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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
CHAPTER 17
Q17-1 A fund is an independent fiscal and accounting entity with a self-balancing set of
accounts recording cash and/or other resources together with all related liabilities,
Q17-2 The nine 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.
Trust funds
i.
Agency funds
17-3
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
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
Q17-8 All expenditures are not encumbered. Payroll costs and other costs for goods
Q17-9 Some governmental units do not report small amounts of inventories of supplies
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 fund balance-
unassigned. Alternatively, the GASB does allow for just footnote disclosure of the
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-4
Q17-11 The expenditure for inventories is recognized in the period the supplies are
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
building.
Q17-13 An interfund transfer is reported as "Other Financing Sources or Uses" in the
Q17-14 The loan of $2,000 from the general fund to the enterprise fund is reported on
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
system.
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-5
1. Present fairly and with full disclosure, in conformity with generally accepted
2. Determine and demonstrate compliance with finance-related legal and contractual
provisions.
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
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-6
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
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
that used by commercial enterprises. For example, the accrual basis of accounting is
recommended for all funds except the governmental funds. The governmental funds
should be accounted for by the modified accrual basis. The modified accrual basis is
recommended for the governmental funds because some of their revenue sources are
difficult to measure in advance and frequently become available only a short time before
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-7
C17-2 (continued)
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
C17-3 Revenue Issues
The following presentation describes the proper accounting and financial reporting for
each item. Note that there are two decision points: (1) when a receivable or other asset
should be recognized, and (2) when a revenue should be recognized.
a. GASB 33 states that an asset (receivable or cash) should be recognized for imposed
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-3 (continued)
d. Under GASB 33, this is an example of a voluntary nonexchange transaction unless
the payment is the result of a government-mandated program. The asset will be
recorded (receivable or cash) when all eligibility requirements are met or resources are
received, whichever is first. Eligibility requirements are those established by the provider
received.
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-9
C17-4 Examining the General Fund Disclosures in a Comprehensive Annual Financial
Report (CAFR)
(Note to the instructor: Most local governments now produce a comprehensive annual
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-10
C17-4 (continued)
a. The budgetary comparison schedules for the general fund are reported as other required
supplementary information. This schedule for the general fund should be used to answer
questions a and b. These schedules disclose the amounts budgeted for each item of
revenue, appropriations for the various functions of government, and for estimated transfers
method for inventories — the purchase or consumption method. The notes should answer
the policy question.
f. This question makes students aware of the modified accrual method and its application
to property taxes. The notes to the financial statements should disclose that revenue from
property taxes is reported when measurable and available to finance expenditures of the
reports the change in fund balance that resulted from actual resource inflows and outflows.
i. This question makes students aware that taxes may be the primary resource inflow for
the general fund, but they are not the only resource inflow. This question also emphasizes
that the revenues of the general fund come primarily from nonexchange transactions.
j. This question makes students aware of one category of interfund transactions--
