The General Fund and Special Revenue Funds - …

1 The General fund and Special Revenue FundsChapter 3 Learning Objectives Discuss similarities & differences between GF and SRFs Explain MFBA used for these Funds Understand and prepare budgetary entries Analyze common journal entries for transactions, including interfund activity Prepare adjusting & closing entries Define Special items and extraordinary items Prepare GF and SRF financial statementsGeneral fund Used to account for allfinancial resources that are notrestricted to specific purposes or otherwise required to be accounted for in another fund . Only fund that all governments Revenue Funds Used to account for General government financial resources that are restrictedby law or contractual agreement to specific purposes other than debt service or major capital projects.

2 Exist as long as the government has resources dedicated to specific Measurement Focus (MF) is on current financial resources what is expendable Basis of Accounting (BA) is modified accrual recognition occurs for Revenues when measurable & available Expenditures when underlying liability is incurred, except for long-term debt principal and interest payments (when due)Basic Accounting EquationRelatedLiabilitiesFundBalanceFin ancialAssetsAssumptions for this Chapter Transactions do not address budgetary accounting, reporting, & control issues Accounts maintained on GAAP basis during the yearSecond assumption rarely holds in practice, but makes instruction easier and more uniformIllustrative Entries Property tax levy Other revenues Orders and contracts Salary expenditures Interfund activity Short-term borrowing Extraordinary and Special items Other transactions and events#1 Property Tax Levy [Page 72]

3 Taxes Receivable CurrentAllowance for UncollectibleCurrent TaxesRevenues Property Taxes200,0003,000197,000 Property Tax Levy Notice use of allowance account in entry No bad debts expense remember, a governmental fund does not use expenses Records Revenue at the amount government expects to collect This form of entry assumes net amount will be available other options discussed in Chapter 5 Other Revenues Some revenues will be accrued when services are provided Other revenues may be recognized only when cash is received no allowance necessary since all of Revenue received#2 Other Revenues [Page 73]Accounts ReceivableAllowance for UncollectibleAccounts ReceivableRevenues36,0001,00035,000#3 Orders and Contracts [Page 74]

4 ExpendituresVouchers Payable29,90029,900 Orders and Contracts Preceding slide showed the General journal entry However, the details are in the subsidiary ledger effects not demonstrated in slide show Most accounts are for current operating expenditures Last account affects capital assets, resulting in accounting in GCA-GLTL accountsGCA-GLTL AccountsGCA (Equipment)Net AssetsGLTL+$6,100+$6,100#5 Salary Expenditures [Page 74]ExpendituresVouchers Payable29,90029,900 Salary Expenditures Comprise about 75% of city General fund expenditures and 85% of school board General fund expenditures Effective control over these expenditures is essentialInterfund Activity Nonreciprocal transactions Interfund reimbursements Interfund transfers Reciprocal transactions Interfund services provided Interfund loansInterfund Reimbursements Underlying event.

5 Transaction initially recorded in one fund Should have been accounted for and reported in a different fund May also be used to distribute costs from one from to others Will notseparately reported in financial statements#6 Interfund ReimbursementReceiving fund [Page 75]Due from SRFE xpendituresPaying fund (not in textbook)ExpendituresDue to General Fund1,5001,5001,5001,500 Interfund Transfers Usually involve moving assets (cash or inventory) from one fund to another Do not involve requirement or expectation or subsequent repayment May also result from one fund providing services to another without charging for those servicesCommon examples GF resources transferred to DSF for principal and interest payments GF resources transferred to CPF to pay for government s portion of capital project SRF resources transferred to GF to finance expenditures for which SRF resources are restricted GF resources transferred to EF to provide initial permanent financing Residual assets of CPF or DSF transferred upon completion of purpose of fund PF

6 Resources transferred to other Funds to subsidize operations#7 Principal & interest [Page 76]Transfer to DSFCash5,0005,000 Financial AssetsFund BalanceRelated Liabilities+$5,000+$5,000 (OFS)Effect on DSF#8 Routine unpaid transfer [Page 77]Transfer from SRFDue from SRF10,00010,000 Financial AssetsFund BalanceRelated Liabilities+$10,000+$10,000 (OFU)Effect on SRF#9 Transfer to EF [Page 77]Transfer to EFCash6,0006,000 AssetsNet AssetsLiabilities+$6,000+$6,000 (Transfer)Effect on EFInterfund Services Defined as sales and purchases of goods and services between Funds for a price approximating their external market value Accounting.

7 Seller fund sells goods or services to external party (recognizes revenues) Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)#10 Interfund services [Page 78]ExpendituresDue to ISF30,00030,000 AssetsNet AssetsLiabilities+$30,000+$30,000 (Revenues)Effect on Stores ISFI nterfund Loans One fund loans cash to another Transaction does not change fund Balance Reporting Lender fund recognizes a receivable Receiving fund recognizes a liabilityInterfund Loan Terminology Lender fund Short-term loan Due from Long-term loan Advance to (normally causes Reservation of fund Balance)

8 Receiving fund Short-term loan Due to Long-term loan Advance from#11 Payment of short-term loan[Page 78]Due from SRFCash1,2501,250 Financial AssetsFund BalanceRelated Liabilities+$1,250+$1,250 Effect on SRF#12 Loan repayment[Page 78]CashDue from SRF1,2501,250 Financial AssetsFund BalanceRelated Liabilities $1,250 $1,250 Effect on SRFS hort-term external borrowings Usually made with banks Receipt of loan and principal repayment do not affectFund Balance; however, payment of interest does affectFund Balance#13 Short-term borrowing [page 79]CashShort-Term Notes Payable20,00020,000#14 Partial loan repayment [page 79]Short-Term Notes PayableExpenditures [Interest]Cash5,0006005,600 Extraordinary & Special Items Extraordinary item Used by FASB & GASB Event is notunder control of management and is both(1) unusual in nature and (2) infrequent in occurrence Special Item Unique to GASB Event is under control of management and is eitherunusual or infrequent#15 Special item[Page 80]CashSpecial Item Proceeds fromSale of Beach Property8,0008,000 GCA (Land)

9 Net AssetsGLTL $2,000 $2,000 Effect on GCA at historical cost#16 Extraordinary item[Page 80]CashExtraordinary Item InsuranceRecovery Proceeds5,7505,750 GCA (Land)Net AssetsGLTL $6,000 $6,000 Effect on GCA at historical costOther Transactions and Events Preceding entries were for events common to all governments Following entries may or may not occur for every government#17 Collecting taxes and other receivables [Page 81]CashTaxes Receivable CurrentAccounts Receivable175,000160,00015,000 Reclassify taxes as delinquent[Page 81]#18 Receivable accountTaxes Receivable DelinquentTaxes Receivable Current#19 Allowance accountAllowance for Uncollectible Taxes CurrentAllowance for UncollectibleTaxes Delinquent40,0003,00040,0003,000#20 Other Revenues [Page 81]

10 CashRevenues205,000205,000#21 Ordering goods & services[Page 81]No journal entry required until goods or services are received.#22 Collecting delinquent accounts[Page 82]CashTaxes Receivable DelinquentRevenues20,20020,000200 Revenues are for interest and penalties not previously accrued.#23 Purchase of investments [Page 82]InvestmentsCash10,00010,000 The GASB has issued two standards in the last few years addressing accounting for investments: #31 and #40. #31 addresses marking investments to fair value. #40 addresses risk issues related to the investment. These and related issues are discussed in Chapter 5.