Slides explain changes in net position

Terminal Learning Objective• Task: Explain Changes in Net Position Over a Period of Time • Condition: You are a cost advisor technician with access to all regulations/course handouts,

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Explain Changes in Net Position

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Terminal Learning Objective

• Task: Explain Changes in Net Position Over a

Period of Time

• Condition: You are a cost advisor technician with

access to all regulations/course handouts, and

awareness of Operational Environment

(OE)/Contemporary Operational Environment

(COE) variables and actors

• Standard: With at least 80% accuracy:

• Prepare Statement of Budgetary Resources

• Demonstrate proprietary reporting

• Prepare basic proprietary financial statements

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Do federal agencies keep two sets of

books?

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Two Types of Accounts

• Budgetary Accounts track budgetary activities and

resources

• Appropriations, Obligations, Expenditures

• Proprietary Accounts track financial activities and

resources

• Liabilities and payment of liabilities

• Assets and payments received

• Expenses and revenues

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Budgetary Reporting

• Statement of Budgetary Resources

• Budgetary Resources consist of:

• Prior Year Unobligated Balance

• Current Year Appropriations

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Budgetary Reporting

• Statement of Budgetary Resources

• Budgetary Resources consist of:

• Prior Year Unobligated Balance

• Current Year Appropriations

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Statement of Budgetary Resources

• The fictional Training Appropriation Fund received

appropriations of $2720

• Purchase orders in the amount of $1280 were issued

• Goods received were $824 (estimated and actual)

• Task: Prepare the Statement of Budgetary Resources

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• What items represent the Budgetary Resources?

• What items represent the Status of Budgetary

Resources?

• How much are the expenditures?

• How much of the obligations was left outstanding?

• What is the unobligated balance?

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Budgetary Resources:

Status of budgetary resources:

Obligations (unfilled orders) $456

Expended appropriations 824

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Budgetary Resources:

Status of budgetary resources:

Obligations (unfilled orders) $456

10

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Proprietary Reporting

• Statement of Net Cost

Costs – Earned Revenues = Net Cost

• Statement of Changes in Net Position

Financing Sources – Net Cost = Change in Net Position

• Balance Sheet

Assets = Liabilities + Net Position

• Uses the Accrual Basis of Accounting

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• Balance Sheet

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• Balance Sheet

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• Balance Sheet

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• Balance Sheet

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Other Financing Sources

• Increase Net Position

• Prevent Revenues and Expenditures from being

counted twice in the same entity

• Transfers of cash from other funds in the same

government

• Unreimbursed services provided by another

governmental segment or entity

• Cash inflows from long term borrowing

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Proprietary vs Budgetary

• The budgetary accounts use the budgetary basis:

Once the goods are received, the budgetary accounting

process is finished and the proprietary accounts take

over

Commitment  Obligation  Expenditure

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Proprietary vs Budgetary

• The proprietary accounts use the accrual basis:

• When goods are received  liability recorded

• When payment is made  liability satisfied

• When goods are consumed expense

Asset & Liability  Remove Liability  Expense

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Lacy’s Proprietary Activities

• Lacy purchases supplies on account at the grocery store (she RECEIVES GOODS)

• The EXPENDITURE is the final activity in the

budgetary accounts

• In the proprietary accounts:

• An asset is recorded: Supplies represent future

benefit – they can be used to make and sell lemonade

• A liability is recorded: Lacy has an obligation to pay the bill in the future

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• When Lacy pays the grocery bill:

• Cash (an asset) decreases

• The liability is removed because Lacy has satisfied her obligation

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• When Lacy uses the supplies to make and sell

lemonade

• Supplies (asset) decrease

• An expense is recorded

Asset & Liability  Remove Liability  Expense

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Statement of Net Cost

• Most federal agencies generate revenues that are

insignificant in comparison to expenses

• Revenues are generally reimbursements for costs

incurred on behalf of other federal agencies

• Expenses – Revenues = Net Cost

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• Salaries and personnel costs for the fictional Training Appropriation Fund for the year were $398

• Other expenses amounted to $40

• Miscellaneous revenues of $186 were collected

• Task: Prepare the Statement of Net Cost

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Salaries and personnel costs $398

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Salaries and personnel costs $398

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Statement of Change in Net Position

• Shows how the activities of the period affect the Net Position of the entity

• Net Position consists of:

Cumulative Results of Operations

+ Unexpended Appropriations

• The changes in the two categories are calculated

separately

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Cumulative Results of Operations:

= Ending

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= Ending

Proprietary activity

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= Ending

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• The fictional Training Appropriation Fund is a new

entity, so beginning net position is zero

• Appropriations were $2720, and Expenditures were

$824 (from Statement of Budgetary Resources)

• Net cost of operations is $252 (from Statement of Net Cost)

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Balance Sheet

• Similar to the Statement of Financial Position

• Assets = Liabilities + Net Position

• If Assets < Liabilities, Net position will be negative

• Net position = Unexpended appropriations +

cumulative results of operations

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• From Statement of Change in Net Position:

• Task: Prepare the Balance Sheet

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Balance Sheet

Assets:

Balance with the Treasury $2600

Equipment (net of depreciation) 380

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Balance Sheet

Assets:

Balance with the Treasury $2600

Equipment (net of depreciation) 380

Liabilities and Net Position:

Unexpended Appropriations 1896

Cumulative results of Operations 572

Total Liabilities and Net Position $2980

This statement lists the assets of the entity and shows how they were financed:

(borrowing) (appropriations) (operations)

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Check on Learning

• Which statement shows the cost to the government of providing a particular program or service?

• Which statement explains the changes in the Net

Position of the entity?

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Why is it important to be familiar with

• Understanding the basis of the accounting data permits

a meaningful translation to useful cost information

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Issues with Budgetary Accounting

• Focus is on obligations and expenditures

• Ordering and receiving goods do not reflect actual use of resources

• 99.9% philosophy of financial management

• All of the money will be spent, yet does not

necessarily reflect the true cost of operations

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Governmental Reporting Spreadsheet

Enter data to record

budgetary activity

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Prepare the Statement of

Budgetary Resources

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Budgetary Resources

equal Status of Budgetary

Resources

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Prepare Statement

of Net Cost

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Net cost flows into the Statement of Change in Net Position, Cumulative Results of Operations

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The Statement of Change in Net Position shows changes in both Cumulative Results of Operations

and Unexpended Appropriations

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The Balance Sheet shows

Assets and Liabilities as well

as the new balances in

Unexpended Appropriations

and Cumulative Results of

Operations

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Practical Exercise

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