Chapter 17
Governmental Entities: General Fund
HIGHLIGHTS OF CHAPTER
1.Governmental entities in the United States consist of the federal government, states, territories, counties, townships, municipalities, school districts, and special districts (such as port authorities, airports, public buildings, libraries, and others).
2.Some characteristics of governmental entities are:
Organization to serve the citizenry
General absence of the profit motive
Taxation as the principal source of revenue
Impact of the legislative process
Stewardship for resources
3.For many years, neither the AICPA nor the FASB gave attention to the accounting problem of governmental entities.
4.The National Council on Governmental Accounting (NCGA), an organization of 21 local, state, and national governmental financial officers, had established accounting principles for governmental entities for many years. In 1984, the GASB was established as an arm of the Financial Accounting Foundation with the authority to establish accounting standards for state and local governmental entities.
5.Shortly after its establishment in 1984, the Governmental Accounting Standards Boards (GASB) issued GASB Concepts Statement No. 1, “Objectives of Financial Reporting,” in which it set forth three reporting standards for state and local governmental entities.
6.One of the first acts of the GASB was to codify governmental accounting and financial reporting standards in effect in 1984. Subsequently, the GASB issued a number of Statements on governmental accounting standards and revised codifications.
7.The GASB provided that the governmental financial reporting entity was to consist of the primary (state or local) government and component units.
8.The primary accounting unit for governmental entities is the fund. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, that are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with specific regulations, restrictions, or limitations.
9.The funds recommended for governmental entities are:
General fund
Special revenue funds
Capital projects funds
Debt service funds
Permanent funds
Enterprise funds
Internal service funds
Trust and agency funds (four types)
In addition, self-balancing account groups for general capital assets and general long-term debt are often used by governmental entities.
10.Except for the two proprietary funds (enterprise funds and internal service funds), governmental accounting does not emphasize the results of operations. Financial reporting for governmental entities focuses on the stewardship of fund resources. As a result, the accrual basis of accounting is used for many operating funds of a governmental entity.
11.Because of the lack of emphasis on operating results in funds other than the two proprietary funds (enterprise funds and internal service funds), expenditures rather than expenses are recorded in the accounting records of most governmental funds. Consequently, depreciation expense generally is recognized only in enterprise funds and internal service funds.
12.Annual budgets and capital budgets are a means of exercising legislative control over governmental entities. Annual budgets generally are used for the general and special revenue funds; capital budgets are appropriate for capital projects funds. The budgets for general and special revenue funds generally are recorded in their account records. Annual budgets as a rule are not recorded in the accounting records of enterprise funds and internal service funds.
13.Several types of annual budgets may be used by a governmental entity. Among these are the following:
a.An object budget, which classifies authorized expenditures by department and by object
b.A program budget, which stresses the measurement of total cost of a program, regardless of how many departments (or funds) are involved in the program
c.A performance budget, which attempts to relate input of resources to output of services
14.The annual budget for a general fund (which includes all transactions not recorded in another fund) is recorded as follows:
Estimated Revenues / XXXEstimated Other Financing Sources / XXX
Appropriations / XXX
Estimated Other Financing Uses / XXX
Budgetary Fund Balance / XXX
If estimated revenues and other financing sources exceed appropriations and other financing uses, the budgetary surplus is credited to the Budgetary Fund Balance ledger account; if appropriations and other financing uses exceed estimated revenues and other financing sources, the budgetary deficit is debited to the Budgetary Fund Balance ledger account.
15.Purchase orders for nonrecurring acquisitions of goods and services by a general fund may require a debit to Encumbrances and a credit to Fund Balance Reserved for Encumbrances to ensure that total expenditures for a fiscal year do not exceed appropriations. When the invoice is received, the foregoing journal entry is reversed and the actual amount of the invoice is recorded as a debit to Expenditures and a credit to Vouches Payable.
16.Other typical transactions for a general fund are illustrated in Chapter 17 of the textbook. Students should study these pages carefully. At the end of a fiscal year, a trial balance is prepared as a preliminary step to the preparation of the following general fund financial statements: (a) the statement of revenues, expenditures, and changes in net assets; and (b) the balance sheet, and the preparation of closing entries.
17.Closing entries for a general fund consist of (a) a journal entry to close the Encumbrances ledger account; (b) an entry to close the budgetary ledger accounts; and (c) an entry to close the Revenues, Expenditures, and Other Financing Sources and Uses ledger accounts.