Fund

Fund Accounting
Accounting Classification
Classification of
of Nonbusiness
Nonbusiness Organizations
Organizations
Fund Accounting
Accounting for nonbusiness
Five Major Classifications
Introduction
organizations. 1. Governmental units.
to Fund Accounting
2. Hospitals and other health care providers.

Nonbusiness Business 3. Colleges and universities.

Organizations Enterprises 4. Voluntary health and welfare organizations.
Provide socially desirable ¾ Earn a return on
5. Other nonbusiness organizations (trade
service without regard to investment. associations, professional associations, museums, religious
financial gain. ¾ Competitive market. organizations, etc.)
Advanced Accounting ¾ Liquidity concerns.

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17-1 17-2 17-3

Distinctions
Distinctions between
between Nonbusiness
Nonbusiness Standards
Standards for
for Nonbusiness
Nonbusiness Organizations
Organizations Fund
Fund Accounting
Accounting
Organizations
Organizations and
and Profit-
Profit-Oriented Enterprises
Profit-Oriented Enterprises
GASB FASB
Fund Entity Classification
Distinctions Governmental Units Nongovernmental Units
1. Federal units 1. Private colleges, universities, Expendable – Basic fund accounting concepts.
Absence of primary goal to earn a profit. and community colleges
ƒ Veterans hospitals
No equity interests. 2. State units 2. Private hospitals and voluntary Proprietary – Business type activity.
ƒ State hospitals health and welfare
Seldom finance through user charges.
ƒ State universities
organizations Fiduciary - Agent or trustee.
3. Other nongovernmental units
Rely on political action or fund-raising campaigns. 3. Local governments
ƒ Private elementary schools
ƒ Country government
Income determination model generally not applicable. ƒ Professional organizations
ƒ School districts
ƒ Labor unions
Restrictions or limitations on use of resources. ƒ Municipalities
ƒ Civic organizations
ƒ Port authorities
ƒ Trade associations
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17-4
LO 1 Nonbusiness organizations versus profit-
profit-oriented enterprises. Slide
17-5
LO 1 Nonbusiness organizations versus profit-
profit-oriented enterprises. Slide
17-6
LO 2 The role of fund accounting.

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Expendable Fund Entities Restricted and Unrestricted Fund Entities Proprietary Fund Entities
Financial resources dedicated to a specified use. Classification usually applicable to nonbusiness Activities that are similar to business enterprises.
Examples - Capital Projects or Debt Service fund. organizations other than governmental units.
Examples:
Resources consist of cash and claims to cash. “Restricted” refers to resources that bear a legal
¾ Electric or water utility by a municipality
Resources - Claims against resources = Fund balance. restriction as to use imposed by parties outside
the organization. ¾ Rental of real estate by religious organization.
Measurement focus is on flow of current financial
resources. Focus on determination of net income, financial
position, and cash flows.
Accounting
Model

Slide
17-7
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures. Slide
17-8
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures. Slide
17-9
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures.
 Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Fiduciary Fund Entities Budgetary Fund Entities (Governmental Funds) Basis of Accounting
Basic Financial Statements
Trust and Agency funds: Approved resource flows are incorporated into
Pension trust fund. annual budgets. Government-Wide Governmental Fund (expendable)
Budgeted expenditures are referred to as ¾ Nonfiduciary activities. ¾ Current financial resources
Agency fund (resources of taxes, bonds, and other
appropriations. ¾ Short- and long-run concept.
receipts held for individuals, outside organizations,
information. ¾ Modified accrual basis of
and/or other funds). Approved budget may be recorded in the
¾ Economic resources accounting.
accounting records.
measurement concept. ¾ Revenues recognized when
Budgetary account integration is useful in the ¾ Accrual basis of measurable and available.
control and administration of fund resources. accounting. ¾ Expenditures recorded when
liability is incurred.
Slide
17-10
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures. Slide
17-11
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures. Slide
17-12
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures.

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Question Classification of Revenues Other Financing Sources

When used in fund accounting, the term “fund” usually By Fund and Major Revenue Source Debt issue proceeds are accounted for as “other
refers to Major Sources of Revenue financing sources.”
9 Property taxes 9 Sales of property
a. A sum of money designated for a special purpose. Interfund operating transfers are accounted for as
9 Income taxes 9 Charges for services
b. A liability to other governmental units. 9 Sales and excise taxes 9 Interest earned on loans and “other financing sources,” or “uses.”
9 Gift and inheritance taxes investments
c. The equity of a municipality in its own assets.
9 Fines and penalties From federal, state, or local units:
d. A fiscal and accounting entity having a set of self- 9 Grants
9 Gifts and donations
balancing accounts. 9 Forfeits 9 Shared revenues
9 Licenses and permits 9 Payments in lieu of taxes

Slide
17-13
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures. Slide
17-14
LO 4 Classification of revenues. Slide
17-15

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Recognition of Revenue (Expendable Funds) Recognition of Revenue (Expendable Funds) Classification of Expenditures and Other
Revenue recognized when measurable and available. Resources Outflows
Revenue is ordinarily not recognized until it
When Recognized? Match
1) can be objectively measured and
Property Taxes Function Drug Control
2) is available for expenditures of current period.
Income Tax and Sales Tax Character Public Safety
Fines and Forfeits Activity Fire or Police Department

Sales of Property Object Class Current Operating

Pledges Organizational Unit Supplies or Salaries

Grants

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17-16
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17-17
Slide
17-18
LO 5 Classification of expenditures.
 Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting
Recognition of Expenditures
Transfers to Other Funds Question
Classified separately from expenditures for financial Appropriation Encumbrance Expenditure Authority granted by a legislative body to make
reporting purposes. expenditures and to incur obligations during a fiscal
Authorized to Purchase Order year is the definition of an
Receipt of Goods
Spend or Contract
a. Appropriation.
b. Authorization.
Encumbrances and expenditures
are classified on the same basis Disbursement c. Encumbrance.
(by fund, function, organizational
unit, activity, character, or
d. Expenditure.
Payment
object class) as appropriations.
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17-19
LO 5 Classification of expenditures. Slide
17-20
LO 5 Classification of expenditures. Slide
17-21
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures.

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Exercise 17-3: (partial) Listed are transactions of the Exercise 17-3: 1. A contract was signed with an Exercise 17-3: 2. The first monthly bill of $8,000 was
Town of Jackson. independent company to do the trash collecting for the received from trash collector. 3. The $8,000 bill was paid.
year. The contract price was $96,000.
1. A contract was signed with an independent company to
do the trash collecting for the year. The contract 2.
1.
price was $96,000.
2. The first monthly bill of $8,000 was received from
the trash collector.
3. The $8,000 bill was paid.
Required: Prepare the journal entries needed in the 3.
records of the General Fund for these transactions.

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17-22
LO 5 Classification of expenditures. Slide
17-23
LO 5 Classification of expenditures. Slide
17-24
LO 5 Classification of expenditures.

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting
Recording Budgeted and Actual Revenue and Expenditures
Question Capital Expenditures (Expendable Fund)
Exercise 17-3: (partial)
What type of account is used to earmark the fund Treated as a current period expenditure.
1. A budget consisting of estimated revenues of $1,950,000 and
balance to liquidate the contingent obligations of Middletown purchased a police car for $10,000. appropriations for expenditures of $1,800,000 was passed by
goods ordered but not yet received? the town council.
Expenditures 10,000
a. Appropriations. 2. Property taxes of $1,150,000 were assessed; $1,115,000 are
Cash 10,000 expected to be collectible.
b. Encumbrances.
3. Property taxes in the amount of $1,080,000 were collected.
c. Obligations.
4. Equipment costing $200,000 was purchased, and the old
d. Reserve for encumbrances. equipment was sold at for $24,000.
Required: Prepare required journal entries for General Fund.
Slide
17-25
LO 3 Differences in applications of revenue, expense, and expenditures.
expenditures. Slide
17-26
LO 7 Capital expenditures. Slide
17-27
 Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Exercise 17-3: 1. A budget consisting of estimated Exercise 17-3: 2. Property taxes of $1,150,000 were Exercise 17-3: 4. Equipment costing $200,000 was
revenues of $1,950,000 and appropriations for expenditures assessed; $1,115,000 are expected to be collectible. purchased, and the old equipment was sold at for $24,000.
of $1,800,000 was passed by the town council. 3. Property taxes of $1,080,000 were collected.
4.
1. 2.

3.

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17-28 17-29 17-30

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting –– Comprehensive
Comprehensive Illustration
Illustration
Exercise 17-5: The preclosing trial balance for the General Fund Exercise 17-5: Prepare closing entries. Problem 17-1: The general ledger trial balance of the
of the City of Springfield is presented below. General Fund of the City of Bedford on January 1, 2008,
Trial Balance for December 31, 2008: Revenue 1,675,000
Cash $ 90,000 Unreserved Fund Balance 15,000 shows the following:
Certificates of Deposit 120,000
Estimated Revenue 1,690,000 Debit Credit
Property Taxes Receivable 175,000
Cash $100,000
Estimated Revenue 1,690,000
Expenditures 1,310,000
Appropriations 1,550,000 Taxes Receivable 75,000
Expenditures—2007 32,000 Expenditures 1,310,000 Allowance for Uncollectible Taxes $ 35,000
Encumbrances 165,000
Estimated Uncollectible Taxes $ 51,000
Encumbrances 165,000 Unreserved Fund Balance 110,000
Vouchers Payable 65,000 Unreserved Fund Balance 75,000 Reserve for Encumbrances—2007 30,000
Unreserved Fund Balance 41,000
Reserve for Encumbrances 165,000
Total $175,000 $175,000
Reserve for Encumbrances—2007 35,000
Reserve for Encumbrances – 2007 35,000
Prepare journal entries to record the following activities and
Appropriations 1,550,000 Expenditures – 2007 32,000
Revenue 1,675,000 transactions for the General Fund during 2008.
$3,582,000 $3,582,000 Unreserved Fund Balance 3,000
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17-31
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17-32
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17-33
LO 8 Understand the general fund.

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Problem 17-1: 1. The City Council adopted a budget with Problem 17-1: 1. The budget authorized the transfer of Problem 17-1: 2. The annual property tax levy of 10% on
estimated revenues of $1,560,000 and appropriated $50,000 from the Water Fund to the General Fund. assessed valuation ($11,000,000) is billed to property owners.
expenditures of $1,400,000. Interest due for the year on the $1,000,000, 8% bond issue Two percent is estimated to be uncollectible.
for the Civic Center is approved for transfer from the
General Fund to the Debt Service Fund.

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17-34
LO 8 Understand the general fund. Slide
17-35
LO 8 Understand the general fund. Slide
17-36
LO 8 Understand the general fund.
 Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Problem 17-1: Problem 17-1: Problem 17-1:

3. Goods and services amounting to $1,150,000 were ordered 5. Funds for bond interest on Civic Center bonds were 6. Invoices for goods received during the year totaled
during the year. transferred to the Debt Service Fund. $1,155,000. These were encumbered [see (3) above].

4. Invoices for all goods ordered in 2007 amounting to

$29,000 were approved for payment.

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17-37
LO 8 Understand the general fund. Slide
17-38
LO 8 Understand the general fund. Slide
17-39
LO 8 Understand the general fund.

Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting Fund
Fund Accounting
Accounting

Problem 17-1: Problem 17-1: Problem 17-1:

7. Transfer of funds from the Water Company was received 9. Past-due tax bills of $17,000 were charged off as 11. Revenues received from miscellaneous sources, other
in lieu of taxes. uncollectible. than property taxes, of $455,000 were recorded.

8. Taxes were collected from property owners in the amount 10. Checks in payment of invoices for goods ordered in 2007 12. Purchase order for two trash collection vehicle systems
of $1,050,000. and 2008 were issued [see items (4) and (6) above]. was issued. Bid price per system was $120,000.

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17-40
LO 8 Understand the general fund. Slide
17-41
* ($29,000 + $1,155,000) LO 8 Understand the general fund. Slide
17-42
LO 8 Understand the general fund.

Fund
Fund Accounting
Accounting Reporting
Reporting Inventory
Inventory and
and Prepayments
Prepayments Reporting
Reporting Inventory
Inventory
Assume $20,000 of beginning inventory, $50,000 is purchased,
Financial Statements Inventory and ending inventory of $24,000.
Two Basic Statements (expendable fund entities) Two Methods
Consumption Method
1. Balance sheet 1. Consumption method When Purchased: Expenditures 50,000
2. Statement of revenue, expenditures, and changes 2. Purchases method Cash 50,000
in fund balance
End of Year: Inventory 4,000
Under GASB Statement No. 34, consumption method is
Revenue classified by major sources. Expenditures 4,000
consistent with the
Expenditures classified by major functions.
Government-wide approach. Purchases Method
Comparative information presented for prior years. When Purchased: Expenditures 50,000
Purchases method is not acceptable.
Statement comparing budgeted and actual should be Cash 50,000
Both acceptable for fund purposes
prepared for budgetary fund entities. End of Year: NO ENTRY
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17-43
LO 8 Understand the general fund. Slide
17-44
LO 9 Consumption and purchases Methods. Slide
17-45
LO 9 Consumption and purchases Methods.
 Reporting
Reporting Inventory
Inventory and
and Prepayments
Prepayments Reporting
Reporting Prepayments
Prepayments Copyright
Copyright

Reserve for Inventory Copyright © 2011 John Wiley & Sons, Inc. All rights reserved.
Question
Reproduction or translation of this work beyond that permitted
Purchases Method
Prepayments for items such as insurance or in Section 117 of the 1976 United States Copyright Act without
Material amounts of inventory should be disclosed by the express written permission of the copyright owner is
rent that cover more than one accounting
¾ Footnote or unlawful. Request for further information should be addressed
period may also be reported using the
¾ Reporting asset with contra account (Reserve for to the Permissions Department, John Wiley & Sons, Inc. The
consumption or purchases methods. purchaser may make back-up copies for his/her own use only
Inventory).
and not for distribution or resale. The Publisher assumes no
Consumption Method responsibility for errors, omissions, or damages, caused by the
Reserve for inventory created debiting or crediting the use of these programs or from the use of the information
“unreserved fund balance.” contained herein.

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17-46
LO 9 Consumption and purchases Methods. Slide
17-47
LO 9 Consumption and purchases Methods. Slide
17-48