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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

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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

Proprietary Funds

Fiduciary Funds

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


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GOVERNMENTAL FUNDS

  • GENERAL FUNDS

  • SPECIAL REVENUE FUNDS

  • CAPTIAL PROJECT FUNDS

  • DEBT SERVICE

  • PERMANENT FUNDS


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PROPERTIARY

  • ENTERPRISE FUND

  • INTERNAL SERVICE FUND


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FIDUCIARY FUNDS

  • PENSION

  • Investment Trust Fund

  • Private Purpose Fund

  • Agency Funds


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General Fund

  • 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

(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:

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:

DrAppropriations

Cr Estimated Other Financing Uses

Dr/CrBudgetary Fund Balance

Cr Estimated Revenues

Cr Estimated Other Financing Sources


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Entries for Recording Revenue:

  • Billed

    DrTaxes Receivable – Current

    Cr Allowances for Uncollectible Taxes

    CrRevenue

  • Collections

    DrCash

    CrTaxes Receivable – Current

  • Taxes Determined Uncollectible

    DrAllowances for Uncollectible Taxes

    CrTaxes Receivable - Current


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Journal Entry to transfer uncollected taxes to a delinquent category:

  • Journal entry to reclassify receivable to delinquent

    DrTaxes Receivable – delinquent

    CrTaxes Receivable – current

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

    DrAllowance for uncollectible taxes – current

    CrAllowances for uncollectible taxes - delinquent


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Encumbrances

  • 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: 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

    DrEncumbrance90,000

    Cr Reserve for Encumbrance90,000

  • Record invoice and Reverse estimated encumbrance

    (a)Dr Expenditure44,000

    Cr Vouchers Payable (or Cash)44,000

    (b)Dr Reserve for Encumbrance45,000

    Cr Encumbrance45,000

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

    (a)Dr Reserve for Encumbrance45,000

    Cr Encumbrance45,000

    (b)Dr Unreserved fund balance 45,000

    Cr Fund Balance reserved for encumbrance 45,000


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Inventory of Supplies(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

CrVouchers Payable

Entry for Use of Supplies

Dr Expenditures

CrInventory of Supplies


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Transfers Between Funds

  • 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

DrDue from other fund

CrCash

Or

DrCash

CrDue to other fund


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Entry to Record Operating Transfer

DrOther Financing Uses

CrCash/Other Fund

Or

DrCash/Other Fund

CrOther 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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