Introduction to Governmental and

Not-for-Profit Accounting, 7e
Chapter 5: The Governmental Fund
Accounting Cycle
General and Special Revenue Funds
(Continued)

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Chapter 5 Topics
Recognition and Measurement Principles
Property Tax Revenues and Receivables
Sales and Income Tax Revenues and
Receivables
Intergovernmental Grants and Other
Revenues
Expenditures and Fund Liabilities
Interfund Transactions
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Recognition and Measurement:

General Principles
Focus on spendable resources
Cash, investments, taxes receivable, due
from other funds or governments
NOT capital assets

Revenues recognized if resources are

measurable and available
Available means collectible within the current
period or soon enough thereafter to be used
to pay liabilities of the current period
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Recognition and Measurement:

General Principles
Expenditure budgeting often on a cash or
near-cash basis
Expenditures accrued if liabilities are
incurred and normally paid from current
financial resources
Modifications to accrual accounting
General long-term debt not reported as
liabilities in governmental funds
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Types of Liabilities in
Governmental Funds
Once incurred, normally paid in a timely
manner from current financial resources
Salaries, professional services, supplies,
utilities, and travel

Matured liabilities normally expected to be

liquidated with expendable available
financial resources
Bonds and notes payable
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Property Tax Accounting:

Basic Principles

Property taxes recognized as revenue

when:
Levied AND
Available (collected within at least 60 days of
year-end)
Defer revenue if not collected in 60 days

Reduce revenues to provide for estimated

uncollectible taxes, estimated tax refunds
or discounts
Establish an allowance for
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Property Tax Accounting:

Basic Principles
Cash or taxes receivable from property tax
transactions recognized when either
Enforceable legal claim arises OR
Resources (cash) received

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Property Tax Accounting:

Levy, Net of Uncollectibles
Levy:
Property taxes receivable
1,030,000
Allowance for refunds and uncollectible taxes 30,000
Revenuesproperty taxes
1,000,000
Collection:
Cash
Property taxes receivable

990,000

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990,000

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Property Tax Accounting:

Taxpayer Appeals
Successful appeal of tax assessment:
Allowance for refunds and
uncollectible taxes
25,000
Cash
Property taxes receivable

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15,000
10,000

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Property Tax Accounting:

Year-End Adjustments
Reduce allowance:
Allowance for refunds and uncollectible taxes 2,000
Revenuesproperty taxes
2,000
Uncollected taxes become delinquent:
Property taxes receivabledelinquent
30,000
Property taxes receivable
30,000
Allowance for refunds and uncollectible taxes
Allowance for refunds and uncollectible
taxes-delinquent
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3,000
3,000
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Property Tax Accounting:

Deferred Property Taxes
Modified accrual: recognize revenues
when available
Collected in the current period OR
After, to pay current bills
Within 60 days after period ends

Reclassify revenues to be collected later

Revenuesproperty taxes
Deferred revenuesproperty taxes

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9,000
9,000

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Tax Discounts
Discount for paying property taxes early
Entry when taxes levied
Property taxes receivable
600,000
Allowance for discounts on
property taxes
10,000
Revenuesproperty taxes

590,000

Actual discounts taken only $9,000

Cash 591,000
Allowance for discounts on
property taxes
10,000
Property taxes receivable
Revenuesproperty taxes

600,000

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1,000
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Property Tax Accounting:

Interest, Penalties & Liens
Interest and penalties receivable
Revenuesinterest and penalties

2,000
2,000

Lien: prevents the sale of property until taxes are

paid
Tax liens receivable
8,800
Property taxes receivable-delinquent
8,000
Interest and penalties receivable
500
processing cost
Cash
300

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Property Tax Accounting:

Sale at Auction
Extreme cases when lien isnt paid
Any remaining proceeds to former owner
Cash
Tax liens receivable
Vouchers payable

12,000
auctioneer: 1,500
former owner: 1,700

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8,800
3,200

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Sales Taxes
State, which collects sales tax for city, remits payment to
city
Cash
300,000
Revenuessales taxes
300,000
Year-end accrual for taxes collected in last quarter
Sales taxes receivable
160,000
Revenuessales taxes
125,000
Deferred sales tax revenues
35,000
Note that city policy is to consider sales taxes available only if
collected by February 28th of following year. The city expects
$35,000 of sales taxes to be received in April.

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Intergovernmental Grants
Time requirements
Specify period when resources must be used
or when use may begin

Purpose restrictions
Specify activities for which the grant may be
used

Recognize revenue when:

Eligibility requirements are met AND
Resources are available
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Intergovernmental Grants
Grant with purpose restrictions, but no time
requirements
City notified that it has received a state grant that must
be used to train police officers. City met all eligibility
requirements.
Due from state government
100,000
RevenuesIntergovernmental grants
100,000

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Intergovernmental Grants
Expenditure-driven grants
Reimbursement based grants
Allowable costs must be incurred by a government
as part of eligibility requirement.

If grantor provides a cash advance

Recipient government will defer revenue
recognition until allowable costs are incurred.

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Intergovernmental Grants
Grant with expenditure incurrence and time
requirements
State grant to school district to pay 75% of special
education teacher salaries. To be eligible, school
district must be in applicable school year and have
incurred teacher salary costs.
State makes advance payment to school district.
Cash
200,000
Advance received on grant
200,000

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Intergovernmental Grants
Grant with expenditure incurrence and
time requirements (continued)
School district incurs teacher salary costs.
Expendituresspecial ed. teacher salaries 300,000
Cash
300,000

School district recognizes revenue for 75% of

incurred costs ($300,000 x 75% = $225,000)
Advance received on grant
Due from state government
RevenuesIntergovernmental grants
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200,000
25,000
225,000
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Fines, Fees, and Licenses

Fines and penalties
Imposed nonexchange revenues
Recognition
Assets when enforceable legal claim arises
Revenues when enforceable legal claim arises
AND resources are available

Fees and Licenses

Best recognized as revenues when cash
received, but if sufficient records exist, may be
accrued
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Interfund Services Provided and

Used
For a price approximating market terms
Example:
Water Utility Fund (seller)
Due from General Fund
Revenueswater services

50,000
50,000

General Fund (purchaser)

Expenditures-water
services
Due to Water Utility Fund

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50,000
50,000

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Interfund Transfers
Nothing in return
Most common interfund activity
Not revenues/expenses
Called other financing sources/uses

Example:
Subsidy to a debt service fund

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Subsidy to a debt service fund

General Fund
Transfer out to Debt Service Fund
100,000
Cash (or Due to.if not yet paid)
100,000

Debt Service Fund

Cash
(or Due from.if not yet received)
Transfer out from General Fund

100,000
100,000

Interfund Loans
< 1 year: due to/from other funds
General Fund (Lender)
Due from Proprietary Fund
Cash

75,000
75,000

Proprietary Fund (Borrower)

Cash
Due to General Fund

75,000

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75,000

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Interfund Loans
> 1 year: advance to/from other funds
General Fund (Lender)
Advance to Proprietary Fund
Cash
Unassigned Fund Balance
Nonspendable Fund Balance

75,000
75,000
75,000
75,000

Proprietary Fund (Borrower)

Cash
Advance from General Fund

75,000

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75,000
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Interfund Reimbursements
One fund pays bills for another
Example:
General Fund pays bill for Capital Projects Fund
Reimbursement to General Fund is required
General Fund entry
Due from Capital Projects Fund
Expendituresprofessional services
Capital Projects Fund entry
Expendituresprofessional services
Due to General Fund
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7,000
7,000
7,000
7,000
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Acquisition and Disposition of

Long-Lived Assets
Purchase police sedans
Expenditures-capital outlays
40,000
Vouchers payable
40,000
Sale police sedans for $3,000
Cash
3,000
Other financing sourcesproceeds
from the sale of general fixed assets
3,000
Depreciation not recorded in governmental funds
because measurement focus is on financial resources,
and financial resources used when capital assets
acquired.
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Inventories
Consumption method
Purchased $100,000 and used $85,000
Supplies inventory
Vouchers payable
Expendituressupplies
Supplies inventory

100,000
100,000
85,000
85,000

Purchases method
Purchased $100,000 of inventory
Expendituressupplies
Vouchers payable

100,000

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100,000
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Inventories
Purchases method
Ending inventory of $15,000 and no beginning
inventory
Supplies inventory
Nonspendable fund balance

15,000
15,000

Under purchases method, inventory

conceptually is not viewed as a financial
asset. Therefore, it is recorded as an
expenditure when acquired.
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Fund Balance Classifications

5 classifications of fund balance
Nonspendable
Restricted
Committed
Assigned
Unassigned

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Nonspendable Fund Balance

Amounts not available for appropriation
because they are either
Not in spendable form (inventory, prepaid
items, long-term interfund loans) or
Legally or contractually required to be
maintained intact (corpus of Permanent Fund)

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Restricted Fund Balance

Most binding degree of constraint
Amounts can be used for no purpose
other than specified in constitutional
provisions, enabling legislation, or
contractual provisions.
Restrictions may be externally imposed by
creditors (debt covenants), grantors,
contributors, or laws or regulations
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Committed Fund Balance

Amounts constrained as to use as a result
of formal action (legislation, resolution,
ordinance) of governments highest level
of decision-making authority.

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Assigned Fund Balance

Amounts constrained by governments
intent to spend resources for specific
purposes.
Intent expressed by governing body or a body
or person that governing body designates

For all governmental funds except General

Fund
Report amounts not reported as
nonspendable, restricted, or committed fund
balance as assigned fund balance
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Assigned Fund Balance

Eliminate all assigned fund balance before
reporting a negative unassigned fund
balance

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Unassigned Fund Balance

Amounts available for spending for any
legal purpose
Residual classification for General Fund

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Year-End Encumbrances and Fund

Balance
General fund
If encumbrances are associated with
unassigned resources, amounts encumbered
from those resources should be reported as
assigned fund balance.
Entry to classify year-end open
encumbrances as assigned
Unassigned fund balance
Assigned fund balance

100,000

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100,000
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