Modul

Ke:

12
Bersinar
Bersama Undira
Fakultas :
Bisnis Dan Ilmu Sosial
Lestari, SE., Ak., M.Ak.
Program Studi:
Akuntansi
Governmental Entities:
Introduction and
General Fund
Accounting
Chapter 17
Learning Objective 1

Understand and explain the

basic differences between
governmental and private
sector accounting.
Overview
• Governmental entities have operating objectives different
from those of commercial entities.
• As a result, governmental accounting is different from
accounting for commercial enterprises.
Overview
• Nature of governmental entities
1. Collect resources and make expenditures to fulfil
societal needs
2. Absence of profit motive except for some activities
3. Have legal authorization for their existence,
conduct revenue-raising through the power of
taxation, and have mandated expenditures they
must make to provide their services
4. Control mechanism – Use of comprehensive
budgetary accounting
Overview
• Nature of governmental entities
5. Accountability for the flow of financial resources is a chief objective
6. Typically are required to establish separate funds to carry out
various missions; each fund is an independent accounting and fiscal
entity
7. Many fund entities do not record fixed assets or long-term debt in
their funds
8. An important objective of governmental financial reporting is
accountability
History of Governmental Accounting
• History
• Before 1984, directed by the Municipal Finance Officers
Association (MFOA)
• In 1934, the first statement on local governmental accounting
published
• In 1968, Governmental Accounting, Auditing, and Financial
Reporting (GAAFR) was published
• The GAAFR is periodically updated to include the most recent
governmental reporting standards
History of Governmental Accounting
• History
• 1974 –The American Institute of Certified Public Accountants
(AICPA) published an industry audit guide, in which it stated that
“except as modified in this guide, they [GAAFR] constitute
generally accepted accounting principles”
• March 1979 – The National Council on Governmental Accounting
(NCGA) issued its Statement No. 1, “Governmental Accounting
and Financial Reporting Principles” (NCGA 1)
History of Governmental Accounting
• History
• 1984 – Governmental Accounting Standards Board (GASB)
established
• GASB Statement No. 1
• The GASB stated that all NCGA statements and interpretations issued and in
effect on that date were accepted as generally accepted accounting
principles for governmental accounting
• GASB Statement No. 34
• Established government-wide financial statements to be prepared on the
accrual basis of accounting and an array of fund-based financial statements
History of Governmental Accounting
• History
• The GASB continues to issue new standards to meet the
information needs of users of the financial reports of
governmental units.
• Accounting for governmental entities is given the general name
of fund accounting.
 The Governmental Accounting Standards Board (GASB)

• GASB
• Created in 1984
• A sister organization to the FASB
• Establishes GAAP for state and local units
• No authority to establish GAAP for the federal government
• Seven members—simple majority vote needed (4 votes)
GAAFR: “The Blue Book”
• “Governmental Accounting, Auditing,
and Financial Reporting”
• Published by the Government Finance
Officers Association (GFOA).
• Neither prescribes nor authoritatively
interprets GAAP for governmental
units.
• Provides detailed guidance (many
examples) for applying governmental
GAAP.
• Widely used by governmental units.
PracticeWhich
Quiz Question #1
of the following statements is correct?
a. The GASB is responsible to set standards for
governmental units and not-for-profit
entities.
b. The FASB was created in 1972 and sets
standards for governmental units.
c. The Blue Book contains financial accounting
standards for privately held governmental
agencies and companies.
d. The GASB is responsible for setting standards
for state and local governments but not the
federal government.
PracticeWhich
Quiz Question #1 Solution
of the following statements is correct?
a. The GASB is responsible to set standards for
governmental units and not-for-profit
entities.
b. The FASB was created in 1972 and sets
standards for governmental units.
c. The Blue Book contains financial accounting
standards for privately held governmental
agencies and companies.
d. The GASB is responsible for setting standards
for state and local governments but not the
federal government.
Learning Objective 2

Understand and explain major

concepts of governmental
accounting.
Major Concepts of Governmental Accounting
• Elements of a Statement of Financial Condition
1. Assets are resources with present service capacity that the entity presently
controls.
2. Liabilities are present obligations to sacrifice resources that the entity has little
or no discretion to avoid.
3. A deferred outflow of resources is a consumption of net assets that is
applicable to a future reporting period.
4. A deferred inflow of resources is an acquisition of net assets that is applicable
to a future reporting period.
5. Net position is the residual of all other elements presented in a statement of
financial condition.
Major Concepts of Governmental Accounting
• Elements of a the resource flows statements
1. An outflow of resources is a consumption of net assets that is applicable to
the current reporting period
2. An inflow of resources is an acquisition of net assets that is applicable to
the current reporting period
Major• Concepts of Governmental
Expendability of resources versus capital
Accounting
maintenance objectives
Commercial Enterprises Government Entities
Changes in current financial
The flow of all economic resources available to
Measurement focus resources provide services to the public
in accordance with the
budget
Method of Accrual method Modified accrual method
accounting
Contains both current and
noncurrent assets and
liabilities, and the change in Reports only current assets,
Balance sheet retained earnings reflects current liabilities, and a fund
the company’s ability to balance
maintain its capital
investment
Practice Quiz Question #2
Which of the following statements is true?
a. Governmental units use the modified accrual
basis of accounting and focus on the flow of
all economic resources.
b. Commercial enterprises use the modified
accrual basis of accounting and focus on the
flow of all economic resources.
c. The balance sheets of governmental units
contain long-term assets and liabilities.
d. The balance sheets of commercial entities
contain a fund balance.
Practice Quiz Question #2 Solution
Which of the following statements is true?
a. Governmental units use the modified accrual
basis of accounting and focus on the flow of
all economic resources.
b. Commercial enterprises use the modified
accrual basis of accounting and focus on the
flow of all economic resources.
c. The balance sheets of governmental units
contain long-term assets and liabilities.
d. The balance sheets of commercial entities
contain a fund balance.
Learning Objective 3

Understand and explain the

differences between the
various governmental fund
types.
 The Nature & Diversity of Governmental Activities

• The operations of governmental entities are classified into

three categories:
• Governmental—these activities do not resemble commercial
activities.
• Proprietary—these activities resemble commercial activities. Can
measure profitability or capital maintenance.
• Fiduciary—holding and managing assets owned by others (e.g.,
pension assets).
Use of Fund Accounting
• Fund Accounting
• Accounting for certain activities separately from all
other operations.
• Fund definition: A fiscal and accounting entity
with a self-balancing set of accounts (like a branch
or a division of a commercial entity).
• The General Fund: The main and largest fund—
records most routine transactions.
• The difference between a fund’s assets and
liabilities is called:

Government and
Fiduciary-type Funds Proprietary Funds

Fund Balance Net Assets

Major• Concepts of Governmental
Three Types of Funds
Accounting
• Governmental Funds
• Used to provide basic governmental services to the
public
• Each entity creates only one general fund, but it may
create more than one of each of the other types of
funds
• Proprietary Funds
• The objective is to recover the unit’s costs through user
charges
• Fiduciary Funds
Major Concepts : Types of Funds
• Governmental Funds
• General Fund: Accounts for all activities not required to be
accounted for in another fund.
• Special Revenue Fund: A clone of the General Fund.
• Capital Projects Funds
• Debt Service Funds
• Permanent Funds
 Major Concepts : Types of Funds

• Proprietary Funds
• Enterprise Funds:
• Provides services primarily to nongovernmental users
• Examples: City-owned utilities or recreational facilities
• Internal Service Funds:
• Provides services solely to governmental departments.
 Major Concepts : Types of Funds
• Fiduciary Funds
• Trust Funds
• Pension (and similar) Trust Funds
• Investment Trust Funds
• Private-Purpose Trust Funds (these activities do
not benefit the government unit)
• Agency Funds
Major Concepts of Governmental Accounting
Governmental Fund Types
Accounts for all financial resources except for those
General fund accounted for in another fund. Includes transactions for
general governmental services provided by the executive,
legislative, and judicial operations of the governmental
entity.
Special revenue Accounts for the proceeds of specific revenue sources that
fund are restricted for specified purposes.
Capital projects Accounts for financial resources for the acquisition or
fund construction of major capital facilities that benefit many
citizens, such as parks and municipal buildings.

Debt service fund Accounts for the accumulation of resources for, and the
payment of, general long-term debt principal and interest.

Accounts for resources that are restricted such that only

Permanent fund earnings, but not principal, may be used in support of
governmental programs that benefit the government or its
citizenry.
Major Concepts of Governmental
Proprietary Fund Types Accounting
Enterprise fund Accounts for operations of governmental units that
charge for services provided to the general public.
Accounts for the financing of goods or services provided
Internal service fund by one department or agency to other departments or
agencies of the governmental unit. Services are
offered only to governmental agencies.
Fiduciary Fund Types and Similar Component Units
Pension (and other Accounts for resources required to be held in trust for
employee benefit) the members and beneficiaries of pension plans,
trust fund other post-employment benefit plans, or other EBPs.
Investment trust fund Accounts for the external portion of investment
pools reported by the sponsoring government.
Accounts for all other trust arrangements under which
Private-purpose trust the fund’s resources are to be used to benefit
fund specific individuals, private organizations, or other
governments.
Accounts for assets held by a governmental unit in an
Agency fund agency capacity for employees or for other
governmental units.
Practice Quiz Question #3
The three major categories of governmental
funds are:
a. Governmental, commercial, and
proprietary.
b. Governmental, trust, and fiduciary.
c. Enterprise, proprietary, and fiduciary .
d. Governmental, proprietary, and
fiduciary.
e. Governmental Service, proprietary, and
commercial
Practice Quiz Question #3 Solution
The three major categories of governmental
funds are:
a. Governmental, commercial, and
proprietary.
b. Governmental, trust, and fiduciary.
c. Enterprise, proprietary, and fiduciary .
d. Governmental, proprietary, and
fiduciary.
e. Governmental Service, proprietary, and
commercial
Learning Objective 4

Understand and explain basic

concepts for financial reporting in
governmental
accounting.
Financial Reporting of Governmental Entities

• Governmental funds – financial statements

• Balance sheet
• Statement of revenues, expenditures and changes in fund
balance
• The five governmental funds use the current financial
resources measurement focus
Fund•Accounting
Specific General Ledger Accounts Used defined
by GASB 54:

Government and
Fiduciary-type Funds Proprietary Funds

Fund Balance Net Assets

Non-spendable Restricted
Unrestricted
Spendable:
• Restricted
• Limited
• Assigned
• Unassigned
Financial Reporting of Balance
Governmental Entities Funds
Sheet for Governmental
Assets (financial resources available for current use;   $X,XX
presented in order of liquidity) X
  Total Assets   $X,XX
X
Liabilities and Fund Balances:    
Liabilities (due and expected to be paid from current  
financial resources; presented in order of due date) $   XXX
 Fund Balances    
  Nonspendable $  XX  
Spendable:    
Restricted XX  
Limited XX  
Assigned XX  
Unassigned       XX         XX
Total Liabilities and Fund Balances   $X,XX
X
Financial•Reporting of Governmental
Statement Entities
of revenues, expenditures, and changes in
fund balance
• Often called the operating statement of the governmental
funds
Statement of Revenues, Expenditures, and Changes in Fund Balance
Revenues (recognized when both measurable and available; presented  
by source of revenue) $XX,XXX
Expenditures (approved decreases in net financial resources; presented  
by function and character) X,XXX
Excess of Revenues over Expenditures $  XXX
Other Financing Sources or Uses (other increases or decreases in net
financial  resources available, such as bond issue proceeds and interfund
transfers) XX
Special Items and Extraordinary Items      (X)
Net Change in Fund Balance $   XX
Fund Balance—Beginning XXX
Fund Balance—Ending (reconciles to total fund balance on balance sheet) $   XXX
Practice Quiz Question #4
Which of the following is true?
a. The operating statements of governmental
entities focus on revenues and expenses.
b. The balance sheets of governmental entities
focus on the normal accounting equation:
Assets – Liabilities = Owner’s Equity.
c. The operating statements of governmental
entities focus on revenues and liabilities.
d. The balance sheets of governmental entities
focus a modified accounting equation: Assets
– Liabilities = Fund Balance.
e. All governmental fund balances are spendable.
Practice Quiz Question #4
Which of the following is true?
Solution
a. The operating statements of governmental
entities focus on revenues and expenses.
b. The balance sheets of governmental entities
focus on the normal accounting equation:
Assets – Liabilities = Owner’s Equity.
c. The operating statements of governmental
entities focus on revenues and liabilities.
d. The balance sheets of governmental entities
focus a modified accounting equation: Assets
– Liabilities = Fund Balance.
e. All governmental fund balances are spendable.
Learning Objective 5

Understand and explain the basic

differences in the measurement
focus and basis
of accounting between
governmental and private sector
accounting.
 Measurement Focus And Basis Of Accounting (MFBA)
• Measurement Focus
• What flows to measure for operations.
• Basis of Accounting
• When should transactions and events be recognized in
the financial statements.
MFBA: Governmental
• Measure flow:
Activities
• Current financial resources
• Basis of Accounting:
• Modified accrual basis of accounting

• Present a Statement of Revenues and

Expenditures and Changes in Fund Balance
- shows financial resources received and spent.
- shows change in net financial resources
available for spending in the near future.
MFBA: Current Financial Resources
• Current financial resources:
• Cash, property tax receivables, prepaids, and
supplies inventories.
• Claims against current financial resources:
• Wages, payroll taxes, payables to vendors, and
liabilities expected to be paid in the near future
(typically within 60 days after the year-end).
MFBA: Proprietary and Fiduciary Activities
• Measure flow:
• All economic resources
• Basis of Accounting:
• Accrual basis of accounting

•Present a Statement of Revenues and Expenses

- shows the change in the economic condition
•Also present a Statement of Cash Flows
Measurement Focus and Basis of Accounting
• The modified accrual basis is used in funds that
have a flow of current financial resources
measurement focus
• The five governmental funds have this focus
• The accrual basis is used in funds that have a
flow of economic resources measurement
focus
• Proprietary funds and fiduciary funds have this
focus
• The government-wide financial statements are
based on the accrual basis
 Measurement Focus and Basis of Accounting

• Modified Accrual Basis Funds

• Governmental funds
• General Fund
• Special Revenues Fund
• Capital Projects Funds
• Debt Service Funds
• Permanent Funds
 Measurement Focus and Basis of Accounting

• Accrual Basis Funds

• Proprietary funds
• Enterprise Funds
• Internal Service Funds
• Fiduciary funds (3 Trust & 1 Agency)
• The two propriety funds and the three trust funds have
either a profitability or capital maintenance orientation.
 Measurement Focus and Basis of Accounting

• Modified Accrual Basis

• Revenues: Recognize in period in which they become available
and measurable.
• Available means: Collectible within the current period or soon enough
thereafter to be used to pay current period liabilities.
• Expenditures: Recognize in the accounting period in which the
liabilities are both measurable and incurred and are payable out
of current financial resources.
• One exception exists for interest on general long-term liabilities.
Measurement Focus and Basis of Accounting
• Recognition of revenue: how revenues are recognized
depends on the category
1. Derived tax revenues, resulting from assessments on
exchange transactions
• The asset is recognized when the underlying transaction occurs or
resources are received, whichever comes first.
• Revenue recognition depends on the accounting basis used to
measure the transaction.
2. Imposed nonexchange revenues, resulting from assessments
on nongovernmental entities, including individuals
• The asset is recognized when the government has an enforceable
legal claim to the resources or the resources are received, whichever
comes first.
• Revenue recognition is made in the period when use of the resources
for current expenditures is first permitted or required, or at the time
the asset is recorded if no time restriction on the fund’s use of the
resources exists.
Measurement Focus and Basis of Accounting
• Recognition of revenue: how revenues are recognized
depends on the category
3. Imposed nonexchange revenues, resulting from assessments
on nongovernmental entities, including individuals
• The asset is recognized when the government has an enforceable legal
claim to the resources or the resources are received, whichever comes
first.
• Revenue recognition is made in the period when use of the resources
for current expenditures is first permitted or required, or at the time
the asset is recorded if no time restriction on the fund’s use of the
resources exists.
4. Government-mandated nonexchange transactions, resulting
from one governmental unit’s provision of resources to a
governmental unit at another level and the requirement that
the recipient use the resources for a specific purpose
5. Voluntary nonexchange transactions, resulting from legislative
or contractual agreements, other than exchanges
Practice Quiz Question #4
The modified accrual basis of accounting:
a. recognizes revenues when earned and
expenditures when incurred.
b. recognizes revenues when they become
available and measureable and expenditures
when liabilities become measurable and
incurred.
c. recognizes revenues when earned and expenses
when incurred
d. recognizes revenues when they become
available and measureable and expenditures
when they become available and spendable.
Practice Quiz Question #4 Solution
The modified accrual basis of accounting:
a. recognizes revenues when earned and
expenditures when incurred.
b. recognizes revenues when they become
available and measureable and expenditures
when liabilities become measurable and
incurred.
c. recognizes revenues when earned and expenses
when incurred
d. recognizes revenues when they become
available and measureable and expenditures
when they become available and spendable.
Learning Objective 6

Understand and explain basic

budgeting concepts in
governmental accounting.
 Budgetary Aspects of Governmental Operations

• Budgets
• Used in governmental accounting to assist in management
control and to provide the legal authority to levy taxes, collect
revenue, and make expenditures in accordance with the budget
• Types of budgets:
• Operating budgets
• Capital budgets
 Budgetary Aspects of Governmental Operations

• Appropriation: The statutory authorization for spending

a budgeted amount during a coming year.
• Annual Budgets for the General Fund and the Special
Revenue Funds are always recorded in the general
ledger for control purposes.
• Also done for Capital Projects Funds and Debt Service Funds if
useful.
• Encumbrances: Commitments related to unperformed
(executory) contracts for goods or services.
• Special general ledger accounts are used to record
encumbrances—the purpose is to prevent spending
more than has been appropriated.
• Budget entries have no effect on reported operations.
Introduction: Budget / Expenditure Process

1. Budget—Recorded in the books

• CAPITAL LETTERS (legally binding)
2. Expenditures
• Appropriation (authorization of the expenditure)
• Encumbrance (set aside or reserve part of the budgetary appropriation)
• Expenditure
• Disbursement
 Budgetary Aspects of Governmental Operations

• Recording the Operating Budget

Assume that at January 1, 20X1, the first day of the new fiscal period, the
city council of Barb City approves the operating budget for the general
fund, providing for $900,000 in revenue and $850,000 in expenditures.
Approval of the budget provides the legal authority to levy the local
property taxes and to appropriate resources for the expenditures. The
entry made in the general fund’s accounting records on this date is as
follows:

January 1, 20X1
(1) ESTIMATED REVENUES CONTROL 900,000
APPROPRIATIONS CONTROL 850,000
BUDGETARY FUND BALANCE—UNASSIGNED 50,000
Record general fund budget for year.
 Budgetary Aspects of Governmental Operations

• The ESTIMATED REVENUES CONTROL account is an anticipatory asset.

• The APPROPRIATIONS CONTROL account is an anticipatory liability.
• The excess of estimated revenues over anticipated expenditures is the
budget surplus and is recorded to BUDGETARY FUND BALANCE—
UNASSIGNED.
• Some approved budgets have budget deficits in which expected
expenditures exceed anticipated revenue.
• These budgets are recorded with a debit to BUDGETARY FUND BALANCE—
UNASSIGNED.
Example: Budget / Expenditure Process
Assume a municipality approves the following budged:
• $900,000 in Revenues
• $850,000 in Appropriations
An appropriation of $15,000 is approved, but the final
voucher is paid for only $14,000.
Example: Budget / Expenditure Process
1. Budget
ESTIMATED REVENUES CONTROL 900,000
APPROPRIATIONS CONTROL 850,000
BUDGETARY FUND BALANCE—UNASSIGNED 50,000
2. Expenditures
• Appropriation
• Authorization of the expenditure (Annual Budget)
• Person with authority (each expenditure authorized)
• Encumbrance

ENCUMBRANCES 15,000
BUDGETARY FUND BALANCE—ASSIGNED FOR ENC.
15,000
Example: Budget / Expenditure Process
2. Expenditures
• Expenditure

BUDGETARY FUND BALANCE—ASSIGNED FOR ENC.15,000

ENCUMBRANCES 15,000

• Disbursement
Expenditures 14,000
Vouchers Payable 14,000

Vouchers Payable 14,000

Cash
14,000
Text Page 837
Practice Quiz Question #4
Why to state and local governments record
encumbrances?
a. To ensure that the entity earns sufficient
revenues to achieve profitability.
b. To ensure that the entity does not spend more
than has been appropriated.
c. To ensure that all sub-entities within the
organization are not encumbered.
d. To ensure that the entity spends at least as
much as has been appropriated.
Practice Quiz Question #4 Solution
Why to state and local governments record
encumbrances?
a. To ensure that the entity earns sufficient
revenues to achieve profitability.
b. To ensure that the entity does not spend more
than has been appropriated.
c. To ensure that all sub-entities within the
organization are not encumbered.
d. To ensure that the entity spends at least as
much as has been appropriated.
Learning Objective 7

Make calculations and record

journal entries for the general
fund.
Accounting for Expenditures
• The Expenditure Process
• Step 1. Appropriation
• The budget provides the appropriating authority to make future expenditures.
• Step 2. Encumbrance
• An encumbrance is a reservation of part of the budgetary appropriation and is
recognized at the time an order is placed for goods or services.
• Step 3. Expenditure
• An expenditure and a corresponding liability are recorded when the governmental
entity receives the goods or services ordered in Step 2.
• Step 4. Disbursement
• A disbursement is the payment of cash for expenditures.
Comparison of Accounting for Lapsing and Nonlapsing
Encumbrances at Year-End
 Two Ways to Account for Supplies Inventories

• Consumption Method
• The preferred method—it parallels business practice.
• The acquisition of inventory is treated as the conversion of resources (debit
Inventory).
• The use of inventory is treated as an outflow of resources (credit Inventory
and debit Expenditures or Expenses).
• Purchases Method
• The acquisition of inventory is treated as an outflow of resources (debit
Expenditures or Expenses).
Two Ways to Account for Supplies
Inventories
• The specific method to follow depends on the
governing unit’s policy and how inventory
expenditures are included in the budget.
• Immaterial inventories need not be shown on the
balance sheet
• If the inventory is material, it is presented as an asset
on the balance sheet.
• An amount equal to the inventory also should be shown as a
reservation of the fund balance, indicating that that amount is no
longer expendable.
Accounting for Expenditures
Accounting for Expenditures
• Accounting for fixed assets
• Governmental funds: Recognized as an expenditure in the year the asset is
acquired
• Proprietary funds: Account for acquisitions of capital assets in the same
manner as commercial entities
• Works of art and historical treasures
• For the purposes of government-wide financial statements, governments
should capitalize these assets at their historical costs at acquisition or at
their fair values at the date of the contribution
Accounting for Expenditures
• Long-term debt and capital leases
• The governmental funds record the proceeds from a bond issue as a debit
to Cash and a credit to Bond Issue Proceeds, an other-financing source.
• Bond issue proceeds are not revenue because the bonds must be repaid.
• Bonds are not reported on the governmental funds’ balance sheets but only
on the government-wide financial statements.
• Capital leases are accounted for in a manner similar to long-term debt.
Accounting for
• Investments
Expenditures
• GASB 31 established a general rule of fair market valuation
for investments held by a government entity.
• Changes in the fair value of investments should be
recognized as an element of investment income in the
operating statement (or statement of activities) of each
fund.
• GASB 40 requires footnote disclosures of the policies and
the profiles of the government’s investment portfolios.
 Group Exercise:
Comprehensive General Fund Entries
The City of Cottersen, Texas is a small town with a population of approximately 15,000. The city noted the following transactions during fiscal 20X8.

REQUIRED
1. Prepare General Fund journal entries only for these items.
2. Prepare closing entries at 6/30/X8.
3. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance as of 6/30/X8.
4. Provide a summary of the fund balance by category as of 6/30/X8.
 Group Exercise:
Requirement 1 (Journal Entries)
1. The Cottersen city council approved the following budget:
Estimated revenues $820,000
Authorized expenditures (including
$65,000 reappropriated for encumbrances
outstanding at 6/30/X7 that had lapsed) 720,000
Authorized transfers out to other funds
($35,000 and $20,000) 55,000
Estimated inflow from the discontinuance of
the Auto Repair Internal Service Fund 25,000
ESTIMATED REVENUES CONTROL 820,000
ESTIMATED TRANSFER IN 25,000
APPROPRIATIONS CONTROL 720,000
APPROPRIATIONS—TRANSFER OUT 55,000
BUDGETARY FUND BALANCE—UNASSIGNED
70,000
 Group Exercise:
Requirement 1 (Journal Entries)

2. The city levied property taxes totaling $570,000. Of this amount,

$10,000 was estimated to be uncollectible. Collections during
the year totaled $525,000, of which $12,000 were associated
with property taxes levied in the prior year that had been
declared delinquent at the end of the prior year. All of the
remaining property taxes receivable at the beginning of the
current year, totaling $5,000, were written off as uncollectible.
The net realizable amount at 6/30/X8 ($11,000) is expected to be
collected within 60 days.
Property Taxes Receivable—Current 570,000
Allowance for Uncollectible—Current 10,000
Revenues—Property Taxes 560,000
To record the property tax levy.
Cash 525,000
Property Taxes Receivable—Current 513,000
Property Taxes Receivable—Delinquent 12,000
To record property tax collections.
 Group Exercise:
Requirement 1 (Journal Entries)

2. The city levied property taxes totaling $570,000. Of this amount,

$10,000 was estimated to be uncollectible. Collections during
the year totaled $525,000, of which $12,000 were associated
with property taxes levied in the prior year that had been
declared delinquent at the end of the prior year. All of the
remaining property taxes receivable at the beginning of the
current year, totaling $5,000, were written off as uncollectible.
The net realizable amount at 6/30/X8 ($11,000) is expected to be
collected within 60 days.

Property Taxes Allowance for

Receivable—Delinquent Uncollectibles—Delinquent
BB 17,000 NRV = 11,000 6,000 BB

12,000 Collected

Given 5,000 5,000 Write 5,000 1,000 Left over

off Close out
Group Exercise:
Requirement 1 (Journal Entries)

Allowance for Uncollectibles—Delinquent 6,000

Property Taxes Receivable—Delinquent 5,000
Revenues—Property Taxes 1,000
To write-off uncollectible accounts and eliminate the
remaining $1,000 credit balance in the allowance account.

Property Taxes Allowance for

Receivable—Delinquent Uncollectibles—Delinquent
BB 17,000 6,000 BB

12,000 Collected

Given 5,000 5,000 Write 5,000 1,000 Left over

off Close out
 Group Exercise:
Requirement 1 (Journal Entries)

2. The city levied property taxes totaling $570,000. Of this amount,

$10,000 was estimated to be uncollectible. Collections during
the year totaled $525,000, of which $12,000 were associated
with property taxes levied in the prior year that had been
declared delinquent at the end of the prior year. All of the
remaining property taxes receivable at the beginning of the
current year, totaling $5,000, were written off as uncollectible.
The net realizable amount at 6/30/X8 ($11,000) is expected to be
collected within 60 days.

Property Taxes Receivable—Delinquent 57,000

Property Taxes Receivable—Current 57,000
Allowance for Uncollectibles—Current 10,000
Allowance for Uncollectibles—Delinquent 10,000
To transfer delinquent property taxes to specifically designated
accounts.
 Group Exercise:
Requirement 1 (Journal Entries)

3. The estimated revenues for the year include a $44,000

entitlement from the federal government. During the year, the
city received $50,000.

Entitlement Receivable 44,000

Revenues—Entitlements 44,000
To record entitlement from the federal government.

Cash 50,000
Entitlement Receivable 44,000
Revenues—Entitlements 6,000
To record collection of entitlement.
 Group Exercise:
Requirement 1 (Journal Entries)

4. The City’s income taxes, sales taxes, permits, licenses, and

other miscellaneous revenues totaled 225,000.

Cash 225,000
Revenues—Other 225,000
To record revenues accounted for on the cash basis.
 Group Exercise:
Requirement 1 (Journal Entries)

5. Encumbrances outstanding at the beginning of the year totaled

$60,000. The goods and services related to these encumbrances
were received along with invoices for $58,000.
Fund Balance Assigned for Encumbrances 60,000
Unassigned Fund Balance 60,000
To reverse the 6/30/X7 appropriation of fund balance for
encumbrances outstanding.
ENCUMBRANCES 60,000
BUDGETARY FUND BALANCE
ASSIGNED FOR ENCUMBRANCES 60,000
To reestablish budgetary control over encumbrances
outstanding at 6/30/X7.
 Group Exercise:
Requirement 1 (Journal Entries)

5. Encumbrances outstanding at the beginning of the year totaled

$60,000. The goods and services related to these encumbrances
were received along with invoices for $58,000.
BUDGETARY FUND BALANCE
ASSIGNED FOR ENCUMBRANCES 60,000
ENCUMBRANCES 60,000
To cancel encumbrances of $60,000 upon receipt of goods and
services totaling $58,000.
Expenditures 58,000
Vouchers Payable 58,000
To record expenditures of $58,000 for goods and services.
 Group Exercise:
Requirement 1 (Journal Entries)

6. Purchase orders and contracts totaling $380,000 were entered

into during the year. For $340,000 of this amount, invoices that
totaled $336,000 for services and goods were received. The
city generally allows encumbrances outstanding at year-end to
laps but reappropriates the amounts in the following year to
honor the encumbrances. Of the $336,000 invoiced, $75,000
relates to the acquisition of supplies inventory. The city uses
the consumption method for accounting for supplies.

ENCUMBRANCES 380,000
BUDGETARY FUND BALANCE
ASSIGNED FOR ENCUMBRANCES 380,000
To record encumbrances for purchase orders issued and
contracts entered into during the year.
 Group Exercise:
Requirement 1 (Journal Entries)

6. Purchase orders and contracts totaling $380,000 were entered

into during the year. For $340,000 of this amount, invoices that
totaled $336,000 for services and goods were received. The
city generally allows encumbrances outstanding at year-end to
laps but reappropriates the amounts in the following year to
honor the encumbrances. Of the $336,000 invoiced, $75,000
relates to the acquisition of supplies inventory. The city uses
the consumption method for accounting for supplies.

BUDGETARY FUND BALANCE

ASSIGNED FOR ENCUMBUMBRANCES340,000
ENCUMBRANCES 340,000
To cancel encumbrances of $340,000 upon receipt of goods
and services totaling $336,000.
Expenditures 281,000
Inventory 75,000
Vouchers Payable 336,000
To record expenditures of $281,000 and the acquisition of
supplies inventory of $75,000, the total of which was
previously encumbered for $340,000.
 Group Exercise:
Requirement 1 (Journal Entries)

7. Payroll and other items not involving the use of purchase

orders and contracts totaled $270,000. This amount does not
include interfund billings.
Expenditures 270,000
Vouchers Payable 270,000
To record expenditures for items not previously encumbered
(other than amounts relating to interfund billings).

8. Cash disbursements (not including payments to other funds)

totaled $750,000.
Vouchers Payable 750,000
Cash 750,000
To record cash disbursements other than interfund
disbursements.
 Group Exercise:
Requirement 1 (Journal Entries)

9. The Auto Repair internal service fund was discontinued as

determined by the city council at the beginning of the year.
The actual amount disbursed to the General Fund when the
fund was discontinued was $22,000.
Cash 22,000
Other Financial Sources—Transfer In 22,000
To record transfer received from the Motor Pool Internal
Service Fund, which was discontinued.
10. A payment was made for $30,000 to the Electric Utility
Enterprise Fund to make up its operating deficit, which had
originally been estimated to be $35,000.
Other Financing Uses—Transfer Out 30,000
Cash 30,000
To record payment of transfer to the Electric Utility Enterprise
Fund ($5,000 under $35,000 budgeted amount).
 Group Exercise:
Requirement 1 (Journal Entries)

11. A $20,000 payment was made to a Capital Projects fund to

cover a portion of street improvements (which was exactly the
amount budgeted).
Other Financing Uses—Transfer Out 20,000
Cash 20,000
To record payment of transfer to a Capital Projects Fund.
 Group Exercise:
Requirement 1 (Journal Entries)

12. The Electric Utility Enterprise fund billed the city for a total of
$28,000 for electricity used by the city and supplied by the
Electric Utility. The cash disbursements throughout the year for
periodic billings totaled $24,000.

Expenditures 28,000
Due to Electric Utility Enterprise Fund 28,000
To record as expenditures electricity purchased from the
Electric Utility Enterprise Fund (a quasi-external transaction).
Due to Electric Utility Enterprise Fund 24,000
Cash 24,000
To record payments made to the Electric Utility Enterprise
Fund for electricity purchased.
 Group Exercise:
Requirement 1 (Journal Entries)

13. The City disbursed $79,000 to the City Center for the
Performing Arts Enterprise Fund as a loan. The repayment is
expected in three years.
Advance to Center for Performing
Arts Enterprising Fund 79,000
Cash 79,000
To record advance to Center Performing Arts Enterprise Fund
(repayable in three years).
 Group Exercise:
Requirement 1 (Journal Entries)

14. A physical count of the supplies inventory at year-end indicates

that the balance decreased from $44,000 to $41,000 during
the year.
Expenditures 78,000
Inventory 78,000
Note: Supplies purchased during the year totaled $75,000 as
indicated in #6. Moreover, the physical inventory decreased
$3,000 from the beginning of the year. Thus, inventory
consumed must be $78,000 ($75,000 + $3,000 ).
Group Exercise:
Requirement 2 (Closing Entries)

APPROPRIATIONS 720,000
APPROPRIATIONS—TRANSFER OUT 55,000
BUDGETARY FUND BALANCE UNASSIGNED70,000
ESTIMATED REVENUES 820,000
ESTIMATED TRANSFER IN 25,000
To reverse the entry previously made to record the legally
adopted annual operating budget.

Revenues 831,000
Other Financing Sources—Transfer In 22,000
Expenditures 715,000
Other Financing Uses—Transfer Out 50,000
Unassigned Fund Balance 93,000
To close the actual revenues, expenditures, and other financing
uses into Unassigned Fund Balance.
Group Exercise:
Requirement 2 (Closing Entries)

BUDGETARY FUND BALANCE

ASSIGNED FOR ENCUMBRANCES 40,000
ENCUMBRANCES 40,000
To close encumbrances outstanding at year-end by reversing
the entry that previously recorded them (see #6).

Unassigned Fund Balance 40,000

Fund Balance Assigned for Encumbrances 40,000
To record the actual fund balance reserve account to indicate
the portion of year-end fund balance segregated for
expenditure upon vendor performance.
 Group Exercise: Requirement 2 (Statement of Revenues,
Expenditures, and Changes in Fund Balance)
Variance Favorable
Budget Actual (Unfavorable)
Revenues:
Property taxes ($560,000 + $1,000) $570,000) $561,000) $(9,000))
Intergovernmental entitlement 44,000) 50,000) 6,000)
Miscellaneous 206,000) 225,000) 19,000)
Total Revenues $820,000) $836,000) $16,000)

Expenditures: 720,000) 715,000) 5,000)

Excess of Revenues over Expenditures $100,000) $121,000) $21,000)

Other Financing Sources (Uses):

Transfer in from Auto RepairInternal Service Fund $25,000) $22,000) $(3,000)
Transfers Out—
to Electric Utility Enterprise Fund (35,000) (30,000) 5,000)
to Capital Projects Fund (20,000) (20,000) 0)
Total Other Financing Sources (Uses) $(30,000) $(28,000) $2,000)

Excess of Revenues over Expenditures

and Other Financing Uses: $70,000) $93,000) $(7,000)
Fund Balance – 7/1/X7 100,000) 100,000) 0)
Fund Balance – 6/30/X8 $170,000) $193,000) $23,000)
)
Note: The large favorable variance is attributable primarily to encumbrances of $40,000 outstanding at year-end that will be reflected as expenditures in the
following year.
 Group Exercise:
Requirement 4 (Fund Balance Summary)

Fund Balance:
Nonspendable:
Supplies
Inventory $ 41,000
Spendable:
Assigned for
Governmental
Services 40,000
Unassigned
112,000
Total Fund
Balance $193,000
Learning Objective 8

Make calculations and record

journal entries for basic interfund
activities.
Interfund Activities
Overview of Accounting and Financial Reporting for the
General Fund
Overview of Accounting and Financial Reporting for the
General Fund
Bersinar
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