Basic Accounting. Understanding the Balance Sheet

Transcription

1 Understanding the Balance Sheet

2 CEU Requirements You must sign in at the beginning of class. You must stay for the duration of the entire class. You must sign out at the end of class. Each participant will receive a certificate for completing the class. Each participant is responsible for sending in necessary documentation for earning the CEU.

3 Today s Objective: Understanding what makes up the balance sheet. Recognizing & Correcting the deficiencies in your balance sheet

4 BASIC ACCOUNTING EQUATION Assets + Deferred Outflows = Liabilities + Deferred Inflows + Equities/Fund Balance

5 Assets Nature of Assets - GASB Concepts Statement No. 4 Elements of Financial Statements (GASBCS 4) defines an asset as resources with present service capacity that the government presently controls (GASB, n.d.). Measurement of the assets at a point reflects the statement of net assets (sometimes referred to as the balance sheet). The statement of net assets lists the assets in order of liquidity, which means how quickly the asset converts back into cash. Typical assets listed on the balance sheet are as follows:

6 Assets Cash - These are the book value (not bank statement s) funds in the government s bank accounts. Investments - Recording of most stocks, bonds, and other debt instruments in the balance sheet are at their fair value. Cash equivalents - GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Accounting (GASBS 9) defines cash equivalents as short-term, highly liquid investments that are both readily convertible to known amounts of cash and must mature within three months of being bought by the organization.

7 Assets Taxes receivable - These receivables (sometimes estimates) reported on the balance sheet are taxes owed to the government, such as real estate taxes, personal or corporate income taxes, sales taxes, or personal property taxes due to the government on the date of its statement of net assets but that have not been paid Accounts receivable - These are funds owed to the government due to services rendered or goods sold to individuals or organizations. An example is a utility bill sent to the customer but not paid yet Grants and other receivables - This represents nonexchange monies owed to the government other than revenues already mentioned, such as federal grants, fines and penalties, and expense reimbursements

8 Assets Inventories - Inventory includes items for sell like books and medical supplies. Capital assets - These fixed assets listed as property, plant, and equipment (PP&E) on the balance sheet are long-lived assets such as land, buildings, equipment, office furnishings, computers, vehicles, leasehold improvements, capitalized leases, and other similar assets. Intangible assets - As the name implies these are assets not seen but are still resources of the government like internally developed software Prepaid expenses - Services paid for early that cover future benefits in fiscal years other than the current are assets called prepaid expenses. GASBCS 4 defines a prepaid expense as a deferred outflow of resources.

9 Liabilities Nature of Liabilities - GASBCS 4 defines liabilities as present obligations to sacrifice resources that the government has little or no discretion to avoid (GASB, n.d.). Present liabilities on the statement of net assets incurred as of the year-end and do consist of an obligation to another party. The more common liabilities listed on the balance sheet are as follows:

10 Liabilities Accounts payable and accrued expenses. Governments report these two liabilities listed together or separate. Accounts payable are bills for goods or services received before the end of the fiscal year. Accrued expenses are liabilities for goods or services for which the government has not received an invoice for yet or when accounting for invoices covering two fiscal years.

11 Liabilities Deferred income - GASBCS 4 refers to this special type of liability as a deferred inflow of resources. The concept here is matching the recording of income to the period earned and sometimes the costs incurred to generate that revenue. A frequent example is grant monies advanced to the government entity. The entity cannot recognize the grant revenue until acquiring expenses and spending for the purpose of this grant.

12 All Asset Function numbers begin with 1 (one) Basic Accounting The Balance Sheet Assets - Bank Accounts - Investment Accounts - Receivables - Inventory/Supplies - Due From other funds - Pre-paid Expenses Asset Accounts - Normally carry a positive (debit) balance - Debits increase ending balance - Credits decrease ending balance

13 The Balance Sheet Liabilities All Liability Function numbers begin with 2 (two) - Payroll deductions - Due To other funds - Payables - Short term debt Liability Accounts - Normally carry a negative (credit) balance - Credits increase ending balance - Debits decrease ending balance

14 The Balance Sheet All Equity Function numbers begin with 3 (three) * * * Exception * * * City Equity Accounts are included with Liabilities Equities - Reserves - Fund Balance Accounts Equity Accounts - Normally carry a negative (credit) balance - Credits increase ending balance - Debits decrease ending balance

15 The Balance Sheet * * * Exception * * * City Equity Accounts are included with Liabilities

16 Notice on the balance sheet that we didn t include the revenues and expenditures? Where are they? Tennessee Counties use control accounts. These accounts show the summation of the activity in the revenue and expenditure account groups.

17 The Trial Balance Balance Sheet displays ending balance only

18 The Trial Balance Trial Balance list balance sheet accounts with activity plus beginning balances

19 System Generated Asset Accounts Cumulative Budget Entries (BG) made to revenue accounts Cumulative YTD Expenditures Cumulative Liquidated Prior Year PO s Controlling Account for Outstanding Current Year PO s

20 System Generated Equity Accounts Reserve for Current Year PO s Reserve for Prior Year PO s Cumulative Budget Entries (BG) made to Undesignated Fund Balance Account

21 The Undesignated Fund Balance Account At Year End Total Revenues are reversed thru UFB (Debited) Total Expenditures are reversed thru UFB (Credited) The Difference remains in Undesignated Fund Balance

22 Understanding your Fund Balance Beginning Fund Balance + Estimated Revenues = Total Funds Available -Estimated Expenditures =Estimated Ending Fund Balance

23 Assets normally have a debit balance This account warrants investigation Our software indicates a debit balance as a positive number

24 Liabilities normally have a credit balance These accounts warrant investigation Our software indicates a credit balance as a negative number

25 Transactions that Increase Assets Receipting of Revenue Sources DR Cash on Hand CR Revenue code Record Bank Deposit DR Cash in Bank CR Cash on Hand

26 Transactions that Increase Assets Setting up Accounts Receivable DR Accounts Receivable CR Revenue code

27 Transactions that Decrease Assets Writing Checks DR Expenditure or Liability Accounts CR Cash in Bank Receipting Receivables DR Cash in Bank CR Accounts Receivables

28 Transactions that Decrease Assets Writing Off Bad Debt DR Expenditure Account for Bad Debt Write Off CR Accounts Receivable

29 Transactions that Increase Liabilities Running Payroll DR Gross Salary or Wages CR Employee Deductions Setting Up EOY Payables DR Expenditure Accounts CR Accounts Payable

30 Transactions that Decrease Liabilities Paying Vendors for Vol. Ded. withheld & other Payables DR Employee Deduction or Payable Accounts CR Cash in Bank

31 Monthly tasks at minimum Reconcile bank statements Reconcile payroll deductions

32 Bank Reconciliation Form Ending balance from Add bank deposits statement on software but not on bank statement. Subtract any Journal entries on software but not on bank statement. Ending balance per balance sheet. Add/subtract any interest, service fees, and adjustments that are on bank statement but not on software.

33 Reconcile those payroll deductions

34 Reconcile those payroll deductions Totals on this report should match amount billed by Ins Co.

35 Findings like this will only make complying with Audit requirements more difficult

36 In Conclusion Asset Accounts - Debit balance - Debits to increase - Credits to decrease Liability Accounts - Credit balance - Credits to increase - Debits to decrease Equity Accounts - Credit balance - Credits to increase - Debits to decrease Monthly Tasks (at minimum) - Reconcile Bank Accounts - Reconcile Liability Accounts

37 Questions?