BACK TO THE BASICS

1. BACK TO THE BASICS Presented by Local Government Services Bureau State Accounting Division MT Department of Administration

2. BACK TO THE BASICS • SCHEDULE: • Fundamentals of Debits and Credits • Governmental Accounting ~ Principles ~ Fund Accounting/Basis of Accounting/Measurement Focus • Governmental Accounting - cont. ~ Basis of Accounting/Measurement Focus (cont) • Application to BARS Chart of Accounts • Year end closing procedures ~ (if time permits)

3. BACK TO THE BASICS ACRONYMS COMMON TO GOVERNMENTAL ACCOUNTING CAFR Comprehensive Annual Financial Report BFS Basic Financial Statements GASB Governmental Accounting Standards Board FASB Financial Accounting Standards Board GAAFR Governmental Accounting, Auditing, and Financial Reporting GAAP Generally Accepted Accounting Principles

4. BACK TO THE BASICS ACRONYMS COMMON TO GOVERNMENTAL ACCOUNTING GAAS Generally Accepted Auditing Standards GLTDAG General Long-Term Debt Account Group GFAAG General Fixed Assets Account Group GFOA Government Finance Officers Association

5. BACK TO THE BASICS • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Accounting and Reporting Capabilities • Accounting systems should be maintained in accordance with generally accepted accounting principles • Fund Accounting Systems • Accounting systems should be organized and operated on a fund basis • Fund Types • Fund financial statements should report governmental, proprietary and fiduciary fund types

6. BACK TO THE BASICS • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Number of Funds • Only maintain those funds required by law and sound financial management • Reporting Capital Assets • A clear distinction should be made between general capital assets and those of the proprietary and fiduciary funds. • Valuation of Capital Assets • Assets should be reported at historic cost – Donated assets at the estimated fair market value at the time of acquisition

7. BACK TO THE BASICS • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Depreciation of Capital Assets • Capital assets should be depreciated over their estimated useful lives unless inexhaustible or infrastructure assets using the modified approach • Reporting Long-term Liabilities • A clear distinction should be made between long-term liabilities and general long-term liabilities • Measurement Focus/Basis of Accounting in the BFS • The basic financial statements should display the government-wide financial statements (full accrual) and the fund financial statements (modified accrual)

8. BACK TO THE BASICS • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Budgeting, Budgetary Control/Reporting • Budgets should be adopted, controlled through monitoring and comparison statements included in reporting. • The budgetary statements should present original budget, final budget, actual amounts and a comparison with actual to final • Transfer, Revenue, Expenditure/Expense Classifications • Revenues should be maintained by fund, major source and other financing sources • Expenditures of governmental funds by fund, function/activity and other financing uses • Expenses of proprietary funds by activity/object

9. BACK TO THE BASICS • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Common Terminology and Classification • A common terminology and classification should be used consistently throughout the budget, accounts and financial report of each fund • Annual Financial Reports • Preparation of interim financial reports for the benefit of management should be prepared. • A Comprehensive Annual Financial Report should be prepared and made available to the public. • It should include all funds and activities of the primary government including blended component units and an overview of all discretely presented component units of the reporting entity)

10. BACK TO THE BASICS ACCOUNTING FORMULA DR = CR

11. BACK TO THE BASICS ACCOUNTING FORMULA EXPENSES/ EXPENDITURES REVENUES + ASSETS + = LIABILITIES + EQUITY DR = CR

12. BACK TO THE BASICS ACCOUNTING FORMULA EXPENSES/ ASSETS + EXPENDITURES = REVENUES + LIABILITIES + EQUITY ASSETS = LIABILITIES + EQUITY DR = CR

13. BACK TO THE BASICS SELF-BALANCING SET OF ACCOUNTS ACCOUNTING FORMULA ASSETS + EXPENSE = REVENUES + LIABILITIES + EQUITY DR = CR

14. Quiz #1 – Account Types & Balances

15. BACK TO THE BASICS • QUIZ #1 – Account Type & Normal Balance Accounts to use:Normal Balances: * Asset * Debit * Liability * Credit * Equity * Revenue * Expenditure/Expense * Contra-asset (use 2 times)

16. BACK TO THE BASICS QUIZ #1 – Account Type & Normal Balance TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Depreciation __________ _________ Accounts Payable __________ _________ Deferred Revenue __________ _________ Interest Receivable __________ ________ Assigned Fund Balance __________ _________

17. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Cash __________ _________ Amount To Be Provided __________ _________ Interest Earnings __________ _________ Allowance For Depreciation __________ ________ City Court Fines (Collected) __________ _________

18. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Real Estate Taxes (Collected) __________ _________ Capital Outlay __________ _________ Warrants Payable __________ _________ Inventories __________ ________ Net Assets __________ _________

19. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Due To Other Governments __________ _________ Accounts Receivable __________ _________ Debt Service Interest __________ _________ Judgments & Losses __________ ________ Prepaid Expense __________ _________

20. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Bonds Payable __________ _________ Taxes Receivable __________ _________ Gas Tax Apportionment __________ _________ Deposits Payable __________ ________ Animal Licenses __________ _________

21. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Supplies purchased _________ _________ Sale of Capital Assets __________ _________ Allowance For Uncollectible Accounts __________ _________ County Option Tax __________ ________ Federal Disaster Aid __________ _________

22. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Street & Road Maintenance _________ _________ Due From Other Funds __________ _________ Machinery & Equipment __________ _________ Fund Balance __________ ________ Charge for Copying Services (collected) __________ _________

23. BACK TO THE BASICS QUIZ #1 - CONT. TYPE OF NORMAL ACCOUNT NAMEACCOUNTBALANCE Jury Services _________ _________ Penalty & Interest on Delinq. Taxes __________ _________ Restricted for Revenue Bond __________ _________ Advance to other Funds __________ ________

24. Quiz 2 – Making Common Entries

25. BACK TO THE BASICS • Quiz #2 – Common entries • Accounts to use for this quiz: • Cash • Supplies • Gas Tax Apportionment • Taxes Receivable • Accounts Receivable • Accounts Payable • Interest Receivable • Interest Revenue • Prepaid Expense • Expense (Enterprise Funds)/Expenditure (Governmental Funds) • Depreciation • Allowance for Depreciation • Deferred Revenue • Tax Revenue

26. BACK TO THE BASICS QUIZ #2 – ENTRIES DEBIT CREDIT Record Receipt of Gas Tax Apportionment from State ______________________________ $______ ___________________________ $_______ Record Purchase of Supplies ______________________________ $______ ___________________________ $_______

27. BACK TO THE BASICS QUIZ #2 – ENTRIES CONT. DEBIT CREDIT Record the Receipt of Taxes ______________________________ $______ ___________________________ $_______ Record the Accrual of Expenditures ______________________________ $______ ___________________________ $_______

28. BACK TO THE BASICS QUIZ #2 – ENTRIES CONT. DEBIT CREDIT Record the Payment of the Expenditure Accrual ______________________________ $______ ___________________________ $_______ Record the Accrual of Interest Revenue ______________________________ $______ ___________________________ $_______

29. BACK TO THE BASICS QUIZ #2 – ENTRIES CONT. DEBIT CREDIT Record the Receipt of the Interest Revenue ______________________________ $______ ___________________________ $_______ Record Annual Depreciation Expense ______________________________ $______ ___________________________ $_______

30. BACK TO THE BASICS QUIZ #2 – ENTRIES CONT. DEBIT CREDIT Record the Payment for a Prepaid Expense ______________________________ $______ ___________________________ $_______ Record the Use of a Prepaid Expense __________________________ $______ ___________________________ $_______

31. BACK TO THE BASICS FUND ACCOUNTING GOVERNMENTAL FUNDS • General • Special Revenue • Debt Service • Capital Projects • Permanent

32. BACK TO THE BASICS FUND ACCOUNTING – CONT. PROPRIETARY FUNDS • Enterprise • Internal Service

33. BACK TO THE BASICS FUND ACCOUNTING - CONT. FIDUCIARY FUNDS • Pension Trust • Private Purpose Trust • Investment Trust • Agency

34. BACK TO THE BASICS FUND ACCOUNTING - CONT. ACCOUNT GROUPS ~ no longer required to be reported. I recommend updating for your records. • General Fixed Assets (GFAAG) • General Long-Term Debt (GLTDAG)

35. BACK TO THE BASICS BASIS OF ACCOUNTING Deals with the timing and recognition of transactions and events • Full Accrual Basis • Modified Accrual Basis • Cash Basis

36. BACK TO THE BASICS MEASUREMENT FOCUS Deals with the types of events or transactions reported in the Operating Statement Economic Resources Changes in Net Assets Current Financial Resources Changes in Resources Available for spending

37. BACK TO THE BASICS BACK TO THE BASICS A FUND’S MEASUREMENT FOCUS AND BASIS OF ACCOUNTING CANNOT BE SEPARATED Funds that Focus on Economic Resources Use Full Accrual Accounting (Enterprise) Funds that Focus on Current Financial Resources use Modified Accrual Accounting (Governmental)

38. BACK TO THE BASICS BACK TO THE BASICS • Full Accrual Basis of Accounting • Recognizes increases and decreases in economic resources (Net Assets) as soon as the underlying event or transaction occurs • Revenues are recognized as soon as they are earned • Expenses are recognized as soon as the liability is incurred • Regardless of the time of related cash inflow and outflows

39. BACK TO THE BASICS BACK TO THE BASICS • Modified Accrual Basis of Accounting • Recognizes increases and decreases in financial spendable resources only to the extent that they reflect near-term inflows and outflows of cash • Amounts are recognized as revenues when earned, only so long as they are collectible within the period or soon enough thereafter to be used to pay liabilities of the current period. • In other words, when they are available to pay expenditures of the current period.

40. BACK TO THE BASICS • The Cash Basis of Accounting • Is the simplest to achieve and provides the least disclosure • Only revenues received and expenses or expenditures disbursed are recognized • The Balance Sheet of the Governmental Unit displays only a balance in cash and the fund balance accounts. • The Operating Statement presents results of only the cash transactions for the reporting fund.

41. BACK TO THE BASICS Application of the Basis of Accounting and Measurement Focus by Fund Type • Modified Accrual Basis/Flow of Current Financial • Resources Measurement Focus • Governmental funds: • General fund • Special revenue funds • Debt service funds • Capital projects funds • Permanent funds

42. BACK TO THE BASICS Application of the Basis of Accounting and Measurement Focus by Fund Type • Modified Accrual Basis/Flow of Current Financial • Resources Measurement Focus • Trust and Agency funds: • Agency funds (only the basis of accounting applies; measurement focus is not applicable)

43. BACK TO THE BASICS Application of the Basis of Accounting and Measurement Focus by Fund Type Accrual Basis/Flow of Economic Resources Measurement Focus Proprietary funds: Enterprise funds Internal service funds

44. BACK TO THE BASICS Application of the Basis of Accounting and Measurement Focus by Fund Type Accrual Basis/Flow of Economic Resources Measurement Focus Trust funds: Investment trust funds Pension trust funds Private purpose trust funds

45. BACK TO THE BASICS PRACTICAL DIFFERENCES: • Receipt of long-term debt proceeds • Repayment of the principal of long-term debt • Capital acquisition • Exhaustion of capital assets • Deferrals and amortizations

46. BACK TO THE BASICS ILLUSTRATIVE ENTRIES RECEIPT OF LONG-TERM DEBT PROCEEDS: PROPRIETARY FUNDS:DRCR Cash $20,000 Bonds Payable $20,000 GOVERNMENTAL FUNDS: Cash $20,000 Other Financing Sources $20,000

47. BACK TO THE BASICS ILLUSTRATIVE ENTRIES REPAYMENT OF THE PRINCIPAL OF LONG-TERM DEBT: PROPRIETARY FUNDS:DRCR Bonds Payable $5,000 Interest Expense 300 Cash $5,300 GOVERNMENTAL FUNDS: Expenditure- Bond Principal $5,000 Expenditure-bond Interest 300 Cash $5,300

48. BACK TO THE BASICS ILLUSTRATIVE ENTRIES CAPITAL ACQUISITION: DRCR PROPRIETARY FUNDS: Equipment $20,000 Cash $20,000 GOVERNMENTAL FUNDS: Expenditure-capital Outlay $20,000 Cash $20,000

49. BACK TO THE BASICS ILLUSTRATIVE ENTRIES PROPRIETARY FUNDS:DRCR Depreciation Expense $2,000 Accumulated Depreciation $2,000 GOVERNMENTAL FUNDS: Depreciation is Recorded in the GFAAG– Not in the Governmental Fund Itself

50. BUDGETARY ACCOUNTING BARS REPORTING SYSTEM