Fundamentals of Advanced Accounting

by Fischer/Taylor/Cheng

Learning Objectives and Reflections

CHAPTER10

Governmental Accounting: The General Fund and the Account Groups (including Other Governmental Funds, Proprietary Funds, and Fiduciary Funds)

Learning Objectives

When you have completed this chapter, you should be able to

1.Explain the Governmental Accounting Standards Board’s role in setting financial reporting standards for state and local governments.

2.Identify the types of funds and account groups in state and local governments.

3.Show how to account for transactions in governmental funds.

4.Explain the purpose of budgets and how governments account for appropriations.

5.Prepare journal entries for the general fund.

6.Demonstrate how to account for encumbrances.

7.Prepare fund financial statements for the general fund.

8.Complete schedules for general capital assets and long-term liabilities.

9.Tell why governments use special revenue, permanent, capital projects, and debt service funds, and demonstrate how transactions are accounted for and reported using those funds.

10.Account for and prepare financial statements of proprietary funds.

11.Explain the usefulness of and the accounting process for fiduciary funds and how these funds are reported.

12.Identify and account for transactions that affect different funds and/or account groups.

  • Governmental accounting and financial reporting standards for state and local governments are established by the GASB.
  • Governments prepare both fund financial statements and government-wide statements.
  • Three fund types—governmental, proprietary, and fiduciary—are used to account for activities. Each fund type has a different measurement focus and basis of accounting.
  • There are two types of account groups: general capital asset and general long-term liabilities.
  • Governmental funds have a measurement focus of current financial resources and use a modified accrual basis of accounting.
  • Revenues are recognized when they are measurable and available.
  • Expenditures are recognized when current financial resources will be used.
  • Governments use budgets and funds because of the need to demonstrate accountability.
  • The general ledger contains permanent balance sheet, budgetary, and operating accounts.
  • Budgetary, operating, and closing entries are used in accounting for the general ledger accounts.
  • Understanding the accounting and reporting procedures of the general fund will help in understanding accounting for other funds.
  • The two year-end statements of the general fund are the balance sheet and the statement of revenues, expenditures, and changes in fund balances.
  • Budgetary comparison schedules or statements are also required for the general fund and other funds for which a budget is adopted.
  • Both annual statements differ significantly from those in the private sector.
  • Account groups have traditionally been used to keep track of capital assets and long-term debt.
  • Account groups will not be reported on the financial statements. Rather, schedules of capital assets and long-term liabilities will be presented in the notes to the financial statements. Capital assets and long-term debt will also be reported in the government-wide statements.
  • Many governments continue to use the account groups as a convenient means of recording additions and deductions from capital assets and long-term debt.
  • Governments are required to record infrastructure assets and depreciation.
  • Accounting and financial reporting for other governmental funds follow the modified accrual basis of accounting.
  • Commonly used are special revenue funds, capital project funds, and debt service funds.
  • The permanent fund accounts for nonexpendable trust funds established for the sole purpose of supporting governmental activities or programs.
  • When more than one fund of each type exists, major funds are identified and combining funds is necessary to total the amount of the nonmajor funds in each fund type. These totals are used on the financial statements.
  • Proprietary funds have a measurement focus of economic resources and use full accrual basis accounting.
  • The two proprietary funds are enterprise funds and internal service funds.
  • Interfund activities between the proprietary funds and governmental funds are either reciprocal transactions for the provision of goods or services (accounted for as revenue and expenditures) or nonreciprocal (accounted for as interfund transfers).
  • Fiduciary funds include private-purpose trust funds, investment trust funds, pension trust funds, and agency funds.
  • Fiduciary funds use full accrual basis accounting.
  • Financial statements of fiduciary funds include a statement of net assets and a statement of changes in net assets.