1. FISCHER | TAYLOR | CHENG Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds

2. Learning Objectives 1.Tell why governments use special revenue, permanent, capital projects, and debt service funds, and demonstrate how transactions are accounted for and reported using those funds. 2.Account for and prepare financial statements of proprietary funds. 3.Explain the usefulness of and the accounting process for fiduciary funds and how these funds are reported. 4.Identify and account for transactions that affect different funds and/or account groups. COPYRIGHT © 2012 South-Western/Cengage Learning 2

3. Special Revenue Fund Revenue obtained from specified sources is restricted by law or donor for a specified current operating purpose or to the acquisition of a relatively minor fixed asset Similar to general fund –Accounting procedures Annual budgets Encumbrance and expenditure system –Financial statements COPYRIGHT © 2012 South-Western/Cengage Learning 3

4. Permanent Fund Used to account for nonexpendable trusts where the earnings, but not the principal, are used to support government activities and programs –If principal and earnings can be spent, use Special Revenue fund All assets, including land and other real estate, are recorded at fair value. Changes in fair value are reported as investment income. COPYRIGHT © 2012 South-Western/Cengage Learning 4

5. Capital Projects Fund (CPF) Accounts for the acquisition of major general fixed assets through: –Purchase –Construction –Capital lease Same basic accounting and reporting model as general fund or special revenue funds COPYRIGHT © 2012 South-Western/Cengage Learning 5

6. CPF: Resources Interfund operating transfers: OFS General obligation bond proceeds –Face amount: OFS –Premium: OFS (transfer to Debt Service fund) –Discount: OFU (reduce project authorization or replace with other funding) Intergovernmental grants: revenue Special assessments: revenue –Levied against property owners or other beneficiaries COPYRIGHT © 2012 South-Western/Cengage Learning 6

7. CPF: Activities Record budget on an annual basis Interim financing (bond anticipation notes) Recognize revenue from temporary investment of funds Record costs charged to projects Annual closing entries COPYRIGHT © 2012 South-Western/Cengage Learning 7

8. CPF: Year End Project Is Incomplete Close budgetary accounts Close revenues and OFS, expenditures and OFU to Fund Balance-Committed Close open encumbrances to Fund Balance-Committed Reinstate encumbrances at beginning of next year: Project Is Complete Close budgetary accounts Close revenues and expenditures to Fund Balance- Unassigned Transfer residual funds Close the project fund COPYRIGHT © 2012 South-Western/Cengage Learning 8 Encumbrancesxx FB-Committedxx FB-Assignedxx Encumbrancesxx

9. Debt Service Fund (DSF) Used to account for the financial resources accumulated to cover the payment of principal and interest on general government obligations Modified accrual accounting COPYRIGHT © 2012 South-Western/Cengage Learning 9

10. DSF: Types of Debt Serviced Bond issues are most common –Usually serial –Term bonds are rare Capital lease obligations Notes and warrants payable Other COPYRIGHT © 2012 South-Western/Cengage Learning 10

11. DSF: Sources of Financing Property taxes usually transferred in from another fund Sales tax Special assessments Income from investments (net of any arbitrage) Refunding or defeasance COPYRIGHT © 2012 South-Western/Cengage Learning 11

12. DSF: Special Assessment Special assessments levied to provide for debt service on indebtedness incurred for general government special assessment projects –Service-type special assessments –Capital-improvement special assessments Noncurrent special assessments receivable included in fund assets –Is offset by deferred revenue –Does not result in revenue and does not affect fund balance COPYRIGHT © 2012 South-Western/Cengage Learning 12

13. Proprietary Fund Pertaining to a proprietor Users of goods or services will be charged on the basis of consumption Types –Enterprise: Goods or services provided to the general public –Internal service: Goods or services provided by one government department to other departments within the same government or to other governments COPYRIGHT © 2012 South-Western/Cengage Learning 13

14. Enterprise Fund Account for goods or services provided by a governmental unit to the general public: –User is charged based on consumption –Fund continues indefinitely Use of an enterprise fund is –Elective for any activity that charges a fee to users –Required if Activity is solely financed with revenue debt or Cost of services required to be covered by revenue or Pricing policies are designed to recover costs COPYRIGHT © 2012 South-Western/Cengage Learning 14 Proprietary Funds

15. Enterprise Fund Initial capital –Issue long-term debt –Transfer from another source e.g. general fund –External sources Revenue –Operating –Nonoperating Expenses –Operating –Nonoperating COPYRIGHT © 2012 South-Western/Cengage Learning 15 Proprietary Funds

16. Enterprise Fund: Restricted Assets Assets (cash and investments) upon which some limitation has been imposed that makes them available only for designated purposes. Restricted assets and their related current liabilities are recorded in specially designated accounts so that the segregation of these items is ensured COPYRIGHT © 2012 South-Western/Cengage Learning 16 Proprietary Funds

17. Internal Service Fund Provide services to other governmental units –Sufficient to cover costs and replace capital assets Accounting is on accrual basis –Records own assets –Charges to customer departments are revenues Customer recognized expense or expenditure Financial statements –Balance sheet –Statement of revenues, expenses, and changes in retained earnings –Statement of cash flows. COPYRIGHT © 2012 South-Western/Cengage Learning 17 Proprietary Funds

18. Fiduciary Funds: Trust and Agency Account for resources for which a governmental unit is acting as a trustee or agent for an external individual, organization, or government Difference is in duration –Trust fund: long-term fiduciary responsibility –Agency fund: short-term fiduciary responsibility COPYRIGHT © 2012 South-Western/Cengage Learning 18 Fiduciary Funds

19. Trust Fund: Private Purpose Establishment: assets are invested to produce earnings for a designated external purpose Accounting is similar to proprietary funds –All assets are recorded at fair value –Change in fair value is investment income Financial statements –Statement of fiduciary net assets –Statement of changes in fiduciary net assets COPYRIGHT © 2012 South-Western/Cengage Learning 19 Fiduciary Funds

20. Trust Fund: Investment Trust Fund Used to account for the assets, liabilities, net assets, and changes in net assets of external participants Accounting and financial reporting is similar to private-purpose trust fund COPYRIGHT © 2012 South-Western/Cengage Learning 20 Fiduciary Funds

21. Trust Fund: Pension Trust Fund Full accrual accounting Changes in resources –Increases: contributions, earnings, and increases in plan asset value –Decreases: payments to retirees, refunds to contributors, and administrative costs. The statement of changes in plan net assets reports –additions to net assets (not revenues) –deductions from net assets (not expenses) COPYRIGHT © 2012 South-Western/Cengage Learning 21 Fiduciary Funds

22. Agency Fund Required when money collected or withheld must be forwarded to the proper destination. –Tax collections for other government units –Payroll deductions Amounts collected are shown as “Due to” other funds and units “Pass-through” treatment is permissible if the agency fund is merely a conduit COPYRIGHT © 2012 South-Western/Cengage Learning 22 Fiduciary Funds