1. Certain Debt extinguishment issues
Understanding gasb statement number 86

2. Certified continuing professional education class
2-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

3. Certain Debt extinguishment issues
Who/what are Governmental Accounting Standards Board (GASB) and Generally Accepted Accounting Principles (GAAP)?
How to record in-substance defeasance of debt, prepaid insurance, on extinguished debt
Guidance for consistent accounting transactions and notes to the financial statements
Reporting periods beginning after June 15, 2017

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

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

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

7. Who Sets Up GAAP? GASB sets the GAAP rules GASB provides:
Accounting principles
Interpretations
Guidance for implementation

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

9. 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

10. IN-substance defeasance of debt using only existing resources
GASB Statement No. 86

11. IN-substance defeasance of debt using only existing resources
Debt is considered defeased in substance when:
Cash or other monetary assets acquired with only existing resources
From a trust used solely for satisfying scheduled payments
For both principal and interest of the defeased debt

12. IN-substance defeasance of debt using only existing resources
This statement establishes:
When the government places cash and other monetary assets acquired
With existing resources
In an irrevocable trust to extinguish the debt

13. IN-substance defeasance of debt using only existing resources
For example
Is it essentially a substitute for collateral
The borrower uses proceeds from a refinance or sale to purchase a portfolio of securities
Sufficient to make the remaining debt service payments required by the loan
The note remains outstanding and ongoing debt payments derive from the cash flow from the securities.

14. IN-substance defeasance of debt using only existing resources
The trust is restricted to owning only risk-free monetary assets
To the amount
Timing
Collection of interest and principle

15. IN-substance defeasance of debt using only existing resources
Monetary assets denominated in the currency in which the debt is payable
Debt denominated in U.S. dollars
Direct obligations of the U.S. government
Obligations guaranteed by the U.S. government
Securities backed by the U.S. government obligations as collateral

16. IN-substance defeasance of debt using only existing resources
Financial statements using the economic resources measurement focus:
Recognize any difference between:
Reacquisition price (the amount required to be placed in the trust)
The net carrying amount of the debt defeased in substance
Using only existing resources separately identifying gain or loss in the period of defeasance

17. IN-substance defeasance of debt using only existing resources
Provide general description of the transaction
In the notes to financial statements in the period of defeasance
Periods following the amount of debt outstanding at period-end disclose

18. Accounting Example
The proceeds of the new debt could be reported as an “Other Financing Sources - Proceeds of Refunding Bonds” in the fund receiving the proceeds.
Sources - Bond Proceeds $3,575,000.00

19. Accounting Example
Payments to the escrow agent from resources provided by the new debt could be reported as an “Other Financing Use - Payment to Refunded Bond Escrow Agent.”
Escrow Fund $3,484,499.14

20. Accounting Example
Payments to the escrow agent made from other resources of the entity should be reported as debt service expenditures.
Costs of Issuance 50,000.00
Underwriters Discount (1.0%) 35,750.00
Other Expenses 4,750.86

21. Accounting Example Sources Total Sources $3,575,000.00 Uses
Bond Proceeds $3,575,000.00
Total Sources $3,575,000.00
Uses
Escrow Fund $3,484,499.14
Costs of Issuance 50,000.00
Underwriters Discount (1.0%) 35,750.00
Other Expenses 4,750.86
Total Uses $3,575,000.00

22. Accounting Example The accounting entry could be: Debit Credit
Other Financing Uses-Payment to Refunding Bond Escrow Agent $3,484,499.14
Debt Service - Expenditures $90,500.86
Credit
Other Financial Sources - Proceeds of Refunding Bonds $3,575,000.00

23. Prepaid insurance related to extinguished debt
GASB Statement No. 86

24. Prepaid insurance related to extinguished debt
Remaining prepaid insurance related to extinguishing debt
Included in the net carrying amount of that debt
The difference between the reacquisition price and net carrying amount
Whether through legal extinguishment or in-substance defeasance

25. Additional disclosure for all in-substance defeasance transactions
GASB Statement No. 86

26. Additional disclosure for all in-substance defeasance transactions
The trust hold only monetary assets that are risk-free
Substitution to monetary assets not risk-free is not prohibited
Disclose this in the period the debt is defeased in substance
Subsequent periods disclose the amount of outstanding debt defeased in substance

27. Effective date
Reporting periods beginning after June 15, 2017.

28. Improving accounting and financial reporting
Uniform guidance for derecognizing debt that is defeased in substance
Regardless of how cash and other monetary assets placed in a trust to extinguish debt
Enhances consistency in financial reporting of prepaid insurance related to extinguished debt
Enhances decision-usefulness of notes to financial statements in regards to debt that has been defeased in substance

29. NextGen Transactions

30. Tennessee State chart of accounts
GRANT1-FED
Fund
Function
Object
Cost Center
Sub Object
TN State COA follows this format:
Fund - 3 digit
Function – 5 digit
Object Code – 3 digit
Cost Center – 5 digit
Sub Object – 3 digit
Object Codes are only used on Expenditures
Cost Centers and Sub Objects are:
Optional
Completely user defined

31. TRANSACTION TYPES Understanding transaction types
The different transaction types:
AP – Accounts Payable (Accrual Only)
BB – Beginning Balance
CD – Cash Disbursements
CR – Cash Receipts
DP – Deposits
EC – Encumbrances*
IV – Invoice Entries (Accrual Only)
JE – Journal Entries
PA – Payroll
PO – PO Liquidations *
BG – Budget
BA – Budget Amendment

32. TRANSACTION TYPES - NEXTGEN
Manual Transactions are entered exactly the same way regardless of Transaction Type. Transaction Types are simply selected from the drop down.

33. Understanding transaction types and how they effect reporting
The transaction types do not control how the balances are reflected on the ledger
They do determine how the transaction is reported
The transaction type determines the Journal the transaction will be listed on
CD/AP Journal
General Journal
Cash Disbursement Journal
Cash Receipts Journal
Deposit Journal
Encumbrance Journal
Payroll Journal
PO Journal
Budget Journal

34. T - Accounts The simplest of account structures
Shaped like the letter T
Account title and account number appear above the T
Debits always go on the left side of the T
Credit always go on the right side of the T

35. T - Accounts Record the Receipt of a Tax Payment (Cash Basis)
Current Property Tax Revenue
There are a couple of ways these transactions get recorded in your ledger.
Some of you are using manual daily cash reports (DCR’s) to make manual CR (cash receipt entries to your ledger.
Some of you are using the automated features (GL Interface) in the software to keep your ledger updated. This can be set up through utility billing, miscellaneous receipts, property tax, and business license.

36. Nextgen Transaction Process
To make manual transaction entries, from the Financial Management Menu select Transactions. Then select the sub menu option Transactions. Next, select New in the ribbon bar at the top.

37. Nextgen Transaction Process
Click the ellipsis to Add New Transaction Batch.  The Batch ID field will be filled in with a default batch ID.  Enter the Date for the batch. Enter any internal notes in the Internal Notes field if desired. Click “Save and Close”
If the Post this transaction box is checked, the transaction does not have to be placed in a batch and will be automatically posted at the end of the transaction entry process.

38. Nextgen Transaction Process
Enter the Transaction Date and Period to post your entries to
Select the Transaction Type from the drop down
Enter the Description associated with the transaction
Click the “Next” button

39. Nextgen Transaction Process
Cash is entered as a debit on the left side
Property Tax revenue is entered as a credit on the right side
When all entries are entered and correct click on the “Next” button.  This will open up the Transaction Summary Screen.

40. Nextgen Transaction Process
Verify the summary information is correct on both the Transaction and Entries tabs of the Transaction Summary Screen
Click the "Finish" button to complete the transaction

41. Nextgen Batch Posting Process
From the Financial Management menu select Transactions. Then select the sub menu option Transaction Batches
Click the Find button to display the unprocessed Transaction Batches
Select the batch by double clicking on the batch

42. Nextgen Batch Posting Process
Select Print Batch to print a report of the entries in the batch before posting
Select Close Batch (only closed batches can be posted to the NextGen GL)
Select Post Batch
Click on the “Next” button. (Summary screen will show the batch details)
Click the “Finish” button to post

43. T - Accounts Record Tax Payment is Due (Accrual Basis)
Property Tax Receivable
Current Property Tax Revenue
There are a couple of ways these transactions get recorded in your ledger.
Create manual entries (JE) in your ledger to record these transactions.
Use the automated features in the software to keep your ledger updated. A common use of this would be in the Utility Billing system.

44. Nextgen Transaction Process
To make manual transaction entries, from the Financial Management Menu select Transactions. Then select the sub menu option Transactions. Next, select New in the ribbon bar at the top.

45. Nextgen Transaction Process
Place a check in the Post this transaction box
Enter the Transaction Date and Period to post your entries to
Select the Transaction Type from the drop down
Enter the Description associated with the transaction
Click the “Next” button

46. Nextgen Transaction Process
Property Tax Receivable is entered as a debit on the left side
Property Tax revenue is entered as a credit on the right side
When all entries are entered and correct click on the “Next” button.  This will open up the Transaction Summary Screen.

47. Nextgen Transaction Process
Verify the summary information is correct on both the Transaction and Entries tabs of the Transaction Summary Screen
Click the "Finish" button to complete the transaction
Once you click “Finish” the transaction will be automatically posted

48. T - Accounts Record the Payment of an Invoice for Gasoline (Cash Basis)
Gas, Oil, Etc. Expense
There are a couple of ways these transactions get recorded in your ledger.
When you create invoices in the AP/Purchasing system and let the system generate the vendor checks, the system creates the CD entries for the ledger.
When you write manual checks and then enter them in the AP/Purchasing system, the system creates the CD entries for the ledger.

49. CASH DISBURSEMENT JOUNAL

50. T - Accounts Record an Invoice for Gasoline (Accrual Basis)
Accounts Payable
Gas, Oil, Etc. Expense
There are a couple of ways these transactions get recorded in your ledger.
When you create invoices in the AP/Purchasing system, the system will generate the accrual entries (AP or IV) for the ledger. This requires some additional set up. Be sure to contact LGC support or your field rep for assistance in setting this up.
You can also create manual entries to set up the accrual.

51. CD / AP JOURNAL

52. T - Accounts Record Transactions for Employee Payroll (Cash Basis)
Federal Tax Payable
FICA Payable
848.50
75.00
76.50
Salary Expense
FICA Matching Expense
76.50
There are a couple of ways these transactions get recorded in your ledger.
When you run a payroll or create a manual payroll check in the system, the system can create these entries for you. This requires some additional set up.
You can also create manual entries.

53. PAYROLL JOURNAL

54. Questions?