1. 18 - 0 Advanced Accounting First Edition by Debra Jeter and Paul Chaney Chapter 18: Introduction to Fund Accounting Slides Authored by Hannah Wong, Ph.D. Rutgers University

2. 18 - 1 Fund Accounting lfor nonbusiness organizations n governmental units n hospitals n colleges and universities n voluntary health and welfare organizations n Others  trade associations, professional associations, museums, etc.

3. 18 - 2 Fund Accounting - the Basics lSeparates assets, liabilities and residual equity (fund balance) into distinct funds leach fund is created for a specific activity or objective leach fund consists of a self-balancing set of accounts leach fund constitutes a separate accounting entity

4. 18 - 3 Expendable Funds lPurpose: To record inflows and outflows of financial resources to be expended for a specific use Statement of financial positions: Financial resources cash, and claims to cash (e.g. receivables, investments in marketable securities) Claims against the financial resources Fund balance _

5. 18 - 4 Expendable Funds Statement of operations : Financial resources inflows (by source) Financial resources outflows (by function) Change in fund balance _

6. 18 - 5 Proprietary Funds lPurpose: To account for activities that are similar to business enterprises Statement of financial positions: Assets (current and non-current) Liabilities (current and non-current) Equity (net assets) _

7. 18 - 6 Proprietary Funds Statement of revenues, expenses, and changes in fund net assets: Operating revenues Less: operating expenses Operating income Plus: non-operating revenues and expenses Income before other revenues, expenses, … Other revenues, exp, etc.: capital contributions, … Increase (decrease) in net assets Plus: net assets (beginning) Net assets (ending)

8. 18 - 7 Budgetary (Governmental) Funds lPurpose: To formally incorporate the budget into the accounting records lAppropriations n budgeted expenditures n the maximum expenditures authorized by the legislature

9. 18 - 8 Types of Expendable Funds lRestricted funds n financial resources restricted by donors or other outside agencies for specific operating purposes lUnrestricted funds n financial resources available to carry out the general activities of the organization at the discretion of the governing board

10. 18 - 9 Accounting for Expendable Funds lModified accrual basis of accounting lrevenues = increase in net financial resources other than increases from other financing sources lexpenditures = decrease in net financial resources other than decreases from other financing uses lOther financing sources and uses (and transfers) = proceeds from debt issuances and transfers of financial resources to/from other funds

11. 18 - 10 Critical Events in the Use of Financial Resources Appropriation / Authorization Encumbrances Expenditure Disbursement e.g., purchase order e.g., receipt of goods e.g., payment

12. 18 - 11 General Fund - the Budget Estimated revenue1,860,000 Unreserved fund balance 840,000 Appropriations1,944,000 Budgeted Income To record budgeted revenue and expenditures at the beginning of the period The budget is recorded at the beginning of the fiscal period

13. 18 - 12 General Fund - the Budget Transfers to other funds 96,000 Due to enterprise fund 96,000 Budgeted Transfer-To To record budgeted transfer of resources to other funds Due from enterprise fund 150,000 Transfers from other funds 150,000 Budgeted Transfer-From To record budgeted transfer of resources from other funds

14. 18 - 13 General Fund - Revenues Property tax receivable1,287,500 Estimated uncollectible taxes 128,750 Revenue1,157,750 Property Tax Levied To record property taxes at the time they are levied Revenues are recorded against an increase in assets (I.e. receivables, cash, etc.)

15. 18 - 14 General Fund - Revenues Cash221,000 Revenues221,000 Collection of Fees To record collection of licenses, permits, fees, etc. Other receivables80,000 Revenue80,000 Services Rendered To record billings for routine services

16. 18 - 15 General Fund - Revenues Certificates of deposit6,000 Revenue6,000 Interest Revenue To record interest earned and reinvested in certificates of deposit Cash87,250 Revenues 87,250 Sale of Capital Assets To record proceeds from sale of used furniture and equipment. Note: proceeds from sale of capital assets are recorded as revenues

17. 18 - 16 General Fund - Revenues Receivable from state government275,000 Revenue275,000 Authorization of Grant To record municipal education grant authorized by state legislature Cash275,000 Receivable from state government275,000 Receipt of Grant To record collection of grant from state legislature

18. 18 - 17 General Fund - Revenues Cash1,281,000 Property tax receivable1,201,000 Other receivables 80,000 Collection of Tax To record collection of property tax levied in 2000 and 2001 and other receivables Estimated uncollectible taxes19,500 Property tax receivable19,500 Uncollectible Taxes To write off uncollectible 2000 property taxes

19. 18 - 18 General Fund - Revenues Estimated uncollectible taxes76,000 Property tax receivable76,000 Uncollectible Taxes To write off uncollectible 2001 property taxes

20. 18 - 19 General Fund - Expenditures Encumbrances1,291,000 Reserve for encumbrances - 2001 1,291,000 Purchase Order To record commitments on goods and services ordered in current year Encumbrances250,000 Reserve for encumbrances - 2001250,000 Purchase Order To record a contract to acquire office furnishings and equipment

21. 18 - 20 General Fund - Expenditures Expenditures 1,050,000 Vourchers payable1,050,000 Reserve for encumbrances - 20011,100,000 Encumbrances1,100,000 Receipt of Goods Encumbered To record receipt of goods and services that had been encumbered for $1,100,000

22. 18 - 21 General Fund - Expenditures Expenditures 250,000 Vourchers payable250,000 Reserve for encumbrances - 2001250,000 Encumbrances250,000 Receipt of Goods Encumbered To record receipt of office equipment and furnishings encumbered. Note: this purchase of capital assets is recorded in the same manner as the precious purchase goods and services

23. 18 - 22 General Fund - Expenditures Expenditure - 2000148,000 Vouchers payable148,000 Receipt of Goods/Services To record receipt of goods and services ordered in last year Expenditures 210,000 Vourchers payable210,000 Receipt of Goods Unencumbered To record receipt of goods and services that had not been encumbered

24. 18 - 23 General Fund - Expenditures Expenditures200,000 Cash (to internal service fund)200,000 Interfund Services To record services provided by the internal service fund Vouchers payable1,650,000 Cash 1,650,000 Payment To record payment of liabilities

25. 18 - 24 General Fund - Interfund Transfers Cash100,000 Due from enterprise fund100,000 Receipt of Transfer To record cash transferred from the enterprise fund Due to debt service fund96,000 Cash96,000 To record authorized transfers of cash to other Model city fund entities Payment of Transfer

26. 18 - 25 General Fund - Closing Entries Unreserved fund balance 32,000 Revenue1,828,000 Estimated revenue1,860,000 Revenue To close out actual and budgeted revenue accounts Appropriations1,944,000 Expenditures (for 2001)1,710,000 Encumbrances 191,000 Unreserved fund balance 43,000 To close out appropriations and current year’s expenditures and encumbrances Expenditure

27. 18 - 26 General Fund - Closing Entries Reserve for encumbrances - 2000155,000 Expenditures - 2000148,000 Unreserved fund balance 7,000 Prior Year Encumbrances To close out expenditures for goods and services ordered and encumbered in prior year Transfers from other funds150,000 Unreserved fund balance54,000 Transfers to other funds96,000 To close out interfund transfers to the unreserved fund balance Expenditure

28. 18 - 27 Inventory Methods lPurchases Method n records purchases as expenditures n no inventory is recorded lConsumption Method n records purchases as expenditures n an inventory account carries the beginning balance during the year n at year end, the inventory and expenditure accounts are adjusted to reflect the ending balance

29. 18 - 28 Advanced Accounting by Debra Jeter and Paul Chaney Copyright © 2001 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.