CHAPTER 17 GOVERNMENTAL ENTITIES: INTRODUCTION AND GENERAL FUND ACCOUNTING ANSWERS TO QUESTIONS Q17-1 A fund is an independent fiscal and

accounting entity with a selfbalancing set of accounts recording cash and/or other resources together with all related liabilities, obligations, reserves, and equities which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. A fund may receive resources from a variety of sources, including collection of taxes on property, income, or commercial sales; receipt of grants, fines, or licenses; and collection of service charges. Q17-2 The eleven funds generally used by local and state governments are: Governmental a. General fund b. Special revenue fund c. Capital projects fund d. Debt service fund e. Permanent fund Proprietary f. Internal service fund g. Enterprise fund Fiduciary h. Pension trust fund i. Investment trust fund j. Private-purpose trust fund k. Agency funds The purpose of each fund is individually discussed below: a. b. General fund: All financial resources except those required to be accounted for in another fund are accounted for in the general fund. Special revenue fund: The proceeds of specific revenue sources that are legally restricted for specified purposes are accounted for in the special revenue fund. Capital projects fund: Financial resources to be used for the acquisition or construction of major capital projects that will benefit a large population are accounted for in the capital projects fund.

c.

d. Debt service fund: The accumulation of resources for, and the payment of, general long-term debt principal and interest are accounted for in the debt service fund.
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e.

Permanent fund: Accounts for resources for which the principal must be maintained, but for which the earnings may be used in support of governmental programs. Internal service fund: The financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, are accounted for in internal service funds. Enterprise fund: Operations of governmental units that charge services provided to the general public are accounted for in enterprise funds. for the

f.

g.

h.

Pension trust fund: Resources held by a governmental unit in a trustee capacity for the members and beneficiaries of pension plans, postemployment plans, or other employee benefit plans. Investment trust funds: Accounts for the external portion of investment pools of governing units. Private-purpose trust fund: Accounts for trust arrangements under which both principal and interest may be used to benefit specific individuals, private organizations, or other governmental units. Note that these resources have specific purposes as stated by the donor or grantor, and are not available for general governmental programs. Agency funds: Assets held by a governmental unit in an agency capacity for employees or other individuals are accounted for in agency funds.

i. j.

k.

Q17-3 The modified accrual basis includes some aspects of accrual accounting and some aspects of cash-basis accounting. Under the modified accrual basis, the emphasis is on reporting how well the government performed by focusing on when the revenue and expenditures are recognized in the accounts and reported in the financial statements. The emphasis is not on how much was earned nor on the amount of expenses. Q17-4 The modified accrual basis is used for funds for which expendability is the concern because the governing entity is interested in the determination of the resources still remaining to be expended to carry out the objectives of the fund. Q17-5 Property taxes are recognized as revenue in the general fund when the taxes are levied, provided they apply to and are collectible within the current fiscal period, or within a short period (< 60 days) after the end of the fiscal period.

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Q17-6 GASB 33 states that taxpayer-assessed income and sales taxes should be accrued in the general fund when they become both measurable and available to finance expenditures of the fiscal period. Sales taxes held by other governmental units should be recognized if the taxes are both measurable and available for expenditure. Measurability in this case is based on an estimate of the sales taxes to be received, and availability is based on the ability of the governing entity that will receive the future distribution to obtain current resources through credit by using future sales tax receipts as collateral for the loan. Q17-7 Budgetary accounting is the entering of the budgeted revenue, appropriations, and net increase or decrease in fund balance into the formal accounting records as a formal accounting control mechanism. Expected revenue is accounted for as estimated revenue, an anticipatory asset account. The governmental unit anticipates receiving resources from the revenue sources listed in the budget. Anticipated expenditures are accounted for as appropriations, an anticipatory liability account. The governmental unit anticipates incurring liabilities for the budgeted amount. Both the expected revenue and the appropriations accounts are closed at the end of the fiscal period. Q17-8 All expenditures are not encumbered. Payroll costs and other costs for goods received from within the governmental entity are not encumbered because these are normal and recurring costs. Q17-9 Some governmental units do not report small amounts of inventories of supplies in their balance sheets because the amount of inventory is not material. Q17-10 Under the lapsing method the Reserve for Encumbrances account is shown as a reservation of the fund balance on the fiscal year-end balance sheet. The encumbrance account is a nominal account that is closed at the end of the fiscal period. The net effect is to close out the remaining encumbrances against the unreserved fund balance. Alternatively, the GASB does allow for just footnote disclosure of the lapsing open orders at year-end that are expected to be honored in the next fiscal period. Under the nonlapsing method the expenditure authority from prior periods is carried over as nonlapsing encumbrances. The budget for the next fiscal period does not show these carryovers and is more realistic for situations in which orders placed with outside vendors cannot easily be canceled. The encumbrance account is still closed at the end of the period and the reserve for encumbrances is canceled. When accounting for the actual expenditure in the subsequent year, the lapsing method requires the new governing board to decide if it will honor the outstanding encumbrances for the previous year by including them in the current budgeted appropriations. If the governing board accepts the obligation to honor their outstanding purchase order by including the expenditure within its budget, the entries made at the end of the previous year are reversed to re-establish the expenditure authority and the normal encumbrance/expenditure entries are made. In the event the new governing board decides not to honor the outstanding encumbrances, the reserve for
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outstanding encumbrances is eliminated canceled with the external vendor.

and

the

order

for

the

goods

is

When accounting for the actual expenditure in the subsequent year, the nonlapsing method separates expenditures made from spending authority carried over from prior periods. This is done in a reclassification entry made on the first day of the next fiscal period, which dates the reserve for encumbrances. There is no entry to reverse the encumbrance because the encumbrance account was closed in the previous period and no longer exists for this expenditure. Q17-11 The expenditure for inventories is recognized in the period the supplies are acquired under the purchase method. Under the consumption method, the expenditure for inventories is recognized for only the amount of inventory used in the period. Q17-12 Interfund services provided and used are interfund activities that would be treated as revenues or expenditures if they were made with parties external to the governmental entity. An example would be if the general fund purchased supplies from the internal service Interfund transfers out or in are transfers of resources between funds. An example would be a transfer of resources from the general fund (an interfund transfer out) to the capital projects fund (a transfer in) to assist in the construction costs of a new municipal building. Q17-13 An interfund transfer is reported as "Other Financing Sources or Uses" in the general fund's statement of revenue, expenditures, and changes in fund balance. Q17-14 The loan of $2,000 from the general fund to the enterprise fund is reported on the financial statements of the general fund on the balance sheet as a receivable. The loan is not shown on the fund's statement of revenue, expenditures, and changes in fund balance. Q17-15 Governmental accounting places many controls over expenditures, and much of the financial reporting focuses on the various aspects of an expenditure. An expenditure can be made for a function of the governmental entity or an activity within a function. Expenditures for an activity can be classified by object, which is the type of expenditure. The extensive detail required to account for and cross reference an expenditure to ensure it is properly classified at all levels requires a very comprehensive accounting system.

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SOLUTIONS TO CASES C17-1 a. Budget Theory

A governmental accounting system must make it possible to: 1. Present fairly and with full disclosure, in conformity with generally accepted accounting principles, the financial position and results of financial operations of the funds and account groups of the governmental unit. Determine and demonstrate compliance with finance-related legal and contractual provisions.

2.

Because the legislative body enacts the budget into law, the budget is recorded in the accounts of a governmental unit. This enables a governmental unit to show legal compliance with the budget by providing an accounting system that measures actual expenditures and obligations against amounts appropriated, and actual revenue against estimated revenue. Appropriations enacted into law constitute maximum expenditure authorizations during the fiscal year, and they cannot legally be exceeded unless subsequently amended by the legislative body. b. As the new fiscal year begins, the budget, already enacted into law by the legislative body, is recorded. Budgetary accounts are set up to record the estimated revenue and appropriations in the fund accounts by debiting estimated revenue and crediting appropriations. If there is a difference between estimated revenue and appropriations, the excess or deficit is credited or debited, respectively, to fund balance. In addition, subsidiary ledger accounts are maintained for estimated revenue by source and for appropriation/expenditure items. At the end of the fiscal year, the estimated revenue appropriations balance are closed out to fund balance. balance and the

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C17-2

Municipal versus Financial Accounting

a. The most significant difference in purpose between municipal accounting and commercial accounting is that commercial enterprises are operated for profit, which places much emphasis on the proper determination of periodic earnings. Governmental units are primarily concerned with providing services to their citizens at minimum cost and reporting on the stewardship of public officials with respect to public funds, which places much emphasis on budgetary controls. However, some municipal units perform commercial services that are generally secondary to their tax-financed primary services. Another difference in accounting purpose is that municipal accounting operations are controlled by legal provisions in constitutions, charters, and regulations having the force and effect of law. Because of these legal provisions and the diversity of its governmental operations, a municipality cannot use a single, unified set of accounts for recording and summarizing all financial transactions. If there is a conflict between legal provisions and generally accepted accounting principles applicable to governmental units, legal provisions should take precedence to the extent that the accounting system must enable the ready disclosure of compliance. However, for financial reporting purposes, generally accepted accounting principles must take precedence. Commercial enterprises usually are not controlled by charters that are restrictive; therefore, their accounting systems are designed differently. Legislative action may limit the use of certain tax revenue for expenditure on particular programs, the methods of tax collection, or the rates of tax assessment. Such provisions must be reflected in the accounting system and be appropriately disclosed in the municipality's financial statements as a report on the stewardship of public officials with respect to public funds. In governmental accounting all required accounts are organized on the basis of funds, each of which is independent of the other. Each fund must be so accounted for that the identity of its resources, obligations, revenue, expenditures, and fund balance is continually maintained. These purposes are accomplished by providing a complete self-balancing set of accounts for each fund. The basis of accounting for the reporting on governmental units is often different from that used by commercial enterprises. For example, the accrual basis of accounting is recommended for all funds except the general, special revenue, debt service, capital projects, agency, and expendable trust funds. These funds should be accounted for by the modified accrual basis. The modified accrual basis is recommended for these funds because some of their revenue sources are difficult to measure in advance and frequently become available only a short time before cash receipt.

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C17-2

(continued)

Generally, fair presentation of financial position and results of operations in conformity with generally accepted accounting principles requires that the financial statements of expendable funds (those that use the modified accrual basis) include a balance sheet and a statement of revenue, expenditures, and changes in fund balance. In contrast, however, a commercial enterprise would usually prepare a statement of financial position, an earnings statement, a statement of retained earnings, and a statement of cash flows. The statement of revenue and expenditures of the general fund and certain special revenue funds should include a comparison with a formal budget in order to conform with generally accepted accounting principles; there is no such requirement for a commercial enterprise. b. Inventories are often ignored in governmental accounting because of an emphasis on budgeting revenue against outlays without looking behind the outlays to determine the extent to which they represent actual usage or consumption. Put another way, there is an emphasis on the cash or fiscal aspects rather than the operational aspects. This is easy to understand when one considers that general-fund expenditures for firemen's salaries and for the purchase of a new fire truck are accounted for in the same way. However, inventories are not wholly ignored in governmental accounting. In those funds in which accounting parallels commercial accounting practice, such as enterprise funds, inventories are taken into consideration. Similarly, in an internal service fund concerned with rendering service involving the consumption of supplies or the delivery of stores to other funds and activities, the inventories of supplies or stores are taken into consideration in computing billings to departments serviced. Inventories can and should be taken into consideration when preparing budgets. A fund, such as a general fund, having departments that possess large inventories at year-end obviously has need for smaller appropriations for the coming year than it would if those departments had zero inventories.

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SOLUTIONS TO EXERCISES E17-1 1. 2. 3. 4. 5. 6. b a b b c b Multiple-Choice Questions on the General Fund [AICPA Adapted]

E17-2 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. K C B B K A H I M F B B

Matching for General Fund Transactions [AICPA Adapted]

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E17-3 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c d c a b c d b c d

Multiple-Choice Questions on Budgets, Expenditures, and Revenue [AICPA Adapted]

E17-4 1. 2. 3. b d c

Multiple-Choice Questions on the General Fund

The balance in the ENCUMBRANCES CONTROL and the FUND BALANCE RESERVED FOR ENCUMBRANCES accounts is the same. Therefore, an excess of one account over the other indicates a recording error. The following entry is made when a purchase order is approved: ENCUMBRANCES CONTROL BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES

4.

5.

The 60-day rule for property tax revenues requires that property taxes collected within 60 days after the end of the year are revenues of the preceding fiscal year. The entry to record the tax levy would be: Property Taxes Receivable - Current 700,000 Allowance for Uncollectible Taxes Revenue - Property Taxes Deferred Revenue (reported as a liability on the general fund balance sheet) 10,000 600,000 90,000

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E17-4 6. a

(continued) Upon receipt of the order, Oak would record the following entries: BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES CONTROL Expenditures Control Vouchers Payable 5,000 5,000 4,950 4,950

7.

Johnson would record the following entry: ESTIMATED REVENUES CONTROL ESTIMATED OTHER FINANCING SOURCE TRANSFER IN (Internal Service) ESTIMATED OTHER FINANCING SOURCE TRANSFER IN (Debt Service) APPROPRIATIONS CONTROL BUDGETARY FUND BALANCE UNRESERVED 9,000,000 1,000,000 500,000 XXXXXX XXX

8. 9. 10.

c a b

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E17-5 a.

Encumbrances at Year-End

Outstanding encumbrances lapse at year-end. (1) Year-end entries: BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining budgeted encumbrances. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve actual fund balance for outstanding encumbrances at year-end. (2) City Council accepts outstanding encumbrances: Fund Balance Reserved for Encumbrances Unreserved Fund Balance Reverse prior-year encumbrance reserve. ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Establish budgetary control over encumbrances renewed from prior year. (3) Equipment received: BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Remove budgetary reserve for goods received. Expenditures Vouchers Payable Record expenditure for goods received at actual cost of $12,750. 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500

12,750 12,750

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E17-5 b.

(continued)

Outstanding encumbrances are nonlapsing. (1) Year-end entries: BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining budgetary encumbrances. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for outstanding encumbrances. (2) Date the encumbrances: Fund Balance Reserved for Encumbrances Fund Balance Reserved for Encumbrances - 20X1 Reclassify reserve from prior year. (3) Equipment received: Expenditures - 20X1 Expenditures - 20X2 Vouchers Payable Record actual expenditure for goods received. (4) Closing entry: Fund Balance Reserved for Encumbrances - 20X1 Expenditures - 20X1 Close expenditures account for prior year encumbrances. Unreserved Fund Balance Expenditures Close expenditures for current year. 12,500 12,500 12,500 250 12,750 12,500 12,500 12,500 12,500 12,500 12,500

250 250

(Note: In entry (3), the excess of actual cost over the encumbered amount must be approved as part of 20X2's expenditures. Entry (3) records a debit to Expenditures - 20X2 which increases 20X2's expenditures. The expenditures for 20X2 are closed in a separate entry. If the actual cost was less than the encumbered amount, then the difference should be closed to Unreserved Fund Balance, although some governmental units have a policy of closing any difference between actual and encumbered amounts for prior year encumbrances to the current year's expenditures.)
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E17-6 a.

Accounting for Inventories of Office Supplies

Consumption method of accounting for inventories: (1) Purchase of supplies: 3,600 3,600

August 8, 20X2 Expenditures Vouchers Payable Acquire inventory of supplies. (2) Entries at end of 20X2 fiscal year:

September 30, 20X2 Inventory of Supplies Expenditures Recognize ending inventory of supplies. Unreserved Fund Balance Fund Balance Reserved for Inventories Establish fund reserve for ending inventory. Unreserved Fund Balance Expenditures Close expenditures account. (3) Entries at end of 20X3 fiscal year:

2,800 2,800 2,800 2,800

800 800

September 30, 20X3 Expenditures Inventory of Supplies Record expenditures for inventories consumed. Fund Balance Reserved for Inventories Unreserved Fund Balance Remove fund balance reserve for inventories consumed. Unreserved Fund Balance Expenditures Close expenditures account.

2,800 2,800

2,800 2,800

2,800 2,800

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E17-6 b.

(continued)

Purchase method of accounting for inventories: (1) Purchase of supplies: 3,600 3,600

August 8, 20X2 Expenditures Vouchers Payable Acquire inventory of supplies. (2) Entries at end of 20X2 fiscal year:

September 30, 20X2 Inventory of Supplies Fund Balance Reserved for Inventories Recognize ending inventory of supplies. Unreserved Fund Balance Expenditures Close expenditures account. (3) Entries at end of 20X3 fiscal year:

2,800 2,800 3,600 3,600

September 30, 20X3 Fund Balance Reserved for Inventories Inventory of Supplies Remove fund balance reserve for inventories consumed.

2,800 2,800

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E17-7 1.

Accounting for Prepayments and Capital Assets

Acquired three-year insurance policy: September 1, 20X1 Expenditures Vouchers Payable Record acquisition of three-year insurance policy. 5,400 5,400

2.

New furniture for the city council meeting room: September 17, 20X1 ENCUMBRANCES 15,600 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Encumber for purchase orders for new furniture. October 1, 20X1 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Reverse reserve for furniture received. Expenditures Vouchers Payable Receive furniture at actual cost.

15,600

15,600 15,600 15,200 15,200

3.

Acquired supplies - consumption method used: November 4, 20X1 Expenditures Vouchers Payable Acquire supplies. Closing entries: December 31, 20X1 Inventory of Supplies Expenditures Recognize ending inventory of supplies. Unreserved Fund Balance Fund Balance Reserved for Inventories Establish fund reserve for ending inventory. Unreserved Fund Balance Expenditures Close expenditures account: $ 5,400 Insurance Policy 15,200 Furniture 680 Supplies $21,280 Total - 117 1,120 1,120 1,120 1,120 21,280 21,280 1,800 1,800

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E17-8

Computation of Revenues Reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund Gilbert City Revenue Reported by the General Fund For the Year Ended June 30, 20X8

Property tax revenue Interest revenue on advance Grant revenue used to acquire computer equipment Sales tax revenue Liquor license revenue Total revenue reported

$1,860,000 1,500 235,000 125,000 66,000 $2,287,500

Notes: (1) The amount reported for property tax revenue, $1,860,000 is computed in the following way: Levy $2,000,000 Less: The allowance for uncollectible taxes($2,000,000 X .02) (40,000) Property taxes expected to be collected after August 31, 20X8 - the 60 day rule for property tax collections report as deferred revenue at June 30, 20X8 (100,000) Property tax revenue for year ended June 30, 20X8 $1,860,000 (2) The receipt of $50,000 for the repayment of the advance is recorded in the following manner by the general fund: Cash 51,500 Advance to Internal Service Fund 50,000 Interest revenue 1,500 (3) Collection of property taxes during the year ended June 30, 20X8, does not affect the recognition of revenue. The revenue was recognized at the levy date, not the collection date. (4) Revenue recognition related to the State grant is based upon spending the grant to acquire computer equipment. Therefore, revenue from the State grant is $235,000, the amount of the grant expended. (5) Revenue from the sales tax is the amount collected during the year ended June 30, 20X8, or $125,000. The additional sales taxes of $25,000 will be revenue of the next fiscal year when the taxes are received from the State and are available to pay for expenditures incurred in the next fiscal year. (6) The borrowing of the $800,000 using the property tax levy as collateral represents a liability in the general fund. This amount is not revenue. (7) The $30,000 received from a terminated debt service fund is reported as an other financing source - transfer in, not revenue. (8) The revenue from liquor licenses is the amount collected, not the amount expected to be collected. Therefore, revenue of $66,000 is recognized from the sale of liquor licenses for the year ended June 30, 20X8.
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E17-8

(continued)

(9) The $15,000 reimbursement is not reported as revenue in the general fund. Reimbursements are recorded as reductions in expenditures. (10) The collection of the delinquent property taxes is not reported as revenue by the general fund for the year ended June 30, 20X8. The revenue associated with the delinquent property taxes was reported in the preceding fiscal year, because the property taxes were expected to be collected within 60 days of the end of the fiscal year.

E17-9 Computation of Expenditures Reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund Benson City Amount Reported for Expenditures by the General Fund For the Year Ended June 30, 20X8 Computer equipment acquisitions in September, 20X7 Reimbursement to special revenue fund in May, 20X8 Use of city water during the fiscal year Supplies acquisitions Salaries and wages of general fund employees Interest paid on loan from local bank Employers pension contribution to pension trust Lease payments Total amount reported for expenditures $ 202,000 15,000 12,000 35,000 900,000 15,000 95,000 10,000 $1,284,000

Notes: (1) The $150,000 transfer to the capital projects fund in March, 20X8, is reported as an other financing use - transfer out. Therefore, it should not be included in the amount reported for expenditures for the year ended June 30, 20X8. (2) The amount paid for the computer equipment is the amount reported for expenditures. Therefore, $202,000 is included in expenditures for equipment, not the estimated amount of $200,000 that was recorded for the order(encumbrances). (3) None of the $500,000 transferred to the internal service fund should be reported as expenditures. The $200,000 that must be repaid by the internal service fund should be accounted for as an advance (a receivable in the general fund), while the $300,000 that represented a permanent contribution should be accounted for as an other financing use - transfer out. (4) The $15,000 reimbursement to the special revenue fund should be included in the expenditures of the general fund for the year ended June 30, 20X8.

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E17-9

(continued)

(5) The $12,000 of billings from the water department should be accounted for as expenditures by the general fund. Billings for water usage constitute an interfund services provided and used transaction. Note that the amount paid by the general fund, $11,500, is not the correct amount of the expenditures. The correct amount is $12,000. (6) The acquisition of supplies and the payment of salaries and wages by the general fund should be accounted for as expenditures. The entire cost of the supplies purchased should be reported as expenditures because the general fund uses the purchase method of accounting for supplies. (7) The outstanding encumbrances at June 30, 20X8, are not included in expenditures. The outstanding encumbrances will be reported on the general fund balance sheet as a reservation of fund equity. (8) The repayment of the principal of the bank loan is not an expenditure. However, the amount paid for interest, $15,000, should be included in expenditures for the year ended June 30, 20X8. (9) The general funds $95,000 contribution to the citys pension trust should be included in expenditures of the general fund for the year ended June 30, 20X8. The employers contribution to a pension trust is an example of an interfund services provided or used transaction. (10) The general funds lease payments should be included in the amount reported for expenditures for the year ended June 30, 20X8.

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E17-10 a.

Closing Entries and Balance Sheet

Closing entries for the general fund: (1) APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT BUDGETARY FUND BALANCE UNRESERVED ESTIMATED REVENUES CONTROL Close budgetary accounts. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining encumbrances by reversing remaining budgetary balance. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for encumbrances that lapse, but are expected to be honored in 20X2. Property Tax Revenue Miscellaneous Revenue Expenditures Unreserved Fund Balance Close operating statement accounts. 1,145,000 25,000 30,000 1,200,000

(2)

32,000 32,000

(3)

32,000 32,000

(4)

1,130,000 40,000 1,140,000 30,000 25,000 25,000

(5) Unreserved Fund Balance Other Financing Use - Transfer Out Close transfer out.

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E17-10 b.

(continued)

General fund balance sheet: Lone Wolf General Fund Balance Sheet December 31, 20X1 Assets

Cash Property Taxes Receivable - Delinquent Less: Allowance for Uncollectibles - Delinquent Due from Other Funds Total Assets Liabilities and Fund Balance Vouchers Payable Due to Other Funds Fund Balance: Reserved for Encumbrances Unreserved Total Liabilities and Fund Balance

$ $100,000 (7,200)

90,000

92,800 14,600 $ 197,400

$ $32,000 92,000

65,000 8,400

124,000 $ 197,400

E17-11

Statement of Revenues, Expenditures, and Changes in Fund Balance Lone Wolf General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the Fiscal Year Ended December 31, 20X1

Revenue: Property Taxes Miscellaneous Expenditures Excess of Revenue over Expenditures Other Financing Sources (Uses): Transfer Out Net Change in Fund Balance Fund Balance, January 1, 20X1 Fund Balance, December 31, 20X1

$1,130,000 40,000

$1,170,000 1,140,000 $ 30,000 $ $ (25,000) 5,000 119,000 124,000

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E17-12

Matching Questions Involving Interfund Activities in the General Fund B C C C C B A D A B

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

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SOLUTIONS TO PROBLEMS P17-13 (1) General Fund Entries [AICPA Adapted] ESTIMATED REVENUES CONTROL APPROPRIATIONS CONTROL BUDGETARY FUND BALANCE UNRESERVED Record the budget. Taxes Receivable Allowance for Uncollectible Taxes Property Tax Revenue Record the property tax levy. Allowance for Uncollectible Taxes Taxes Receivable Write off uncollectible taxes receivable. Cash Taxes Receivable Record property tax collections. (5) ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record purchase commitments. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Reverse for purchase orders received. Expenditures Vouchers Payable Record actual expenditures. Vouchers Payable Cash Record payment of vouchers during period. APPROPRIATIONS CONTROL BUDGETARY FUND BALANCE UNRESERVED ESTIMATED REVENUES CONTROL Close budgetary accounts. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining encumbrances by reversing remaining budgetary balance. 1,070,000 1,070,000 2,000,000 1,940,000 60,000 1,870,000 10,000 1,860,000 8,000 8,000

(2)

(3)

(4)

1,820,000 1,820,000

(6)

1,000,000 1,000,000 1,840,000 1,840,000 1,852,000 1,852,000

(7)

(8)

(9)

1,940,000 60,000 2,000,000

(10)

70,000 70,000

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P17-13 (11)

(continued) Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for outstanding purchase commitments. Property Tax Revenue Expenditures Unreserved Fund Balance Close operating statement accounts. 70,000 70,000

(12)

1,860,000 1,840,000 20,000

P17-14 1.

General Fund Entries Entry to record operating budget for general fund: ESTIMATED REVENUES CONTROL 925,000 ESTIMATED OTHER FINANCING SOURCE TRANSFER IN 75,000 APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE TRANSFER OUT BUDGETARY FUND BALANCE UNRESERVED Entries to record lapsed encumbrances from the preceding year which were included in current appropriations: Fund Balance Reserved for Encumbrances 18,000 Unreserved Fund Balance ENCUMBRANCES CONTROL BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 18,000 18,000 816,000 16,000 800,000

960,000 25,000 15,000

2.

18,000

3.

Entry to record property tax levy: Property Taxes Receivable - Current Allowance for Uncollectible Taxes - Current Revenue - Property Tax

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 125 -

P17-14 4.

(Continued) Entry to record receipt of cash from property tax collections: Cash 805,000 Property Taxes Receivable - Current 805,000 Entry to record adjustment to the allowance account: Allowance for Uncollectible Taxes - Current 10,000 Revenue - Property Tax

10,000

Entry to record reclassification of property taxes receivable: Property Taxes Receivable - Delinquent 11,000 Allowance for Uncollectible Taxes Current 6,000 Allowance for Uncollectible Taxes - Delinquent 6,000 Property Taxes Receivable - Current 11,000 5. Entry to record receipt of sales taxes and other revenue: Cash 126,000 Revenue - Sales Tax Revenue - Licenses and Permits Entry to record interfund receivable for transfer in: Due from Special Revenue Fund 70,000 Other Financing Source - Transfer In from Special Revenue Fund Entry to record cash transferred: Cash Due from Special Revenue Fund 70,000 70,000

102,000 24,000

6.

70,000

Entry to record interfund payable for transfer out: Other Financing Use - Transfer Out to Internal Service Fund 25,000 Due to Internal Service Fund Entry to record cash transferred: Due to Internal Service Fund Cash 25,000

25,000

25,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 126 -

P17-14 7.

(Continued) Entry to record equipment ordered: ENCUMBRANCES CONTROL BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 50,000 50,000

Entries to record equipment received and vouchers paid: BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 50,000 ENCUMBRANCES CONTROL Expenditures Vouchers Payable Vouchers Payable Cash 8. Entry to record loan on January 1, 20X6: Due from Enterprise Fund Cash 50,500

50,000 50,500

50,500 50,500 20,000 20,000

Entry to record receipt of loan and interest on June 30, 20X6: Cash 20,600 Revenue - Interest 600 Due from Enterprise Fund 20,000 Interest = $20,000 x .06 x 1/2 = $600 9. Entry to record billing: Expenditures Due to Internal Service Fund Entry to record payment: Due to Internal Service Fund Cash 500 500 500 500

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 127 -

P17-15 1.

General Fund Entries [AICPA Adapted] ESTIMATED REVENUES CONTROL APPROPRIATIONS CONTROL BUDGETARY FUND BALANCE UNRESERVED Record the budget. Taxes Receivable Allowance for Uncollectible Taxes Revenue from Taxes Record tax levy. Cash Taxes Receivable Record tax collection. Allowance for Uncollectible Taxes 40,000 Taxes Receivable Record write-off of uncollectible taxes: July 1, 20X1, taxes receivable balance $ 150,000 20X2 tax levy 2,870,000 Less: Taxes collected (2,810,000) Taxes receivable final balance (170,000) Taxes written off as uncollectible $ 40,000 Cash Miscellaneous Revenue Collect miscellaneous revenue. 130,000 130,000 60,000 60,000 3,000,000 2,980,000 20,000 2,870,000 70,000 2,800,000 2,810,000 2,810,000

40,000

2.

Fund Balance Reserved for Encumbrances Unreserved Fund Balance Reverse prior reserve which has been renewed. ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Renew encumbrances from prior period. ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record encumbrances.

60,000 60,000 2,700,000 2,700,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 128 -

P17-15 3.

(Continued) Expenditures Due to Other Funds Record liability to other funds for services received. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Reverse encumbrances for items received. Expenditures Vouchers Payable Record expenditures. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Reverse reserve for encumbrances. Expenditures (Prior Period) Vouchers Payable Actual expenditure for goods received. Due to Other Funds Vouchers Payable Record approval for payment to other funds. Vouchers Payable Cash Record voucher payments. 142,000 142,000

4.

2,700,000 2,700,000

2,700,000 2,700,000

60,000 60,000 58,000 58,000

210,000 210,000

2,640,000 2,640,000

5.

ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record May 10 encumbrance.

91,000 91,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 129 -

P17-16 a.

General Fund Closing Entries and Statements

Adjusting entries: (1) Inventory of Supplies Expenditures Establish ending inventory of supplies. Unreserved Fund Balance Fund Balance Reserved for Inventories Reserve fund balance for supplies inventory. 8,000 8,000 8,000 8,000

(2)

Closing entries: (1) APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT ESTIMATED REVENUES CONTROL Close budgetary accounts. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining encumbrances. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for encumbrances that lapse, but may be renewed. Property Tax Revenue Grant Revenue Miscellaneous Revenue Expenditures Other Financing Use - Transfer Out Unreserved Fund Balance Close operating statement accounts. 1,400,000 50,000 1,450,000

(2)

23,000 23,000 23,000 23,000

(3)

(4)

1,390,000 40,000 32,000 1,377,000 50,000 35,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 130 -

P17-16 b.

(continued) Quincy General Fund Balance Sheet June 30, 20X2 Assets

Cash Property Taxes Receivable - Delinquent Less: Allowance for Uncollectibles - Delinquent Due from Data Processing Fund Inventory of Supplies Total Assets Liabilities and Fund Balance Vouchers Payable Due to Printing Service Fund Fund Balance: Reserved for Inventories Reserved for Encumbrances Unreserved Fund Balance Total Liabilities and Fund Balance

$ $ 108,000 (8,400)

100,000 99,600 10,000 8,000 217,600

$ $ 8,000 23,000 140,000

44,000 2,600

171,000 $ 217,600

c.

Quincy General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For Fiscal Year Ended June 30, 20X2 $1,390,000 40,000 32,000

Revenue: Property Taxes Grants Miscellaneous Expenditures Excess of Revenue over Expenditures Other Financing Sources (Uses): Transfer Out Net Change in Fund Balance Fund Balance, July 1, 20X1 Fund Balance, June 30, 20X2

$1,462,000 1,377,000 $ 85,000 $ $ (50,000) 35,000 136,000 171,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 131 -

P17-17 a.

General Fund Entries and Statements

Budget and transaction entries for 20X2: 1. & 2. ESTIMATED REVENUES CONTROL APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT TO INTERNAL SERVICE FUND BUDGETARY FUND BALANCE UNRESERVED Record budget. 1,420,500 1,356,000 25,000 39,500

Property Taxes Receivable - Current 1,300,000 Allowance for Uncollectibles - Current Property Tax Revenue Record levy. Fund Balance Reserved for Encumbrances Fund Balance Reserved for Encumbrances - 20X1 Reclassify reserve for prior year. 3. Cash Property Taxes Receivable - Current Property Taxes Receivable - Delinquent Record tax collections. Cash Grants Revenue Miscellaneous Revenue Other Financing Source - Transfer In from Capital Projects Fund Other cash receipts. Allowance for Uncollectibles - Delinquent Property Tax Revenue Property Taxes Receivable - Delinquent Write off remaining delinquent taxes from 20X1. Allowance for Uncollectibles - Current Property Tax Revenue Reduce current allowance to $7,500. 8,000 3,000 166,000 18,000

19,500 1,280,500

18,000

1,314,000 1,245,000 69,000

90,000 46,000 30,000

11,000

12,000 12,000

Property Taxes Receivable - Delinquent 55,000 Allowance for Uncollectibles - Current 7,500 Property Taxes Receivable - Current Allowance for Uncollectibles - Delinquent Remainder of unpaid 20X2 property taxes reclassified as delinquent.

55,000 7,500

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 132 -

P17-17 4.

(continued) ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Issue purchase orders. 1,336,000 1,336,000

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 1,216,000 ENCUMBRANCES Receive ordered items: $1,216,000 = $1,336,000 - $120,000 outstanding Expenditures - 20X1 Expenditures - (20X2) Vouchers payable Actual cost for prior year's encumbrance is $20,000. The approved excess of $2,000 is charged to current year's expenditures. 18,000 2,000

1,216,000

20,000

Expenditures - (20X2) 1,220,000 Vouchers Payable Inventory of Supplies Actual expenditures, including beginning inventory of supplies: $1,220,000 = $1,240,000 - $20,000 prior years Fund Balance Reserved for Inventories Unreserved Fund Balance Eliminate present reserve for inventories. (Will properly re-establish in adjusting entry process.) Vouchers payable Cash Pay vouchers. 5. Other Financing Use Transfer Out to Internal Service Fund Due from Computer Center Fund Cash Other cash payments. 11,000

1,209,000 11,000

11,000

1,227,000 1,227,000

25,000 20,000 45,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 133 -

P17-17 b.

(continued) Ruby Valley General Fund Preadjusting Trial Balance June 30, 20X2 Debit Credit

Cash $ 311,000 Property Tax Receivable - Delinquent 55,000 Allowance for Uncollectibles - Delinquent Due from Computer Center Fund 20,000 Inventory of Supplies -0Vouchers Payable Fund Balance Reserved for Inventories Fund Balance Reserved for Encumbrances - 20X1 Unreserved Fund Balance Property Tax Revenue Grants Revenue Miscellaneous Revenue Other Financing Source - Transfer In from Capital Projects Fund Expenditures - 20X1 18,000 Expenditures 1,222,000 Other Financing Use - Transfer Out to Internal Service Fund 25,000 ESTIMATED REVENUES CONTROL 1,420,500 APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USES TRANSFER OUT TO INTERNAL SERVICE FUND 25,000 ENCUMBRANCES 120,000 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES BUDGETARY FUND BALANCE UNRESERVED $3,191,500

7,500 44,000 -018,000 126,000 1,289,500 90,000 46,000 30,000

1,356,000

120,000 39,500 $3,191,500

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 134 -

P17-17 c.

(continued)

Adjusting entries: (1) Inventory of Supplies Expenditures Establish ending supplies inventory. Unreserved Fund Balance Fund Balance Reserved for Inventories Reserve for ending supplies inventory. 6,700 6,700 6,700 6,700

(2)

Closing entries: (1) APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE TRANSFER OUT TO INTERNAL SERVICE FUND BUDGETARY FUND BALANCE UNRESERVED ESTIMATED REVENUES CONTROL Close budgetary accounts. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining encumbrances. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for nonlapsing encumbrances. Fund Balance Reserved for Encumbrances - 20X1 Expenditures - 20X1 Close prior year's expenditures against prior year's reserve. Excess of actual cost of $20,000 over encumbrance of $18,000 is charged to current year's (20X2) expenditures. Property Tax Revenue Grants Revenue Miscellaneous Revenue Expenditures Unreserved Fund Balance Close operating statement accounts. 1,356,000 25,000 39,500 1,420,500

(2)

120,000 120,000 120,000 120,000

(3)

(4)

18,000 18,000

(5)

1,289,500 90,000 46,000 1,215,300 210,200

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 135 -

P17-17

(continued) 30,000 25,000 5,000

(6) Other Financing Source - Transfer In from Capital Projects Fund Other Financing Use - Transfer Out to Internal Service Fund Unreserved Fund Balance Close interfund transfers.

d.

Ruby Valley General Fund Balance Sheet June 30, 20X2 Assets

Cash Property Taxes Receivable - Delinquent Less: Allowance for Uncollectibles - Delinquent Due from Computer Center Fund Inventory of Supplies Total Assets Liabilities and Fund Balance Vouchers Payable Fund Balance: Reserved for Inventories Reserved for Encumbrances Unreserved Fund Balance Total Liabilities and Fund Balance

$311,000 $55,000 (7,500) 47,500 20,000 6,700 $385,200

$ 44,000 $ 6,700 120,000 214,500

341,200 $385,200

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 136 -

P17-17 e.

(continued) Ruby Valley General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For Fiscal Year Ended June 30, 20X2 Actual

Revenue: Property Taxes Grants Miscellaneous Total Revenues Expenditures: Chargeable to 20X2 Appropriations: Current (Schedule A) Capital Outlay Total Expenditures of 20X2 Appropriations Chargeable to 20X1 Appropriations: Current (20X1 encumbrance) Total Expenditures Excess of Revenue over Expenditures Other Financing Sources (Uses): Transfer Out Transfer In Change in Fund Balance Fund Balance, July 1, 20X1 Fund Balance, June 30, 20X2 Schedule A: Actual expenditures: Preadjusting trial balance, expenditures Inventory adjustment Capital expenditure outlay for elevator Actual current operating expenditures

$1,289,500 90,000 46,000 $1,425,500 $1,170,300 45,000 $1,215,300 18,000 $1,233,300 $ 192,200 $ (25,000) 30,000 $ $ 5,000 197,200 144,000 341,200

$1,222,000 (6,700) (45,000) $1,170,300

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 137 -

P17-18 a.

General Fund Entries and Statements

Entries for 20X2 budget and transactions: 1. ESTIMATED REVENUES CONTROL APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCIAL USE - TRANSFER OUT Record budget. ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Renew encumbrances from prior period. Fund Balance Reserved for Encumbrances Unreserved Fund Balance Reverse reserve for renewed encumbrances. 1,877,000 1,840,000 37,000 21,000 21,000 21,000 21,000

Property Tax Receivable - Current 1,600,000 Allowance for Uncollectibles - Current Property Tax Revenue Record property tax levy. 2. Cash Property Taxes Receivable - Current Property Taxes Receivable - Delinquent Collect property taxes. Allowance for Uncollectibles - Delinquent Property Taxes Receivable - Delinquent Property Tax Revenue Write off remaining delinquent property taxes. 9,000 1,590,000

16,000 1,584,000

1,507,000 83,000

7,000 2,000

Property Taxes Receivable - Delinquent 93,000 Allowance for Uncollectibles - Current 16,000 Property Taxes Receivable - Current Allowance for Uncollectibles - Delinquent Reclassify remainder of uncollected 20X2 property taxes. Cash Sales Tax Revenue Miscellaneous Revenue Due to Motor Pool Fund Other cash receipts. 333,000

93,000 16,000

284,000 39,000 10,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 138 -

P17-18 3.

(continued) ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record purchase orders. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Reverse reserve for items received. Expenditures Vouchers Payable Actual expenditures for items received. Vouchers Payable Cash Vouchers paid. 1,800,000 1,800,000

1,773,000 1,773,000 1,788,000 1,788,000

1,793,000 1,793,000

4.

Due from Central Stores Fund Other Financing Use - Transfer Out Cash Other cash payments and transfer.

13,000 37,000 50,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 139 -

P17-18 b.

(continued) Pine Ridge General Fund Preclosing Trial Balance December 31, 20X2 Debit Credit

Cash Property Tax Receivable - Delinquent Allowance for Uncollectibles - Delinquent Due from Central Stores Fund Vouchers Payable Due to Motor Pool Fund Unreserved Fund Balance Property Tax Revenue Sales Tax Revenue Miscellaneous Revenue Expenditures Other Financing Use - Transfer Out ESTIMATED REVENUES CONTROL APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES

191,000 93,000 $ 13,000 26,000 10,000 161,000 1,586,000 284,000 39,000 1,788,000 37,000 1,877,000 1,840,000 37,000 48,000 48,000 $4,047,000 16,000

$4,047,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 140 -

P17-18 c.

(continued)

Closing entries: APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT ESTIMATED REVENUES CONTROL Close budgetary accounts. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Close remaining encumbrances. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for outstanding purchase orders. Property Tax Revenue Sales Tax Revenue Miscellaneous Revenue Expenditures Other Financing Use - Transfer Out Unreserved Fund Balance Close operating statement accounts. 1,840,000 37,000 1,877,000

48,000 48,000 48,000 48,000

1,586,000 284,000 39,000 1,788,000 37,000 84,000

d.

Pine Ridge General Fund Balance Sheet December 31, 20X2 $ 191,000 $ 93,000 (16,000) 77,000 13,000 $281,000 $ 26,000 10,000 $ 48,000 197,000 245,000 $281,000

Assets Cash Property Tax Receivables - Delinquent Less: Allowance for Uncollectibles - Delinquent Due from Central Stores Fund Total Assets Liabilities and Fund Balance Vouchers Payable Due to Motor Pool Fund Fund Balance: Reserved for Encumbrances Unreserved Fund Balance Total Liabilities and Fund Balance

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 141 -

P17-18 e.

(continued) Pine Ridge General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For Fiscal Year Ended December 31, 20X2 Revenue: Property Taxes Sales Taxes Miscellaneous Total Revenue Expenditures: Current Capital Outlay Total Expenditures Excess of Revenue over Expenditures Other Financing Sources (Uses): Transfer Out Change in Fund Balance Fund Balance, January 1, 20X2 Fund Balance, December 31, 20X2 $1,586,000 284,000 39,000 $1,909,000 $1,746,000 42,000 $1,788,000 $ 121,000 $ $ (37,000) 84,000 161,000 245,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 142 -

P17-19

General Fund Entries ESTIMATED REVENUE - PROPERTY TAXES 4,500,000 ESTIMATED REVENUE - LICENSES AND PERMITS 300,000 ESTIMATED REVENUE - FINES 200,000 APPROPRIATIONS - GENERAL GOVERNMENT APPROPRIATIONS - POLICE SERVICES APPROPRIATIONS - FIRE DEPARTMENT SERVICES APPROPRIATIONS - PUBLIC WORKS SERVICES APPROPRIATIONS - FIRE ENGINES BUDGETARY FUND BALANCE UNRESERVED Record the budget.

1,500,000 1,200,000 900,000 800,000 400,000 200,000

1.

Property Taxes Receivable - Current Allowance for Uncollectibles - Current Property Tax Revenue Record property tax levy. Cash Property Taxes Receivable Record collection of taxes. Property Taxes Receivable - Delinquent Allowance for Uncollectibles - Current Property Taxes Receivable - Current Allowance for Uncollectibles - Delinquent Record reclassification of taxes.

4,650,000 150,000 4,500,000

2.

3,900,000 3,900,000 750,000 150,000 750,000 150,000

3.

Cash Notes Payable Record issue of tax anticipation notes.

300,000 300,000

4.

Cash Revenue Revenue Revenue Record other Licenses and Permits Fines Sale of Fixed Assets cash collections.

485,000 270,000 200,000 15,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 143 -

P17-19 5.

(continued) ENCUMBRANCES - GENERAL GOVERNMENT ENCUMBRANCES - POLICE SERVICES ENCUMBRANCES - FIRE DEPARTMENT SERVICES ENCUMBRANCES - PUBLIC WORK SERVICES ENCUMBRANCES - FIRE ENGINES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record encumbrances issued. 1,050,000 300,000 150,000 250,000 400,000 2,150,000

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,035,000 ENCUMBRANCES - GENERAL GOVERNMENT ENCUMBRANCES - POLICE SERVICES ENCUMBRANCES - FIRE DEPARTMENT SERVICES ENCUMBRANCES - PUBLIC WORK SERVICES ENCUMBRANCES - FIRE ENGINES Remove encumbrances for orders received. 6. Expenditures - General Government 1,440,000 Expenditures - Police Services 1,155,000 Expenditures - Fire Department Services 870,000 Expenditures - Public Work Services 700,000 Expenditures - Fire Engines 400,000 Vouchers Payable Recognize expenditures for orders received. Vouchers Payable Cash Pay approved vouchers. 4,600,000

990,000 270,000 135,000 240,000 400,000

4,565,000

7.

4,600,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 144 -

P17-20 1.

General Fund Entries [AICPA Adapted] Budget adopted: ESTIMATED REVENUE - TAXES ESTIMATED REVENUE - FINES, FORFEITS, AND PENALTIES ESTIMATED REVENUE - MISCELLANEOUS ESTIMATED OTHER FINANCING SOURCES PROCEEDS OF BOND ISSUE APPROPRIATIONS - PROGRAM OPERATIONS APPROPRIATIONS - GENERAL ADMINISTRATION APPROPRIATIONS - CAPITAL OUTLAYS ESTIMATED OTHER FINANCING USE - TRANSFER OUT TO CAPITAL PROJECTS FUND BUDGETARY FUND BALANCE UNRESERVED Record budget. Fund Balance Reserved for Encumbrances Fund Balance Reserved for Encumbrances - 20X2 Reclassify reserve from prior year. 220,000 80,000 100,000 200,000 360,000 120,000 80,000 20,000 20,000 12,000 12,000 230,000 9,200 220,800

2.

Taxes Receivable - Current Allowance for Uncollectible Taxes - Current Revenue - Taxes Record tax levy: $230,000 = ($220,800/.96) ENCUMBRANCES BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record encumbrance for ordered goods. Unreserved Fund Balance Fund Balance Designated for Capital Outlays Designation of fund balance. Cash Taxes Receivable - Delinquent Taxes Receivable - Current Expenditures - Capital Outlay Revenue - Fines, Forfeits, and Penalties Revenue - Miscellaneous Other Financing Source - Proceeds of Bond Issue Other Financing Source - Transfer In from Discontinued Fund Record cash collections and transfers.

3.

316,000 316,000 20,000 20,000 664,000 38,000 226,000 4,000 88,000 90,000 200,000 18,000

4.

5.

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 145 -

P17-20 6.

(continued) Allowance for Uncollectible Accounts Current Revenue - Taxes Adjust current allowance account. Allowance for Uncollectible Accounts - Delinquent Taxes Receivable - Delinquent Write off remaining delinquent taxes receivable 6,200 6,200

8,000 8,000

7.

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES Reverse budgetary encumbrance for orders received: ($302,000 - $12,000) Expenditures - 20X2 - Program Operations Expenditures - Program Operations Expenditures - General Administration Expenditures - Capital Outlay Vouchers Payable Record expenditures for orders received.

290,000 290,000

12,000 154,000 80,000 62,000 308,000 188,000 38,000 18,000 20,000 244,000 20,000 2,000 2,000 580,000 580,000

8.

Expenditures - Program Operations Expenditures - General Administration Expenditures - Capital Outlay Other Financing Use - Transfer Out to Capital Projects Fund Vouchers Payable Due to Capital Projects Fund Record additional vouchers. Taxes Receivable - Current Deferred Revenue - Taxes Record credit for overpayment. Vouchers Payable Cash Pay approved vouchers. Fund Balance Reserved for Stores Inventory Stores Inventory - Program Operations Record reduction in stores inventory.

9.

10.

11.

6,000 6,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 146 -

P17-21 a. 1.

General Fund Entries and Balance Sheet

ESTIMATED REVENUES CONTROL ESTIMATED OTHER FINANCING SOURCE - TRANSFER IN APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT BUDGETARY FUND BALANCE UNRESERVED Record the operating budget for fiscal 20X6. Fund Balance Reserved for Encumbrances Unreserved Fund Balance ENCUMBRANCES CONTROL BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record the encumbrances that lapsed at June 30, 20X5, which were included in 20X6 appropriations.

290,000 20,000 285,000 15,000 10,000

2.

16,000 16,000 16,000 16,000

3.

Property Taxes Receivable - Current 220,000 Allowance for Uncollectible Taxes Current Revenue - Property Taxes Record property tax levy for fiscal 20X6.

8,800 211,200

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 147 -

P17-21 4.

(continued) Cash Property Taxes Receivable - Delinquent Property Taxes Receivable - Current Revenue - State Grants Revenue - Sales Taxes Revenue - Fines, Licenses, and Permits Other Financing Source - Transfer In from Capital Projects Fund Due from Enterprise Fund Revenue - Interest Record cash collections in the general fund for fiscal 20X6. Allowance for Uncollectible Property Taxes - Delinquent Property Taxes Receivable - Delinquent Write-off uncollectible property taxes from fiscal 20X5. Property Taxes Receivable - Delinquent Allowance for Uncollectible Taxes - Current Property Taxes Receivable - Current Allowance for Uncollectible Taxes - Delinquent Revenue - Property Taxes Reclassify property taxes receivable to delinquent and to reduce the allowance for uncollectible taxes from $8,800 to $6,000. 7,000 7,000 320,000 15,000 198,000 50,000 17,500 11,000 18,000 10,000 500

22,000 8,800 22,000 6,000 2,800

5.

ENCUMBRANCES CONTROL BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES Record goods ordered during fiscal 20X6, exclusive of the goods ordered in entry (2): $49,000 = $65,000 - $16,000 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES CONTROL Reverse encumbrances for invoices received: $57,000 = $65,000 - $8,000 Expenditures Vouchers Payable Record actual cost of goods received. Vouchers Payable Cash Record vouchers paid: $49,500 = $58,000 - $8,500

49,000 49,000

57,000 57,000

58,000 58,000 49,500 49,500

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 148 -

P17-21 6.

(continued) Expenditures Vouchers Payable Record expenditures for fiscal 20X6 which were not encumbered. Vouchers Payable Cash Record vouchers paid: $203,000 = $215,000 - $12,000 215,000 215,000

203,000 203,000

7.

Due to Internal Service Fund Cash Record payment of billing from fiscal 20X5.

8,000 8,000

Vouchers Payable 27,000 Cash Record payment of vouchers from fiscal 20X5. 8. Other Financing Use - Transfer Out to Debt Service Fund Due to Debt Service Fund Record transfer out to debt service fund. Due to Debt Service Fund Cash Record cash transferred to debt service fund. 9. Inventory of Supplies Fund Balance Reserved for Inventories Adjust inventory of supplies to $7,500 balance at June 30, 20X6. BUDGETARY FUND BALANCE UNRESERVED APPROPRIATIONS CONTROL ESTIMATED OTHER FINANCING USE - TRANSFER OUT ESTIMATED REVENUES CONTROL ESTIMATED OTHER FINANCING SOURCE - TRANSFER IN Close the budgetary accounts at June 30, 20X6. 15,000

27,000

15,000 15,000 15,000

2,500 2,500

10.

10,000 285,000 15,000 290,000 20,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

- 149 -

P17-21 11.

(continued) Revenue - Property Taxes Revenue - State Grants Revenue - Sales Taxes Revenue - Fines, Licenses, and Permits Revenue - Interest Other Financing Source - Transfer In from Capital Projects Fund Expenditures Other Financing Use - Transfer Out to Debt Service Fund Unreserved Fund Balance Close the accounts containing actual resource flows. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES ENCUMBRANCES CONTROL Close the encumbrances which lapsed on June 30, 20X6. Unreserved Fund Balance Fund Balance Reserved for Encumbrances Reserve fund balance for encumbrances that lapsed. b.Village of Margaret Balance Sheet - General Fund June 30, 20X6 Assets 214,000 50,000 17,500 11,000 500 18,000 273,000 15,000 23,000

12.

8,000 8,000

8,000 8,000

Cash Property Taxes Receivable - Delinquent Less: Allowance for Uncollectible Taxes Delinquent Inventory of Supplies Total Assets Liabilities and Fund Balance Vouchers Payable Fund Balance: Reserve for Encumbrances Reserve for Inventories Unreserved Total Liabilities and Fund Balance

$52,500 $22,000 (6,000) 16,000 7,500 $76,000

$20,500 $ 8,000 7,500 40,000

55,500 $76,000

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P17-22 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. J I H G M Q R E N D F P A B L C

Matching Governmental Terms with Descriptions

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P17-23 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Identification of Governmental Accounting Terms Government-wide financial statements The Governmental Accounting Standards Board, or GASB A fund Interfund services provided or used Internal service and enterprise funds Infrastructure assets Agency and trust funds Modified accrual basis Accrual basis The property tax levy The general, special revenue, capital projects, debt service funds and permanent funds The allowance for uncollectible property taxes Budgetary fund balance unreserved Encumbrances The consumption method Other financing use - transfer out Expenditures Unreserved fund balance Expenditures Appropriations Nonlapsing method

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P17-24 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39.

Questions on General Fund Entries [AICPA Adapted] D C C C N D N C C N D C N N N C D D C N N N C D N C D D D C D C D N N C D D C

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17-25 1. P

Questions on General Fund Items [AICPA Adapted] $700,000 = $630,000 of current years taxes collected plus $70,000 of 20X1 taxes expected to be collected within 60 days after the end of the year $170,000 = $80,000 of the restricted grant that has been expended, plus $50,000 in fines plus $40,000 in fees $50,000 = the fair and present value of the lease agreement $140,000 = the capital outlay for the new police vehicles $30,000 = the amount of the transfer in received by the debt service fund and then expended for interest for the year $760,000 = $260,000 for governmental services and $500,000 for police services. Note the capital outlay for the new police vehicle is not a functional expenditure. $150,000 = the amount of the state grant. The bond proceeds would be reported as an other financing source. $500,000 = the amount of the expenditures in the capital projects fund $345,000 = Unreserved fund balance on 1/1/X1 Add: Grant revenues Other financing sources Less: Expenditures Fund balance reserved for encumbrances Unreserved fund balance on 12/31/X1 $110,000 $150,000 610,000 $500,000 25,000 760,000 (525,000) $345,000

2. 3. 4. 5. 6.

H C F B R

7. 8. 9.

G M K

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