GOVERNMENTAL AND NONPROFIT ACCOUNTING

Transcription

1 GOVERNMENTAL AND NONPROFIT ACCOUNTING

2 Brief Contents Preface xxi CHAPTER 1 Governmental and Nonprofit Accounting Environment and Characteristics 1 CHAPTER 2 State and Local Government Accounting and Financial Reporting Model: The Foundation 32 - CHAPTER 3 The General Fund and Special Revenue Funds 69 CHAPTER 4 Budgeting, Budgetary Accounting, and Budgetary Reporting 120 CHAPTER 5 Revenue Accounting Governmental Funds 175 CHAPTER 6 Expenditure Accounting Governmental Funds 222 CHAPTER 7 Capital Projects Funds 264 CHAPTER 8 Debt Service Funds 303 CHAPTER 9 General Capital Assets; General Long-Term Liabilities; Permanent Funds Introduction to Interfund-GCA-GLTL Accounting CHAPTER 10 Enterprise Funds 391 CHAPTER 11 Internal Service Funds 440 CHAPTER 12 Trust and Agency (Fiduciary) Funds Summary of Interfund-GCA-GLTL Accounting 472 CHAPTER 13 Financial Reporting The Basic Financial Statements and Required Supplementary Information CHAPTER 14 Financial Reporting Deriving Government-Wide Financial Statements and Required Reconciliations CHAPTER 15 Financial Reporting The Comprehensive Annual Financial Report and the Financial Reporting Entity CHAPTER 16 Non-SLG Not-for-Profit Organizations SFAS 116 and 117 Approach 646 CHAPTER 17 Accounting for Colleges and Universities 685 VII

3 Contents Preface xxi CHAPTER 1 Governmental and Nonprofit Accounting: Environment and Characteristics 1 Characteristics and Types of G&NP Organizations 2 G&NP Sector Significance 2 The G&NP Environment 3 v._- Objectives of G&NP Accounting and Financial Reporting 6 Authoritative Sources of G&NP Accounting Principles and Reporting Standards 6 TheFAF 7 The FASB 7 FASB-GASB Jurisdictions 7 "Government" Defined In Practice: Not-for-Profit (Nonprofit) Organizations May Be Governments 8 The GASB 9 GAAP Hierarchies 11 Concepts and Objectives of SLG Accounting and Financial Reporting 12 Governmental-Type Activities 13 Financial Report Users 17 Financial Report Uses 18 Business-Type Activities 18 Users and Uses of Financial Reports 19 Financial Reporting Objectives 20 Characteristics of SLG Accounting and Financial Reporting 21 Fund Accounting 2 1 Budgets and Appropriations 22 Other Distinguishing Characteristics 23 Commercial Accounting Comparison 24 Concluding Comments 24 ; APPENDIX 1-1 Evolution of Accounting Principles and Standards Prior to the GASB 24 Questions 27 Exercises 28 Problems 30 CHAPTER 2 State and Local Government Accounting and Financial Reporting Model: The Foundation 32 Overview of the GASB Financial Reporting Model 33 The Fundamental Features of the SLG Accounting and Financial Reporting Model 35 GAAP and Legal Compliance 3 6 Fund Accounting 3 7 Fund Categories 3 8 Transaction Analysis 43 Types of Funds In Practice: Governmental Fund Accounting for the Dallas Cowboys Football Stadium 49 Comparative Financial Statement Formats 52 Annual Financial Reporting 55 Concluding Comments 5 9 Questions 59 IX

4 X Contents Exercises 60 Problems 64 Cases 67 CHAPTER 3 The General Fund and Special Revenue Funds 69 Measurement Focus 70 Purposes and Assumptions of This Chapter 71 General Fund Accounting Illustrative Example 71 Entries During 20X1 71 " ' ""' Year-End Adjustments 83 Preclosing Trial Balances 84 Illustrative Example Worksheets 84 20X1 Closing Entries 84 Postclosing Trial Balance 86 Balance Sheets 87 Interim Balance Sheet 87 Year-End Balance Sheet 87 Fund Balance 88 Fund Balance Reporting Classifications 89 Interfund Receivables and Payables 92 Capital Assets and Long-Term Liabilities 92 Statement of Revenues, Expenditures, and Changes in Fund Balances 93 Restatements 94 Extraordinary Items and Special Items 95 Classification of Expenditures 95 Combining Special Revenue Fund Statements 98 Concluding Comments 100 APPENDIX 3-1 General Ledger Worksheet and Subsidiary Ledgers 100 APPENDIX 3-2 Classification of Expenditures 100 APPENDIX 3-3 Alternative Account Structure and Entries 109 Questions 110 Exercises 110 Problems 114 Cases 118 CHAPTER 4 Budgeting, Budgetary Accounting, and Budgetary Reporting 120 The Government Budgetary Perspective 121 Budgetary Accounting and Reporting 122 Budgetary Accounting and Control 122 Recording the Budget General Ledger and Subsidiary Ledger 126 Budget Revisions 126 Revenues and Expenditures Ledgers Incorporating Budgetary Accounts 131 Level of Detail in Subsidiary Ledgers 136 Fund Balance Comparison Summary: Budgetary Accounting vs. GAAP 137 Budgetary Reporting Overview 137 The Budgetary Basis 138 Interim Budgetary Statements 138 Budget Comparison Schedule or Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual 140

5 Contents XI Budgetary Comparison Statement Illustrated Budgetary Basis Same as GAAP 141 Budgetary Comparison Statement Illustrated Budgetary Basis Differs from GAAP 143 Entries During 20X2 145 Use of a Budgetary Fund Balance Account 146 Budgetary Planning, Control, and Evaluation 147 Planning 147 Control 148 Evaluation 148 Basic Budgetary Terminology 148, Capital vs. Current Budgets 149 Tentative vs. Enacted Budgets 149 General vs. Special Budgets 151 Fixed vs. Flexible Budgets 151 Executive vs. Legislative Budgets 151 Budgetary Approaches and Emphases 151 Budget Preparation 152 Overview 152 Preliminary Estimates 152 Preparing the Budget 153 Revenue Estimates and Requests 154 Expenditure Estimates and Requests 154 Expenditure Budgeting Approaches 154 Legislative Consideration and Action 156 Budget Execution 157 Concluding Comments 158 Questions 158 Exercises 159 Problems 163 Cases 167 Harvey City Comprehensive Case 170 CHAPTER 5 Revenue Accounting Governmental Funds 175 Revenue Definition and Recognition 176 Nonexchange Transactions 178 Governmental Fund and Proprietary Fund Revenue Recognition Compared 180 Classification of Revenue Accounts 182 General Fund Revenues 182 Other Governmental Funds Revenues 182 Taxes 183 Taxpayer-Assessed Taxes 183 Property Taxes 184 Property Tax Statements/Schedules 193 Licenses and Permits 193 Intergovernmental Revenues 193 Intergovernmental Revenue Classifications 194 Intergovernmental Revenue Accounting 195 Charges for Services 198 Interfund Services vs. Reimbursements 198 Charges for Services 198 Fines and Forfeits 200

6 XII Contents Investment Earnings 201 Miscellaneous Revenues 204 Escheats 204 Private Contributions 205 Selected Nonrevenue Fund Balance Increases 205 Capital Asset Sales/Losses 205 Internal PILOTS 205 Col lateral ized Borrowings 206 Revenue Reporting: GAAP vs. Budgetary 206 Changes in Accounting Principles 206 _ Error Correction 209 Concluding Comments 210 Questions 210 Exercises 211 Problems 215 Cases 219 Harvey City Comprehensive Case 220 CHAPTER 6 Expenditure Accounting Governmental Funds 222 Expenditure Definition and Recognition 223 Capital Outlay Expenditures 224 Debt Service Expenditures 225 Intergovernmental Expenditures 225 Current Operating Expenditures 225 Inventories and Prepayments 225 Expenditure Recognition Summary 226 Expenditure Accounting Controls 227 Expenditure Accounting Procedures 227 Personal Services 228, Materials and Supplies 230 Other Services and Charges 234 Adjusting Entries In Practice: Government Lease Transactions 238 Encumbrances 239 Debt Service 240 Claims and Judgments 240 Compensated Absences 244 Pension/OPEB Plan Contributions 245 Expenditure Reporting: GAAP vs. Budgetary 246 Changes in Accounting Principles 247 Alternative Principles 247 New GASB Standards 250 Error Correction 251 Concluding Comments 251 Questions 252 Exercises 252 Problems 254 Cases 261 Harvey City Comprehensive Case 262

7 Contents XI11 CHAPTER 7 Capital Projects Funds 264 Capital Projects Fund Operations and Accounting Standards 266 CPF Financial Resources 266 Number of Funds 266 CPF Life Cycle 267 The Budget 268 Interim Financing 269 Project Costs 270 Intergovernmental Revenues 271 Recording Bond Issues 271 " ' Capital Projects Fund Case Illustration Begun, 20X1 271 Budgetary Entry 272 Transaction/Event Entries 273 General Ledger Worksheet(s) 274 Preclosing Trial Balance 275 Closing Entries 276 Financial Statements 277 Capital Projects Fund Case Illustration Concluded, 20X X1 Accounts Closed 280 Case Illustration Assumptions and Entries 20X2 281 General Ledger Worksheet X2 Financial Statements 283 Other Capital Projects Fund Operations, Accounting, and Reporting Matters 286 Bond Anticipation Notes (BANs) 286 Investments and Arbitrage 288 Remaining Fund Balance 288 Reporting Multiple Projects 288 Combining CPF Statements 289 Concluding Comments 289 Questions 290 Exercises 290 \ Problems 293 Cases 299 Harvey City Comprehensive Case 301 CHAPTER 8 Debt Service Funds 303 Debt Service Fund Environment, Financing, and Expenditure Recognition 304 Long-Term Liabilities 304 Fixed vs. Variable Rates 305 Debt Service Payments 306 Bonds and Fiscal Agents 306 Required DSF Reserves 307 Bond Ratings 307 Bond Insurance 307 Sources of Financing 308 DSF Investments 308 DSF Expenditure Recognition 308 Debt Service Fund for a Serial Bond Issue: Case Illustration 309 Illustrative Entries 310 Financial Statements 312

8 XIV Contents Special Assessment Debt Service Funds 313 Illustrative Entries 314 Illustrative Financial Statements 316 Other Conventional Debt Service Fund Considerations 317 Nonaccrual of Interest 317 Combining Balance Sheet 317 Combining Operating Statement 318 Debt Service Fund for a Term Bond Issue 318 Sinking Fund Requirements 319 Debt Service Funds for Deep Discount Issues Refundings 322 Reasons for Refundings 322 Refundings Defined 322 Defeasance of Debt In Practice: GFOA Recommended Practice: Analyzing an Advance Refunding 324 Debt Service Funds for Refundings 325 Current Refunding 326 Advance Refunding 327 Debt and Non-Debt Financing 328 Reporting Refundings 329 Advance Refunding Disclosures 329 Concluding Comments 331 Questions 333 Exercises 333 Problems 336 Cases 340 Harvey City Comprehensive Case 342 CHAPTER 9 General Capital Assets; General Long-Term Liabilities; Permanent Funds: Introduction to Interfund-GCA-GLTL Accounting 344 Overview of General Capital Assets and General Lorig-Term Liabilities Accounting Procedures 345 General Capital Assets 346 General Capital Assets Defined 346 Initial Valuation 347 Classification 348 Capitalization Policy In Practice 349 Property Records 350 Capital Assets Inventory 351 Additions, Betterments, and Renewals 351 Depreciation/Accumulated Depreciation 351 Updating GCA Accounts 353 Recording Depreciation 356 Sale, Replacement, or Retirement 356 Intragovemmental Transactions 358 Impairment 360 Insurance Recoveries 362 Damage or Destruction 362 Reporting and Disclosures 363 General Long-Term Liabilities In Practice 365 CPF-DSF-GLTL 366

9 Contents XV Serial Debt 367 Special Assessment Debt 367 Other Government Liabilities 367 Interest-Related Adjustments 369 Defaulted Bonds 369 In-Substance Defeasance 370 GLTL Records 370 GLTL Reporting and Disclosures 370 Permanent Funds 371 Introduction to Interfund-GCA-GLTL Accounting Concluding Comments Questions 378 Exercises 379 Problems 382 Cases 386 Harvey City Comprehensive Case CHAPTER 10 Enterprise Funds 391 Common Characteristics and Principles of Proprietary Funds 391 Accounting Equation 391 Accounting Principles 392 Financial Statements 392 Enterprise Funds 401 Enterprise Funds Defined 401 Specific EF Topics 402 EF Accounting Illustrated 406 Enterprise Fund Reporting Illustrated 417 Combining Enterprise Fund Financial Statements Concluding Comments Questions 426 \ Exercises 427 Problems 430 Cases 435 Harvey City Comprehensive Case CHAPTER 11 Internal Service Funds 440 Overview of Accounting Principles 441 Initial Establishment 441 Pricing Policies 444 Pricing Methods 444 Relation to Budget 445 Financial Statements 445 Internal Service Fund Accounting Illustrated 446 Automotive Equipment Unit 446 Central Stores Fund 450 Self-Insurance Fund In Practice: Practice Examples: Internal Service Funds In Practice: Practice Examples: Self-Insurance Note Disclosure 455 Disposition of Increase or Decrease in Net Assets 459 Dissolution of an Internal Service Fund 459

10 XVI Contents Combining Internal Service Fund Financial Statements 459 Concluding Comments 459 Questions 463 Exercises 463 Problems 466 Cases 468 Harvey City Comprehensive Case 470 CHAPTER 12 Trust and Agency (Fiduciary) Funds: Summary of Interfund-GCA-GLTL Accounting 472 The Accountability Focus 473 Agency Funds 474 Simpler Agency Funds In Practice: Practice Examples-. Agency Funds 476 Tax Agency Funds 476 Special Assessment Agency Funds 480 Trust Funds 481 Private-Purpose Trusts 481 Investment Trusts 483 Pension Trusts In Practice: Defined Benefit Pension Trust Funds: Statement Information vs. Schedule of Funding Progress 487 Combining Trust and Agency Fund Financial Statements 492 Additional Interfund-General Capital Asset-General Long-Term Liability Accounting Illustrations 492 Concluding Comments 498 Questions 498 Exercises 499 Problems 502 Cases 505 Harvey City Comprehensive Case 507 I CHAPTER 13 Financial Reporting: The Basic Financial Statements and Required Supplementary Information 508 Basic Financial Statements Overview 510 Fund Financial Statements 511 Major Fund Reporting 512 Fund-Based Financial Statements In Practice In Practice: GFOA Policy Statement: Budgetary Reporting 523 Government-Wide Financial Statements 524 Statement of Net Assets 526 Statement of Activities 528 Measurement Focus 530 Reporting Expenses 531 Program vs. General Revenues 533 Internal Service Funds 536 Infrastructure Capital Assets 536 Note Disclosures 536 Required Supplementary Information 536 Management's Discussion and Analysis 536 Other RSI 538 Special Purpose Governments 538

11 Contents XVII Concluding Comments 538 APPENDIX 13-1 Illustrative Management's Discussion & Analysis 540 Questions 547 Exercises 547 Problems 550 Cases 553 Harvey City Comprehensive Case 556 CHAPTER 14 Financial Reporting: Deriving Government-Wide Financial Statements and Required Reconciliations 557 Deriving Governmental Activities Data 559 Deriving Government-Wide Financial Statement Data for Governmental Activities A Worksheet-Based Approach 560 The Conversion Worksheets 560 Balance Sheet Conversion Worksheet Adjustments 565 Farley County Balance Sheet Conversion 567 Operating Statement Conversion Worksheet Conversion Adjustments 571 Farley County Operating Statement Conversion 574 Deriving Business-Type Activities Data 579 Statement of Net Assets 580 Statement of Activities 580 Reconciliations 583 Concluding Comments 585 APPENDIX 14-1 A One-Worksheet Approach to Deriving Governmental Activities Data 585 Questions 595 Exercises 596 Problems 599 Cases 607 Harvey City Comprehensive Case 611 CHAPTER 15 \ Financial Reporting: The Comprehensive Annual Financial Report and the Financial Reporting Entity 613 The Comprehensive Annual Financial Report 614 The Introductory Section 614 The Financial Section 616 The Statistical Section 620 Supplemental and Special Purpose Reporting Financial Reporting Complex Entity Structure 624 Reporting Entity Definition 625 Reporting Entity Disclosures 627 Integrating Component Units Into the Reporting Entity In Practice: Component Units, Joint Ventures, and Related Organizations 628 Blending 630 Discrete Presentation 630 Dual Reporting Entity Model 632 Other Issues In Practice: State Component Unit Data 632 Separate Issuance of Primary Government Financial Statements 633 Related Organizations, Joint Ventures, and Jointly Governed Organizations 633 Concluding Comments 634 Questions 636

12 XVIII Contents Exercises 636 Problems 640 Cases 643 Harvey City Comprehensive Case 645 CHAPTER 16 Non-SLG Not-for-Profit Organizations: SFAS 116 and 117 Approach 646 Classification of Organizations 648 Voluntary Health and Welfare Organizations 648 Other Not-for-Profit Organizations 648 v Classes of Net Assets 649 Non-GAAP Accounting and Reporting Requirements 650 Basis of Accounting 650 SFAS 117 Financial Statements 650 Balance N Sheet 651 Statement of Activities 652 Statement of Cash Flows 660 Statement of Functional Expenses 660 Nongovernment VHW0 and ONPO Accounting and Reporting Illustration 660 Transactions and Entries 660 Illustrative Financial Statements In Practice 673 Concluding Comments 674 Questions 674 Exercises 675 Problems 678 CHAPTER 17 Accounting for Colleges and Universities 685 Classification as "Engaged Only in Business-Type Activities" 686 GAAP Reporting Requirements 687 Balance Sheet 687 Operating Statement In Practice: Government University Financial Statement: Practice Example 692 Statement of Cash Flows 694 Case Illustration A Government University 695 Other Resources 699 Annuity and Life Income Gifts 705 Annuity Gifts 705 Life Income Gifts 709 Colleges and Universities Engaged in Both Governmental and Business-Type Activities 710 Nongovernment Not-for-Profit University Reporting 710 Concluding Comments 714 Questions 714 Exercises 714 Problems 716 CHAPTER 18 Accounting for Health Care Organizations 723 Funds Government Hospitals 724 Basic Principles 725

13 Contents XIX Unique Measurement and Display Features 725 Distinguishing Primary Activities 725 Classes of Revenues In Practice: Third-Party Payers: Significance and Accounting Policies 726 Gains 728 Donations 728 Expense Classification 728 Restricted Assets 729 Property, Plant, and Equipment 730 Illustrative Case Summary of Transactions and Events 730 Financial Statements 739 Balance Sheets 739 Operating Statement 739 Statement of Cash Flows 739 Nongovernment Not-for-Profit Hospital Reporting 739 Concluding Comments 746 Questions 746 Exercises 747 Problems 750 v CHAPTER 19 Federal Government Accounting 753 The Federal Financial Management Environment 754 Financial Accounting Responsibilities 754 Overview 756 The Budgetary Process 757 The Budget Cycle 757 Exceeding Budget Authority 760 Accounting Principles and Standards for Federal Agencies 760 The Federal Model 760 Standard General Ledger 764 I Federal Fund Structure 765 Financial Reporting In Practice: Federal Government Accounting Issues 769 Federal Agency Accounting and Reporting Illustrated 769 A Case Illustration 769 Maintaining Budgetary Control 769 Maintaining Proprietary Accounts 774 Other Transactions and Entries 774 Closing Entries 778 Reporting 780 Concluding Comments 784 Questions 785 Exercises 785 Problems 787 CHAPTER 20 Auditing Governments and Not-for-Profit Organizations 790 Overview 791 What Is an Audit? 791 Classifications of Audits 791 Management's Representations 793

14 XX Contents External Auditor Classifications 793 Engagement Letter 794 Auditing Standards 794 AICPA Auditing Standards 794 GAO Auditing Standards 796 GAGAS Summary 797 The Financial Audit 798 Auditing Standards 798 Audit Procedures 798 The Audit Report 799 The Single Audit 801 Purposes 802 Applicability 802 Definitions 802 Objectives 803 Overview 804 Auditee Responsibilities 804 Auditor's Responsibilities 806 Auditing Guidance 808 Major FFA Programs 809 Findings & Questioned Costs 813 Illegal Acts 814 Subrecipients 814 Auditor Reports Single Audit 815 Auditee Reporting Responsibilities 816 Other Matters 819 Concluding Comments 819 APPENDIX 20-1 Glossary 819 APPENDIX 20-2 Questions 825 Exercises 825 i Problems 829 Cases 830 Index 833 Data Collection Form for Reporting on Audits of States, Local Governments, and Nonprofit Organizations 821