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Chapter 17. Governmental Entities: General Fund. Governmental Entities in United States Include:. Federal Government State Government Counties Townships Municipalities School districts Special districts. Objectives of Financial Reporting (GASB issued Concept Statement No. 1): .

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Chapter 17 l.jpg

Chapter 17

Governmental Entities:

General Fund


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Governmental Entities in United States Include:

  • Federal Government

  • State Government

  • Counties

  • Townships

  • Municipalities

  • School districts

  • Special districts


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Objectives of Financial Reporting (GASB issued Concept Statement No. 1):

  • Should enable users to assess Government’s accountability

  • Should assist users in evaluating the operating result of Governmental Entity

  • Should assist users in assessing the level of service provided and Government’s ability to meet its obligation


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Governmental Funds Statement No. 1):

Proprietary Funds

Fiduciary Funds

The principal accounting unit is fund. GASB has identified in three categories:


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GOVERNMENTAL FUNDS Statement No. 1):

  • GENERAL FUNDS

  • SPECIAL REVENUE FUNDS

  • CAPTIAL PROJECT FUNDS

  • DEBT SERVICE

  • PERMANENT FUNDS


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PROPERTIARY Statement No. 1):

  • ENTERPRISE FUND

  • INTERNAL SERVICE FUND


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FIDUCIARY FUNDS Statement No. 1):

  • PENSION

  • Investment Trust Fund

  • Private Purpose Fund

  • Agency Funds


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General Fund Statement No. 1):

  • General fund accounts for the general activities of a government that are not accounted for by any other fund

  • Only one general fund per reporting entity

  • General fund is created at beginning of the “Unit” and it exists throughout the life of that unit.


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Governmental Fund of Governmental Entities use Modified Accrual Basis of Accounting

  • Revenues are recognized only when they become both measurable and available

  • Expenditure are recognized when the related liabilities are incurred

  • Short term prepayments are not recognized as assets


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Annual Budget Accrual Basis of Accounting

(Include estimated revenue and appropriations for specific fiscal Year)

Capital Budget

(used to control expenditure for construction projects, appropriate for capital project fund)

Budgets are Legislative Control over Governmental Entities

Basic Classification of Budgets


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Budgetary accounting is used to control expenditures and to account for the levy of taxes sufficient to cover estimated expenditures.

  • Budgetary accounts are “estimated accounts” that are the opposite (in terms of debit and credit) from real accounts.

  • Entry to record budgetary accounts are made twice during the year.

  • At the beginning of the year to record budget.

  • And at the end of the year to reverse and close budget.


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Journal Entry at the beginning of the year to Record Budget: account for the levy of taxes sufficient to cover estimated expenditures.

Dr Estimated Revenues

Dr Estimated Other Financing Sources

Cr Appropriations

Cr Estimated Other Financing Uses

Cr/Dr Budgetary Fund Balance


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Journal Entry at the end of the year to Reverse and close Budget:

Dr Appropriations

Cr Estimated Other Financing Uses

Dr/Cr Budgetary Fund Balance

Cr Estimated Revenues

Cr Estimated Other Financing Sources


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Entries for Recording Revenue: Budget:

  • Billed

    Dr Taxes Receivable – Current

    Cr Allowances for Uncollectible Taxes

    Cr Revenue

  • Collections

    Dr Cash

    Cr Taxes Receivable – Current

  • Taxes Determined Uncollectible

    Dr Allowances for Uncollectible Taxes

    Cr Taxes Receivable - Current


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Journal Entry to transfer uncollected taxes to a delinquent category:

  • Journal entry to reclassify receivable to delinquent

    Dr Taxes Receivable – delinquent

    Cr Taxes Receivable – current

  • Journal entry to reclassify current allowance for uncollectible taxes to delinquent

    Dr Allowance for uncollectible taxes – current

    Cr Allowances for uncollectible taxes - delinquent


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Encumbrances category:

  • It is necessary to reflect not only the expenditures, but also the obligations to spend (Purchase Order).

  • This is done to prevent overspending of appropriations.

  • Subsidiary Ledgers are used to record the details of budgetary accounts, encumbrances and other general ledger accounts


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An encumbrance should not be viewed as an expenditure. Similarly the reserve for expenditure is not a liability.

Example :

1. Assume a purchase order is issued to purchase two sanitation trucks by the City of A.The estimated Cost is $45000 each.

2. The invoice is received for one to the trucks, at an actual cost of $44000.


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Example for Encumbrance Accounting: Similarly the reserve for expenditure is not a liability.1. Assume a purchase order is issued to purchase two sanitation trucks by the City of A.The estimated Cost is $45000 each.2. The invoice is received for one to the trucks, at an actual cost of $44000. Assume that second truck is backordered.

  • Set up Encumbrance

    Dr Encumbrance 90,000

    Cr Reserve for Encumbrance 90,000

  • Record invoice and Reverse estimated encumbrance

    (a) Dr Expenditure 44,000

    Cr Vouchers Payable (or Cash) 44,000

    (b) Dr Reserve for Encumbrance 45,000

    Cr Encumbrance 45,000

  • At year end if encumbrance (Purchase Order) is still outstanding

    (a) Dr Reserve for Encumbrance 45,000

    Cr Encumbrance 45,000

    (b) Dr Unreserved fund balance 45,000

    Cr Fund Balance reserved for encumbrance 45,000


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Inventory of Supplies Similarly the reserve for expenditure is not a liability.(The Inventory of Supplies is evidence of the availability of resources to benefit future periods and the reserve for inventory of supplies account serves as a reservation of fund balance.)

Entry when invoice received

Dr Inventory of Supplies

Cr Vouchers Payable

Entry for Use of Supplies

Dr Expenditures

Cr Inventory of Supplies


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Transfers Between Funds Similarly the reserve for expenditure is not a liability.

  • Types of transfers between funds can be grouped as under.

    • Quasi – External Transfers

    • Operating Transfers

    • Reimbursement Transfer

    • Routine fund transfer of Loan or Advance Nature (Cash needed by one fund may be obtained from other funds.)


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Entry to Record Routine Transfer Similarly the reserve for expenditure is not a liability.

Dr Due from other fund

Cr Cash

Or

Dr Cash

Cr Due to other fund


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Entry to Record Operating Transfer Similarly the reserve for expenditure is not a liability.

Dr Other Financing Uses

Cr Cash/Other Fund

Or

Dr Cash/Other Fund

Cr Other Financing Sources


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Financial Statements for the General Fund of a Governmental Entity

  • Balance Sheet

    And

  • Statement of Revenues,Expenditures and Changes in Fund Balance. (Budgeted amounts, actual amounts and variances from budgeted amounts are included in this statement)


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Closing entries for a general fund at the end of a fiscal year:

  • Journal entry to close the budget at year end (reverse for the same amount)

  • Journal entry to close Encumbrances ledger account to the Unreserved and Undesignated Fund balance account

  • Journal entry to close the Revenues, Other Financing Sources, Expenditures, and Other Financing Uses Ledger to the Unreserved and Undesignated Fund Balance account


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