1. Beams, Advanced Accounting 10e, Ch. 20
1/18/2019
Chapter 20: Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds
by Jeanne M. David, Ph.D., Univ. of Detroit Mercy
to accompany Advanced Accounting, 10th edition
by Floyd A. Beams, Robin P. Clement,
Joseph H. Anthony, and Suzanne Lowensohn
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2. Proprietary and Fiduciary Funds: Objectives
Review the appropriate accounting and financial reporting for proprietary funds.
Recognize the proper treatment of internal service funds in the government-wide statements.
Introduce the differences between a proprietary fund statement of cash flows and its commercial business counterpart.
Prepare journal entries and fund financial statements for fiduciary funds.
Learn about GASB guidance for pension fund accounting.
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3. Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds
1: Proprietary Funds
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4. Accounting for Proprietary Funds
Model
CA + NCA – CL – NCL = Net assets
Use accrual accounting
Net assets
Invested in capital assets net of related debt
Restricted net assets
Unrestricted net assets
Two types
Internal service funds
Enterprise funds
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5. Internal Service Funds
Use for government activities that provide goods and services to other departments or agencies of that same governmental unit
Central stores/ purchasing
Motor pools
Print shop
Might be started with transfers from general fund and/or contributed capital from other sources
Main source of revenues is other funds
Use "Due from …" rather than accounts receivable
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6. ISF – Entries (1 of 3)
Cash
200
Motor vehicles
120
Other financing source - nonreciprocal transfer from general fund
Contributed capital from municipality
A village begins a central motor pool with $200 from the general fund and a contribution of vehicles
The Other financing source and Contributed capital increase the ISF's net assets
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7. ISF – Entries (2 of 3)
ISF
Due from general fund
100
Due from special revenue fund 30
Service revenues
130
Expenditures
Due to internal service fund GF
SRF
It provides motor pool services to the general fund and special revenue fund and bills them $100 and $30
The general fund and special revenue fund will record the bills received as expenditures
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8. ISF – Entries (3 of 3)
ISF
Cash
100
Due from general fund
Due to internal service fund GF
The internal service fund collects the $100 due from the general fund
The general fund will record the payment of its liability
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9. ISF – Other Transactions
Most other transactions parallel those of businesses
Use expenses, not expenditures
Record acquisition, disposition, and depreciation of fixed assets
Income is closed to unrestricted net assets
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10. Enterprise Funds Use for governmental activities
Financed and operated like a business
Provide goods and services to general public
Utilities, civic centers, golf clubs
Might start with funds transferred and contributions
Main revenues from general public, but some from other departments of the government
Use "Accounts Receivable" for general public and others and "Due from …" for other funds of this governmental unit
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11. EF – Entries (1 of 4)
Restricted cash 10
Customer deposits
Utility-type enterprise funds often charge customer deposits
Amounts given as deposits are restricted cash, not included in current assets
Customer deposits are liabilities, may be current or long term
Deposits may be returned or applied against the customers accounts receivable
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12. EF – Entries (2 of 4) Due from other governments 50
Contributed capital - capital grant
Equipment 65
Cash
Grants to acquire or enhance capital assets are recorded as contributed capital
Grants to help fund operating activities are non-operating revenue
The three entries represent:
Notice of grant to fund new equipment
Acquire equipment, eligible to receive cash
Receive grant monies
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13. EF – Entries (3 of 4) EF
Accounts receivable
500
Due from general fund 40
Service revenues
540
Expenditures
Due to internal service fund GF
Provide services and bill general public $500 and its own governmental unit $40
General fund records the bill of $40
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14. EF – Entries (4 of 4) Collect from general public and the general fund
Cash
490
Accounts receivable
450
Due from general fund 40
Due to internal service fund GF
Collect from general public and the general fund
The general fund records the payment
The enterprise fund will use allowances for uncollectibles and bad debt expense, like business enterprises
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15. EF – Other Transactions
Most follow that of businesses
Income is closed to unrestricted net assets
Enterprise funds may issue bonds
General obligation or revenue bonds
Record as bonds payable
Use effective interest method
Premiums or discounts
Capital leases
Record leased assets and lease obligation
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16. 2: Internal Service Funds in Government-wide Statements
Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds
2: Internal Service Funds in Government-wide Statements
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17. Proprietary Fund Financial Statements
Three statements
Statement of net assets (balance sheet)
Statement of revenues, expenses, and changes in net assets
Statement of cash flows
Use separate columns for each significant enterprise fund, other enterprise funds, total enterprise funds and total internal service funds
Internal service funds are not added to enterprise funds
ISFs are governmental activities
EFs are business type activities
Columnar presentation is not included for brevity
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18. Statement of Net Assets
Cash
$720
Receivables, net
261
Due from other funds 32
Supplies 62
Total current assets
$1,075
Restricted cash
$185
Land 95
Buildings and equipment
1,990
Vehicles
220
Accumulated depreciation
(1,005)
Total noncurrent
assets
$1,485
Total assets
$2,560
Accounts payable
$68
Due to other funds 4
Other current liabilities
129
$201
Customer deposits
$185
Compensated absences
295
Bonds and notes payable
465
945
Total liabilities
$1,146
Net assets:
Invested in capital assets, net of related debt
$575
Restricted
270
Unrestricted
569
Total net assets
$1,414
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19. Statement of Revenues, Expenses and Changes in Net Assets
Operating revenues
$1,220
Operating expenses
(936)
Operating income
$284
Nonoperating revenues (expenses):
Miscellaneous revenue 2
Interest expense
(19)
Income (loss) before contributions and transfers
$267
Capital contributions 50
Transfers in 1
Transfers out
Change in net assets
$299
Total net assets, 7/1/08
1,200
Total net assets, 6/30/09
$1,499
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20. Government-wide Statements
Internal service funds are included with governmental funds
All represent governmental activities
Enterprise funds displayed in a single column labeled Business-type activities
ISF and EF already use accrual accounting
Interfund balances: either
Eliminate
Show interfund balances separate from other assets/ liabilities
No reconciliations needed for ISF and EF
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21. ISF in Financial Statements
In the Proprietary fund statements:
Internal service funds are in a separate column
Separately, to the side of the total for business-type/ enterprise funds
Not added to those enterprise funds
In the Government-wide statements:
Internal service funds plus governmental funds are shown as one total
Labeled as governmental-type activities
Governmental-type and business-type activities are the added together
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22. 3: Proprietary Funds Statement of Cash Flows
Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds
3: Proprietary Funds Statement of Cash Flows
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23. Cash Flow Categories Four cash flow categories:
Cash flows from operations
Cash flows from noncapital financing activities
Cash flows from capital and related financing activities
Cash flows from investing activities
Compared to for-profit enterprises
Capital expenditures are removed from other investing activities
Their related financing activities are taken from other financing activities
Capital expenditures and related financing have their own category
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24. Statement of Cash Flows
Cash flows from operations:
Cash received from customers
$1,161
Cash paid to suppliers
(326)
Cash paid for other expenses
(471)
Net cash provided by operations
$364
Cash flows from noncapital financing activities:
Cash from general fund 3
Cash flows from capital and related financing activities:
Purchase of equipment
($18)
Payment on capital debt
(87)
Net cash provided by capital and related financing
(105)
Cash flows from investing activities:
Interest and dividends 1
Net increase in unrestricted cash
$263
Cash balance, 7/1/08
457
Cash balance, 6/30/08
$720
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25. Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds
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26. Accounting for Fiduciary Funds
Account for assets held in a trust or agency capacity
Not used for government's own programs
Fiduciary funds
Private purpose trust funds
Investment trust funds
Pension trust funds
Agency funds
Focus on demonstrating fulfillment of fiduciary responsibilities
Accrual accounting
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27. Agency Funds For funds held in custodial capacity
County government acts as agent collecting tax for local government
Collections on special assessments from taxpayers and repayment of special assessment bonds if local government is not obligated on bonds
Agency Model:
Assets = Liabilities
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28. Agency Transactions
New County collects property taxes for two cities, A and B. New County uses an agency fund to record the assessment and collections
It deducts a 1% commission for acting as agent
The 1% commission is transferred to the general fund, and recorded as revenue there
For simplicity, assume all taxes assessed are collected
Entries for New County follow
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29. Agency Entries – for New County
Taxes receivable
300
Liability to City A
200
Liability to City B
100
Cash 2 1
Due to general fund 3
198 99
Only asset and liability accounts are used!
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30. CA + NCA – CL – NCL = Net assets
Trust Funds
CA + NCA – CL – NCL = Net assets
Assets: cash, receivables, investments
Liabilities: payables
Net assets
Net assets held in trust, expendable
Net assets held in trust, nonexpendable
Temporary accounts
Contributions (in)
Distributions (out)
Investment income, expenses
Use Accrual accounting
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31. Fiduciary Fund Financial Statements
Fund Statements
Statement of fiduciary net assets
Statement of changes in fiduciary net assets
Fiduciary funds are not included in the government-wide statements
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32. Accounting for State and Local Governmental Units – Proprietary and Fiduciary Funds
5: Pension Funds
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33. Pension Trust Fund
Account for Public Employee Retirement Systems (PERS)
GASB Statement No. 25, 27 and 50
Do not apply FASB pension accounting
Disclosures
Scheduled of funding progress for defined benefit, single and multiple employer plans
Also disclose
Other post-employment benefits
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34. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc.   Publishing as Prentice Hall
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