CH 05

CHAPTER 5
REVENUE ACCOUNTING
Governmental Funds
Prentice Hall Publishing Governmental and NonProfit Accounting 7e 1-1 Freeman / Shoulders
5-1
LEARNING OBJECTIVES
Determine
when various types of revenues

should be recognized and reported
Identify the four categories of nonexchange
transactions
Understand
Modified accrual revenue recognition criteria in
both simple and complex situations

Accounting for the levy, collection, and
enforcement of property taxes, as well as other
tax revenues
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
5-2
LEARNING OBJECTIVES
Account
for
Investment income per GASB Statement 31

Revenue budget revisions
Changes in revenue accounting principles
Understand
and account for the various types

of intergovernmental revenues, including
Both pass-through grants and other grants

Entitlements
Shared revenues
Payments in lieu of taxes
5-3
CHAPTER OVERVIEW
Reviews,
expands, and refines the

governmental fund revenue accounting
discussions of Chapters 2 and 4
Comparisons
to private business
Similar - distinguish nonrevenue resources

Different revenue accounting
5-4
CHAPTER OVERVIEW
(Continued)
Coverage
includes:
1. Revenue definition and recognition

2. Classification of revenue accounts
3. Accounting for specific types of revenues
4. Other revenue-related transactions,
events, and entries
Chapter assumes
GAAP-based revenue
accounting and reporting
5-5
REVENUE DEFINITION
Governmental
fund revenues are

increases in fund net assets that
either
Result in a corresponding increase in
the net assets of the government as a

whole or
Result from exchange-like interfund
services provided
5-6
GOVERNMENTAL FUND
REVENUES
May
result from:
Exchange transactions (or exchange-like
interfund transactions)
Record the asset when the revenue is earned or

Record the asset when received if prior to being
earned
Revenues recognized under modified accrual

recognition criteria
If prior to meeting criteria, report as deferred revenue
Nonexchange transactions addressed in GASB 33

5-7
WHAT ARE NONEXCHANGE

REVENUE TRANSACTIONS?
Transactions
in which a
governmental entity gives or

receives value without receiving
or giving equal value in return.
5-8
NONEXCHANGE TRANSACTION
TYPES
Four revenue transaction types based on

principal characteristics (Figure 5-1):
1.
Derived tax revenues
2.
Imposed nonexchange revenues
3.
Government-mandated nonexchange transactions
4.
Voluntary nonexchange revenues
5-9
NONEXCHANGE TRANSACTIONS
Each
revenue
Transaction type has

Identifying characteristics
Recognition criteria for
Asset recognition
Revenue recognition
5-
DERIVED TAX REVENUES

Examples
- Sales taxes
- Hotel taxes
- Gas taxes
- Income taxes
Characteristics
Tax assessed on exchange transactions of other
entities (non-government) or individuals
Asset
recognition
When underlying exchange transaction occurs
(sale takes place or income is earned)

If cash is received before underlying exchange
occurs, revenue should be deferred
5-
IMPOSED TAX REVENUES

Examples
Property taxes
Fines and forfeitures
Characteristics
Assessments and taxes imposed on nongovernmental
entities other than those on exchange transactions
Asset
recognition
When legally enforceable claim arises

Subject to time restriction when resources are first
required or permitted for use (i.e., property taxes in

the period for which taxes are levied)
5-
GOVERNMENT-MANDATED
REVENUES
Examples
State grants for mandated environmental facilities
Federal grants for mandatory school programs
Characteristics
When a government at one level provides resources to a
government at another level

Mandating use for a specific purpose
Asset
recognition
When eligibility requirements are met
Recipient meets characteristics specified by provider

Expenditures are made under reimbursement program
When timing requirements are met
5-
VOLUNTARY REVENUES
Examples
State reimbursements for special education programs
State distribution of gas taxes to city for roads
Characteristics
When two or more parties willingly enter into legal or
contractual agreements
Eligibility requirements must be met
Asset
recognition
When eligibility requirements are met

Similar to government-mandated revenues plus any
other contractual requirements must have occurred
5-
Two distinctions for the use of

resources
1. Time requirements
2. Purpose restrictions
5-
Time
requirements affect the timing of

recognition and specify
When resources are required to be used
When use may begin
Or if resources are required to remain intact
indefinitely or until a specified date or event

occurs
5-
Purpose
restrictions specify the purpose

for which resources are to be used
Shouldnt affect recognition, however
Restrictions not completed result in
reporting resources as restricted or reserved
5-
REVENUE DEFINITION
Operating
revenues classified as all

increases in fund net assets, except
Interfund reimbursements
Interfund transfers
Compensation for loss of assets
Long-term debt issues
5-
MAJOR REVENUE SOURCES

Property
taxes
Known when levied

Recorded on modified accrual basis
Sales
/ gas taxes
Known when returns are filed

Accrue upon sale
Income
taxes
Known when tax return filed

Accrue when income earned
5-
REVENUE RECOGNITION
CRITERIA
Most
revenues recognized on a
modified accrual basis
Revenues recognized only when
susceptible to accrual which means both

Objectively measurable and
Available to finance current expenditures
Others recognized
On a cash basis
Initially as deferred revenue
5-
REVENUE RECOGNITION
CRITERIA (Continued)
Available
means both
Collected during the period or soon
enough thereafter (i.e., 60 days) to be

used to pay current period liabilities
and
Legally available (usable) to finance
current period expenditures
5-
REVENUE RECOGNITION
Legally
available means both
Legal claim to resources established by
year end
and
Intended to finance current or prior
period expenditures
5-
REVENUE RECOGNITION
Establish
legal claims as follows:
For property taxes - levy of taxes

For charges for services - performing services
For sales taxes - taxable sale by business
For income taxes - taxpayer earning taxable income
For grants - expended for purpose
5-
REVENUE RECOGNITION
The
GASB notes that accrual

application requires:
1. Proper judgment
2. Consideration of materiality
3. Regard for practicality
4. Consistency in application
5-
CLASSIFICATION OF
REVENUE ACCOUNTS
Classified
by source in order to:
1. Prepare and control the budget

2. Control collection of revenues
3. Prepare financial statements
4. Prepare financial statistics
5-
COMMON GENERAL FUND

REVENUE CLASSIFICATIONS
Represent
broad classifications
Not actual general ledger accounts

Detail accounts established under
each classification
May
also apply to other funds
5-
COMMON GENERAL FUND

Taxes
Licenses
and permits
Intergovernmental revenues
Charges for services
Fines and forfeits
Investment income (unless immaterial)
Miscellaneous (e.g., investment income,
rents, contributions)
5-
Fund
versus governmental unit revenues
Those not reported as revenues

Interfund transfers Other financing sources
Reimbursements Credit to expenditures
Those reported as fund revenues

Exchange-like interfund charges for services
Examples:
Internal Service Fund (i.e., for printing) revenues

Enterprise Fund (i.e., electricity) revenues
5-
TAXES
Taxpayer-assessed
tax recognition
Recognize in accounting period susceptible
to accrual (i.e., measurable and available)

Taxpayer liability & collectibility established
Collectible within 60 days after year-end
Usual practice during the year is to

Recognize when cash received
Accrue at year-end when practical
5-
SALES TAXES
GASB
guidelines for revenue recognition
Accrue in period sale occurs if

Collected and held by merchant or another government
Remitted within revenue cutoff period (i.e. 60 day period)
Consider comparability if received before or
after normal time

5-
INCOME TAXES
Primarily
states, some cities and counties
Estimate revenues from analysis of

Current installments
Returns filed
Economy
Historical receivables and refunds
Recognize revenues if availability criteria met
Reduce revenues for refunds payable
5-
PROPERTY TAXES
Recording
and recognition overview
Property tax revenue recorded net of:

Estimated uncollectible taxes receivable
Discounts on taxes
Property taxes recorded as deferred revenue if:
Taxes levied to finance subsequent year's budget
Current year taxes collected after > 60 days past year
end (or other shorter cutoff period)
5-
PROPERTY TAXES
Recognition requires understanding of

the following steps in the process:
1.
2.
3.
4.
5.
6.
7.
Assessment of the property

Review of assessments
Assessment equalization
Levy of the tax
Billing taxpayers
Collecting taxes
Tax enforcement
Steps 4-7 require accounting entries and

recognition of property tax revenues
5-
PROPERTY TAXES
What
are property (ad valorem) taxes?
Tax levied on assessed value of property

Typically, the largest and most important
revenue of many
Cities, towns, villages
School districts
Counties
5-
PROPERTY TAXES
Assessment
of the property
Local assessor performs the assessment

Based on property values of all taxable
property in each jurisdiction
Result is provided on an assessment
role provided to each jurisdiction
5-
PROPERTY TAXES
Review
and equalization of assessments
Review
Property owners notified of assessment
Owners have right of appeal to a review board
Board may adjust values
Adjusted assessment role provided to localities
Equalization
Attempt made at state level to equalize a wide
variety of assessed valuations compared to
market values
5-
PROPERTY TAXES
Levying
the tax
Legislative body passes a tax act / ordinance
(a local law) to set the tax rate(s)

Provides property tax revenue for the year
Levy may be for unrestricted general purposes
Recorded in the General Fund
Some levies may be restricted; examples

Parks recorded in Special Revenue (Parks) Fund
Schools - recorded in Special Revenue (School) Fund
Repay debt recorded in Debt Service Fund
5-
PROPERTY TAXES
Determining
the tax rate
Total assessed valuation divided by the
required levy amount to balance the budget

Assessed Valuation = $10 billion = $0.025 = rate
Required Amount = $250 million = total levy
Or 25 mills per dollar of assessed value
Must consider any limit on tax rates
prescribed in many governments

5-
PROPERTY TAXES
Distributing
the tax revenue
Using the total $250 million tax levy example:

$150 million General Fund
$ 10 million Special Revenue (Parks) Fund
$ 50 million Special Revenue (Schools) Fund
$ 40 million Debt Service Fund
$250 million Total tax levy
5-
PROPERTY TAXES
Billing
taxpayers
Amount due equals:

Assessed value of each property
Multiplied by the levied tax rate
Result is recorded on the tax role for
each tax (fiscal) year
Serves as the subsidiary ledger for each years

Taxes Receivable in general ledger
5-
PROPERTY TAXES
Recording
taxes receivable / tax revenues
Revenue should be recorded net of estimated
uncollectible taxes
Dr Taxes receivable-current
Cr Allowance for uncollectible taxes-current
Cr Revenues-Property taxes
Note: No bad debts; revenue recorded net

5-
PROPERTY TAXES
Recording
tax collections
Separate collections between current
and delinquent taxes receivable
Dr Cash
Cr Taxes receivable-current
Cr Taxes receivable-delinquent
5-
PROPERTY TAXES
Discounts
on taxes
Some governments allow discounts if paid
before specified dates

Discounts recorded as revenue reductions;
not interest expenditures
Cr Allowance for discounts on taxes
5-
PROPERTY TAXES
Taxes levied but not available
Recorded as deferred revenue when:

1.
2.
Taxes levied at the end of one year (Year 1) to

finance the next fiscal years (Year 2) operations
(therefore, not legally available)
Taxes will not be collected within 60 days into the
next year (Year 3) and therefore are not available
to finance current-year (Year 2) expenditures
Entry when levied would be:
Dr Deferred revenues
5-
PROPERTY TAXES
Taxes collected in advance

Some taxpayers will pay next years
taxes prior to the levy date

Represent revenue of the next year,
therefore, not recognized as revenue in
the current year
Entry when collected to identify those
taxes collected before they were levied
Dr Cash
Cr Taxes collected in advance
5-
PROPERTY TAXES
Enforcing tax collections
Governments set delinquent tax dates

Unpaid taxes subject to penalties and interest and
recorded as follows:
Dr Interest and penalties receivable-delinquent taxes

Cr Allowance for uncollectible interest and penalties
Cr Revenues-property taxes
Taxes, penalties and interest become a lien against

the property
Property subject to sale after certain period

Any excess sale proceeds remitted to owner
5-
PROPERTY TAXES
Accounting for tax sales

Tax liens on property with unpaid taxes
are established after set period

Recorded as follows:
Dr Tax liens receivable

Dr Allowance for uncollectible delinquent taxes
Dr Allowance for uncollectible interest and penalties
Cr Allowance for uncollectible tax liens
Cr Taxes receivable-delinquent
Cr Interest and penalties receivabledelinquent taxes
5-
PROPERTY TAXES
Retaining property for government use

Properties not sold or redeemed are
sometimes retained and record as follows:
Dr Expenditures capital outlay (1)

Dr Allowance for uncollectible tax liens (2)
Cr Tax liens receivable
Notes:
(1) Lesser of salable value or tax lien receivable
(2) Difference between salable value and tax lien receivable
5-
REVENUE RECOGNITION
LICENSES AND PERMITS
Governments
have right to control

activities of individuals or corporations
Related revenue usually only recognized as
revenues when cash received
Amount usually not known until issued
Types of licenses and permits

Alcoholic beverage, occupational license
Building permits, driver license
Motor vehicle permit, marriage license
5-
INTERGOVERNMENTAL
REVENUES
Grants
A contribution from another government
For general use or for specified purpose
Restricted capital grants such as
Airport improvements, buses
Subway and wastewater treatment systems
Restricted operating grants such as
Social service, environmental programs
5-
INTERGOVERNMENTAL
REVENUES
Entitlements
and shared revenues
Entitlements
Payment based on a specified formula such as
State aid for local public schools
Federal aid for airport improvement programs
Shared revenues
Revenue received by one government and
shared on preset basis with another such as
Sales taxes
Gas taxes
5-
INTERGOVERNMENTAL
REVENUES
Payments
in lieu of taxes
Amounts paid by one government to
reimburse another for lost revenue from tax

exempt paying government
Examples:
Federal government to school districts near
military bases
State university to local government for police and
fire protection
Recorded in same manner as tax revenues

5-
INTERGOVERNMENTAL
REVENUES
Fund identification
Purpose and restriction for use of revenue
required to record in proper fund, such as:

Special revenue fund for restricted revenues is common
for accountability purposes
General fund if legal requirements can be satisfied
Debt service fund for payment of principal or interest
on general long-term debt
Capital projects fund for general government capital
construction or acquisition
Proprietary funds for intergovernmental revenue
restricted for use in those funds
5-
INTERGOVERNMENTAL
REVENUES
Pass-through
grants
Primary recipient-receives grant, but

Cannot spend for own purposes
Must pass-through to secondary recipient
Sub recipient spends grant for specified
purposes or may pass it through to others

Recognize both revenues and
expenditures/expenses unless only a cash
conduit, then report in Agency Fund
5-
REVENUE RECOGNITION
INTERGOVERNMENTAL REVENUES
Recognize
in period they become
Susceptible to accrual, i.e., measurable and
available
If virtually unrestricted, recognize at receipt or

earlier if susceptible to accrual
If restricted to expenditure for specific purposes,

recognize when eligibility requirements are met
5-
REVENUE RECOGNITION
Grant
received before earned
When grant is received

Dr Cash
Cr Unearned revenues - grants

When conditions of the grant are met
Dr Expenditures
Cr Vouchers payable or cash

Dr Unearned revenues - grants
Cr Revenues - grants
5-
REVENUE RECOGNITION
Grant
earned before received
When government makes all
qualifying expenditures and meets

all eligibility requirements
Dr Expenditures
Cr Vouchers payable or cash

Dr Due from grantor
Cr Revenues - grants
5-
CHARGES FOR SERVICES

Examples
services
of general government
Court costs, fees and charges

Recording legal documents
Zoning and subdivision fees
Sales of maps and publications
Building inspection fees
5-
CHARGES FOR SERVICES

Distinguish
from licenses and permits as

charges for services are made for purpose of
recovering costs
Distinguish exchange-like interfund services
and reimbursements
Exchange-like
Revenues recognized in provider fund
Expenditures recognized in recipient fund
Reimbursements
Expenditures in fund receiving goods or services
Expenditure credit in fund providing
5-
FINES & FORFEITURES

Not
a major revenue source
Parking fines
Fines levied by the courts
Commonly
basis
accounted for on a cash
5-
INVESTMENT INCOME
GASB
establishes fair value standards for the

following types of investments:
Participating investment contracts affected by
market interest rate changes since:
They are negotiable or transferable

Their redemption value considers market rates
External investment pools

Open-end mutual funds
Debt securities
Equity securities
5-
INVESTMENT INCOME
The following exempted investments

may report at the lower of
Amortized cost or
2. Fair value
Nonparticipating, interest-earning investment
contracts
Money market investments with remaining
maturities at purchase < 1 year
Participating, interest-earning investment
contracts with remaining maturities at
purchase < 1 year
1.
5-
INVESTMENT INCOME
What
is fair value?
Amount at which the investment may
be exchanged in a current transaction

between willing parties; other than a
forced or liquidation sale
5-
INVESTMENT INCOME
Fair value
accounting standards
Investments reported at fair value in the
balance sheet
Changes in fair value reported as revenue
(investment income) in the operating statements
Investment income =
+ interest earned
+ dividends earned
+ change in fair value of investment
See Figures 5-2 and 5-3 for examples

5-
INVESTMENT INCOME
Report investment income using one of two

reporting options
1. Report investment income as single line item
2. Or in detail such as:
Interest and dividends
Net increase (decrease) in the
fair value of investments
Total investment income
$30,000
1,000
$31,000
Details of realized and unrealized gains and
losses may be disclosed in the statement notes

5-
SALES & COMPENSATION FOR LOSS

OF CAPITAL ASSETS
Capital
assets
Proceeds from the sale of or

Compensation for loss of
reported as other financing sources (nonrevenue) preferably in the fund that

financed the original acquisition, such as:
General fund
Capital projects fund
Internal service funds
Enterprise funds
Trust funds
5-
NON TRANSFER PAYMENTS

FROM PUBLIC ENTERPRISES
Payments
made by enterprise funds in lieu of

property taxes from which they are exempt
Reported as payments in lieu of taxes (a revenue)
Provided they approximate the value of services
Otherwise
they are classified as transfers
5-
ESCHEATS
Includes
reversions to the state of
Net assets of deceased persons dying in testate

Inactive checking accounts
Financial
assets recorded as revenues or

Capital assets received recorded in
General Capital Assets Accounts
5-
PRIVATE CONTRIBUTIONS
Unrestricted
contributions (rare)
Recognized as General Fund revenues

Restricted
contributions
Usually recognized as revenue
depending on restriction in
Special Revenue Funds
Capital Projects Funds
Trust Funds
5-
REVENUE BUDGET REVISIONS

Potential
reasons
Receipt of grants not originally known

Actual revenues exceed original
estimates
Additional appropriations required
5-
CHANGES IN ACCOUNTING
PRINCIPLES
Retroactive
application
Required under new and revised GASB standards

Effective at beginning of year of change
Cumulative effect of accounting change reported as
fund balance restatement for earliest year presented

Revenues restated for each year presented
Change disclosed in notes
Prospective
application allowed when
New standard allows is to be applied prospectively

New standard implemented early
5-

CH 05

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

CH 05

Загружено:

Авторское право:

Доступные форматы

CHAPTER 5

when various types of revenues

both simple and complex situations

Investment income per GASB Statement 31

and account for the various types

Both pass-through grants and other grants

expands, and refines the

Similar - distinguish nonrevenue resources

1. Revenue definition and recognition

events, and entries

fund revenues are

the net assets of the government as a

Result from exchange-like interfund

Exchange transactions (or exchange-like

Record the asset when the revenue is earned or

Revenues recognized under modified accrual

Nonexchange transactions addressed in GASB 33

WHAT ARE NONEXCHANGE

governmental entity gives or

Four revenue transaction types based on

Derived tax revenues

Imposed nonexchange revenues

Government-mandated nonexchange transactions

Voluntary nonexchange revenues

Transaction type has

DERIVED TAX REVENUES

entities (non-government) or individuals

When underlying exchange transaction occurs

(sale takes place or income is earned)

IMPOSED TAX REVENUES

entities other than those on exchange transactions

When legally enforceable claim arises

required or permitted for use (i.e., property taxes in

government at another level

When eligibility requirements are met

Recipient meets characteristics specified by provider

When eligibility requirements are met

other contractual requirements must have occurred

Two distinctions for the use of

requirements affect the timing of

indefinitely or until a specified date or event

restrictions specify the purpose

reporting resources as restricted or reserved

revenues classified as all

MAJOR REVENUE SOURCES

Known when levied

Known when returns are filed

Known when tax return filed

susceptible to accrual which means both

Collected during the period or soon

enough thereafter (i.e., 60 days) to be

Legally available (usable) to finance

current period expenditures

available means both

Legal claim to resources established by

Intended to finance current or prior

legal claims as follows:

For property taxes - levy of taxes

GASB notes that accrual

by source in order to:

1. Prepare and control the budget

COMMON GENERAL FUND

Not actual general ledger accounts