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The General Fund and

Special Revenue Funds


Chapter 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 statements

General Fund

Used to account for all financial resources


that are not restricted to specific purposes
or otherwise required to be accounted for in
another fund.
Only fund that all governments have.

Special Revenue Funds

Used to account for general government


financial resources that are restricted by
law or contractual agreement to specific
purposes other than debt service or major
capital projects.
Exist as long as the government has
resources dedicated to specific purposes.

MFBA

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 Equation


Financial

Related

Fund

Assets

Liabilities

Balance

Assumptions for this Chapter

Transactions do not address budgetary


accounting, reporting, & control issues
Accounts maintained on GAAP basis
during the year

Second assumption rarely holds in practice,


but makes instruction easier and more
uniform

Illustrative 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]


Taxes Receivable Current
Allowance for Uncollectible
Current Taxes
Revenues Property Taxes

200,000
3,000
197,000

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 Receivable
Allowance for Uncollectible
Accounts Receivable
Revenues

36,000
1,000
35,000

#3 Orders and Contracts [Page 74]


Expenditures
Vouchers Payable

29,900
29,900

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 accounts

GCA-GLTL Accounts
GCA (Equipment)
+$6,100

GLTL

Net Assets
+$6,100

#5 Salary Expenditures [Page 74]


Expenditures
Vouchers Payable

29,900
29,900

Salary Expenditures

Comprise about 75% of city General Fund


expenditures and 85% of school board
General Fund expenditures
Effective control over these expenditures is
essential

Interfund Activity

Nonreciprocal transactions

Interfund reimbursements
Interfund transfers

Reciprocal transactions

Interfund services provided


Interfund loans

Interfund Reimbursements

Underlying event:

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 not separately reported in financial
statements

#6 Interfund Reimbursement
Receiving fund [Page 75]
Due from SRF
Expenditures

1,500

Paying fund (not in textbook)


Expenditures
Due to General Fund

1,500

1,500

1,500

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 services

Common examples

GF resources transferred to DSF for principal and interest


payments
GF resources transferred to CPF to pay for governments
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 resources transferred to other funds to subsidize
operations

#7 Principal & interest [Page 76]


Transfer to DSF
Cash

5,000
5,000

Effect on DSF

Financial
Assets
+$5,000

Related
Liabilities

Fund
Balance
+$5,000 (OFS)

#8 Routine unpaid transfer [Page 77]


Transfer from SRF
Due from SRF

10,000
10,000

Effect on SRF

Financial
Assets

Related
Liabilities
+$10,000

Fund
Balance
+$10,000 (OFU)

#9 Transfer to EF [Page 77]


Transfer to EF
Cash

6,000
6,000

Effect on EF
Assets

+$6,000

Liabilities

Net Assets

+$6,000 (Transfer)

Interfund Services

Defined as sales and purchases of goods


and services between funds for a price
approximating their external market value
Accounting:

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]


Expenditures
Due to ISF

30,000
30,000

Effect on Stores ISF

Assets

+$30,000

Liabilities

Net Assets

+$30,000 (Revenues)

Interfund Loans

One fund loans cash to another


Transaction does not change Fund Balance
Reporting

Lender fund recognizes a receivable


Receiving fund recognizes a liability

Interfund Loan Terminology

Lender Fund

Short-term loan Due from


Long-term loan Advance to (normally causes
Reservation of Fund Balance)

Receiving Fund

Short-term loan Due to


Long-term loan Advance from

#11 Payment of short-term loan [Page 78]


Due from SRF
Cash

1,250
1,250

Effect on SRF

Financial
Assets

Related
Liabilities

+$1,250

+$1,250

Fund
Balance

#12 Loan repayment [Page 78]


Cash
Due from SRF

1,250
1,250

Effect on SRF

Financial
Assets

$1,250

Related
Liabilities

$1,250

Fund
Balance

Short-term external borrowings

Usually made with banks


Receipt of loan and principal repayment do
not affect Fund Balance; however,
payment of interest does affect Fund
Balance

#13 Short-term borrowing [page 79]


Cash
Short-Term Notes Payable

20,000
20,000

#14 Partial loan repayment [page 79]


Short-Term Notes Payable
Expenditures [Interest]
Cash

5,000
600
5,600

Extraordinary & Special Items

Extraordinary item

Used by FASB & GASB


Event is not under 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
either unusual or infrequent

#15 Special item [Page 80]


Cash
Special Item Proceeds from
Sale of Beach Property

8,000
8,000

Effect on GCA at historical cost

GCA
(Land)

$2,000

GLTL

Net Assets

$2,000

#16 Extraordinary item [Page 80]


Cash
Extraordinary Item Insurance
Recovery Proceeds

5,750
5,750

Effect on GCA at historical cost

GCA
(Land)

$6,000

GLTL

Net Assets

$6,000

Other 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]
Cash
Taxes Receivable Current
Accounts Receivable

175,000
160,000
15,000

Reclassify taxes as delinquent [Page 81]


#18 Receivable account
Taxes Receivable Delinquent
Taxes Receivable Current
#19 Allowance account
Allowance for Uncollectible Taxes
Current
Allowance for Uncollectible
Taxes Delinquent

40,000
40,000

3,000

3,000

#20 Other Revenues [Page 81]


Cash
Revenues

205,000
205,000

#21 Ordering goods & services [Page 81]


No journal entry required until goods
or services are received.

#22 Collecting delinquent accounts


Cash
Taxes Receivable Delinquent
Revenues

[Page 82]

20,200

Revenues are for interest and penalties not previously accrued.

20,000
200

#23 Purchase of investments [Page 82]


Investments
Cash

10,000
10,000

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.

#24 Accruing other expenditures


Expenditures
Vouchers Payable

[Page 82]

300,000
300,000

Effect on GCA

GCA
(Equipment)
$23,000

GLTL

Net Assets
$23,000

#25 Paying amounts owed [Page 82]


Vouchers Payable
Cash

360,000
360,000

#26 Interfund transaction: Payment to


ISF of balance owed [Page 82]
Due to Internal Service Fund
Cash

22,500
22,500

#27 Collect accounts receivable [Page 83]


Cash
Accounts Receivable

13,000
13,000

#28 Write-off an account [Page 83]


Allowance for Uncollectible Accounts
Receivable
Accounts Receivable

400
400

#29 Correcting an error [Page 83]


Correction of Prior Year Error
Vouchers Payable

300
300

Using the CPYE Account


Some wonder about using the Correction of Prior
Year Error Account (CPYE)
Since the previous years expenditure accounts
have been closed, it cant be charged to that
account
The use of the Unreserved Fund Balance account
is an option, but doing so would hide the error
Besides, remember to where the CPYE account
will be closed: Unreserved Fund Balance

Year-End Adjustments

Revenue Adjustments

Interest on investments and delinquent taxes


Unbilled charges for services
Unrestricted intergovernmental grants that are
due but havent been received

Expenditure Adjustments

Interest on short-term debt


Accrued payroll

A1 Interest & Penalties [Page 83]


Interest & Penalties Receivable
Allowance for Uncollectible
Interest & Penalties
Revenues Interest & Penalties

550
50
500

A2 Accrued interest on investments

[Page 84]

Accrued Interest Receivable


Revenues

400
400

A3 Accrued interest on short-term debt


[Page 84]
Expenditures
Accrued Interest Payable

250
250

Closing Entry Process

Close the operating accounts and update


Unreserved Fund Balance
Close subsidiary revenue and expenditure
accounts

C Close the Actual [Page 85]


Revenues
Transfer from SRF
Special Item Proceeds from Sale of
Beach Property
Extraordinary Item Insurance
Recovery Proceeds
Unreserved Fund Balance
Expenditures
Transfer to DSF
Transfer to EF
Correction of Prior Year Error

438,100
10,000

8,000
5,750
51,300
399,250
5,000
6,000
300

Reserve for Encumbrances

Reserves indicate that portion of Fund


Balance not available for appropriation
Reserve for Encumbrances indicates
amount that must be appropriated next
year for transactions started in current year

#30 Outstanding orders [Page 84]


Unreserved Fund Balance
Reserve for Encumbrances

20,000
20,000

General Fund Financial Statements

Balance Sheet
Statement of Revenues, Expenditures, and
Changes in Fund Balance
___ Revenues, Expenditures, and Changes
in Fund Balance Budget-to-Actual

Statement of . . ., if part of the Basic Financial


Statements
Schedule of . . ., if placed in Required
Supplementary Information (RSI)

Balance Sheet

Standard Report Format


Current Assets = Current Liabilities + Fund Balance

Fund Balance presented in two sections

Reserved with specific reserves identified


Unreserved which may be further divided into

Designated with specific designations identified


Undesignated

Reserves of Fund Balance

Indicate that some amounts are not available for


appropriation or expenditure
Creation requires action by governing council
Common reserves:

Encumbrances
Petty Cash
Inventories
Advances

Long-Term Loan [Page 91]


The Loan
Advance to SRF
Cash

5,000
5,000

The Reserve
Unreserved Fund Balance
Reserve for Advance to SRF

5,000

5,000

Unreserved Fund Balance

Available for appropriation and expenditure


May be designated for some specific
purpose

Normally done by Finance Director


Less formal than a reserve

Statement of Revenues, Expenditures,


& Changes in Fund Balance

May be referred to as the operating


statement
Format specified by the GASB (there had
been optional formats prior to 1999)

Operating Statement Format

Notes on the Statement [Page 94]

Beginning Fund Balance shown as previously


reported and than corrected for error
Transfers reported separately from revenues and
expenditures
Special item and extraordinary item reported
between Other Financing Sources (Uses) and Net
Change in Fund Balance
Statement explains changes in fund balance for
the year

Classification of Expenditures

Function
Organizational Unit (including Department
and Subunit)
Activity
Object Class
Character