Governmental Accounting Revenues from Nonexchange Transactions Local Government Corporation

Revenues from Nonexchange Transactions Certified Continuing Professional Education Class 1-hour credit Must remain for the entirety of the class to receive CPE credit Must sign in and sign out to receive CPE credit Certificates of attendance will be ed for CPE credit

Revenues from Nonexchange Transactions Governmental Accounting Standards Board Classes of Nonexchange Transactions Accounting Requirements Property Taxes

Revenues from Nonexchange Transactions Income and Sales Tax, and Other Derived Tax Revenues Adjustments for the Accrual Basis of Accounting Grants and Other Financial Assistance

Revenues from Nonexchange Transactions Governmental Accounting Standards Board

GOVERNMENTAL ACCOUNTING STANDARDS BOARD What is Generally Accepted Accounting Principles? Who is GASB? GASB Statements Specific to Revenues from Nonexchange Transactions

What is GAAP? Proper accounting Decades of accounting practice No authoritative book

What is GAAP? Does not account for every situation Make the best choice Rule makers leave room for options

What is GAAP? The grey area of materiality Qualitative aspects Quantitative aspects

Who Sets Up GAAP? GASB sets the GAAP rules GASB provides: ◦ Accounting principles ◦ Interpretations ◦ Guidance for implementation GASB Statement No. 76 ◦ “The Hierarchy of GAAP for State and Local Governments”

GASB Statement No. 76 Category A ◦ GASB Statements Category B ◦ GASB Technical Bulletins ◦ GASB Implementation Guides ◦ American Institute of Certified Public Accountants (AICPA) literature cleared by GASB

GASB Statement No. 76 If not Specified in Category A or B ◦ GASB Concepts Statements ◦ Pronouncements and literature from the following:  Financial Accounting Standards Board (FASB)  Federal Accounting Standards Advisory Board (FASAB)  International Accounting Standards Board (IASB)

GASB Statement No. 76 If not Specified in Category A or B ◦ AICPA literature not cleared by the GASB ◦ Practices widely practiced by state and local government agencies ◦ Literature from professional organizations, regulatory agencies, and authoritative accounting texts

Revenues from Nonexchange Transactions Classes of Nonexchange Transactions

GASB Statement No. 33 GASB Statement No. 33 “ Accounting and Financial Reporting for Nonexchange Transactions” Exchange transactions ◦ Two parties giving and receiving something of value Nonexchange transactions ◦ Government selling or receiving something of value and the other party not receiving back something of value in exchange

CLASSES OF NONEXCHANGE TRANSACTIONS Derived tax revenues Imposed nonexchange revenues Government-mandated nonexchange transactions Voluntary nonexchange transactions

Derived tax revenues Sales taxes Personal income taxes Corporate income taxes

Imposed Nonexchange Revenues Real estate taxes Fines and penalties

Government-mandated Nonexchange Transactions Transactions between two levels of government Specified or timed purpose Typically a grant

Government-mandated Nonexchange Transactions Recipient Government “must perform or facilitate a particular program in accordance with the providing government’s enabling legislation, and provides resources for that purpose” Transaction must occur within a specified time limit for eligibility

Voluntary Nonexchange Transactions Contract or legislation between two or more willing parties Not imposed upon either party Grants, entitlements, and donations by nongovernment entities Frequently timed requirements and fulfillment purposes necessary

Revenues from Nonexchange Transactions Accounting Requirements

ACCOUNTING REQUIREMENTS Derived exchange transactions Imposed nonexchange revenues Government-mandated and voluntary nonexchange transactions

Derived Exchange Transactions Accrual basis of accounting ◦ Recognize when transaction takes place ◦ Create receivable before fiscal year-end ◦ Deferred revenue on taxes received before due

Derived Exchange Transactions Modified accrual basis of accounting ◦ Record revenue “available to meet the current obligations of the government” ◦ Revenue collectible within current accounting period ◦ Revenue collectible within 60 days of the fiscal year ending

Imposed Nonexchange Revenues Accrual basis of accounting ◦ Recognize tax once legally enforceable or after time requirements have passed ◦ Deferred revenue if received before time requirements met

Imposed Nonexchange Revenues Modified accrual basis of accounting ◦ Availably criterion met before recording revenue ◦ Deferred revenue if receivables not collectible until more than 60 days after fiscal year-end

Government-mandated and Voluntary Nonexchange Transactions Accrual basis of accounting ◦ Has all eligibility requirements to receive the revenue been met?  Is it a grant awarded for a future fiscal year?

Government-mandated and Voluntary Nonexchange Transactions Accrual basis of accounting ◦ Grant awarded as the expenses occur?  Cost reimbursable-type  Expenditure driven grant ◦ Deferred revenue for grants received in advance

Government-mandated and Voluntary Nonexchange Transactions Modified accrual basis of accounting ◦ Eligibility requirements met and resources available ◦ Practical to record cost and revenue if collectible sometime in the next fiscal year

Revenues from Nonexchange Transactions Property Taxes

Revenue assessed to finance budget Budgeted to cover current liabilities Modified accrual basis Recognized in fiscal year levied Available and collectible within 60 days after fiscal year-end

Recognizing Property Tax Criterion Levied to finance the expenditures of the budget period reported Must be collected no later than 60 days past the fiscal year- end

Recording Property Tax Recorded on the day levied Property tax receivables net of estimated uncollectible Property tax collected in advance record as deferred revenue

Revenues from Nonexchange Transactions Income and Sales Taxes, and Other Derived Tax Revenues

Income and sales taxes significant portion of government’s operation Other derived tax provides revenue such as cigarette tax All derive from taxes imposed upon an exchange transaction

Income and Sales Taxes, and Other Derived Tax Revenues The modified accrual basis is used for revenues collected shortly after year-end Local governments record them once measurable and available Sales tax due every 30 days uses the modified accrual approach at year-end

Revenues from Nonexchange Transactions Grants and Other Financial Assistance

GRANTS AND OTHER FINANCIAL ASSISTANCE What financial assistance should be recorded Revenue recognition of grants and other financial assistance Expenditure-driven grants and other financial assistance revenue

Grants and Other Financial Assistance Legally structured as ◦ Grant ◦ Contract ◦ Cooperative agreement

Grants and Other Financial Assistance Comes in the form of ◦ Entitlements ◦ Shared Revenues ◦ Pass-through grants ◦ Food stamps ◦ On-behalf payments for fringe benefits and salary

What Financial Assistance Should be Recorded Pass-through grants allow for spending on the behalf of another Recipient government records as an expenditure and revenues

What Financial Assistance Should be Recorded Government used as cash conduit with no administrative responsibilities Report as an agency fund ◦ GASBS 24, “Accounting and Financial Reporting for Certain Grants and Other Financial Assistance”

Revenue Recognition of Grants and Other Financial Assistance Recognize in the general or special revenue funds once measureable and available Always consider the nature of the requirements

Revenue Recognition of Grants and Other Financial Assistance Financial assistance in the form of shared revenues or entitlements Legal restrictions and enforceable contracts Failure to comply results in forfeiture Recorded as a receivable once available

Revenue Recognition of Grants and Other Financial Assistance Received prior to period intended for use is deferred revenue Eligibility requirements is the key to knowing when to record Example: A grant approved for a school year will be recognized Sept. – May No specified time is recognized immediately for the entire amount

Expenditure-driven Grants and Other Financial Assistance Revenue Cost-driven grants are earned as related expenditures occur Revenue recognized as expenses occur up the allowable agreement Expenses submitted for reimbursement Recorded as a receivable Expected to break even

Revenues from Nonexchange Transactions Basic understanding of recognizing and recording of revenues from nonexchange transactions GASB designed for governments GASB ever-changing model Enhance existing skills

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