1. Chapter 16 Governmental Accounting:
Special Revenue Funds, Capital Project Funds, Debt Service Funds, Permanent Funds, Proprietary Funds, and Fiduciary Funds

2. Special Revenue Fund Same accounting as the General Fund
May have expenditure-driven grants
If “on behalf” payments are administered by the government, activities are accounted for here
Accounts for expendable trust fund activity where both principal and earnings are used to support government activities or programs
C16

3. Permanent Fund
Used to account for nonexpendable trusts where the earnings, but not the principal, are used to support government activities and programs
C16

4. Capital Projects Fund (CPF)
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
C16

5. CPF: Funding Sources Interfund operating transfers (credit OFS)
Long-term borrowing (credit OFS)
general obligation term or serial bonds
Intergovernmental grants (credit revenue)
Special assessments (credit revenue)
levied against property owners or other beneficiaries
C16

6. CPF: Activities Record budget on an annual basis
Interim financing (bond anticipation notes)
Record costs charged to projects
Interest on temporary investments is revenue
Intergovernmental grants are revenues
Disposition of bond premiums, discounts, accrued interest, and issuance costs
C16

7. CPF: Year End Project complete Project incomplete
close revenues and expenditures to F.B. and transfer any residual fund equity to source(s)
Project incomplete
close revenues & OFS, expenditures & OFU to the F.B.
close open encumbrances against F. B. -- leave F.B.- Reserve for Encumbrance
reestablish at beginning of next year:
Encumbrance xx
F.B. xx
C16

8. CPF Acquisition: Capital Lease
Use FASB 13 criteria to assess lease contract
Entries:
Expenditure - Fixed Asset xx
Other financing sources xx
(lease liability recorded in GLTDAG)
Expenditure - lease principal xx
Expenditure - lease interest xx
Cash xx
(fixed asset recorded in GFAAG)
C16

9. CPF Resources: Bond Issued at Premium
Issue bond:
Cash 1,509,000
OFS - Bond Proceeds 1,509,000
Transfer premium to Debt Service Fund:
Other Financing Uses 9,000
Cash (or Due to Debt Service Fund) 9,000
C16

10. CPF Resources: Bond Issued at Discount
Issue bond:
Cash 1,491,000
OFS - Bond Proceeds 1,491,000
Additional financing may have to come from a transfer from the general fund or project may have to be scaled back.
C16

11. CPF Resources: Bond Anticipation Notes (BANS)
Issued as short-term “interim” financing
In essence, a long-term debt
accounted for in GLTDAG if
maturity > 1 year or
maturity  1 year and
all steps have been taken to refinance on long-term basis
intent is supported by ability to consummate refinancing
All other BANS are current (fund liabilities)
C16

12. CPF Resources: Special Assessments
Compulsory levy made against certain property to defray part or all of the cost of an improvement or service
Assume general benefit and specific benefit to property owners assessed
C16

13. CPF Resources: Special Assessments, continued
Proceeds from special assessment-related debt
is government obligated in some manner?
yes: credit OFS-Bond Proceeds
no: credit Contributions from Property Owners
Debt not issued
credit OFS-Transfer from Other Funds
C16

14. Debt Service Fund (DSF)
Used to account for the financial resources accumulated to cover the payment of principle and interest on general government obligations
C16

15. DSF: Types of Debt Serviced
Bond issues are most common
usually serial
term bonds are rare
Capital lease obligations
Notes and warrants payable
Other
C16

16. DSF: Use required only if either:
Legally mandated, or
Accumulating resources for future years’ debt service payments (to satisfy term bond indenture requirements)
C16

17. 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
C16

18. DSF: Special Assessment
Special assessments levied to provide for debt service on indebtedness incurred for general government special assessment projects.
Noncurrent special assessments receivable included in fund assets
is offset by deferred revenue
does not result in revenue and does not affect fund balance
C16

19. DSF: Expenditure Recognition
Modified accrual
report principal and interest expenditures when legally payable (i.e., do not accrue unmatured principal or interest)
Accrual permitted, but not required, if:
resources for debt service accumulated in fund by year end and
payment due early next year
if accrual option is used, must accrue entire debt service payment due early next year
C16

20. DSF: Reserves Excess of assets over liabilities
FB-Reserved for Debt Service
amount usually equal to highest year’s principal and interest payments
“Amount Available” in GLTDAG at year end should equal amount in debt service fund balance designated for future principal payments
If not, then adjustment entry is made:
Amount Available xx
Amount to be Provided xx
C16

21. DSF: Refunding & Defeasance of Debt
Reasons for refunding or defeasance:
lower effective interest rates
extend maturity dates
revise payment schedules
remove or modify restrictions
C16

22. DSF: Refunding, defined
Issuance of new debt to finance payment of interest and principal of existing debt
current refunding - use refunding proceeds to retire debt immediately
advance refunding - place proceeds in escrow and use to pay interest and principal in future (in-substance defeasance)
C16

23. DFS: Reporting Refunding & Defeasances
DSF entry:
Cash xx
OFS-Proceeds of Refunding Bonds xx
Refunding issue is reported in GLTDAG
Defeased/retired debt is removed from GLTDAG
C16

24. In Substance Defeasance
if achieved - remove from GLTDAG --- if new debt used record Amt to be Prov & New GLTDG (as if refunded or defeased)
if attempted, but not achieved - do not remove old debt --- assets that are placed in trust are recorded as investments in Debt Service Fund -- new debt recorded in GLTDAG
C16

25. Proprietary Funds 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 inter- or intra- governmental unit
C16

26. Proprietary Funds: Interfund / Intrafund Transactions
Operating
intrafund: record other financing sources or uses
interfund: record revenue or expenditure [or expense]
Nonoperating:
government funds: record as other financing sources/uses
proprietary funds: interfund transfers
Reimbursements (adjust expenditures)
C16

27. Proprietary Funds: Common Features
Accounting equation - full accrual
Fixed assets and long-term debt maintained in the fund
Applicability of pertinent business (i.e., FASB) pronouncements
Reporting interfund transactions
Required financial statements
C16

28. Proprietary Funds: Accounting Principles
Similar to for-profit enterprises
Apply GAAP except where it has been specifically overridden by a GASB pronouncement
GASB #20 (Sept ‘93):
must apply all pertinent GAAP (ARBs, APBs, SFASs, etc.) through SFAS 102 unless conflict
may apply GAAP from SFAS 103 to present
apply ALL, unless conflict or
apply NONE, unless adopted by GASB
C16

29. Proprietary Funds: Accounting Principles, continued
GASB #34 (June ‘99):
may apply those FASB standards and interpretations limited to NFP organizations
C16

30. Proprietary Funds: Financial Statements
Balance Sheet
Statement of Revenues, Expenses, and Changes in Net Assets
Statement of Cash Flows
Plus:
Combining statements
Segment information
C16

31. Proprietary Funds: Statement of Cash Flows
Must use the direct method
4 categories of cash flows
1) Cash flows from operating activities
cash received from sales of goods/services
cash paid to suppliers, employees, and providers of services
excludes most items not related to operating income
C16

32. Proprietary Funds: Statement of Cash Flows, continued
2) Cash flows from noncapital financing activities
borrowings for noncapital construction, acquisition, and/or improvement purposes
repayments and interest on above borrowings
certain intergovernmental receipts/payments
interfund transfers from other funds except those made to finance capital activities
all interfund transfers to other funds
C16

33. Proprietary Funds: Statement of Cash Flows, continued
3) Cash flows from capital and related financing activities
acquisition and disposal of capital assets
proceeds of fixed asset disposals
borrowing for capital assets acquisition /construction/ improvements
C16

34. Proprietary Funds: Statement of Cash Flows, continued
3) Cash flows from capital and related financing activities, continued
repayments and interest on those borrowings
intergovernmental receipts restricted solely for capital assets acquisition /construction/ improvements
interfund transfers from other funds made clearly and specifically to finance capital assets acquisition/construction/improvement
C16

35. Proprietary Funds: Statement of Cash Flows, continued
4) Investing activities
making/collecting loans
acquiring/disposing of investments
collection of related interest and dividends
Reconciliation of net operating income to net cash flow from operating activities must be provided in a separate schedule
C16

36. Enterprise Funds Use mandatory when
to account for operations financed/operated like a business
provide goods/services
to the public
on continuing basis
for fee
intended to recover (most of) the full costs of providing goods/services
C16

37. Enterprise Funds, continued
Use optional when
the entity engages in activities for which governing body deems net income type information appropriate
C16

38. Enterprise Funds, continued
Common examples
public utilities
public transportation systems
recreational facilities
parking facilities
lotteries
airports
hospital/healthcare facilities
landfills
C16

39. Enterprise Funds: Non-operating Revenues
Capital contributions
Operating transfers
Loans
Others
grants
tap fees
impact fees
internal and external subsidies
debt forgiveness from general government
C16

40. Enterprise Funds: Capital Contributions
Recorded as interfund transfer
Included in the Statement of Revenues, Expenses, and Changes in Net Assets as Nonoperating Revenue
No longer a separate Contributed Capital on Balance Sheet
No longer “residual equity transfers”
C16

41. Enterprise Funds: Restricted Assets
A way to have a “fund within a fund”
distinctively titled restricted asset, liability and equity reserve accounts
customer deposits
construction financed by bond issue
debt service
contingencies
C16

42. Enterprise Funds: Landfills
Significant amounts involved
Recognize the liability for closure and post-closure care over remaining life of landfill
Current period expense:
estimated total cost
 (capacity used so far  total capacity)
= to-date cost based on used capacity
– costs already recognized
= current period expense
Liability: amount of expense not funded
C16

43. Internal Service Fund Services to other departments
Cost-reimbursement basis
Intermediary fiscal and accounting entity
economy/efficiency
equitable cost sharing
C16

44. Internal Service Fund: Pricing Policies
Charges should be based on cost
Charges cannot be excessive
Pricing often includes total costs and total consumption of goods or services
C16

45. Self-Insurance If risk financing is not centralized
do not use Internal Service Fund (ISF)
record expenditures/expenses/losses in affected funds
record liability in appropriate fund and/or GLTDAG
If risk financing is centralized
use general fund or internal service fund
if general fund, reimburse for actual claims paid
additional charges - operating transfers
C16

46. Self-Insurance ISFs Recognize claims and judgments in ISF
when probable and reasonably estimable
charges to user departments must be reasonable and equitable
Revenues and expenses must be equal over a reasonable time period
provision for future catastrophic losses allowed in charges to user departments
reflected as Reserve or Designation of Retained Earnings & in notes
Over (& under) payments are operating transfers
C16

47. Trust and Agency Funds
Used to account for assets received and held by government acting as trustee or custodian for individuals, organizations, businesses, or other governments
Difference - duration of the fiduciary responsibility
Agency Fund – short-term fiduciary responsibility
Trust Funds – long-term fiduciary responsibility

48. Types of Trust Funds Private Purpose Investment Trust Pension Trust
expendable
nonexpendable
Investment Trust
Pension Trust
C16

49. Trust Funds: Private Purpose Expendable
Can spend both principal (corpus) and earnings
Financial statements
Statement of Net Assets
Statement of Changes in Net Assets
C16

50. Trust Funds: Private Purpose Nonexpendable
Can only spend earnings
Principal (corpus) stays intact
Financial statements
Statement of Net Assets
Statement of Changes in Net Assets
C16

51. Investment Trust Funds
Used to account for pooled investment funds and other investment activity
Financial statements
Statement of Net Assets
Statement of Changes in Net Assets
C16

52. Pension Accounting GASB 25 Annual pension cost - actuarial method
Acceptable annual required contribution (ARC)
Determination of normal cost
Unfunded actuarial accrued liability and amortization
C16

53. Pension Accounting, continued
Statement of Net Plan Assets
Investments at FMV
Fixed income securities not amortized
Fixed assets reported at depreciated cost
No liability reported for actuarial present value of future benefits
Actuarial information (must comply with established parameters & assumptions) reported as Required Supplementary Information (RSI)
Statement of Changes in Net Plan Assets
Reports on additions and deductions
Identifies changes in net plan assets
C16

54. Agency Funds Used for tax collections for other governments
payroll deductions
pass-through grants
grants, entitlements, shared revenue
GASB required agency funds
if government has no program/discretion
no obligation special assessment debt service
C16

55. Agency Funds Accounting Equation assets = liabilities
Financial Statement
Statement of Net Assets
C16