Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
CHAPTER 18
GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND
GOVERNMENT-WIDE FINANCIAL STATEMENTS
OVERVIEW OF CHAPTER
Chapter 18 completes the two-chapter presentation on the accounting and financial
reporting standards for governmental entities. Chapter 17 illustrated the accounting entries and
financial reports for the general fund. Chapter 18 presents the four remaining governmental
funds, the two proprietary funds, and the two types of fiduciary funds. The continuous
illustration of Sol City begun in Chapter 17 is carried throughout Chapter 18. Government funds
financial statements and government-wide financial statements for Sol City are presented at the
end of Chapter 18. Figure 18-2 provides an overview of the financial accounting and reporting of
governments.
The special revenue funds, debt service funds, capital projects funds, and permanent
funds complete the discussion on the five governmental type funds. The governmental funds
have an expendability focus; therefore, the modified accrual accounting method is used for these
funds. A balance sheet and a statement of revenue, expenditures, and changes in fund balance are
required for the governmental funds.
The two proprietary funds are the internal service and the enterprise funds. The
proprietary funds have a capital maintenance focus; therefore, the accrual accounting method is
used in the proprietary funds. The accounting method and financial statements for the
proprietary funds are very similar to those of profit-seeking entities.
Trust funds may be either expendable or nonexpendable. Expendable trust funds have the
same basis of accounting and financial reporting as the governmental funds. Nonexpendable trust
funds must maintain capital; therefore, the accounting and financial reporting for nonexpendable
trust funds is the same as for the proprietary funds. Agency funds are holding funds and are
custodial in nature.
Consistent with GASB 34, a governmental entity typically prepares funds based financial
statements and governmentwide financial statements. Governmental type funds statements
include the balance sheet and the statement of revenues, expenditures, and changes in fund
balance. Work sheets that provide the basis for preparing the balance sheet and the statement of
revenues, expenditures, and changes in fund balances for governmental funds are illustrated in
the chapter.
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-2
Consistent with GASB 34, individual governmental funds are presented separately if they
are classified as major funds. This classification is contingent on meeting two criteria, which are
discussed and illustrated in the chapter. The general fund always is considered a major fund. The
governmentwide financial statements, which are prepared on the accrual basis, as well as
required reconciliation schedules and disclosures are discussed and illustrated.
Additional Considerations section of the chapter discusses special-Purpose governmental
entities and financial reporting for pensions and OPEB plans.
Appendix 18A presents brief discussions of other governmental entities such as public
school systems and the federal government.
LEARNING OBJECTIVES
When students finish studying this chapter, they should be able to:
LO 18-1 Understand and explain the differences in financial reporting requirements of the
different fund types and understand the basics of the special revenue fund.
LO 18-2 Make calculations and record journal entries for capital projects funds.
LO 18-3 Make calculations and record journal entries for debt service funds.
LO 18-4 Make calculations and record journal entries for permanent funds.
LO 18-5 Understand and explain how governmental funds are reported and rules for separate
reporting as major funds.
LO 18-6 Make calculations and record journal entries for enterprise funds.
LO 18-7 Understand and explain the financial reporting of proprietary funds.
LO 18-8 Make calculations and record journal entries for internal service funds.
LO 18-9 Make calculations and record journal entries for trust funds.
LO 18-10 Make calculations and record journal entries for agency funds.
LO 18-11 Understand and explain the preparation of governmentwide financial statements.
LO 18-12 Understand and explain the additional disclosures that accompany governmentwide
financial statements.
SYNOPSIS OF CHAPTER 18
Governmental Entities: Special Funds and Governmentwide Financial Statements
Governmental Accounting in Maryland
LO 18-1 Understand and explain the differences in financial reporting requirements of the
different fund types and understand the basics of the special revenue fund.
Summary of Governmental Fund Types
Governmental Funds Worksheets
Special Revenue Funds
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-3
LO 18-2 Make calculations and record journal entries for capital projects funds.
Capital Projects Funds
Illustration of Transactions
Financial Statement Information for the Capital Projects Fund
LO 18-3 Make calculations and record journal entries for debt service funds.
Debt Service Funds
Illustration of Transactions
Financial Statement Information for the Debt Service Fund
LO 18-4 Make calculations and record journal entries for permanent funds.
Permanent Funds
Illustration of Transactions
LO 18-5 Understand and explain how governmental funds are reported and rules for separate
reporting as major funds.
Governmental Funds Financial Statements
LO 18-6 Make calculations and record journal entries for enterprise funds.
Enterprise Funds
Illustration of Transactions
LO 18-7 Understand and explain the financial reporting of proprietary funds.
Financial Statements for the Proprietary Funds
LO 18-8 Make calculations and record journal entries for internal service funds.
Internal Service Funds
Illustration of Transactions
Financial Statements for Internal Service Funds
LO 18-9 Make calculations and record journal entries for trust funds.
Trust Funds
Illustration of Private-Purpose Trust Fund
LO 18-10 Make calculations and record journal entries for agency funds.
Agency Funds
Illustration of Transactions in an Agency Fund
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-4
LO 18-11 Understand and explain the preparation of governmentwide financial statements.
The Government Reporting Model
Four Major Issues
Government Financial Reports
Governmentwide Financial Statements
LO 18-12 Understand and explain the additional disclosures that accompany
governmentwide financial statements.
Reconciliation Schedules
Budgetary Comparison Schedule
Management’s Discussion and Analysis
Notes to the Governmentwide Financial Statements
Other Financial Report Items
Interim Reporting
Auditing Governmental Entities
Additional Considerations
Special-Purpose Governmental Entities
Appendix 18A Other Governmental Entities – Public School Systems and the Federal
Government
Public School Systems
Accounting and Financial Reporting for Public School Systems
Federal Government Accounting
Audits of Federal Agencies
NOTES ON POWERPOINT SLIDES
We have attempted to provide PowerPoint slides that will be useful to a broad set of users. Since
instructors often have different styles and preferences, we have attempted to include slides that
will accommodate different approaches and that can be adapted to classes with different levels of
preparation. For example, some instructors prefer to introduce the material before students have
read the chapter. We have tried to facilitate these types of introductory discussions by including
slides that replicate key points from the chapter. Other instructors expect students to have read
the chapter and attempted homework problems before coming to class. As a result, they may not
find it useful to review all of the topics in the chapter or to include slides that simply review
many of the details they expect students to study before class. However, instructors following
this approach often like to use sample exercises and problems built into the slides that allow
them to have extended discussions or to facilitate group interaction in class.
If instructors elect to spend two class periods on the same subject, they might find a combination
of both styles to be useful by first introducing foundational material before students have read
the chapter and studied the topic, followed by an extended discussion the next class period after
students have read the chapter and attempted homework problems.
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-5
We have tried to develop slides that can facilitate a flexible approach to allow instructors to
select the slides that best match their objectives and style for class discussions. This is the reason
we are including over 100 slides for some chapters in the text. We do not expect all instructors
to use all slides, but the slide files should help support different teaching approaches and allow
instructors to select the subset of slides that best matches their specific discussion objectives.
The slides are organized by learning objective. We have included a slide at the beginning of
each learning objective to show where the new material begins. Instructors may or may not want
to use these learning objective slides in class. We provide them primarily as a way of organizing
the material. We also include short multiple-choice questions at the end of most learning
objectives. Some instructors find it useful to pause periodically during class to assess students’
level of understanding. For this reason, we include several “practice quiz questions” that can be
used throughout class discussions to engage students, help them focus on key points, or to
facilitate group interaction. Finally, we provide longer exercises and problems that many
instructors find useful in assessing understanding and encouraging group learning.
LO 18-1 Understand and explain the differences in financial reporting requirements of the
different fund types and understand the basics of the special revenue fund.
• Slide 3-4 begin with an overview of the various funds in a governmental unit. In
particular, slide 4 replicates Figure 18-2 from the text. Obviously, it contains too
much information for students to absorb in a single class period. However, we point
out that by the time students have completed their study of chapter 18, they will
understand all of the differences among the various funds. We also suggest that in
preparation for the next exam, Figure 18-2 is a very good summary to study to ensure
that they understand all of the differences in government activities and funds.
• Slides 5-7 present an overview of a worksheet containing both the balance sheet and
statement of revenues and expenditures for a government. This information may seem
somewhat overwhelming at first. We don’t expect students to fully understand all of
the details up front. We merely use this illustration to help students see how much
they will be learning as they study this chapter.
• Slides 8-9 summarize the first two governmental funds (the general fund and special
revenue funds). The details of how to account for transactions in either of these funds
is covered in chapter 17.
LO 18-2 Make calculations and record journal entries for capital projects funds.
• Slides 13-17 summarize the capital projects fund and explain some of the nuances
associated with the fact that governmental funds focus on current assets and
liabilities. Long term assets and liabilities are maintained in a separate ledger and are
not presented in the individual governmental funds—only in the government wide
financial statements for the overall government entity.
LO 18-3 Make calculations and record journal entries for debt service funds.
• Slides 21-25 introduce the debt service fund.
• Slides 26-32 provide an example utilizing Sol City to demonstrate the adoption of a
Debt Service Fund budget.
• Slide 33 explains debt service fund investment (i.e. when excess cash is temporarily
invested)
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-6
LO 18-4 Make calculations and record journal entries for permanent funds.
• Slides 37-38 provide a general overview of permanent funds. This completes the
discussion of the five types of governmental funds.
• Slides 39-42 provide an illustration of permanent fund expenditures.
LO 18-5 Understand and explain how governmental funds are reported and rules for separate
reporting as major funds.
• Slides 46-48 introduce governmental financial statements and summarize rules for
deciding which funds need be presented in separate columns versus those that can be
combined into the “other governmental funds” category.
LO 18-6 Make calculations and record journal entries for enterprise funds.
• Slides 52-53 briefly introduce enterprise funds. Students often think of public utilities
and can relate to the fact that they are run much like a commercial business, despite
the fact that they are operated by a governmental entity for the benefit of the citizens.
We often point out examples of more “fun” enterprise funds, the benefits of which
students would be more likely to enjoy such as a municipal golf course, state parks,
and state beaches.
LO 18-7 Understand and explain the financial reporting of proprietary funds.
• Slides 57-61 summarize the accounting and financial statements of proprietary funds
in general. These concepts apply equally to enterprise and internal service funds.
LO 18-8 Make calculations and record journal entries for internal service funds.
• Slide 65 briefly summarizes the accounting for internal service funds. We point out
examples of internal service funds for a local government, such as an auto repair
center or a copy center, that perform services for the various departments of a local
government.
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-7
LO 18-9 Make calculations and record journal entries for trust funds.
• Slides 69-72 introduce the various types of trust funds and summarize the types of
activities they entail.
LO 18-10 Make calculations and record journal entries for agency funds.
• Slides 76-77 summarize the accounting for agency funds. Students often have a hard
time visualizing the types of activities that would be conducted by an agency fund.
The practice quiz in slides 78-79 helps them to see perhaps the best example of an
agency fund, a property tax assessment agency that collects and disburses property
taxes to the county and cities in a geographical area.
LO 18-11 Understand and explain the preparation of governmentwide financial statements.
• Slides 81-85 summarize broad concepts of financial reporting of governmental
entities. We emphasize that GASB 34 helps to make governments more transparent to
users of governmental financial statements.
• Slides 86-87 introduce the Comprehensive Annual Financial Report (CAFR). We
compare the CAFR to a set of consolidated financial statements of a group of
affiliated companies. Students familiar with the first ten chapters of the textbook find
this analogy useful in seeing how the CAFR brings all of the activities of the various
governmental funds, proprietary funds, etc. together into one set of financial
statements. These slides also help students to see how the long-term assets (together
with estimated accumulated depreciation) and long-term liabilities of governmental
entities are combined with the short-term-focused financial statements of the
governmental funds to provide a more accurate overall picture of the financial
position of the governmental entity.
• Slides 88-91 provide a description of what would be included in a set of
governmentwide financial statements, and then give an example of a complete set of
financial statements as they would be presented in a CAFR. We often ask students to
go online to look up the CAFR of the city or county in which they live. Alternatively,
we often show students the CAFR of the city government of the guest speaker that
came to class when we first introduced governmental accounting.
LO 18-12 Understand and explain the additional disclosures that accompany governmentwide
financial statements.
• Slides 95-98 summarize mandatory supplemental schedules and disclosures that must
accompany the CAFR. We compare these disclosures to those required of public
companies in their annual form 10-K filings with the SEC.
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-8
TEACHING IDEAS
1. Obtain a copy of a local property tax assessment for a residential property and prepare a
slide for class to discuss the types of assessments that are made for the various tax
entities, and for specific types of funds. Students will learn about mill rates and the
various taxing entities that are represented in a single property tax “bill.”
2. The instructor could ask students to form small groups of two or three students
(depending on class size) and assign a particular fund to each group – GF, SRF, DSF,
CPF, PF, EF, ISF, TF, and AF. Each group could be asked to describe the primary
purpose of their fund, identify the basis of accounting and provide conceptual reasoning
for using this basis, identify the budgetary basis recorded (if applicable), and the list the
financial statements that must be presented.
Chapter 18 – GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT–WIDE FINANCIAL
STATEMENTS
18-9
DESCRIPTIONS OF CASES, EXERCISES, AND PROBLEMS
C18-1
LO 18-1
25 min.
E
Basis of Accounting and Reporting Issues
This case requires students to explain the basic differences in revenue
recognition between the accrual basis of accounting and the modified accrual
basis of accounting in relation to governmental accounting. They should also
identify the basis of accounting to be used different funds.
C18-2
LO 18-2,
LO 18-3,
L0 18-8
30 min.
M
Capital Projects, Debt Service, and Internal Service Funds
Students are asked to explain the uses of these three funds, the types of
transactions that are entered into the funds and the financial statements required
for the funds.
C18-3A
LO 18-11
30 min.
M
Discovery
Students must access the Website of the Department of Treasury and locate the
most recent “Financial Report of the Unites States Government.” Students must
then prepare a one to two-page memorandum summarizing their findings
regarding the major information items reported in the Financial Report of the
United States Government.
C18-4
LO 18-11
30 min.
M
Becoming Familiar With a Local Government’s Comprehensive Annual
Financial Report (CAFR)
Students must answer several questions relating to the overall government and
governmental funds using a Comprehensive Annual Financial Report for a
government entity chosen by the instructor.
C18-5
LO 18-11
25 min.
M
The GASB’s Decision-Making Process
Students must access the GASB’s Web site and locate the Web page entitled
“How Standards are Set.” They should then read through the process and prepare
a one-page memorandum summarizing the steps the GASB takes before
adopting a new governmental accounting standard.
C18-6
LO 18-11
30 min.
M
Summarizing a Recent GASB Exposure Draft
Students must access the GASB’s Web site and locate the most recent exposure
draft of a proposed Statement. They should then prepare a one-page
memorandum on what issues the proposed Statement is addressing; why the
GASB feels the proposed Statement is needed; and the key provisions of the
proposed Statement.
E18-1
LO 18-1,
LO 18-11
20 min.
E
Multiple-Choice Items on Government Financial Reporting [AICPA
Adapted]
Twelve multiple-choice questions on the basics of government financial
reporting.