Definition of Accounting Terms

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2 Definition of Accounting Terms Operating Surplus / Deficit - The difference between operating or recurrent income less operating or recurrent expenditure. Capital Income - The capital income is restricted for the specific funding of capital asset purchases or construction or may in fact be the value of physical assets being vested to the council by a contributor. Capital Expenditure - Capital expenses arise from a diminution in the value of the council s capital assets, some of which is required by the Accounting Standards to be reported in the SOCI.

3 Cont Definition of Accounting Terms Capital Value: 1. Capital account: Net carrying value of capital assets less loans excluding revaluation adjustments. 2. Asset Revaluation Reserve: The net change by asset class of the deprival or replacement value of the existing asset due to change in the purchasing power of the dollar. 3. Future Capital Sustainability Reserve: The balance represents council s capital that, at the reporting date, is held in cash. E.g unspent funded depreciation.

4 Cont Definition of Accounting Terms Retained Surplus Represents accumulated uncommitted surpluses that have arisen at time of reporting. These are funds that have not been committed, by council, to any specific project. A surplus represents cash held. General Reserves Constrained Works: Represents grants, subsidies and contributions that have be recognised as revenue, are constrained to specific capital projects and are unspent at the reporting date. The cash represents a constricted assts. General Reserves: Operating surpluses that have been generated and set aside, by council, in specific reserves for the funding of future capital of recurrent projects.

5 Financial Statements Statement of Comprehensive Income (SOCI) In local government this statement is made up of 5 components of income and expense: 1. Operating income 2. Capital income 3. Operating expense 4. Capital expense 5. Other comprehensive income

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7 Cont Financial Statements Statement of Financial Position This is fairly standard format with no real distinction between the private and public sector except for the components of equity. The local government equity comprises: 1. Capital investment 2. Asset revaluation reserve 3. Retained surplus/deficiency 4. Other reserves

8 Statement of Capital Funding (SCF) This is an optional reporting statement and the can best be described as a source and disposition of capital funds. In it are listed all capital funding sources available in the period and all the actual or future forecast of capital expenditure for each forecast period. This is prepared for each program so that the business units can be separately indentified. In each reporting period the capital income is exactly matched to the expenditure. Any excess income available is transferred to the Future Capital Sustainability Reserve. If a shortfall arises a transfer of funds is made from the retained surplus/deficit account.

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10 Statement of Appropriation This statement reports a listing of debits and credits or transfers that have been made to the retained surplus/deficiency account. The councils net result is transferred in from the SOCI, items of capital income and capital expense are transferred to or from the reserves and to or from the capital account as required. The balance now remaining is the operating surplus or deficit plus any opening carried forward balance.

11 Cont Statement of Appropriation If funds are required to balance the SCF a transfer to the capital account is made. Transfers of operating surpluses to general reserves are debited and listed in the statement. The closing balance represents an uncommitted surplus or deficit to carry forward. If the balance of this statement is zero a balance budget has been achieved.

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13 Any questions? See Graeme at the Framme Accounting Stand located in the Trade Stands or Contact Framme Accounting Services on (07) Mobile: