The General Fund and Special Revenue Funds
Chapter 3
Learning Objectives
Discuss differences & similarities between GF and SRFs Explain MFBA used for these funds Analyze common journal entries for transactions, including interfund activity Prepare adjusting & closing entries Define special items and extraordinary items Understand fund balance reporting classifications Prepare GF and SRF financial statements
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General Fund
Used to account for and report all financial resources not accounted for and reported in another fund. Only fund that all general purpose governments have.
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Special Revenue Funds
Used to account for and report specific revenue sources that are restricted or committed to expenditure for specified purposes. Exist as long as the government has resources dedicated to specific purposes.
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MFBA
Measurement Focus (MF) is on current financial resources what is expendable Basis of Accounting (BA) is modified accrual recognition occurs for
Revenues when measurable & available Expenditures when underlying liability is incurred, except for long-term debt principal and interest payments (when due)
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Basic Accounting Equation
Financial Assets Related Liabilities
+
Deferred Outflows
+
Deferred Inflows
Fund Balance
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Assumptions for this Chapter
Transactions do not address budgetary accounting, reporting, & control issues Accounts maintained on GAAP basis during the year
Second assumption rarely holds in practice, but makes instruction easier and more uniform
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Illustrative Entries
Property tax levy Other revenues Orders and contracts Salary expenditures Interfund activity Short-term borrowing Extraordinary and special items Other transactions and events
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Property Tax Levy
Notice use of allowance account in entry
No bad debts expense remember, a governmental fund does not use expenses Records revenue at the amount government expects to collect
This form of entry assumes net amount will be available other options discussed in Chapter 5
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Other Revenues
Some revenues will be accrued when services are provided Other revenues may be recognized only when cash is received no allowance necessary since all of revenue received
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Salary Expenditures
Comprise about 75% of city General Fund expenditures and 85% of school board General Fund expenditures Effective control over these expenditures is essential
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Interfund Activity
Nonreciprocal transactions
Interfund reimbursements Interfund transfers Interfund services provided Interfund loans
Reciprocal transactions
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Interfund Reimbursements
Underlying event:
Transaction initially recorded in one fund Should have been accounted for and reported in a different fund
May also be used to distribute costs from one from to others Will not separately reported in financial statements
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Accounting requires:
Removing expenditure or expense from the accounts of fund in which it was initially recorded Recording expenditure or expense in the reimbursing fund(s)
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Interfund Transfers
Usually involve moving assets (cash or inventory) from one fund to another Do not involve requirement or expectation or subsequent repayment May also result from one fund providing services to another without charging for those services (rare)
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Common examples
GF resources transferred to DSF for principal and interest payments GF resources transferred to CPF to pay for governments portion of capital project SRF resources transferred to GF to finance expenditures for which SRF resources are restricted GF resources transferred to EF to provide initial permanent financing Residual assets of CPF or DSF transferred upon completion of purpose of fund EF resources transferred to other funds to subsidize operations
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Interfund Services
Defined as sales and purchases of goods and services between funds for a price approximating their external market value Accounting:
Seller fund sells goods or services to external party (recognizes revenues) Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)
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Interfund Loans
One fund loans cash to another Transaction does not change Fund Balance Reporting
Lender fund recognizes a receivable Receiving fund recognizes a liability
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Interfund Loan Terminology
Lender Fund
Short-term loan Due from Long-term loan Advance to (will require separate reporting in Fund Balance) Short-term loan Due to Long-term loan Advance from
Receiving Fund
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Short-term external borrowings
Usually made with banks Receipt of loan and principal repayment do not affect Fund Balance; however, payment of interest does affect Fund Balance
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Extraordinary & Special Items
Extraordinary item
Used by FASB & GASB Event is not under control of management and is both (1) unusual in nature and (2) infrequent in occurrence Unique to GASB Event is under control of management and is either unusual or infrequent
Special Item
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Using the CPYE Account
Some wonder about using the Correction of Prior Year Error Account (CPYE) Since the previous years expenditure accounts have been closed, it cant be charged to that account The use of the Fund Balance account is an option, but doing so would hide the error Besides, remember to where the CPYE account will be closed: Fund Balance
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Year-End Adjustments
Revenue Adjustments
Interest on investments and delinquent taxes Unbilled charges for services Unrestricted intergovernmental grants that are due but havent been received Interest on short-term debt Accrued payroll
Expenditure Adjustments
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Closing Entry Process
Close the operating accounts and update Fund Balance Close subsidiary revenue and expenditure accounts
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General Fund Financial Statements
Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance ___ Revenues, Expenditures, and Changes in Fund Balance Budget-to-Actual
Statement of . . ., if part of the Basic Financial Statements Schedule of . . ., if placed in Required Supplementary Information (RSI)
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Balance Sheet:
Standard Report Format
Assets Liabilities
+
Deferred Outflows
+
Deferred Inflows
Fund Balance
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Fund Balance Classifications
Nonspendable Restricted Committed Assigned Unassigned
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Nonspendable Fund Balance
Represents amounts that cannot be spent:
Not in spendable form
Inventory and prepaid items Long-term receivables and loans Property acquired for sale
Legally or contractually required to be maintained intact as in the principal of a Permanent Fund
Amount in this classification should be determined before other classifications may limit reporting in other classifications
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Restricted Fund Balance
Constraints placed on the use of amounts are either: Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments Imposed by law through constitutional provisions or enabling legislation
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Committed Fund Balance
Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the governments highest level of decision-making authority should be reported as committed fund balance.
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Committed Fund Balance [continued]
Amounts classified as committed are not subject to legal enforceability like restricted resources; however, they cannot be used for any other purpose unless the government removes or changes the commitment by taking the same action it employed to impose the commitment.
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Committed Fund Balance [continued]
The authorization specifying the purposes for which amounts can be used should have the consent of both the legislative and executive branches of the government, if applicable.
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Assigned Fund Balance
Amounts that are intended by the government to be used for a particular purpose, but are neither restricted nor committed, should be reported as assigned fund balance.
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Assigned Fund Balance [continued]
Intent should be expressed by: the governing body itself or a subordinate high-level body or official possessing the authority to assign resources to be used for specific purposes in accordance with policy established by the governing body.
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Assigned Fund Balance [continued]
Residual category of Fund Balance for classification for any governmental fund other than the General Fund. Use in the General Fund indicates intent to use resources in manner that is narrower than general purposes of the government cannot cause a deficit in the Unassigned category.
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Unassigned Fund Balance
Residual classification of the General Fund. Positive amounts should only be reported in the General Fund Negative amounts can be reported in other funds, but only after assigned amounts have been eliminated.
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Where Classifications Are Found
General Fund Special Revenue Funds Capital Projects Funds Debt Service Funds Permanent Funds Nonspendable Must be positive Restricted Must be positive
Committed Must be positive Assigned
Must be positive
Assigned Residual Category Must be positive
Unassigned
May be positive or negative
Unassigned Used Only If Negative Assigned must be eliminated before use
In all funds, Unassigned may only be negative if Assigned is first eliminated.
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Statement of Revenues, Expenditures, & Changes in Fund Balance
May be referred to as the operating statement Format specified by the GASB (there had been optional formats prior to 1999)
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Operating Statement Format
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Classification of Expenditures
Function Organizational Unit (including Department and Subunit) Activity Object Class Character
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