that the expenditures made for prior year’s encumbrances are closed against the reserve for encumbrance for that specific year. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-113 General Fund - Closing Entries 3- Prior Year Encumbrances (25) Reserve for encumbrances - 2007 155,000 Expenditures - 2007 148,000 Unreserved fund balance 7,000 To close out expenditures for goods and services ordered and encumbered in prior year 3- Transfers to and from other funds are closed against Unreserved Fund Balance 4- Transfers (26) Transfers from other funds 150,000 Transfers to other funds 96,000 Unreserved fund balance 54,000 To close out interfund transfers to the unreserved fund balance. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-114 Financial Statements The two basic statements prepared for expendable fund entities are: 1. Balance Sheet (Statement of Financial position). 2. Statement of revenue, expenditures, and changes in fund balance (Operating Statement). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-115 Financial Statements  The Balance Sheet of the expendable fund entity is designed to present the status of its financial resources (Assets), the related Liabilities, and the net financial resources available for subsequent expenditure (Fund Balance).  Operating statement of expendable fund entities is designed to reflect all the sources and uses of its financial resources. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-116 1- The Balance Sheet Model City The General Fund Balance Sheet December 31, 2008 Assets Cash $63,250 Certificates of deposit 106,000 Accounts receivable -0- Property Tax Receivable 181,000 Less: Estimated Uncollectable Taxes (2008) 53,250 127,750 Due from Other Funds 50,000 Total Assets $347,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-117 The Balance Sheet Liabilities and Fund Balance: Vouchers Payable $73,000 Due to other Funds -0- 73,000 Fund balance:  Unreserved fund balance 83,000  Reserve for Encumbrance 191,000 Total Fund Balance 274,000 Total Liabilities and Fund Balance $347,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-118 2- Operating Statement Model City The General Fund Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended December 31, 2008 Revenues $1,828,000 Less: Expenditures (1710000 + 148000) 1,858,000 Excess (deficiency) of Revenues over Expenditures (30,000) Other Financing Sources (Uses) Transfers From other Funds 150,000 Transfers to other Funds (96,000) Total Other 54,000 Special Items -0- -0- Increase (decrease) in Fund Balance (Net Change in Fund Balance) 24,000 + Fund Balance on January 1 (Beginning) 250,000 = Fund Balance on December 31 (Ending) $274,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-119 1- The Balance Sheet Model City The General Fund Balance Sheet December 31, 2007 and 2008 2008 2007 Assets Cash $63,250 $45,000 Certificates of deposit 106,000 100,000 Accounts receivable 0 0 property Tax Receivable (Less Estimated Uncollectable Taxes, 2008:53,250; 2007: 20,000) 127,750 170,000 Due from Other Funds 50,000 0 Total $347,000 $315,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-120 The Balance Sheet 2008 2007 Liabilities and Fund Balance: Vouchers Payable $73,000 $65,000 Fund balance:  Unreserved 83,000 95,000  Reserve for Encumbrance 191,000 55,000 Total Fund Balance 274,000 250,000 Total Liabilities and Fund Balance $347,000 $315,000 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008  2-121 Exercises Exercise 17-1 Exercise 17-2 Exercise 17-3 Exercise 17-4 Exercise 17-5 Exercise 17-8 Exercise 17-9 Exercise 17-10 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008