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Chapter Sixteen

Accounting for
State and Local
Part I

McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LO 1
Importance of Governmental Accounting

Why is it different than for profit businesses?

Absence of profit motive removes an important
internal control
Allocation of limited resources to unlimited needs
creates public debate
Focus on sources and uses of funds
Need to inform public (stewardship)
Federal government
50 State governments
Thousands of local governmental units

Governmental Accounting

Governmental Accounting Standards

Board (GASB) generates primary
Focuses on financial reporting for non-
profit governmental agencies.
Many concepts are similar to financial
accounting, but terminology and
procedures differ.
Requires two sets of financial statements

LO 2
GASB Statement No. 34
Requires the production of two sets of
financial statements:

Fund Financial Government-wide

Statements Financial Statements
Show restrictions on Report all revenues
the use of resources, and costs with a long
and report current term focus. Of interest
revenues and to creditors, to assess
expenditures from the likelihood of being
certain activities. paid.

LO 3 Reporting Diverse Governmental
Activities - Fund Accounting
Examples include:
Governmental units
Public Safety
have many different
types of activities. Sanitation
No common motivation Health & Welfare
links these activities. Education
Each activity operates a Parks & Recreation
quasi-independent, self- Judicial System
balancing set of Water and Sewer
accounts called
Employee Pensions

LO 4
Fund Accounting Classification
All funds fall into one of three
broad classifications.
Governmenta Proprietary Fiduciary
l Funds Funds Funds

Accounting Accounting for Accounting

for activities business-type for financial
related to activities. resources held
serving the for others as
public. trustee.

LO 5 Government-Wide Financial
Two statements are required:
1)Statement of Net Assets
2)Statement of Activities

Reporting is separated into

governmental activities (government
funds and most internal service
funds) and business-type activities
(enterprise funds and remaining
internal service funds).

Fund Financial Statements

Two statements are required:

1)Balance Sheet
2)Statement of Revenues, Expenditures, and
Changes in Fund Balance

Fund-Based statements will include

information on fiduciary funds.

LO 6 Procedures
Importance of Budgets
The budget serves several purposes:
Expresses public policy
Expresses financial intent
Provides spending limits
Compares actual results to the budget as a
means of evaluating performance
Indicates proposed deficits
The budget is recorded in the books as a
DEBIT to estimated revenues, and a CREDIT
to each appropriation approved.
LO 7 Procedures
Fixed Assets
The expenditure for fixed assets is recorded in
the General Fund for fund-based statements.
But, depreciation is not recorded in the
governmental fund, since net income is not a
concept relevant to governmental units.
However, GASB requires a record of ALL
capital assets in the Statement of Net Assets in
government-wide statements.
And, depreciation expense is recorded.

LO 8 Procedures
Recognition of Revenues
Derived Tax Revenues
Imposed Nonexchange Revenues
Government-mandated Nonexchange Transactions
Voluntary Nonexchange Transactions

For Fund Statements, For Government-Wide

record the revenues Statements, record the
when they become revenues when
available for eligibility requirements
recognition. have been met.
LO 9 Procedures
Issuance of Bonds
The town of Ruark issues $9 million in bonds
for the construction of new school building.

The following journal entry is prepared to

reflect the sale of the bonds.

LO 10
Interfund Transactions
Commonly used, particularly monetary transfers
from the General Fund
Normally reported as other financing source
and other financing use within the fund-based
financial records
Many of these are not reported in the
government-wide financial statements because
they create no net impact (intra-activity
Interactivity transactions occur between
governmental and enterprise funds and are
reported on government-wide financial statements