Project Five - Recording Expenditure Transactions
Learning Objectives: In this project, you will learn to:
· prepare modified accrual basis expenditure entries for a variety of operating activities
· produce fund financial statements
· calculate and record adjustments to report the expenditures on the full accrual basis
· produce government-wide financial statements
Introduction
Expenditure transactions are recorded in governmental funds using modified accrual basis accounting rules. They are reported under modified accrual basis in the fund financial statements but must be converted to full accrual basis for reporting in the government-wide statements.
To accomplish this using FundBalance General Ledger, you record expenditures in the appropriate funds using the modified accrual basis. After the transactions are posted, the General Ledger data is transferred to GASB 34 Reporter to produce the fund statements and to enter any adjustments necessary to convert the transactions to full accrual basis. After the adjustments are complete, the government-wide financial statements can be produced.
Preparing the Transaction Data
The following events occurred in March, 2004 and need to be entered into the accounting records. For each event, analyze the transaction to determine the appropriate debit/credit amounts and account names. Use your Chart of Accounts to look up the appropriate account codes to record the entry. Note that:
· Expenditure codes begin with “4” (e.g. 410.000)
· Transfer-out accounts begin with “6” (e.g. 650.000) and
· Other Financing Sources and Uses line items begin with “7.” (e.g. 715.000)
After analyzing the transaction, record the complete transaction data in the space provided and then enter the transaction in FundBalance General Ledger. Each event should be recorded on a separate Journal Entry form.
Event 1: Record Accrued Payroll Expenditures
On March 1, 2004, the following salary costs for the General Government and Public Health Departments were accrued:
General Government:
Salaries Expense $533,137.06
Fringe Benefits Expense 135,816.65
Public Health:
Salaries Expense 190,526.50
Fringe Benefits Expense 49,023.80
Both Departments are funded by General Fund resources. All salary and related expenditures can be accrued to Accrued Payroll Payable (note that, like Revenues, Balance Sheet accounts do not require a Department Code: simply use “000” for the Department Code).
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date: 03/01/2004Journal Type: / GJ
Description Line 1: / Record accrued payroll expenses
Description Line 2: / for General Fund departments
Source Document: / P5-01
Source Description: / Project 5, #1
Debit/credit total to reconcile to: $908,504.01
Event 2: Recognition and Payment of Claims & Judgments
On March 1, 2004, the City paid $1,650,256.00 on several previously accrued claims and judgments (these amounts were accrued as Other Liabilities in the General Fund). Also on that day, the City received word that it would have to pay $150,000.00 on June 1, 2004 for damages incurred when a police department van collided with several vehicles during rush hour traffic (this cost should be charged to the General Fund, Public Safety Department, Other Miscellaneous Expenses and accrued to the Other Liabilities account in the General Fund). Once again, recall that Balance Sheet accounts do not require a Department Code!
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date: / 03/01/2004Journal Type: / GJ
Description Line 1: / Current installment of court-awarded
Description Line 2: / judgments & additional awards
Source Document: / P5-02
Source Description: / Project 5, #2
Debit/credit total to reconcile to: $1,800,256.00
Event 3: Pay Accrued Payroll and Fringe Benefits
On March 3, 2004, the City paid $10,018,530.52 against its outstanding accrued payroll.
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date: / 03/03/2004Journal Type: / GJ
Description Line 1: / Pay GF accrued payroll and remit
Description Line 2: / payments for fringe benefits
Source Document: / P5-03
Source Description: / Project 5, #3
Debit/credit total to reconcile to: $ 10,018,530.52
Event 4: Various Purchases
On March 5, 2004, the City made the following purchases on account (credit):
· Purchased office supplies totaling $45,258.05
· Signed an insurance policy to provide six month’s liability coverage on city vehicles
while being driven out-of-state; the cost of the policy is $65,000.00
· Purchased various pieces of small office equipment for $105,223.50
All amounts are payable from General Fund resources and should be charged to the General Government Department. The City uses the purchases method to account for supplies (charged to Commodities) and insurance (charged to Contractual Services). The equipment should be charged to Capital Outlay.
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date: / 03/05/2004Journal Type: / GJ
Description Line 1: / Purchase of insurance policy and
Description Line 2: / various office supplies and equipment
Source Document: / P5-04
Source Description: / Project 5, #4
Debit/credit total to reconcile to: $215,481.55
Event 5: Purchase Equipment by Capital Lease
The Police Department acquired 10 new police vehicles through a capital lease on March 7, 2004. The present value of the lease agreement and the fair market value of the vehicles is $243,520.00. Since this is a governmental fund transaction, neither the vehicles nor the lease liability are recognized in the fund. However, the substance of the transaction is recognized by debiting an expenditure account and crediting an Other Financing Sources line item. Because all capital acquisitions in governmental funds are recorded as expenditures and all long-term debt transactions are recorded as Other Financing Sources, this entry reflects both the asset and liability components of the transaction.
The transaction should be recorded in the General Fund by debiting the Capital Outlay expenditure account (use Public Safety as department account) and crediting the revenue account entitled Capital Leases (despite the account name, this account is included with the revenue accounts and will be displayed on the financial statements as a line item under Other Financing Sources). Note that Other Financing Sources, like Revenues, require no Department Code.
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date; / 03/07/2004Journal Type: / GJ
Description Line 1: / Record purchase of police vehicles
Description Line 2: / by capital lease
Source Document: / P5-05
Source Description: / Project 5, #5
Debit/credit total to reconcile to: $243,520.00
Event 6: Transfer Monies to Debt Service Fund
On March 13, 2004, the General Fund transferred $1,750,632.00 to Fund 301-General Obligation Debt Service Fund to cover principal and interest payments on outstanding bonds.
Prepare an entry to record the cash transfer-out from the General Fund and an entry to record the cash transfer-in to the Debt Service Fund. All transfers-out should use Department 490-Other Financing Uses; transfers-in do not require a Department Code.
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Journal Type: / GJ
Description Line 1: / Transfer to debt service fund
Source Document: / P5-06
Source Description: / Project 5, #6
Debit/credit total to reconcile to: $3,501,264.00
Event 7: Payment of Interest and Principal on General Long-term Debt
Payment for principal and interest on one of the City of Springfield’s outstanding bond issues is due on March 15. The payment is to be made by Fund 301-General Obligation Debt Service Fund. However, in order to make the payment, the Fund needs to convert $500,000.00 of securities held in its Investment account to Cash. The debt service requirements are as follows:
Principal $1,300,000.00
Interest $3,356,502.63
Like all other expenditure entries, the debt service entries require a department code: for these payments, use the Department Code entitled “Interest on Debt.” In the entry to record the liquidation of the investments to provide cash, recall that Balance Sheet accounts do not require a Department Code.
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date: / 3/15/2004Journal Type: / GJ
Description Line 1: / Liquidate investments and pay principal
Description Line 2: / and interest on general obligation bonds
Source Document: / P5-07
Source Description: / Project 5, #7
Debit/credit total to reconcile to: $5,156,502.63
Event 8: Payments on Account
On March 15, 2004, the City paid the following amounts against outstanding Accounts Payable in the funds noted:
General Fund payables $1,856,332.15
Public Recreation Fund payables $ 885,302.60
Entry:
Create a Journal Entry to record this transaction. Enter the following information in the heading of the Journal Entry window, enter your transaction and then click Save.
Entry/Posting Date: / 03/15/2004Journal Type: / GJ
Description Line 1: / Record payments on account
Description Line 2: / in various funds
Source Document: / P5-08
Source Description: / Project 5, #8
Debit/credit total to reconcile to: $2,741,634.75
Posting the Transactions
Follow your usual procedures to post the transactions (note: if you have any trouble following these steps, turn back to a previous project to obtain more detailed process descriptions and screen shots):
· Print the Journal Entries report with YourLname-Project 5 Trans. entered as the Optional Subheading. Carefully review each transaction to ensure that your data is correctly entered. If you did not need to make any journal entries other than those included in the Project 5 transactions, the grand total on your Journal Entries report should be $24,585,693.46.
· Backup your files, taking care to note the time and date of the backup on this handout and in your log.
· Append the transactions to the Master Journal Entry File. Your Append Report should show 8 journal entries appended.
· Select previously appended transaction for posting. Choose Process from the Main Menu and then choose Correct Master JEs. Change the entry and posting dates to 03/01/2004 for the following journal entries:
JE # Source Journal Entry description
9 P5-10 Record accrued payroll expenses
10 P5-11 Miscellaneous expenditures
11 P5-12 Miscellaneous expenditures
22 P5-14 Record refunds and various salary expenditures
· Print the Audit Report with YourLname-Project 5 Trans. entered as the Optional Subheading, the From Posting Date set to 03/01/2004 and the Through Posting Date set to 03/31/2004. Verify that only the journal entry numbers listed above and the journal entry numbers listed on your Journal Entries report are included in the Audit Report. If you do not have any transactions other than those included in this assignment, the Grand Total on your Audit Report should be $89,553,606.74.
· Post the transactions with YourLname-Project 5 Trans. entered as the Optional Subheading and the Posting Date set to 03/31/04. Reconcile the grand total on the posting report to the grand total listed on the Audit Report. Circle and check the grand totals to indicate that they are reconciled.
More Adjustments to Convert to Full Accrual Basis
Several of the expenditure transactions in this project require adjustments to convert them to full accrual basis for reporting in the government-wide statements. However, before the adjustments can be made, data from FundBalance General Ledger must be imported to GASB 34 Reporter. To do this:
· start GASB 34 Reporter and choose Select General Ledger Data from the Navigation Tree
· when the Import Data page appears, click FundBalance General Ledger as your import source
· when the Import Wizard dialog window appears, click Next to begin the import process
· in the next window, choose 101 General Fund from the drop-down list and click Next to continue.
· in the next window, leave Re-import selected and click Next to begin the import process
· click Finish to complete the import process.
Several processing windows appear as the data is being imported. Click OK when the import process is completed.
For purpose of comparison after the adjustments are made, print a Fund Balance Sheet: click Reports in the Navigation Tree and choose Balance Sheet - Governmental Funds. When the Balance Sheet Setup Window appears (Figure 5-1), enter YourLname-Project 5 Trans. BEFORE in the Report Title, set the Date Heading to 03/31/2004, set the Major Fund order as indicated and click Print.
Figure 5-1: Balance Sheet Setup WindowAlso for purposes of comparison, print a Fund Statement of Revenues, Expenditures and Changes in Fund Balances: choose Statement of Revenues - Governmental Funds. When the Statement of Revenues Setup Window appears (Figure 5-2), enter YourLname-Project 5 Transactions BEFORE in the Report Title, set the Date Heading to 03/31/2004, set the Major Fund order as indicated and click Print.
Figure 5-2: Statement of Revenues Setup WindowSimilarly, print a government-wide Statement of Net Assets and a Statement of Activity. Enter YourLname-Project 5 Trans BEFORE as the Optional Subheading for both reports and set the report date to 03/31/2004.
Before starting to enter the adjustments, let’s review the expenditure transactions (Figure 5-3):
Event / Description / Adjustment?
1 / Accrued Payroll Expenditures / No adjustment required (recognized as an expenditure/expense in the current period for both modified and full accrual)
2 / Recognition and Payment of Claims & Judgments / For newly accrued claim: no adjustment required (recognized as an expenditure/expense in the current period for both modified and full accrual)
For payments on the previously accrued claims: any required adjustments should have been made when the payable was accrued and an expenditure recognized
3 / Pay Accrued Payroll &
Fringe Benefits / No adjustment required (any adjustments should have been made when the payable was accrued - see Event 1)
4 / Various Purchases / Supplies & insurance purchases: adjustment required because purchases method is not permitted under full accrual
Equipment: adjustment required to capitalize the equipment under full accrual *
5 / Purchase of Equipment by Capital Lease / An adjustment is required to recognize the fixed asset and the related long-term liability.
6 / Transfer of Monies to Debt Service Fund / Though “transfers” do not exist in full accrual accounting, interfund transfers should net to zero on their own and therefore do not require adjustment
7 / Payment of Interest & Principal on General Long-term Debt / Principal repayment: adjustment is required because modified accrual views principal repayment as an expenditure while full accrual view it as a reduction in a liability
Interest payment: adjustment may be required if some portion of the interest payment was previously accrued under full accrual basis
8 / Payments on Account / No adjustment required (any adjustments should have been made when the payable was accrued)
* Because even under full accrual basis accounting “small equipment” is sometimes expensed, it is
possible that no adjustment is required: that is, that the purchases would be recognized as
expenditures/expenses under both full accrual and modified accrual basis accounting
Events 4, 5 and 7 require adjustments convert them to full accrual basis. To begin the adjustment process, click Adjustment Interviewer in the Navigation Tree and then click Start Interviewer. The 26-plus adjustment categories lifted on the left side of the window are based on the comprehensive listing of adjustments provided by GASB.