Basics of Fund Accounting Activities

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Basics of Fund AccountingActivities

• Chapter 2

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Review of Concepts

• Chapter 1

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Measurement FocusWHAT is measured?

• Current financial resources measurement focus
• Measure inflows outflows of current financial
  resources
• Cash other liquid assets
• Payables from cash other liquid assets
• Focuses on fiscal accountability
• Whether managers have met budgetary other legal
  financial requirements

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Measurement FocusWHAT is measured?

• Economic resources measurement focus
• Measure inflows outflows of economic resources
• Current (i.e. financial ) noncurrent (i.e.
  economic)
• Capital assets long-term debt
• Focuses on operational accountability
• Whether management efficiently uses resources in
  providing services

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Basis of AccountingWHEN are elements recognized?

• Modified accrual basis of accounting
• Revenues recognized when measurable available
• Expenditures recognized when incurred
• Expected to be liquidated with current financial
  resources
• Accrual basis of accounting
• Revenues recognized when earned
• Expenses recognized when incurred

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Measurement Focus and Basis of Accounting Summary
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Basics of Fund Accounting

• Chapter 2

8
Key Concepts

• Basics of funds fund accounting
• Difference in governmental business-type
  activities
• Categories types of funds
• Role of the budget budgetary accounting

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Definition of Fund

• A separate fiscal accounting entity
• Self-balancing set of accounts
• Fund assets fund liabilities fund
  balance/equity
• Segregating financial resources, liabilities
  payable from fund resources, fund equities
  primarily to ascertain compliance
• Attain objectives specified by regulations,
  restrictions, or limitations
• Used for
• Budgetary purposes
• Financial reporting

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Fund Characteristics

• An entity with its own set of books FS
• Chart of accounts, general ledger, etc.
• Minimum number of funds concept
• Financial reporting more understandable less
  complex
• Only general fund required
• When new fund required
• Statutory requirement
• New accounting standard
• Grant requirement

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Activities of Government

• Governmental
• General
• Public safety
• Business-type
• Transportation air, land, sea
• Utilities
• Economic development
• Fiduciary
• Agency
• Pension investment trusts

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Control Mechanisms

• Funds
• Revenues
• Source
• Expenditures
• Function major service/program
• Organizational unit department/unit responsible
  for 1 activity
• Activity specific service performed by 1
  organizational unit
• Object detailed expenditure (line item)

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Categories of Funds

• Governmental funds (financial accountability)
• Current financial resources
• Modified accrual
• Proprietary funds (operational accountability)
• Economic resources
• Accrual
• Fiduciary funds
• Economic resources kind of
• Accrual kind of

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Types of Funds

• Governmental funds
• General Fund
• Special revenue funds
• Capital projects funds
• Debt service funds
• Permanent funds

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Governmental Funds

• General Fund (GF)
• Only one per government
• Most financial transactions related to general
  government operating activities are recorded in
  this fund

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Governmental Funds

• Special Revenue Funds (SRF)
• Used when required by law/policy to account for
  financial resources earmarked for a specified
  operating purpose
• Gas tax
• Grants
• Impact fees
• Accounting and budgeting usually identical to
  general fund

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Governmental Funds

• Debt Service Funds (DSF)
• Account for accumulation of financial resources
  segregated to pay principal or interest on LTD
• May include required reserves as well as current
  financial resources

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Governmental Funds

• Capital Projects Funds (CPF)
• Account for financial resources segregated to pay
  for construction/acquisition of major long-lived
  capital assets

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Governmental Funds

• Permanent Funds
• Account for resources provided by trust in which
  the earnings but not the principal must be used
  for public purposes
• Benefit of government or its citizenry

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Governmental Funds Common Characteristics

• Current financial resources measurement focus
• Modified accrual basis of accounting used
• Account for expenditures of financial resources
  (not expenses)
• Capital assets long-term liabilities are not
  recorded in governmental funds
• Both recorded as expenditures

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Types of Funds

• Proprietary funds
• Enterprise funds
• Internal service funds

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Proprietary Funds

• Enterprise Funds
• Account for activities in which goods or services
  are provided to the general public (external
  customers) for a charge
• Electric water utilities, airports, parking
  garages, transportation systems, liquor stores
• Reported as business-type activities

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Proprietary Funds

• Enterprise Funds
• When required
• Debt secured solely by pledge of enterprise
  activity fees charges revenues
• Law/regulation require full cost of providing
  service be covered by fees charges
• Pricing policies intended to recover full cost of
  providing service
• Full cost
• Capital costs (depreciation) debt service

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Proprietary Funds

• Internal Service Funds (ISF)
• Account for activities in which goods or services
  are provided to other departments of the same
  government (internal customers) for a charge
• Central stores, central computing, motor pools,
  printing
• Reported as governmental or business type
  activities based on customers served

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Proprietary Funds Common Characteristics

• Full accrual basis of accounting reporting
• Similar to for-profit entities
• Economic resources measurement focus
• Capital assets long-term liabilities recorded
  in the funds
• Depreciation expense on capital assets recorded
• Expenses are recorded, not expenditures

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Types of Funds

• Fiduciary funds
• Agency funds
• Investment trust funds
• Private-purpose trust funds
• Pension trust funds

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Fiduciary Funds

• Agency Funds
• Account for financial resources in which the
  government is acting in an agency capacity
• Examples tax agency funds and pass-through
  agency funds
• Accounting is simple assets liabilities
• No revenue and expense accounts used since there
  are no net assets

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Fiduciary Funds

• Investment Trust Funds
• Account for external investment pools
• Assets held for other (external) governments,
  along with funds of the sponsoring government
• Report assets, liabilities, net assets, changes
  in net assets related to the equity of the
  external participants

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Fiduciary Funds

• Private-purpose Trust Funds
• Account for financial resources (expendable or
  nonexpendable) in which the government is acting
  in a trustee capacity for
• Private individuals
• Organizations
• Other governments

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Fiduciary Funds

• Pension/OPEB Trust Funds (one or more)
• To account for financial resources where
  government (or other designated trustee) is
  acting in trustee capacity for its employees
• Retirement benefits
• Pensions
• Other post-employment benefits
• Insurance, etc.

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Fiduciary Funds Characteristics

• Full accrual accounting reporting
• Economic resources measurement focus
• Capital assets long-term liabilities recorded
• Additions (to net assets) deductions (from net
  assets) recorded instead of revenues expenses

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Chapter Exercises Part 1

• Problems on page 41
• 2-5
• 2-6
• 2-7