Kế toán, kiểm toán - Chapter 3: Learning objectives

Essentials of Accounting for Governmental and Not-for-Profit OrganizationsChapter 3 Modified Accrual Accounting:Including the Role of Fund Balances and Budgetary AccountingCopyright © 2015 McGraw-Hill Education. All rights reserved.Chapter 3 – Learning objectivesDescribe the basic accounts used by governmental fundsIdentify the recognition criteria for revenues and expenditures under modified accrual basisApply fund balance classifications for governmental fundsPrepare journal entries for the expenditures cycle using both budgetary and activity accountsModified Accrual AccountingThe modified accrual basis is a distinct system of accounting that contains financial statement elements that appear nowhere else. Among these are expenditures and fund balances. Modified Accrual AccountingAlthough, revenues appear in the financial statements of accrual and modified accrual funds, revenues follow different recognition criteria between the two bases. Finally, there are no expenses in modified accrual fundsAccount Structure – Permanent AccountsAccounts that are not closed at year end (Balance Sheet)Assets: Cash and Cash Equivalents Investments Receivables: - Taxes Receivable Accounts Receivable Due from Other Governments Supplies Inventories Restricted Assets (typically cash)Deferred Outflows of ResourcesLiabilities: Accounts Payable Accrued LiabilitiesDeferred Inflows of Resources Deferred RevenuesFund Balances: Nonspendable Restricted Committed Assigned UnassignedAccount Structure - Nominal AccountsAccounts that are closed at year end Budgetary AccountsFinancial Statement Activity AccountsEstimated RevenuesAppropriationsEstimated Other Financing SourcesEstimated Other Financing UsesEncumbrancesBudgetary Fund Balance – Reserve for EncumbrancesRevenues Tax Revenues Charges for ServicesExpenditures Current Capital Outlay Debt ServiceOther Financing Sources Transfers In Debt ProceedsOther Financing Uses Transfers OutAssets and LiabilitiesModified Accrual Funds use the Current Financial Resources Measurement FocusGenerally speaking, the assets represent cash and assets that may be expected to be converted into cash in the normal course of operations. (no long-term assets)Similarly, these funds report only those liabilities which will be settled with current financial resources. (no long-term liabilities)Fund BalanceThe account category, Fund Balance, is unique to governmental funds. Fund Balance serves a purpose similar to retained earnings, in that activity accounts are closed to this account at the end of each accounting period. Fund Balance - interpretationSince only current financial resources and claims against those resources are recognized in these funds, the difference between assets and liabilities (fund balance) represents the net resources of the fund that are currently available for future spending. However, even current financial resources vary in the extent to which government managers have discretion over their future use and this is reflected by assigning fund balance to five categories (nonspendable, restricted, committed, assigned and unassigned).The objective of Statement No. 54 is to provide clearer fund balance classifications.Users want to know whether the use of amounts reported in governmental funds is constrained and how binding those constraints are.GASB 54 – Establishes the Reporting of Fund BalancesStatement No. 54 affects only fund-basis statements of the Governmental Type fundsDoes not affect reporting of Net Position by Proprietary or Fiduciary FundsDoes not affect reporting of Net Position of Governmental Activities in the government-wide statements.GASB 54 – Fund BalancesFinancial StatementsFund balances of governmental type funds are reported within 5 categoriesNonspendableRestrictedCommittedAssignedUnassignedGASB 54 – Fund BalancesSummaryTwo Step Process – Step 1:Identify those fund resources that are NonspendableNonspendable resources include:Inventories and prepaids (also incudes assets held for sale and long-term receivables)The principal (corpus) of a Permanent FundTwo Step Process  Step 1: Nonspendable resourcesSpendable ResourcesAll remaining net resources of a fund after removing those determined to be NonspendableSpendable resources are further classified according to the nature of any constraints imposed on their use, using a hierarchy of constraintsTwo Step Process  Step 2: Spendable resources Restricted Funds Committed Funds Assigned Funds Unassigned FundsGASB 54 – Fund BalancesConstraint HeirarchyNo ConstraintMost constrained(General Fund)Restricted : Constraints placed on the use of resources are:Externally Imposed (debt covenant, grantor, contributors, or other governments)Imposed by law (constitutionally or enabling legislation) i.e. enforceable requirement that resources be used only for specified purposesConstraint Heirarchy: Restricted FundsIn general, the definition of “restricted fund balance” is nearly identical to that of “restricted net position” in the Government-wide StatementsException is Permanent Fund Principle which is classified as Nonspendable in the governmental funds and restricted in the government-wide statementsConstraint Heirarchy:  Restricted FundsGovernment -WideStatement of Net PositionFund-Basis GovernmentalFunds Balance SheetNet Position – restricted $ xxxRestricted fund balance $ xxxCommitted: Constraints placed on the use of resources by:The formal action of the government’s highest level of decision making authority. GASB 54 specifically identifies Contractual Obligations as one form of committed resourcesConstraint Heirarchy: Committed FundsStatement 54 also provides guidance on the classification of budget stabilization or rainy day funds Such stabilization amounts that meet certain criteria are classified as committed or (less commonly) restricted, if imposed externally or by law. Rainy day funds are classified as committed only if they are created by a resolution or ordinance that identifies the specific circumstances under which the resources may be expended. Rainy day amounts that are available “in emergencies” or in periods of “revenue shortfalls” would not be classified as committed unless the emergency or shortfall condition is specified and of a magnitude to distinguish it from events that occur routinely. Rainy day funds not meeting these conditions are reported as unassigned fund balance in the General Fund.Constraint Heirarchy:  Rainy Day FundsAssigned: The government has an expressed intent to use resources for specific purpose:For governmental funds other than the General Fund, this is the category for all remaining (positive) amounts.For the General Fund, assignment conveys a narrower intended use than the general purposes of the governmentConstraint Heirarchy: Assigned FundsUnassigned: Residual classification of the General FundOnly the General Fund can report a positive “unassigned fund balance”For other governmental funds – this is used only for a negative fund balance (in any of the previous 3 constraint categories)Constraint Heirarchy: Unassigned FundsClassification: Step 1 CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE       Nonspendable       Supplies Inventory      Permanent fund principal     Are there assetsnot in spendable form? – e.g. Inventory & prepaids Required to maintain permanent fundcorpus? NoProceed to spendable categoriesClassification: Step 1 CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE       Nonspendable       Supplies Inventory23,747      Permanent fund principal    25,000 Assume the permanent fund corpus is $ 25,000.yesAssets not in spendable form? – Inventory & prepaids Required to maintain permanent fundcorpus? Classification: Step 2a (Restricted Funds)Are restrictionsimposed by outsidecreditors, grants, orimposed by law? Assume the following: Bond sinking fund Federal school lunch grant State highway grantyes CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE        Restricted       Bond Sinking Fund    200,000   School lunch grant  370,000     Highway grant   302,000         Classification: Step 2b (Committed Funds)Has city councilformally committedfunds to specific activities?Assume the following: Construction contracts School construction funds Rainy day reserveyes CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE       Committed       Construction Contracts   120,000    School construction   450,000    Rainy Day Funds 3,500,000     Classification: Step 2c (Assigned Funds)Are there positiveresidual balancesin non-General FundGovernmental funds?yes CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE        Assigned       School lunch program  202,014     Capital projects   40,032    Debt Service    30,000   Other purposes     366             Classification: Step 2c (Assigned Funds)Are there specific resources in the General Fund that are intended for identified purposes? yesAssume the government has outstanding encumbrances for the following: Library acquisitions Other capital projects CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE        Assigned       School lunch program  202,014     Capital projects75,000   40,032    Debt Service    30,000   Other purposes     366 Library acquisitions25,000          Classification: Step 2d (Unassigned Funds)All negative restricted,committed, or assignednet resources are classified as Unassigned.The remaining net resources of the GeneralFund are classified as Unassigned CITY Balance Sheet Governmental Funds As of December 31, 2009 General Special Revenue Capital Projects Debt Service Permanent ASSETS Fund Fund Fund Fund Fund Cash and cash equivalents 6,408,214 627,837 895,300 230,000 25,366 Investments 3,312,992 Receivables (net) Taxes receivable 2,872,611 Accounts Receivable 679,215 14,177 Due from Other Governments 1,085,184 243,264 Supplies Inventory 23,747 Restricted Assets 3,933,126 TOTAL ASSETS 18,315,089 642,014 1,138,564 230,000 25,366 LIABILITIES Accounts payable 2,085,358 70,000 207,134 Accrued liabilities 543,064 19,398 Deferred Revenues 4,408,087 TOTAL LIABILITIES 7,036,509 70,000 226,532 -   FUND BALANCE       Nonspendable       Supplies Inventory 23,747      Permanent fund principal     25,000   Restricted       Bond Sinking Fund    200,000   School lunch grant  370,000     Highway grant   302,000    Committed       Construction Contracts   120,000    School construction   450,000    Rainy Day Funds 3,500,000       Assigned       School lunch program  202,014     Capital projects 95,000   40,032    Debt Service    30,000   Other purposes     366 Library acquistions 25,000       Unassigned 7,634,833      TOTAL FUND BALANCE 11,278,580 572,014 912,032 230,000 25,366 Classification Completed General Special Revenue Capital Projects Debt Service Permanent FUND BALANCES Fund Fund Fund Fund Fund       Nonspendable       Supplies Inventory 23,747      Permanent fund principal     25,000   Restricted       Bond Sinking Fund    200,000   School lunch grant  370,000     Highway grant   302,000    Committed       Construction Contracts   120,000    School construction   450,000    Rainy Day Funds 3,500,000       Assigned       School lunch program  202,014     Capital projects 95,000   40,032    Debt Service    30,000   Other purposes     366 Library acquisitions 25,000       Unassigned 7,634,833      TOTAL FUND BALANCE 11,278,580 572,014 912,032 230,000 25,366 GASB 54 – Fund Balances EncumbrancesEncumbrancesUnder past reporting practices, outstanding encumbrances at year end were reported in the governmental funds as fund balance: reserve for encumbrances. Statement 54 requires that significant encumbrances be disclosed in the notes along with required disclosures about other commitments. However, there is no separate reporting of encumbrances within the fund balance section of the governmental funds’ balance sheet. Rather, encumbered resources should be reported within the restricted, committed or assigned categories in a manner consistent with the criteria for those classifications.GASB 54 – Fund Balances EncumbrancesEncumbrances – InterpretationAt the very least, the existence of an encumbrance suggests that the government has an expressed intent to use resources for a particular purpose and therefore these resources should not be classified as unassigned. Encumbrance accounting may also be used in the case of contractual obligations, such as construction contracts. Statement 54 requires that resources obligated to contractual obligations be classified as committed.GASB 54 – Fund Balances Negative balancesNegative BalancesStatement 54 does not permit the reporting of negative restricted, committed or assigned fund balances. If this occurs, the government should reduce any assigned fund balances (in that fund) by the amount of the negative balance. The rationale is that if expenditures exceed restricted or committed resources, then funds have in effect been reallocated to the purpose used. If a deficit remains once all assigned fund balances are zero, the remaining negative amount should be reported as unassigned fund balance. Activity Accounts – Sources of fundsOther Financing Sources include transfers in from other funds and the proceeds of long-term borrowing. Revenues are defined as all other inflows and include taxes, charges for services, and amounts provided by other entities such as the state or federal government. Activity Accounts – Uses of fundsExpenditures are recognized when a liability is incurred that will be settled with current financial resources in the fund. Expenditures may be for salaries (current), land, buildings or equipment (capital) or for payment of interest and principal on debt (debt service). Transfers out of a fund to other funds are classified as Other Financing Uses. Classification of Inflows and OutflowsRevenues are classified by sourceWhere the money came from: taxes, licenses and permits, charges for service, etcMay be subdivided further such as by type of tax, sometimes shown in separate scheduleExpenditures and Encumbrances may be classified byfunction, program, department, activity, character, or objectOutflow ClassificationsCharacter groupings are always: CURRENT, CAPITAL OUTLAY, and DEBT SERVICECurrent are typically classified by function: General government, public safety, streets and highwaysPublic safety could be subdivided by department: Police and firePolice could be subdivided further by activity: Traffic and drug enforcementActivities in the traffic area could be divided into objects of expenditure: Policeman’s salary, gas for automobilesBudgetary AccountingGASB standards require governments to present a comparison of budgeted and actual results for the General Fund and special revenue funds with legally adopted budgets. While GASB standards guide the format of this comparison, the GASB does not prescribe budgetary accounting practices and does not require governments to maintain budgetary accounts. Recording BudgetsAlthough budgetary accounts do not appear in the general purpose financial statements, governments typically record budgets and governmental accounting systems are designed to assure compliance with budgets.Budgetary AccountsRevenues to be raised pursuant to law during a budget period are set forth in an Estimated Revenues budget.An Appropriation, when enacted into law, is the legal authorization for the government to incur liabilities for purposes specified in the appropriations statue or ordinance. Estimated Other Financing Sources and Estimated Other Financing Uses are budgetary accounts reflecting anticipated inflows and outflows of resources from sources other than revenues and expendituresEncumbrancesWhen a purchase order or contract is issued as authorized by an appropriation, the government recognizes this commitment as an Encumbrance. An encumbrance is not a liability since the goods or services have merely been ordered, not received. EncumbrancesCommitments are reflected in the budgetary accounts through the recording of Encumbrances and the corresponding Budgetary Fund Balance - Reserve for Encumbrances. Expenditure CycleEncumbrance to ExpenditureOnce goods or services are received, the government has a liability. At this point, two journal entries are necessary. The first reverses the encumbrance at its original amount. Since the government has incurred an actual liability, it is no longer necessary to reflect a commitment for the outstanding purchase orders or contracts. The second entry records the liability (Accounts Payable) and an Expenditure in the amount of the invoice. Why Record Encumbrances?In business accounting, orders are not entered into the general ledgerGovernments recognize that an outstanding order will turn into an expenditure and a liability when the goods arriveTo prevent over-spending, outstanding orders are entered into the booksEncumbrance ExamplePlace an order for $150,000 which consists of three mini-buses costing $50,000 each. Recorded as: Encumbrances 150,000 Budgetary Fund Balance - Reserve for Encumbrances 150,000Assume two of the buses arrive, but with freight, they cost $102,000 instead of $100,000.First, reverse a part of the encumbrances:Budgetary Fund Balance - Reserve for Encumbrances 100,000 Encumbrances 100,000Second, record the actual amount of expenditure: Capital Expenditure 102,000 Accounts Payable 102,000Accounting for RevenuesSince taxes and many other revenues do not involve exchange transactions, governments cannot determine the point at which these revenues are earned. Therefore revenue recognition occurs when the resulting resources are deemed to be both measureable and available to finance expenditures of the current period. Revenue RecognitionNonexchange transactions are transactions in which a government receives resources without directly giving equal value in exchange. The most common forms of nonexchange transactions are tax revenues and intergovernmental grants.Before a government may recognize revenue resulting from nonexchange transactions, it must meet a number of eligibility requirements. Eligibility RequirementsNon-Exchange RevenuesRequired Characteristics of Recipients. The recipient must have the characteristics specified by the provider. Time Requirement. If time requirements (for expenditure) are specified by the resource provider or legislation, those time requirements must be metReimbursement. For those grants and gifts that are payable only upon the incurrence of qualifying outlays, revenues would be recognized only when the expenditures have been incurred.Contingencies. Resources pledged that have a contingency attached are not recognized as revenue until the contingency has been met. Types of Nonexchange TransactionsImposed nonexchange revenues property tax, special assessments, fines/forfeitsDerived tax revenues sales, income, motor fuel taxesGovernment mandated transactions federal government requires lower level expendituresVoluntary nonexchange transactions grants, donationsImposed Nonexchange RevenueTaxes and other assessments that do not result from an underlying transaction. Examples include property taxes and special assessments imposed on property owners. Also includes fines and forfeits. Modified Accrual Basis RecognitionRecord the receivable (and an allowance for uncollectibles) when an enforceable claim exits.Revenues should be recognized in the period for which the taxes are levied (i.e. budgeted), but are also subject to the 60 day rule. Revenues expected to be collected > 60 days after year-end are deferred. 1. Property taxes levied2. Deferral of portion expected to be collected > 60 days after year end 1. Taxes Receivable Dr Estimated Uncollectible Taxes ...Cr Revenues Control .Cr2. Revenues Control Dr Deferred Revenues – Property Taxes CrImposed Nonexchange RevenueDeferred revenues are reported as Deferred Inflows of Resources on the Balance SheetDerived Tax RevenuesThese are taxes assessed on exchange transactions conducted by businesses or citizens. Examples include sales, income, and excise taxes. Revenue Recognition – Modified AccrualRecord the receivable when the taxpayer’s underlying transaction takes place.Revenues should be recognized when available and measurable. Revenues not expected to be collected in time to settle current liabilities are deferred (i.e. available and measurable criteria). 1. Income tax withholdings are received.2. Additional income taxes expected to be received after year end. Part of this will not be received in time to be available for current liabilities.1. Cash .Dr Revenues Control Cr2. Taxes Receivable .Dr Revenues Control Cr Deferred Revenues – Income Taxes Cr Derived Tax RevenueGovernment Mandated Nonexchange TransactionsThese are commonly grants from higher levels of government (federal or state) given to support a program. Since the program is required, the lower-level government has no choice but to accept. For example, a state may require schools to mainstream certain students and provide funds to carry out this mandate.Voluntary Nonexchange TransactionsThese include donations and grants given to support a program. Since the program is not required, the receiving government voluntarily agrees to participate.Revenue Recognition – Modified AccrualRecord the receivable and the revenue when all eligibility requirements have been met.Many of these are reimbursement grants. In this case, revenue is recognized only when qualified expenditures have been incurred. Reimbursement type grants1. Expenditures Control ..Dr Accounts Payable/Cash ..Cr2. Due from grantor Dr Revenues Control CrGovernment-Mandated and Voluntary Nonexchange RevenuesRevenue Recognition – Modified AccrualAdvance receipts are deferred until expenditures are incurred. Revenue recognition is subject to the available and measurable criteria. Advance funded grant: 1. Receipt of advance funding. 2. Incur qualified expenditures and recognize revenue. 1. Cash Dr Deferred Revenues – Grants ..Cr2a. Expenditures Control ...Dr Accounts Payable/Cash ..Cr2b. Deferred Revenues – Grants .. Dr Revenues Control CrGovernment-Mandated and Voluntary Nonexchange RevenuesRecording the budgetEstimated Revenues 12,000,000Estimated Other Financing Sources 500,000 Appropriations 11,700,000 Estimated Other Financing Uses 250,000 Budgetary Fund Balance 550,000 In the above entry, Budgetary Fund Balance is the expected change in fund balance assuming actual amounts are exactly as budgeted. It may be either a credit (or less frequenty) or debit balance in the entry.Budget RevisionsBudget revisions may be necessary during the year due to changes in revenue projections or operating conditions for example, electricity price increases, decrease in sales taxes due to low consumer spending Budget revisions usually are taken back to the appropriate legislative body for approval, although some jurisdictions may allow some percentage of the budget to be transferred between accountsRecording a budget revisionBudgetary Fund Balance 150,000 Appropriations 70,000 Estimated Revenues 80,000 In the above entry, the budget reflects a decrease in estimated revenues of $ 80,000 and an increase in appropriations of $ 70,000. Budgetary Comparison ScheduleBoth the original and the final adjusted budget is shown The revised appropriations are compared to the Actual Expenditures for the current period plus Outstanding EncumbrancesA variance column is typically shown, but is optionalBudgetary Comparison ScheduleThe actual column should use the basis of accounting assumed in the budget. This may be different than GAAP basisAnother schedule will reconcile the ‘actual’ figures on the budgetary vs. GAAP basis