Governmental Accounting--Exam #1

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Investment Trust Funds: One of the 11 types of funds used to account for the external portion of investment pools reported by the sponsoring government.
Capital Projects Funds: One of the 11 types of funds used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary or trust funds). Capital outlays financed from general obligation bond proceeds should be accounted for through this fund.
Retroactive: Requires restatement of prior years or computation of cumulative affect.
The General Fund: Is used to account for all financial resources that are not restricted to specific purposes or otherwise required to be accounted for in another fund. This is established at the inception of the government and exists throughout the government's life.
Escheats: State law indicates when property of people dying intestate (means they did not prepare a will), in active checking and other accounts, or other property must pass to the state. Property so received is a revenue to the state. Capital assets should be recorded in General Capital Assets at fair value.
Grants: At some point are going to become revenues. Main thing to look for with these is whether or not there are restrictions.
Current Assets = Current Liabilities + Fund Balance: What is the standard report format (equation) for a governmental & not-for-profit balance sheet?
Capital Leases: Assets under this are recorded in General Capital Assets with corresponding entry in General Long-Term Liabilities.
Fiduciary Funds: Are used to account for the assets held by a government in a trustee or agency capacity for the benefit of others, whether individuals, private organizations, or other governmental units. These are not used to report assets held for the benefit of a government's own programs or activities.
Management's Discussion and Analysis (MD&A): A brief analysis and discussion by the SLG's management of, for example, its financial statements, its schedules, and any known event or situation that is expected to impact the SLG in the near future.
Financial Assets: In governmental funds, this refers primarily to cash, investments, and receivables.
Bond Insurance: Helps lower interest rates and reserves; may assist in issuance of bonds.
Notes: Typically less formal than bonds, but similar.
Agency Funds: One of the 11 types of funds used to report resources held by the reporting government in a purely custodial capacity (assets equal liabilities). These typically involve only one receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments.Measurement Focus (MF) Is on current financial resources--what is expendable
GASB Definition for "Refunding": Issuing new debt whose proceeds are used to repay previously issued "old" debt.
Certificates of Participation (CoPs): Divide leases into shares that are sold to investors. (can take a capital lease and divide it into shares)
Fiduciary Funds: Are used to account for the assets held by a government in a trustee or agency capacity for the benefit of others, whether individuals, private organizations, or other governmental units. These are not used to report assets held for the benefit of a government's own programs or activities.
General Capital Assets and General Long-Term Liabilities: Nonfund Accounts
Special Revenue Funds: One of the 11 types of funds used to account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are legally restricted to expenditure for specific purposes.
Proprietary Funds: Are used to account for a government's continuing business-type organizations and activities. All assets, liabilities, equities, revenues, expenses, and transfers pertaining to these business (and business-like) organizations and activities are accounted for these funds. Most of the GAAP are applicable to these funds.
Vacation Leave: Must accrue a liability when BOTH conditions are met: employees' right to receive compensation for future absences are attributable to service already rendered AND it is probable that the employer will compensate the employees through paid time off or with cash payments at termination or retirement.
Prospective: Affects only the current and subsequent years.
Statement of Revenues, Expenditures, and Changes in Fund Balance: May also be referred to as the operating statement. The format is specified by the GASB.
Related Liabilities: In governmental funds, this refers primarily to general government liabilities that are related to the current year and are normally paid from available expendable financial asset.
Refunding Bonds: Using new bonds to substitute for old bonds.
Allotment: Is a periodic release of an appropriation, i.e., a quarterly allotment -- helps keep departments from spending entire budget early in the fiscal year.
Warrants: Promises to pay.
Allocation: An apportionment of an appropriation made by executive branch of a legislative branch appropriation.
Callable Bonds: Provision in outstanding bonds to retire bonds early.
Inventory Expenditures: May be recognized using either purchases method or consumption method.
Shared Revenues: Varies in amount each period (depending on collections) and allocated based on some formula or underlying transaction.
Licenses and Permits: Has two categories: 1.) Business (alcoholic beverages, health corporations, utilities, professional, occupational, and amusements) and 2.) Non-business (building, vehicles, driver licenses, hunting and fishing, marriage, burial, and animal. Rates are established by ordinance and adjusted periodically.
The General Fund: One of the 11 types of funds used to account for all financial resources except those required to be accounted for in another fund.
Purchases Method for Inventory: Already charged to expenditures, so it does not represent a current financial resource.
Liability: This is recorded if it is probable that an asset has been impaired or this has been incurred (as of the date of the financial statements) AND it can be reasonably estimated.
When to Recognize Expenditures: In the accounting period in which the fund liability is incurred except for unmatured interest (and principal) on long-term debt, which is recognized when due.
Funded Reserves: Highest year's principle and interest; this gives bondholders additional assurance of prompt payment.
Purchases Method for Prepayments: The prepayments account balance is not reported as an asset, since the amount has already been charged to expenditures.
Reserved Fund Balance: The part of the fund balance on the balance sheet that indicates that some amounts are not available for appropriation or expenditure. The creation of this requires action by governing council. Examples: encumbrances, petty cash, inventories, advances.
Liability: This is recorded if it is probable that an asset has been impaired or a this has been incurred (as of date of financial statements) AND the amount can be reasonably estimated.Capital Projects Funds Used to account for financial resources that are used to construct/acquire major, long-lived general capital facilities; examples are buildings, highways and bridges, and storm water drainage systems.
Compensated Absences: Vacation, sick leave, maternity leave, and other such employee benefits.
Charges for Services: Result from goods and services provided to the public, or other departments or other governments. When dealing with other departments, must distinguish between reimbursements and interfund service transactions. Recognize this when it is provided.
Fund Balance: Means "Net Financial Assets," that is, fund Financial Assets (FA)--Cash, investments, receivables, and other financial assets less any fund related liabilities. This is the proper context of the terms "current assets" and "current liabilities" in governmental fund accounting and financial reporting.
Arbitrage: The difference in the amount earned on investing bond proceeds and amount paid in interest on the bonds -- since most governments issue tax-exempt debt, this amount can be significant.Debt Service Funds To account for the accumulation of resources for, and the payment of, general long-term debt principle and interest; required only if legally mandated or financial resources are being accumulated for principle and interest payments in future years.
Current Refunding: New debt proceeds used to repay old debt immediately.
Enterprise Funds: One of the 11 types of funds that may be used to report any activity for which a fee is charged to external users for goods and services.
Bond Anticipation Notes (BANs): These are used when there is a time lag in issuing an approved bond issue when cash is needed immediately to start the project; interest rates on the decline, so postponing issuing bonds will save the government money.
Consumption Method for Prepayments: The prepayments account balance is reported as an asset.
Fund: Basic classification of these are by this, but it does have other options.
Encumbrances: Are recorded when purchase orders are issued or contracts signed for goods and services. When the actual expenditure occurs, this entry is reversed and the actual expenditure is recorded.Susceptible to Accrual Recognize only revenues that are ________; recognize others on a cash-basis.
Unreserved Fund Balance: The part of the fund balance on the balance sheet which may be further divided into Designated and Undesignated funds
The Budgetary Schedule (Statement): Financial statement where must show the original budget, the final budget, the actual on a budgetary basis (difference between budgetary and GAAP basis must be explained on face, in notes, or with statement). Most also include a variance column. Alternate format allowed if government does not budget on a fund basis.
Permanent Funds: One of the 11 types of funds used to report resources that are legally restricted to the extent that only earnings, not principle, may be used for principles that support the reporting government's programs--that is, for the benefit of the government or its citizenry.
Payments in Lieu of Tax: What does PILOTs stand for?
Extraordinary Items: Unusual AND infrequent; major casualty losses, expropriations, prohibitions, and gains and losses on early retirement of debt.
Fund Balance: In governmental funds, this refers to the net financial assets of the fund--the difference between its financial assets (FA) and related liabilities (RL).
Special Revenue Funds: Are established to account for general government financial resources that are restricted by law or contractual agreement to specific purposes. These exist as long as the government has resources dedicated to specific purposes.
Reserved and Unreserved: The fund balance of the balance sheet should be divided into what 2 sections?
Change in Accounting Principles: Expenditure not previously measurable may now be considered reasonably estimable; change from one acceptable alternative principle to another; change in method of applying the principle; GASB issues new expenditure recognition criteria that is different than a policy currently in use.
Government-Wide Financial Statements: Condensed consolidating overview presentations of the SLG's net assets and activities.
Interest: This is not accrued in the debt service fund at year end UNLESS resources for payment have been received by year-end AND payment is due within the first month of the year.
Balance Sheet, Operating Statement, and Budgetary Statement: What are the three major financial statements?
Internal Service Funds: One of the 11 types of funds used to account for the financing of goods and services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost-reimbursement basis.
Advance Refunding: New debt proceeds placed with escrow agent and invested until used to pay old debt principle and interest in the future.
Pension (and other employee benefit) Trust Funds: One of the 11 types of funds used to account for resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other post-employment benefit plans, or other employee benefit plans.
Consumption Method for Inventory: Supplies represent an expendable current financial resource - it can be used to finance future "expenditures" for supplies.
Operating Statement Format: Revenues - Expenditures = Excess (Deficiency) of Revenues Over (Under) Expenditures +- Other Financing Sources (Uses), including Transfers (detailed) +- Special and Extraordinary Items (detailed) = Net Change in Fund Balances +- Fund Balances at Beginning of Period = Fund Balance at End of Period
Time Warrants: A fancy name for post-dating a check
Fines and Forfeits: Usually not that big of a source of revenue. Revenue usually recognized on a cash basis. Large fines may be accrued.
Contingencies: Claims are against the government are called this.
Bond Ratings: Aid in determining interest rates and reserves; may assist in issuance of bonds.
Error Correction Process: 1. Recognize the erroneous entry that was recorded, 2.) Determine what the correct entry should be and 3.) Fix the error by essentially combining steps 1 and 2.
Long-term Debt Service: Debt service (principal and interest) not normally accrued at year-end; governments may accrue if 2 conditions are met: 1.) debt service payment occurs early (not more than 30 days) in the next fiscal year AND 2.) dedicated financial resources must have been provided in current fiscal year; if accrual is made, it must be for the full amount.
Fund Financial Statements: Detailed presentations of fund financial position, operating results, and (for proprietary funds) cash flows.
Debt Service Payments: A feature of bonds that tries to limit fluctuations.
Entitlements: Portions of appropriations allocated among governments based on relative populations (or some other measure)
Short-term Debt Service: Recorded as fund liabilities; accrue interest at year-end; governmental funds borrow like this using tax anticipation notes (TANs), revenue anticipation notes (RANs), bond anticipation notes (BANs), and other similar notes.
Expenditures: Are the foundation of planning, authorizing, controlling, and evaluating activities of governmental funds. It's a measure of the fund liabilities incurred (or expendable financial resources used). Typically classified as operations, capital outlay, or debt service.
Principle 1(Accounting and Reporting Capabilities): A governmental accounting system must make it possible both (a) to present fairly and with full disclosure the funds and activities of the governmental unit in conformity with GAAP and (b) to determine and demonstrate compliance with finance-related legal and contractual provisions.
Proprietary Funds: Are used to account for a government's continuing business-type organizations and activities. All assets, liabilities, equities, revenues, expenses, and transfers pertaining to these business (and business-like) organizations and activities are accounted for these funds. Most of the GAAP are applicable to these funds.
"General Government": The governmental funds and the nonfund accounts are referred to collectively as this.
Fiscal Agents: The people that do all of the administrative duties associated with bonds, such as processing interest and principle payments.
Susceptible to Accrual: To be this, it must be BOTH objectively measureable AND legally available (usable) to finance current period expenses.
Capital Grants: Solely for capital purposes; airport improvements, buses, subway systems, wastewater treatment plants.
Defined Contribution Plan: Government obligation is limited to making contributions required by the plan; retiree benefits dependent upon contributions made and the investment performance of the plan. Government should recognize the expenditure in the year employees earned the benefit -- underpayment is not liability of fund but a noncurrent liability.
Pension Cost Expenditures: Payments to pension plans, even self-administered ones, qualify as expenditures; most govt's either use defined contribution or defined benefit contribution.
Debt Service Funds: One of the 11 types of funds used to account for the accumulation of resources for, and the payment of, general long-term debt principle and interest.
Prepayment Expenditures: May be allocated over benefited period or accounted for only in current period.
Special Items: Unusual OR infrequent AND under the control of management.
Sick Leave: Expenditures in the year in which the employees are ill. Accrued only if it is probable that the employees will be paid upon retirement or termination.
Operating Grants: All grants besides capital grants; ex: operation of social welfare programs.
Other Required Supplementary Information (RSI): Such as actuarial information related to the SLGs defined benefit pension plan other postretirement benefits.
Defined Benefit Plan: Government obligation is to pay certain amount to retirees each period. Annual required contribution (ARC) based on many actuarial assumptions.

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