JACQUELINE L.
RECK
SUZANNE L. LOWENSOHN
Accounting for 2-1
Governmental
& Nonprofit
Entities 17/e
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written
consent of McGraw-Hill Education.
C
H
A
Principles of P
Accounting and T
Financial Reporting for
State and Local E
Governments R
2
2-2
Learning Objectives
1. Explain the nature of the three major activities of a
state or local government: governmental
activities, business-type activities, and fiduciary
activities.
2.
Explain the components of the Governmental
Accounting Standards Board’s (GASB) integrated
accounting and financial reporting model,
including:
Elements and measurement approaches
Government-wide financial statements
Fund financial statements
Definition of fund and principles of fund accounting 2-3
Learning Objectives
3. Discuss the nature of major fund reporting and the
criteria used to determine whether a fund should be
reported as a major fund.
2-4
Activities of Government
Governmental
Activities
Chapters 3- 6
Business-
type Fiduciary
Activities Activities
Chapter 7 Chapter 8
2-5
Financial Reporting Model
Basic
Financial
Statements
Government-
wide Fund
2-6
Elements of Financial Statements
• Assets, which are resources with present service
capacity that the government presently controls.
• A deferred outflow of resources, which is the
consumption of net assets by the government that
applies to a future reporting period.
• Liabilities, which are present obligations to sacrifice
resources that the government has little or no
discretion to avoid.
• A deferred inflow of resources, which is the
acquisition of net assets by the government that
applies to a future reporting period.
2-7
Elements of Financial Statements
• Net position is the residual when assets + deferred
outflows – liabilities – deferred inflows is calculated
(net position appears in a statement of financial
position).
• An inflow of resources is the acquisition of net assets
by the government in the current reporting period
(e.g., revenues and other resources).
• An outflow of resources is the consumption of net
assets by the government in the current reporting
period (e.g., expenses, expenditures and other uses
of resources).
2-8
Government-wide Financial Statements
Measurement • Economic
Resources
Focus
Basis of • Accrual
Accounting
Accountabil • Operationa
l
ity
2-9
Government-wide Financial Statements
Statement • Reports year end financial position
of Net • Most comparable to a business’ balance
sheet
Position
Statement • Reports expenses and revenues
classified by program or function
of • Uses separate columns for
governmental activities, business-type
Activities activities, and component units
2-10
Fund Financial Statement Focus
• Fiscal accountability
Governmental
Funds • Flow of current financial resources
• Modified accrual basis
• Operational accountability
Proprietary
Funds • Flow of economic resources
• Accrual basis
• Operational accountability
Fiduciary
Funds • Flow of economic resources
• Accrual basis
2-11
Fund Financial Statements
• Balance Sheet
Governmental
Funds • Statement of Revenues, Expenditures,
and Changes in Fund Balance
• Statement of Net Position
Proprietary • Statement of Revenues, Expenses and
Funds
Changes in Fund Net Position
• Statement of Cash Flows
• Statement of Fiduciary Net Position
Fiduciary
Funds • Statement of Changes in Fiduciary Net
Position
2-12
Governmental Activities
Reconciliations
Because governmental activities are reported using
the accrual basis in the government-wide financial
statements, but are reported using modified accrual
basis in the government funds financial statements,
fund balances and operating results on fund
financial statements must be reconciled to those
presented in the government-wide financial
statements.
2-13
Fund Reporting
Fund reporting was developed to meet the challenge
of reporting revenues and related expenditures that
are legally or contractually constrained for specific
purposes separately from revenues and
expenditures without such constraints.
2-14
Fund Concept
The concept of fund is fundamental to government
accounting and reporting.
A fund is a separate fiscal entity, which means it has
its own resources, its own liabilities, and its own
operating activity for the fiscal period.
Furthermore, a fund conceptually has its own set of
accounting records allowing it to prepare separate
financial statements. Thus, it is a separate accounting
entity as well.
2-15
Fund Categories
Governmental Funds
General Special Debt Special Permanent
Fund revenue service projects funds
funds funds funds
2-16
Fund Categories
Proprietary Funds
Internal service Enterprise funds
funds
2-17
Fund Categories
Fiduciary Funds
Agency funds Trust funds
• Pension trust funds
• Investment trust
funds
• Private-purpose
trust funds
2-18
Fund Balance Classifications
Nonspendable
Restricted Committed
Assigned Unassigned
2-19
Looking Forward
Budgetary Accounting
Classification of Revenues and Expenses
and Revenues and Expenditures
Dual-track approach
2-20
