TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.1 Chapter 4 TOWN BRIDGE CONSTRUCTION ACCOUNT

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1 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.1 Chapter 4 TOWN BRIDGE CONSTRUCTION ACCOUNT TOWN BRIDGE ALLOTMENT NARRATIVE There are grant monies available from State Aid which is specific to Town Bridge Construction. Each year the Minnesota County Highway Departments receive a Notice of Annual Apportionment which shows that year s allotment for Town Bridge Construction. Township cost participation is required, an accounts receivable entry may be needed to recognize the township local funding obligation, for more information refer to: The accounting procedures and spreadsheet examples are identical to the section for Municipal and Regular Construction. The account names have been changed to reflect Town Bridge Allotment Accounts. ACCOUNTS NEEDED (const exp) (revenue) (asset) (asset) (asset) - TOWN BRIDGE CONSTRUCTION EXPENSES (there will be numerous construction accounts) - TOWN BRIDGE CONSTRUCTION REVENUE - CASH - TOWN BRIDGE CONSTRUCTION RECEIVABLE - TOWN BRIDGE CONSTRUCTION ALLOTMENT - CONTRACTS PAYABLE - DUE TO STATE AID - OVERPAYMENTS - TOWN BRIDGE CONSTRUCTION DEFERRED REVENUE SPECIAL CONSIDERATIONS It is recommended to keep Town Bridge overpayments segregated from other State Aid overpayments (Regular and Municipal); set up separate overpayment accounts. These might be set up as follows: - DUE TO STATE AID REGULAR - OVERPAYMENTS - DUE TO STATE AID MUNICIPAL - OVERPAYMENTS - DUE TO STATE AID TOWN BRIDGE - OVERPAYMENTS SEQUENCE OF EVENTS PROJECT IS AWARDED The allotment is reduced throughout the year as construction contracts are let and sent in for Town Bridge Funding approval. Go to State Aid Finance - SAAS Reports:

2 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.2 Select State Aid County and Municipality Reports / SAAS Payment Document - Construction to view the payment information on the project. The appropriate entries need to be made to recognize the receivable from Town Bridge as well as the reduction to the Town Bridge Construction Allotment. Only the Town Bridge Obligation amount should be used for the following entry. Refer to page 4.7, Example A, #1 for a graphic display of this entry. Accounting Entry - for amount of State Aid obligation only Debit Account: (asset) Town Bridge Receivable Credit Account: (asset) Town Bridge Allotment 95% PAYMENT IS RECEIVED FOR THE PROJECT After the State Aid Partial Payment Request has been approved, the county will receive the actual payment for the project. State Aid advances 95% of the total Town Bridge Construction Obligation; the remaining 5% is encumbered. In addition, if requested, Engineering, Force Account, and Right of Way will be received. Requests for actual Engineering costs are submitted along with the State Aid Final Payment Request. Refer to page 4.7, Example A, #2 for a graphic display of this entry. A) Recognize the receipt of the Town Bridge Payment Accounting Entry - for the 95% of Town Bridge obligation only Debit Account: (asset) Cash Credit Account: (asset) Town Bridge - Receivable B) Recognize the receipt of Engineering, Force Account, and Right of Way Accounting Entry - for the of the Engineering and/or Force Account and/or Right of Way, if any Debit Account: (asset) Cash Credit Account: (asset) Town Bridge - Allotment C) Recognize revenue for Engineering, Force Account, and Right of Way Accounting Entry - for the of the Engineering and/or Force Account and/or Right of Way, if any Debit Account: Town Bridge Deferred Revenue Credit Account: (revenue) Town Bridge - Revenue WORK BEGINS ON THE PROJECT Sometime after State Aid approval, work actually begins on the contract. County inspectors verify that the work is indeed done according to specifications, and a partial payment is paid to the contractor. Refer to page 4.7, Example A, #3A, 3B & 3C for a graphic display of the following entries.

3 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.3 Amount of Work Certified ($ amount of work actually performed) minus: Any retainage ($ withheld as an insurance factor) equals: Cash paid to Contractor ($ amount of actual disbursement) A) As work is certified on contract. Accounting Entry - for actual work certified Debit Account: (const exp) Town Bridge Construction - Expenses Credit Account: Contracts Payable B) Recognize revenue earned. Make the following adjustment entry to recognize the amount of the Town Bridge Construction Allotment which can now be considered Current Year Earned Revenue (for the amount of work certified only). Accounting Entry - recognize revenue for amount of work certified. Debit Account: Town Bridge - Deferred Revenue Credit Account: (revenue) Town Bridge Construction - Revenue C) Recognize disbursement to contractor. PROJECT IS FINALIZED Accounting Entry - for amount of contractor disbursement. Debit Account: Contracts Payable Credit Account: (asset) Cash Numerous partial payments may be made to the contractor following the same sequence as in the step above. When the contract is completed and a State Aid Final Payment Request is submitted, the State will issue a final payment. Go to State Aid Finance - SAAS Reports: Select State Aid County and Municipality Reports / SAAS Payment Document - Construction to view the payment information on the project. This document outlines the total project costs and shows any increase or decrease to the Town Bridge Construction Allotment Account. Four different situations can occur. These are: A) - Project is completed as estimated B) - Project overruns original estimate C) - Project Underruns original estimate without an overpayment D) - Project Underruns original estimate with an overpayment

4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.4 A) PROJECT IS COMPLETED AS ESTIMATED The State will pay the original encumbered amount to the county which has already been booked as a Town Bridge Construction Receivable. Refer to page 4.7, Example A, #4A for a graphic example of this entry. Accounting Entry - for amount of Town Bridge receipt Debit Account: (asset) Cash Credit Account: (asset) Town Bridge Construction - Receivable B) PROJECT OVERRUNS ORIGINAL ESTIMATE The State will pay the original encumbered amount to the county as well as additional Town Bridge Construction Allotment monies that are due and available in the allotment. Refer to page 4.8, Example B, #4(B1) and 4(B2), for a graphic display of these entries. B1) Recognize overrun and reduce allotment Accounting Entry - for amount of overrun Debit Account: (asset) Town Bridge Construction - Receivable Credit Account: (asset) Town Bridge Construction - Allotment B2) Record receipt of the Town Bridge Construction Obligation. Debit Account: (asset) Cash Credit Account: (asset) Town Bridge Construction - Receivable C) PROJECT UNDERRUNS ORIGINAL ESTIMATE WITHOUT AN OVERPAYMENT This means that State Aid has encumbered too much and will only reimburse the portion of the encumbered amount which covers the actual project costs. The amount of the underrun will reduce the Town Bridge Construction Receivable and increase the allotment accounts. Refer to page 4.9, Example C, #4(C1) and 4(C2) for a graphic display of these entries. C1) Recognize the underrun. Accounting Entry - for amount of underrun Debit Account: (asset) Town Bridge Construction - Allotment Credit Account: (asset) Town Bridge Construction - Receivable

5 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.5 C2) Record receipt of the State Aid Obligation. Accounting Entry - for amount of Town Bridge Construction receipt Debit Account: (asset) Cash Credit Account: (asset) Town Bridge Construction - Receivable D) PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT This means that State Aid has encumbered too much and has also advanced too much cash to the county. As a result, the county has received an overpayment. The State records the overpayment and usually applies it against the next construction project that is submitted for Town Bridge Construction Funding. The county has the option to send the overpayment back if no additional Town Bridge projects are anticipated. The return of the overpayment is not an expense to the project. The county should post the overpayment amount to a liability account (Due to State Aid Overpayments) until notified of its application to another project. Refer to page 4.10, Example D, #4(D1) and 4(D2) for a graphic display of these entries. The allotment balance must be increased by both the overpayment amount and the original encumbered amount. D1) Recognize the overpayment. Accounting Entry - for amount of overpayment Debit Account: (asset) Town Bridge Construction - Allotment Credit Account: Due to State Aid - Town Bridge Overpayments D2) Reduce the receivable and increase the Town Bridge Allotment for the original encumbered amount. Accounting Entry - for amount of Town Bridge encumbered Debit Account: (asset) Town Bridge Construction - Allotment Credit Account: (asset) Town Bridge Construction - Receivable D3) If the county elects to return the overpayment Accounting Entry - for amount of Town Bridge overpayment returned Debit Account: Due to State Aid - Town Bridge Overpayments Credit Account: (asset) Cash FINAL PAYMENT TO CONTRACTOR When the project is FINALIZED, the county will pay the retainage to the contractor and authorize the Certificate of Final Acceptance. Refer to page , Examples A D, #5 for a graphic display of this entry.

6 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.6 Recognize final disbursement to the contractor. Accounting Entry - for amount of contractor disbursement Debit Account: Contracts Payable Credit Account: (asset) Cash

7 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.7 EXAMPLES Example A

8 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.8 Example B

9 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.9 Example C

10 TOWN BRIDGE CONSTRUCTION ACCOUNTS 4.10 Example D