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Gov and Not-for-Profit Accounting Exam 1 Chapter 2, Study notes of Government & Non-Profit Accounting

Brooklyn Institute of Business TechnologyGovernment & Non-Profit Accounting

This is the notes for the second chapter on exam 1

Typology: Study notes

2021/2022

Uploaded on 10/12/2022

savana-minerva
savana-minerva 🇺🇸

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Chapter 2: Fund Accounting
I. What is a fund
A. A fund is a fiscal and accounting entity, each one has its own set of accounts and
prepares its own financial statements
1. Gov/NFP have several funds it uses to account for resources and activities
2. Number and types are not dependent on size of the gov but actually how it
is organized, revenue sources, services provided
3. Not a functional department but it divides a gov/NFP entity into
classifications of resource allocation
II. Key elements of gov F/S
A. Assets: resources with present service capacity that the government presently
controls. Ex: cash, receivables, investments, buildings and equipment, etc.
B. Liabilities: present obligations to sacrifice resources that the government canno
avoid. Can be legally enforceable or a social/moral/economic obligation (like
vacation pay)
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Download Gov and Not-for-Profit Accounting Exam 1 Chapter 2 and more Study notes Government & Non-Profit Accounting in PDF only on Docsity!

Chapter 2 : Fund Accounting

I. What is a fund A. A fund is a fiscal and accounting entity, each one has its own set of accounts and prepares its own financial statements

  1. Gov/NFP have several funds it uses to account for resources and activities
  2. Number and types are not dependent on size of the gov but actually how it is organized, revenue sources, services provided
  3. Not a functional department but it divides a gov/NFP entity into classifications of resource allocation II. Key elements of gov F/S A. Assets: resources with present service capacity that the government presently controls. Ex: cash, receivables, investments, buildings and equipment, etc. B. Liabilities: present obligations to sacrifice resources that the government canno avoid. Can be legally enforceable or a social/moral/economic obligation (like vacation pay)

C. Deferred outflow of resources: consumption of NA by the government that is applicable to a future reporting period. NA may be used in one period to provide benefits solely for another period.

  1. Ex: if the gov pays cash now (decreases cash) for a service in the future there is no current expense so they would recognize a deferred outflow of resources (debit) to offset the cash paid. D. Deferred inflow of resources: acquisition of NA applicable to a future period. Debit cash credit deferred inflow of resources E. Net position: residual of all other elements in a statement of financial position = (assets + deferred outflows) - (liabilities + deferred inflows) F. Outflow of resources: expenses and expenditures, but also some losses such as other financing uses. Can result from decrease in assets, increase in liabilities, or decrease in previously rec’d deferred outflow of resources G. Inflow of resources: gains and other financing sources, increase in assets, decrease in liabilities, decrease in previously rec’d deferred inflow of resources III. What characterizes funds A. Main equation: assets + deferred outflows - liabilities - deferred inflows = fund balance
  2. NFP uses assets - liabilities = fund balance
  3. Fund balance/net position are residuals that replace owner’s equity since there are no owners of gov/NFP entities B. 5 classifications of fund balance: a hierarchy of how the government is bound to specific money in the fund
  4. Nonspendable : cannot spend/legally required to remain intact a) Items that are not expected to be converted to cash (inventory, deferred outflows of resources, etc.) b) Ex: principal of an endowment fund where only the inv’t income can be spent
  5. Restricted : money constrained for a specific purpose by an external party a) Constraints externally imposed by creditors/bondholders/grant providers/etc. Which gives the gov’t a legally enforceable requirement to use funds for the purpose in which the external party intended. Only the provider can remove the restriction
  6. Committed : contraind for specific purposes by the highest level of the government itself a) Commitments cannot be lifted unless the gov’t takes away the use by formal action. It’s a contractual obligation specifically committed for use.
  7. Assigned : amounts government explicitly intended to use for a specific purpose

A. Governmental funds: maintain gov’s operating and financing activities. An expendable fund (resources from taxes/fees/etc)

  1. General fund : all resources not in other funds (all unassigned). Most significant fund for all gov. 2. Special revenue funds: revenues restricted or committed to a special purpose other than debt service or capital projects. Accounts for a specific revenue stream. a) Ex: gas tax revenues held for highway maintenance, lottery fund proceeds held for education 3. Debt service funds: resources that are restricted, committed, or assigned for the payment of interest and principal lof LTD. A particular special revenue fund that gets its resources from other funds or from taxes/fees dedicated to debt service. 4. Capital projects funds: resources restricted, committed, or assigned for capital outlays. Another form of special revenue funds that are legally required. 5. Permanent funds: resources legally restricted for only earnings to be used. Fiduciary in nature but are not because they are for public use not private purpose. B. Proprietary funds: account for business activities. Nonexpendable funds, fund pays its way through customer payments 1. Enterprise funds: business activities where gov sells g/s to public a) Ex: utilities, golf courses, hospitals, transportations, toll roads 2. Internal service funds: business activities where customers are other funds/departments within the same gov or sometimes other govs a) Ex: vehicle repair shop for police and fire departments, store that sells office supplies to other gov departments C. Fiduciary funds: resources that will benefit parties other than the gov. Funds are not consolidated into the gov-wide statements because they only benefit others. 1. Pension/employee benefit trust funds: funds to be spent on employee benefits 2. Investment trust funds: local gov invest cash to earn a return 3. Private purpose trust funds: not in the other two funds. Include endowments, some scholarship funds, estate funds, etc. 4. Custodial funds: resources not held in a trust but held by one gov for another. Typically held short term and agent doesn’t manage them. a) Ex: taxes collected by one gov for benefit of another, refundable deposits VI. What’s included in the comprehensive annual financial report (CAFR)

A. Consists of: basic financial statements but way more than just that, very lengthy reports. Includes statements from both a gov-wide and fund level perspective. B. Introductory section: letter of transmittal and general info on the organization of a gov as well as the elected and admin officials C. Financial section: MD&A, basic F/S, notes to statements, RSI, combining and individual fund F/S

D. Statistical section: current and historical data with demographic, economic, and tax info E. Gov wide statements: statement of net position (b/s) and statement of activities (statement of rev and exp) F. Fund statements: governmental funds (b/s, statement of revenues, expenditures, changes in fund balance). Proprietary funds (b/s, statement of revenues, expenses, and changes in net position, and statement of CF). Fiduciary funds (statement of fiduciary net position, statement of changes in fiduciary net position) G. Major funds = net position is at least 10% of the relevant fund category and 5% of the corresponding total for all gov and enterprise funds combined VII. Differences of annual reports btwn gov & NFP A. FASB has no requirement for fund based reporting like GASB does B. NFPs have a current fund which is like a general fund. They also have some current restricted funds which are like the special revenue funds. They have plant funds for debt as well. C. NFP financial report: closer to regular business than governmental. Net assets are to be categorized by restriction of donors (either not restricted or restricted)

  1. Restricted = must be used for a special purpose or can't be spent until the future