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The General Fund and Special Revenue Funds

The General Fund and Special Revenue Funds. Chapter 3. Learning Objectives. Discuss similarities & differences between GF and SRFs Explain MFBA used for these funds Understand and prepare budgetary entries Analyze common journal entries for transactions, including interfund activity

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The General Fund and Special Revenue Funds

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  1. The General Fund and Special Revenue Funds Chapter 3

  2. Learning Objectives • Discuss similarities & differences between GF and SRFs • Explain MFBA used for these funds • Understand and prepare budgetary entries • Analyze common journal entries for transactions, including interfund activity • Prepare adjusting & closing entries • Define special items and extraordinary items • Prepare GF and SRF financial statements

  3. General Fund • Used to account for all financial resources that are not restricted to specific purposes or otherwise required to be accounted for in another fund. • Only fund that all governments have.

  4. Special Revenue Funds • Used to account for general government financial resources that are restricted by law or contractual agreement to specific purposes other than debt service or major capital projects. • Exist as long as the government has resources dedicated to specific purposes.

  5. MFBA • Measurement Focus (MF) is on current financial resources – what is expendable • Basis of Accounting (BA) is modified accrual – recognition occurs for • Revenues when measurable & available • Expenditures when underlying liability is incurred, except for long-term debt principal and interest payments (when due)

  6. Basic Accounting Equation Financial Assets Related Liabilities Fund Balance

  7. Assumptions for this Chapter • Transactions do not address budgetary accounting, reporting, & control issues • Accounts maintained on GAAP basis during the year Second assumption rarely holds in practice, but makes instruction easier and more uniform

  8. Illustrative Entries • Property tax levy • Other revenues • Orders and contracts • Salary expenditures • Interfund activity • Short-term borrowing • Extraordinary and special items • Other transactions and events

  9. #1 Property Tax Levy [Page 72]

  10. Property Tax Levy • Notice use of allowance account in entry • No bad debts expense – remember, a governmental fund does not use expenses • Records revenue at the amount government expects to collect • This form of entry assumes net amount will be available – other options discussed in Chapter 5

  11. Other Revenues • Some revenues will be accrued when services are provided • Other revenues may be recognized only when cash is received – no allowance necessary since all of revenue received

  12. #2 Other Revenues [Page 73]

  13. #3 Orders and Contracts [Page 74]

  14. Orders and Contracts • Preceding slide showed the general journal entry • However, the details are in the subsidiary ledger effects – not demonstrated in slide show • Most accounts are for current operating expenditures • Last account affects capital assets, resulting in accounting in GCA-GLTL accounts

  15. GCA (Equipment) GLTL Net Assets +$6,100 +$6,100 GCA-GLTL Accounts

  16. #5 Salary Expenditures [Page 74]

  17. Salary Expenditures • Comprise about 75% of city General Fund expenditures and 85% of school board General Fund expenditures • Effective control over these expenditures is essential

  18. Interfund Activity • Nonreciprocal transactions • Interfund reimbursements • Interfund transfers • Reciprocal transactions • Interfund services provided • Interfund loans

  19. Interfund Reimbursements • Underlying event: • Transaction initially recorded in one fund • Should have been accounted for and reported in a different fund • May also be used to distribute costs from one from to others • Will not separately reported in financial statements

  20. #6 Interfund Reimbursement

  21. Interfund Transfers • Usually involve moving assets (cash or inventory) from one fund to another • Do not involve requirement or expectation or subsequent repayment • May also result from one fund providing services to another without charging for those services

  22. Common examples • GF resources transferred to DSF for principal and interest payments • GF resources transferred to CPF to pay for government’s portion of capital project • SRF resources transferred to GF to finance expenditures for which SRF resources are restricted • GF resources transferred to EF to provide initial permanent financing • Residual assets of CPF or DSF transferred upon completion of purpose of fund • PF resources transferred to other funds to subsidize operations

  23. #7 Principal & interest [Page 76] Effect on DSF Financial Assets Related Liabilities Fund Balance +$5,000 +$5,000 (OFS)

  24. #8 Routine unpaid transfer [Page 77] Effect on SRF Financial Assets Related Liabilities Fund Balance +$10,000 +$10,000 (OFU)

  25. #9 Transfer to EF [Page 77] Effect on EF Assets Liabilities Net Assets +$6,000 +$6,000 (Transfer)

  26. Interfund Services • Defined as “sales and purchases of goods and services between funds for a price approximating their external market value • Accounting: • Seller fund sells goods or services to external party (recognizes revenues) • Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)

  27. #10 Interfund services [Page 78] Effect on Stores ISF Assets Liabilities Net Assets +$30,000 +$30,000 (Revenues)

  28. Interfund Loans • One fund loans cash to another • Transaction does not change Fund Balance • Reporting • Lender fund recognizes a receivable • Receiving fund recognizes a liability

  29. Interfund Loan Terminology • Lender Fund • Short-term loan – Due from • Long-term loan – Advance to (normally causes Reservation of Fund Balance) • Receiving Fund • Short-term loan – Due to • Long-term loan – Advance from

  30. #11 Payment of short-term loan[Page 78] Effect on SRF Financial Assets Related Liabilities Fund Balance +$1,250 +$1,250

  31. #12 Loan repayment[Page 78] Effect on SRF Financial Assets Related Liabilities Fund Balance – $1,250 – $1,250

  32. Short-term external borrowings • Usually made with banks • Receipt of loan and principal repayment do not affect Fund Balance; however, payment of interest does affect Fund Balance

  33. #13 Short-term borrowing [page 79]

  34. #14 Partial loan repayment [page 79]

  35. Extraordinary & Special Items • Extraordinary item • Used by FASB & GASB • Event is not under control of management and is both (1) unusual in nature and (2) infrequent in occurrence • Special Item • Unique to GASB • Event is under control of management and is either unusual or infrequent

  36. #15 Special item[Page 80] Effect on GCA – at historical cost GCA (Land) GLTL Net Assets – $2,000 – $2,000

  37. #16 Extraordinary item[Page 80] Effect on GCA – at historical cost GCA (Land) GLTL Net Assets – $6,000 – $6,000

  38. Other Transactions and Events • Preceding entries were for events common to all governments • Following entries may or may not occur for every government

  39. #17 Collecting taxes and other receivables [Page 81]

  40. Reclassify taxes as delinquent[Page 81]

  41. #20 Other Revenues [Page 81]

  42. #21 Ordering goods & services[Page 81]

  43. #22 Collecting delinquent accounts[Page 82] Revenues are for interest and penalties not previously accrued.

  44. #23 Purchase of investments [Page 82] The GASB has issued two standards in the last few years addressing accounting for investments: #31 and #40. #31 addresses marking investments to fair value. #40 addresses risk issues related to the investment. These and related issues are discussed in Chapter 5.

  45. #24 Accruing other expenditures[Page 82] Effect on GCA GCA (Equipment) GLTL Net Assets $23,000 $23,000

  46. #25 Paying amounts owed [Page 82]

  47. #26 Interfund transaction: Payment to ISF of balance owed [Page 82]

  48. #27 Collect accounts receivable [Page 83]

  49. #28 Write-off an account [Page 83]

  50. #29 Correcting an error [Page 83]

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