Advanced accounting 10th by a beams athony ch20

1: Proprietary FundsAccounting for State and Local Governmental Units – Proprietary and Fiduciary Funds... Internal Service Funds• Use for government activities that provide goods and s

Chapter 20: Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

by Jeanne M David, Ph.D., Univ of Detroit Mercy

to accompany

Advanced Accounting , 10th edition

by Floyd A Beams, Robin P Clement, Joseph H Anthony, and Suzanne Lowensohn

Proprietary and Fiduciary Funds: Objectives

1 Review the appropriate accounting and financial

reporting for proprietary funds.

2 Recognize the proper treatment of internal service funds

in the government-wide statements.

3 Introduce the differences between a proprietary fund

statement of cash flows and its commercial business

1: Proprietary Funds

Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

Accounting for Proprietary Funds

• Model

CA + NCA – CL – NCL = Net assets

• Use accrual accounting

• Net assets

– Invested in capital assets net of related debt

– Restricted net assets

– Unrestricted net assets

• Two types

– Internal service funds

Internal Service Funds

• Use for government activities that provide goods and

services to other departments or agencies of that same governmental unit

• Central stores/ purchasing

• Motor pools

• Print shop

• Might be started with transfers from general fund

and/or contributed capital from other sources

• Main source of revenues is other funds

• Use "Due from …" rather than accounts receivable

ISF – Entries (1 of 3)

• A village begins a central motor pool with $200 from the

general fund and a contribution of vehicles

– The Other financing source and Contributed capital

Other financing source - nonreciprocal

transfer from general fund   200 Contributed capital from municipality   120

ISF – Entries (2 of 3)

• It provides motor pool services to the general fund and

special revenue fund and bills them $100 and $30

• The general fund and special revenue fund will record the

Due from special revenue fund 30  

GF

ISF – Other Transactions

• Most other transactions parallel those of businesses

– Use expenses, not expenditures

– Record acquisition, disposition, and depreciation of

fixed assets

– Income is closed to unrestricted net assets

Enterprise Funds

• Use for governmental activities

– Financed and operated like a business

– Provide goods and services to general public

• Utilities, civic centers, golf clubs

• Might start with funds transferred and contributions

• Main revenues from general public, but some from

other departments of the government

• Use "Accounts Receivable" for general public and

others and "Due from …" for other funds of this

governmental unit

EF – Entries (1 of 4)

• Utility-type enterprise funds often charge customer

deposits

– Amounts given as deposits are restricted cash, not

included in current assets

– Customer deposits are liabilities, may be current or

long term

• Deposits may be returned or applied against the

customers accounts receivable

• The three entries represent:

Due from other governments 50  

Contributed capital - capital grant   50

EF – Entries (3 of 4)

• Provide services and bill general public $500 and its

own governmental unit $40

• General fund records the bill of $40

EF – Entries (4 of 4)

• Collect from general public and the general fund

• The general fund records the payment

• The enterprise fund will use allowances for uncollectibles and bad debt expense, like business enterprises

EF

GF

EF – Other Transactions

• Most follow that of businesses

• Income is closed to unrestricted net assets

• Enterprise funds may issue bonds

– General obligation or revenue bonds

• Record as bonds payable

• Use effective interest method

• Premiums or discounts

• Capital leases

– Record leased assets and lease obligation

2: Internal Service Funds in

Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

Proprietary Fund Financial

Statements

Three statements

1 Statement of net assets (balance sheet)

2 Statement of revenues, expenses, and changes in

net assets

3 Statement of cash flows

Use separate columns for each significant enterprise fund,

other enterprise funds, total enterprise funds and total internal service funds

– Internal service funds are not added to enterprise

funds

– ISFs are governmental activities

– EFs are business type activities

Statement of Net Assets

Compensated absences 295  Bonds and notes

payable 465 945

Total liabilities   $1,146

Invested in capital assets, net of related debt $575  

Statement of Revenues, Expenses and Changes in Net Assets

Government-wide Statements

• Internal service funds are included with governmental

funds

– All represent governmental activities

• Enterprise funds displayed in a single column labeled

Business-type activities

• ISF and EF already use accrual accounting

• Interfund balances: either

• Eliminate

• Show interfund balances separate from

ISF in Financial Statements

• In the Proprietary fund statements:

– Internal service funds are in a separate column

• Separately, to the side of the total for

business-type/ enterprise funds

• Not added to those enterprise funds

• In the Government-wide statements:

– Internal service funds plus governmental funds are

shown as one total

• Labeled as governmental-type activities

• Governmental-type and business-type activities

are the added together

3: Proprietary Funds Statement of

Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

Cash Flow Categories

Four cash flow categories:

1 Cash flows from operations

2 Cash flows from noncapital financing activities

3 Cash flows from capital and related financing activities

4 Cash flows from investing activities

Compared to for-profit enterprises

– Capital expenditures are removed from other investing

Cash flows from operations:    

Cash received from customers $1,161  

Cash paid to suppliers (326)  

Cash paid for other expenses (471)  

Net cash provided by operations   $364

Cash flows from noncapital financing activities:    

Cash from general fund   3

Cash flows from capital and related financing activities:    

Purchase of equipment ($18)  

Payment on capital debt (87)  

Net cash provided by capital and related financing   (105)

Cash flows from investing activities:    

Interest and dividends   1

Statement of Cash Flows

4: Fiduciary Funds

Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

Accounting for Fiduciary Funds

• Account for assets held in a trust or agency capacity

– Not used for government's own programs

• Fiduciary funds

– Private purpose trust funds

– Investment trust funds

– Pension trust funds

– Agency funds

• Focus on demonstrating fulfillment of fiduciary

responsibilities

– Accrual accounting

Agency Funds

• For funds held in custodial capacity

– County government acts as agent collecting tax for

local government

– Collections on special assessments from taxpayers

and repayment of special assessment bonds if local government is not obligated on bonds

Agency Model:

Assets = Liabilities

Agency Transactions

• New County collects property taxes for two cities, A and

B New County uses an agency fund to record the

assessment and collections

• It deducts a 1% commission for acting as agent

– The 1% commission is transferred to the general

fund, and recorded as revenue there

• For simplicity, assume all taxes assessed are collected

• Entries for New County follow

Agency Entries – for New County

Only asset and liability accounts are used!

CA + NCA – CL – NCL = Net assets

• Assets: cash, receivables, investments

• Liabilities: payables

• Net assets

– Net assets held in trust, expendable

– Net assets held in trust, nonexpendable

Fiduciary Fund Financial

Statements

• Fund Statements

– Statement of fiduciary net assets

– Statement of changes in fiduciary net assets

• Fiduciary funds are not included in the

government-wide statements

5: Pension Funds

Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds

Pension Trust Fund

• Account for Public Employee Retirement Systems

(PERS)

• GASB Statement No 25, 27 and 50

• Do not apply FASB pension accounting

• Disclosures

– Scheduled of funding progress for defined benefit,

single and multiple employer plans

• Also disclose

– Other post-employment benefits

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