Governmental and other NFP Accounting

Chapter 3
Governmental Operating Statement
Accounts; Budgetary Accounting
By
Lemessa Bayissa (PhD)
MSc Program in Accounting and Finance

1
 Government-wide Statement of Activities
Expenses should be reported by function or program

• Direct expenses - those associated with a function or program

• Indirect expenses - those that are not directly linked to an
identifiable function

3-2
 Government-wide Statement of Activities
Revenues should be distinguished between
• Program revenues - reported in the program/functions section of the
statement
• General revenues - not directly linked to any program/function and
reported in the bottom section of the statement

06/10/2020 3
 Government-wide Statement of Activities (Cont’d)
• Program revenues are reported in three
categories:
• Charges for services
• Operating grants and contributions
• Capital grants and contributions
• A net expense or revenue format is used in the
top section of the statement of activities:
Expenses - Program revenues = Net (expense)
Revenue
06/10/2020 4
 Government-wide Statement of Activities (Cont’d)
Extraordinary items, special items, and transfers are
reported as separate line items near the bottom of
the government-wide statement of activities (see
Ills. 3-1 and A1-2)
• Extraordinary items—both unusual in nature and
infrequent in occurrence; usually beyond the control
of management
• Special items—either unusual or infrequent; must be
within the control of management
06/10/2020 5
Slide
11-6

Let’s look at
an overview of
the
Government-
Wide
Statements
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
 Government-Wide Financial
Slide
11-7

Statements

Two
Two separate
separate The
The economic
economic
statements
statements are
are resources
resources
required: measurement
measurement focusfocus
required: requires
requires reporting
reporting of
of
ALL
ALL assets
assets and
and
Statement
Statement ofof Net
Net liabilities.
liabilities.
Assets
Assets
&
&
Statement
Statement of of
Activities
Activities
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-8
Statement of Net Assets
Governmental Business-Type
Activities Activities Total
ASSETS:
Cash $ 100 $ 130 $ 230
Other Current Assets 1,580 430 $ 2,010
Capital Assets 2,950 2,750 $ 5,700
Total Assets $ 4,630 $ 3,310 $ 7,940

Note
NoteA/Pthat
that we
LIABILITIES:
we $ 750 $ 230 $ 980
keep
keep the
the
Noncurrent Liabilities
- Due within one year 400 180 $ 580
Governmental
Governmental
- Due in more than one year 1,800 700 $ 2,500
Total Liabilities $ 2,950 $ 1,110 $ 4,060
Activities
Activities
NET ASSETS:
separate
Invested in from
separate from
Capital Assets, Net of Debt $ 1,410 $ 2,110 $ 3,520
Restricted for:
the
the Business-
Business-
Capital Projects 50 - $ 50
Debt Service 140 60 $ 200
Type Activities.
TypeUnrestricted
Activities. 80 30 $ 110
Total Net Assets $ 1,680 $ 2,200 $ 3,880

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

 Statement of Net Assets
Slide
11-9

Governmental Business-Type
Activities Activities Total
ASSETS:
Also note Cash
Also note that that
Other Current Assets
$ 100 $
1,580
130 $ 230
430 $ 2,010
this
this statement
statement
Capital Assets
Total Assets $
2,950
4,630 $
2,750 $ 5,700
3,310 $ 7,940
does
does not
not givegive
LIABILITIES:
information
A/P
information
Noncurrent Liabilities
$ 750 $ 230 $ 980

about
about
- Due within one year 400 180 $ 580
- Due in more than one year This is consistent
1,800 with
700 $ the
2,500
Fiduciary
Fiduciary
Total Liabilities This $ is consistent
2,950 $ with the
1,110 $ 4,060
economic
economic resources
resources
Funds
Funds
NET ASSETS:
management
management
Invested in Capital Assets, Net of Debt $ 1,410focus
focus
$ which
which
2,110 only
only
$ 3,520
Restricted for:
Capital Projects
includes
includesassets
assets
50
and
andliabilities
liabilities
- $ 50
Debt Service that
that are
areavailable
available
140 to
to60use
$ for
use for
200
Unrestricted 80 30 $ 110
Total Net Assets
governmental
governmental
$ 1,680 $
purposes.
purposes.
2,200 $ 3,880

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-10
Statement of Activities
Net (Expense) Revenue
Program Governmental Business-Type
Function Expenses Revenues Activities Activities Total
Governmental Activities:
- General Government $ 3,200 $ 1,400 $ (1,800) $(1,800)
- Public Safety 9,700 880 (8,820) (8,820)
- Public Works 2,600 600 (2,000) (2,000)
- Education 8,400 300 (8,100) (8,100)
Total Gov't Activities $ 23,900 $ 3,180 $ (20,720) $ - $ (20,720)

Business-Type Activities: The net for a given

- Water 3,600 4,030 430
function is determined 430
- Sewer 4,920 5,610 690 690
- Airport 2,300 3,120 horizontally,820while the820
Total Business-Type totals for expenses
Activities $ 10,820 $ 12,760 $ - $ revenues
and 1,940 $ are1,940
Total Government $ 34,720 $ 15,940 $ (20,720) $ 1,940 $ (18,780)
determined vertically.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-11
Statement of Activities
Continued Net (Expense) Revenue
Program Governmental Business-Type
Function Expenses Revenues Activities Activities Total

Total Government $ 34,720 $ 15,940 $ (20,720) $ 1,940 $ (18,780)

General Revenues:
- Property Taxes $ 20,400 $ 20,400
The general
- Investment Earnings The general 420 70 490
- Transfers revenues
revenuesare
are 600 (600) -
Total Gen'l Revenues shown
shown $ 21,420 $ (530) $ 20,890
separately
separatelyat
at
Change in Net Assets $ 700 $ 1,410 $ 2,110
Beginning Net Assets
the
thebottom
bottom of
of 980 790 1,770
Ending Net Assets the
the $ 1,680 $ 2,200 $ 3,880
statement.
statement.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-12

oo k
’s l
, l e t i ew
o w e r v
N n o und- v
a
a the F d
t
of Base ts.
en
t e m
S t a

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-13

Fund-Based Financial Statements

Two
Two separate
separate Fund-Based
Fund-Based
statements
statements are
are required:
required: statements
statements
include
include
Balance
Balance Sheet
Sheet information
information on
on
&
& fiduciary
fiduciary funds.
funds.
Statement
Statement of
of Revenues,
Revenues,
Expenditures,
Expenditures, and
and
Changes
Changes inin Fund
Fund
Balance
Balance
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-14

Fund-Based Financial Statements

These 
The
The proprietary
proprietary funds
funds
These
statements
statements willwill are
are reported
reported inin aa
differ
differ from
from the
the separate
separate statement.
statement.
Government-
Government- 
The
The current
current financial
financial
Wide
Wide financial
financial resources
resources
statements
statements for for measurement
measurement basis basis is
is
three
three reasons.
reasons. used.
used.

The
The modified
modified accrual
accrual

3
accounting
accounting approach
approach
is
is used.
used.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-15
Fund Accounting Balance
Sheet Example
Library Other Gov't Total Gov't
General Fund Program Funds Funds
ASSETS:
Cash $ 40 $ 10 $ 50 $ 100
Investments 580 120 200 900
Receivables 120 200 210 530
Supplies & Materials 10 10 10 30
Total Assets $ 750 $ 340 $ 470 $ 1,560
LIABILITIES:
A/P $ 230 $ 170 $ 110 $ 510
Notes Payable 300 - 100 400
Total Liabilities $ 530 $ 170 $ 210 $ 910
FUND BALANCES
Reserved for:
Supplies $ 10 $ 10 $ 10 $ 30
Encumbrances 120 30 40 190
Debt Service - - 110 110
Unreserved: -
General Fund 90 - - 90
Special Revenue Fund - 130 20 150
Capital Projects Fund - - 80 80
Total Fund Balances $ 220 $ 170 $ 260 $ 650
Total Liabilities and Fund Balances $ 750 $ 340 $ 470 $ 1,560

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-16
Fund Accounting Balance Sheet
Example
Library Other Gov't Total Gov't
General Fund Program Funds Funds
ASSETS:
Cash $ 40 $ 10 $ 50 $ 100
Investments
Receivables
Internal
Internal Service
580
120 ServiceFunds
120
Funds
200
200
210
900
530
Supplies & Materials are
are included
included
10 in
in separate
separate
10 10 30
Total Assets $ 750$ $ 340 $ 470 1,560
LIABILITIES:
statements
statements for for
A/P $ Proprietary
Proprietary
230 $ 170Funds.
Funds.
$ 110 $ 510
Notes Payable 300 - 100 400
Total Liabilities $ 530 $ 170 $ 210 $ 910
FUND BALANCES The
The“current
“current financial
financial
Reserved for:
Supplies $
resources”
10resources”
$ 10 $ 10 $ 30
Encumbrances measurement
measurement
120 30 is used.
is used.
40 190
Debt Service - - 110 110
Unreserved: -
General Fund Modified
90
Modified accrual
-
accrual - 90
Special Revenue Fund - 130 20 150
Capital Projects Fund accounting
accounting
- is
-is used.
used.80 80
Total Fund Balances $ 220 $ 170 $ 260 $ 650
Total Liabilities and Fund Balances $ 750 $ 340 $ 470 $ 1,560

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide Fund Accounting Balance Sheet
Example
11-17

Library Other Gov't Total Gov't

General Fund Program Funds Funds
ASSETS: Two
Two criteria
criteria determine
determine whether
whether
Cash $ 40 $ 10 $ 50 $ 100
Investments 580a a fund
fund is
is
120 classified
classified
200 as
as 900
Receivables 120 200 210 530
Supplies & Materials 10 “major”:
“major”:10
10 30
Note
Notethat
Total Assets
that the
the $ 1.
1.750Total
$
Total assets,
340 $
assets, liabilities,
470 $
liabilities, 1,560

statement
statement has
LIABILITIES:
A/P hasaa $
revenues,
revenues,
230 $
or
170 or
expenditures
$ expenditures
110 $ 510
separate
Notes Payable column
separate column 300are at least
are at -
least 10%
10% 100of the 400
Total Liabilities $ 530 $ 170 $ 210 of$ the 910
for
FUNDfor the
theGeneral
BALANCES General corresponding
correspondingtotal total forforall
all
Fund
Fund and
Reserved for:
and for
for each
each funds
funds of
of the
the same
same10category.
category.
Supplies $ 10 $ 10 $ $ 30
fund
fund identified
identifiedas
Encumbrances as 2.
2.120Total
Total assets,
assets,
30 liabilities,
liabilities,
40 190

aa“major”
“major”fund.
Debt Service
Unreserved: fund. revenues,
- -
or expenditures
revenues, or expenditures -
110 110

General Fund 90 are at least - 5% of

- the 90
Special Revenue Fund - are at least
130 5% 20of the 150
Capital Projects Fund corresponding
corresponding
- - for
for80all
all other
other 80
Total Fund Balances $ 220 $ 170 $ 260 $ 650
Total Liabilities and Fund Balances $ funds
750 $ funds combined.
340 $combined.470 $ 1,560

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-18
Statement of Revenues, Expenditures, &
Changes in Fund Balances - Example
Library Other Gov't Total Gov't
General Fund Program Funds Funds
REVENUES
- Property Taxes $ 17,200 $ 900 $ 2,300 $ 20,400
- Investment Earnings 100 200 180 480
- Program Revenues 500 100 2,500 3,100
Total Revenues $ 17,800 $ 1,200 $ 4,980 $ 23,980
EXPENDITURES:
Current:
General Government $ 3,400 $ - $ 100 $ 3,500
Public Safety 5,100 - 400 5,500
Education 6,700 800 - 7,500
Debt Service: -
Principal - - 1,000 1,000
Interest - - 600 600
Capital Outlay 1,100 300 3,300 4,700
Total Expenditures $ 16,300 $ 1,100 $ 5,400 $ 22,800

Continue
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-19
Statement of Revenues, Expenditures, &
Changes in Fund Balances - Example
Library Other Gov't Total Gov't
Continued General Fund Program Funds Funds
OTHER FINANCING SOURCES:
Bond Proceeds $ - $ - $ 1,000 $ 1,000
Transfers In - 20 580 600
Transfers Out (1,300) - (1,000) (2,300)
Total Other Financing Sources and
Uses $ (1,300) $ 20 $ 580 $ (700)
Change in Fund Balanc e $ 200 $ 120 $ 160 $ 480
Fund Balances - Beginning 20 50 100 170
Fund Balances - Ending $ 220 $ 170 $ 260 $ 650

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-20

Let’s look at the

accounting
procedures for the
Governmental
Accounts for both
the Fund-Based and
Government-Wide
Statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-21

Recording Budgetary Entries

Purposes
Purposes of
of the
the budget,
budget,
per
per the
the GASB:
GASB: Budget
1.
1. Expresses
Expresses public
public policy.
policy. information
2.
2. Serves
Serves asas an
an expression
expression for the
of
of financial
financial intent.
intent. General Fund
3.
3. Provides control
Provides control by by and for each
establishing
establishing spending
spending of the major
limits.
limits. Special Funds
4.
4. Offers
Offers aa means
means of of must be
evaluating
evaluating performance.
performance. presented.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-22

Recording Budgetary Entries

For
Forexample,
example, assume
assumeaatown
townenacts
enactsaamotel
motelexcise
excisetaxtaxtoto
promote
promotetourism
tourism and
andconventions.
conventions. ForFor 2004,
2004, the
the tax
tax is
is
expected
expectedto togenerate
generate$490,000
$490,000ininSpecial
Special Revenues.
Revenues. Of Of
the
thetotal,
total, $200,000
$200,000 is
isdesignated
designated for
for salaries,
salaries, $30,000
$30,000for
for
utilities,
utilities,$80,000
$80,000forforadvertising,
advertising,and
and$90,000
$90,000forfor supplies.
supplies.

Date Description Debit Credit

Prepare
Prepare the
the journal
490,000entry to
journal
Estimated Revenues - Tax Levy
entry to
Appropriations - Salaries 200,000
record
record the
the Special
Special Revenue
Appropriations - Utilities Revenue
30,000
Fund
Fund budget.
Appropriations - Advertising
Appropriations - Supplies budget.
80,000
90,000
Fund Balance 90,000

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

 Two Important Budgetary Items
Slide
11-23

 An appropriation is a legal
authorization granted by the
legislative body to incur
liabilities for purposes
specified in the appropriation
act or ordinance.
 An encumbrance is an
estimated amount recorded
for purchase orders,
contracts, or other expected
expenditures chargeable to
McGraw-Hill/Irwin
an appropriation. © The McGraw-Hill Companies, Inc., 2004
Slide
11-24

Encumbrances

 In a governmental unit, purchase

commitments and contracts are
recorded, even though they may not
yet represent liabilities.
 A recorded commitment or contract is
called an “encumbrance”.

Budget Encumbrance Actual

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-25

Encumbrances

 For Fund-Based Financial Statements:

 An entry is required to record the
encumbrance.
 An entry is required when the bill is
received.
 For Government-Wide Financial
Statements:
 No entry is required to record the
encumbrance.
 An entry is required when the bill is
received.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

 Encumbrances – Example
Slide
11-26

Fund-Based Statements
Drye Township has budgeted office supplies
for $180,000 for 2004. On May 15, Drye
Township places an order for $16,000 office
supplies with Ye Olde Office Supplies.
General Fund - Drye Township
Date Description Debit Credit
15-May Encumbrances Control 16,000
Fund Balance - Reserve
For Encumbrances 16,000

Remember,
Remember, this
thisentry
entryis
isonly
onlyrecorded
recordedfor
forFund-Based
Fund-Based
Financial
Financial Statements.
Statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
 Encumbrances – Example
Slide
11-27

Fund-Based Statements
On
OnMay
May17,
17, the
thesupplies
suppliesare arereceived
receivedwith
withaabill
billfor
for
$15,680
$15,680 (some
(some of
of the
theitems
itemswent
went on
onsale
saleon
onMay
May16,16,
and
andthethecity
citywas
wasgiven
given the
the sale
sale price).
price).

Ge ne ra l Fund - Drye Tow nship

Ge
Da tene ra l Fund - Drye Tow ns
De scription hip
De bit Cre dit
17-Ma
Day Supplie s Inve ntory
te 15,680
De scription De bit Cre dit
Vouche rs Pa ya ble 15,680

Fund Ba la nce - Re se rve

For Encumbra nce s 16,000
Encumbra nce Control 16,000

Record
Record the
the receipt
receipt ofof the
the supplies
supplies in in
Drye
Drye Township’s
Township’s
This is
books
books
the
for
accountfor the
the
title
Fund-
Fund-
typically
This is the account title typically
Based
Based
used in Statements.
Statements.accounting
governmental
used in governmental accounting in in
place
placeof
of Accounts
AccountsPayable.
Payable.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
 Encumbrances – Example
Slide
11-28

Government-Wide Statements
On
OnMay
May17,
17, the
thesupplies
suppliesare arereceived
receivedwith
withaabill
billfor
for
$15,680
$15,680 (some
(some of
of the
theitems
itemswent
went on
onsale
saleon
onMay
May16,16,
and
andthethecity
citywas
wasgiven
given the
the sale
sale price).
price).

Ge ne ra l Fund - Drye Tow nship

Da te De scription De bit Cre dit
17-Ma y Supplie s Inve ntory 15,680
Vouche rs Pa ya ble 15,680

Record
Record the
the receipt
receipt of
of the
the supplies
supplies in in
DryeNote that
thatwith
with the
Township’s Government-Wide
books for
Note
Drye Township’s the
books for the
Government-Wide
the
Financial
Financial Statements,
Statements, no
no entry
entry is
is
Government-Wide
Government-Wide Statements.
Statements. used
necessary for the encumbrances
necessary for the encumbrances used
with
with the
theFund-Based
Fund-BasedStatements.
Statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
 Fund-Based Statements
Slide
11-29

Fixed Assets

While
While the the expenditure
expenditure for
for aa
fixed
fixedasset asset is
isusually
usuallyrecorded
recorded
in
inthetheGeneral
General Fund
Fund.... ..
.. .... the
thefixed
fixed asset
asset itself
itself is
is
recorded
recordedin inthe
theGeneral
General Fixed
Fixed
Assets
AssetsAccount
Account Group.
Group.
Depreciation
Depreciationis isnot
not recorded
recordedin in
the
thegovernmental
governmental fund, fund, since
since
net
net income
incomeis is not
not aaconcept
concept
relevant
relevant to to governmental
governmental
units.
units.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

 Government-Wide Statements
Slide
11-30

Fixed Assets
Historically,
Historically,recording
recordingofoffixed
fixedassets
assets
in
inthe
theGeneral
General Fixed
FixedAssets
AssetsAccount
Account
Group
Groupwaswas optional.
optional.
GASB
GASBStatement
StatementNo.
No. 34
34requires
requires aa
record
record of
of ALL
ALLcapital
capitalassets
assetsin in the
the
Statement
Statement of
of Net
NetAssets
Assetsin in the
the
government-wide
government-widestatements.
statements.
 Depreciation
Depreciationexpense
expenseis isrecorded.
recorded.
 Governments
Governmentshavehave44years
yearsto to
capitalize
capitalizepreviously
previouslyacquired
acquired
assets.
assets.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

 Recognition of Revenues
Slide
11-31

Non-exchange Transactions

Classifications
Classifications For Government-
Wide Statements,
 Derived
Derived Tax
Tax Revenues
Revenues record the revenues
 Imposed Nonexchange
Imposed Nonexchange at the “time of
Revenues
Revenues eligibility”.
 Government-mandated
Government-mandated For
Nonexchange For Fund-Based
Fund-Based
Nonexchange Statements,
Statements, record
record
Transactions
Transactions the
therevenues
revenues when
when
 Voluntary Nonexchange they
Voluntary Nonexchange theybecome
become
Transactions
Transactions “available
“availablefor
for
recognition”.
recognition”.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-32

Issuance of Bonds

Government-Wide
Government-Wide Fund-Based
Fund-BasedFinancial
Financial
Financial
Financial Statements
Statements Statements
Statements
Increase
Increasethe
the Cash
Cashand
and Increase
Increase Cash
Cashand
and Other
Other
the
the Debt.
Debt. Financing
FinancingSources.
Sources.

Drye
DryeTownship
Townshipissues
issues$50,000
$50,000in
inbonds
bondsfor
fornew
new
sidewalks.
sidewalks.

Date Description Debit Credit

Cash 50,000

Prepare
Prepare the journal entry to record the
the journal
Bonds Payable
entry to record
50,000
the
bonds
bonds for
for government-wide
government-wide statements.
statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-33

Issuance of Bonds

Government-Wide
Government-Wide Fund-Based
Fund-BasedFinancial
Financial
Financial
Financial Statements
Statements Statements
Statements
Increase
Increasethe
the Cash
Cashand
and Increase
Increase Cash
Cashand
and Other
Other
the
the Debt.
Debt. Financing
FinancingSources.
Sources.

Drye
DryeTownship
Townshipissues
issues$50,000
$50,000in
inbonds
bondsfor
fornew
new
sidewalks.
sidewalks.

Date Description Debit Credit

Cash 50,000

Prepare
Prepare the
the journal
journal entry
Other Financing
Sources entry to record
record the
to 50,000 the
bonds
bonds for
for fund-based
fund-based statements.
statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-34

Payment of Long-Term Liabilities

Government-Wide
Government-Wide Fund-Based
Fund-BasedFinancial
Financial
Financial
Financial Statements
Statements Statements
Statements
Record
Record principal
principal and
and Record
Recordexpenditures
expendituresinin
interest
interest as
aswith
withGAAP.
GAAP. the
the Debt
Debt Service
ServiceFund.
Fund.

Drye
Drye Township
Township makes
makesaa$10,000
$10,000payment
payment ononaaloan
loanthat
that
includes
includes$1,000
$1,000in
in interest.
interest.

Date Description Debit Credit

Note Payable 9,000
Interest Expense 1,000
Prepare
Prepare the
Cash the journal
journal entry
entry to
to record
10,000 the
record the loan
loan
payment
payment for
for government-wide
government-wide statements.
statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
Slide
11-35

Payment of Long-Term Liabilities

Government-Wide
Government-Wide Fund-Based
Fund-BasedFinancial
Financial
Financial
Financial Statements
Statements Statements
Statements
Record
Record principle
principle and
and Record
Recordexpenditures
expendituresinin
interest
interest as
aswith
withGAAP.
GAAP. the
the Debt
Debt Service
ServiceFund.
Fund.

Drye
Drye Township
Township makes
makesaa$10,000
$10,000payment
payment ononaaloan
loanthat
that
includes
includes$1,000
$1,000in
in interest.
interest.

Date Description Debit Credit

Expenditure - N/P 9,000
Expenditure - Interest 1,000
Prepare
Prepare the
Cash the journal
journal entry
entry to
to record
10,000 the
record the loan
loan
payment
payment for for fund-based
fund-based statements.
statements.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004
 Measurement Focus:
Slide
11-36

What is measured?
 Economic resources measurement focus
 Measure inflows and outflows of economic resources
(current and noncurrent)
 Focuses on operational accountability; whether
management efficiently uses resources in providing
services
 Current financial resources measurement focus
 Measure inflows and outflows of current financial
resources
 Focuses on fiscal accountability; whether managers
have met budgetary and other legal financial
requirements

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide

Basis of Accounting
11-37

When should revenues and

expenditures/expenses be recognized?
Modified accrual basis of accounting
Revenues recognized when measurable
and available; expenditures when
incurred
Accrual basis of accounting
Revenues recognized when earned or as
specified by GASB standards; expenses
when incurred

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004

Slide
11-38
Measurement Focus & Basis of
Accounting: Summary
Measurement Basis of
Focus Accounting

Government-wide Economic Accrual

statements resources

Governmental fund Current financial Modified

statements resources accrual

Proprietary fund Economic Accrual (except

statements resources for statement
of cash flows)
Fiduciary fund Economic Accrual
statements resources

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2004