Accounting for the General and Special Revenue Funds

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• Chapter 4
• Accounting for the General and Special Revenue
  Funds

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Overview of Chapter 4

• Accounting for Nonexchange Transactions
• Modified Accrual Basis
• Common Entries during the year
• The closing process
• Financial Statements

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Modified Accrual vs. Accrual

• Accrual
• Recognize revenues when earned
• Match expenses against the revenues
• Modified Accrual
• Recognize revenues when measurable and available
  (available to pay this years bills for example,
  property taxes received within 60 days of year
  end)
• Recognize expenditures when the liability is
  incurred no attempt to match to revenues, match
  to period of occurrence only
• Exception recognize interest and principal
  payments as expenditures when DUE

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Exchange vs Nonexchange Transactions

• GASB Statement No. 33 indicates the timing of
  revenue recognition will be different for
• Exchange and exchange-like transactions
• These are like true sales you pay a certain
  amount and receive equivalent value in return
• nonexchange transactions
• For taxes and certain other transactions you pay
  more or less than the value of services received

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Exchange Transactions

• Revenue resulting from exchange transactions is
  recognized in the period(s) that it is earned
• For example, revenue from the rental of
  government property would be recognized over the
  term of the lease

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Types of Nonexchange Transactions

• Imposed nonexchange revenues
• property tax, special assessments,
  fines/forfeits
• Derived tax revenues
• sales, income, motor fuel taxes
• Government mandated transactions
• federal government requires lower level
  expenditures
• Voluntary nonexchange transactions
• grants, donations

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Imposed Nonexchange Revenue

• Taxes and other assessments that do not result
  from an underlying transaction. Examples include
  property taxes and special assessments imposed on
  property owners. Also includes fines and
  forfeits

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Imposed Nonexchange Revenue
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Derived Tax Revenues

• These are taxes assessed on exchange transactions
  conducted by businesses or citizens. Examples
  include sales, income, and excise taxes

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Derived Tax Revenue
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Government Mandated Nonexchange transactions

• Grants from higher levels of government (federal
  or state) given to support a program. Since the
  program is required, the lower-level government
  has no choice but to accept. For example, a
  state may require schools to mainstream certain
  students and provide funds to carry out this
  mandate.

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Government-Mandated Nonexchange Revenue
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Voluntary Nonexchange Transactions

• Donations and grants given to support a program.
  Since the program is not required, the receiving
  government voluntarily agrees to participate.

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Voluntary Nonexchange Revenue
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Beginning Balances
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Record the Budget

• Estimated revenues 6,200,000
• Appropriations 5,200,000
• Includes 45,000 to cover unfilled purchase
  orders from the prior year
• Planned transfer to debt service fund
• 204,000
• Planned transfer to establish an internal service
  fund 596,000

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Record the Budget
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Re-establish Encumbrances
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Record Deferred 2006 Property Taxes as 2007
Revenue
2006 property taxes that were expected to be
collected in 2007, but not within 60 days.
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Short Term Borrowing

• The government needs to borrow cash until tax
  revenues start to flow in

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Payment of Beginning of Year Liabilities

• The amount due on A/P and to the Federal
  Government were paid

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Record Encumbrances

• Purchase orders were issued 800,000. Note that
  there were already 45,000 outstanding from 2006

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Record Property Taxes

• The budgeted 2007 property tax revenue (net) was
  3,200,000. The estimated uncollectible amount
  is 2.

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Collect Delinquent Taxes

• 330,000 of delinquent taxes, along with 20,000
  of interest and penalties from 2006, and 3,000
  interest for 2007 were collected

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Collection of Current Taxes

• Of the 3,265,306 current tax levy, 2,700,000
  were collected

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Other Revenues are Received and Recorded

• Sales taxes are collected by the state, and then
  remitted to towns. 1,350,000 of 2007 sales
  taxes are remitted by the state. In addition,
  60,000 of sales tax revenue for the last week of
  2007 are expected to be remitted in January 2008.

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Other Revenues are Collected and Recorded

• Revenue from licenses, permits, fines forfeits,
  intergovernmental revenue, charges for services,
  etc are recognized on the cash basis.

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Tax Anticipation Note is Repaid

• After tax money starts flowing in, the note can
  be repaid, along with interest of 5,000

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Goods on POs were received

• Goods were received. The estimated cost on the
  POs was 795,000, but the actual cost was
  820,300

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Payrolls Were Recorded Paid

• Payroll is not encumbered
• Gross pay 3,345,000
• Employees share of FICA Medicare 256,000
• Federal Income Tax430,000
• State Income Tax78,000

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Employers Share of Fringes are Recorded

• Employer share of FICA Medicare256,000
• Employer contribution to retirement167,000

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Payments are Made

• The following are paid
• A/P
• Due to federal government
• Due to state government

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Error in Tax Bill Was Corrected

• A 1,200 tax bill was sent out twice. The error
  is corrected

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The Budget Was Amended

• Estimated revenues were increased 50,000
• Appropriations were increased 100,000

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Quasi-External Transactions

• These are between funds but they are
  exchange-like transactions with an objective
  basis for determining the amount
• Treated as revenue and expense or expenditure
• Example, sale of electricity by the Electricity
  Enterprise fund to the General Fund
• Would be treated as revenue for Enterprise Fund
  and expenditure for General Fund
• GASB 34 calls these Interfund Services Provided
  Used instead of quasi-external

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Interfund Transactions Purchasesie interfund
services

• The General Fund owes 80,000 to the Water Fund
  (an enterprise fund) for service for the Fire
  Department
• The General Fund received 377,000 in supplies
  from the Supplies Fund (an internal service
  fund), and paid 322,000

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Transfers

• Any shifting of resources from one fund to
  another where there is no expectation that the
  amounts will be repaid.
• Transfers In are considered Other Financing
  Sources
• Transfers Out are considered Other Financing Uses
• Recurring Transfers such as for debt service may
  be built into the budget

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Interfund Transactions Transfers

• The General Fund transferred 204,000 to the Debt
  Service Fund. The payment was made
• The General Fund made a transfer to establish an
  internal service fund

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Reimbursements

• Reimbursements do not show up separately on the
  Activity or Budget statement, but are internal
  balance corrections

• When the reimbursement is made, the expense or
  expenditure is recorded in the correct fund and
  the incorrect expense or expenditure is decreased

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Interfund Transactions Reimbursements

• The 377,000 recorded as expenditures for
  supplies mistakenly included 20,000 that should
  have been paid by the Motor Fuel Tax Fund (a
  special revenue fund). The error was corrected

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Write off Uncollectible Taxes

• Delinquent taxes of 30,000 and interest
  penalties of 3,000 were written off

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Current Taxes Not Collected

• At the end of 2007 564,106 in current taxes have
  not been collected. They are reclassified as
  delinquent.
• The Estimated Uncollectible Current Tax account
  is also reclassified as delinquent

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Year-End Accrual of Interest Penalties

• Accumulated Interest Penalties for 2007 were
  56,410. Only 39,490 is expected to be
  collected.

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Deferral of Property Tax Revenue

• 40,000 of taxes receivable are expected to be
  collected more than 60 days after year-end

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Special Item

• Special items are unusual or infrequent
• Land was sold for 300,000
• Note that the reduction in land would be
  reflected in the government-wide financial
  statements

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The Closing Process

• Closing process for government type funds needs
  to accomplish the following
• Close budgetary accounts
• Close Revenues, expenditures, encumbrances, and
  related other financing sources or uses to Fund
  Balance
• Reclassify the Budgetary Fund Balance Reserved
  for Encumbrances to Fund Balance Reserved for
  Encumbrances

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Close the Budgetary Accounts
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Close the Nominal Accounts and Reclassify BFB
Reserved for Encumbrances
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Post-Closing Trial Balance
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Financial Statements

• Balance Sheet
• Statement of Revenues, Expenditures, and Changes
  in Fund Balance

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