Governmental Accounting Basics OBJECTIVES Governing Bodies / - - PDF document

1

Governmental Accounting Basics

OBJECTIVES

Governing Bodies / Policies Account Codes Modified vs Full Accrual Accounting Fund Accounting Financial Reporting Fund Equity Component Units

2

2

GOVERNING BODIES / POLICIES

3

OVERVIEW OF GOVERNMENTAL ACCOUNTING

Governed by Governmental Accounting Standards Board GASB standards

• Establish Generally Accepted Accounting Principles for governmental entities

Statutes

• Montana Code Annotated (Section 17‐2‐102, MCA)
• Requires DOA to maintain a system of financial control (MOM Accounting Policies and use of

SABHRS)

• DOA State Accounting Bureau (SAB) establishes all Montana Operations

Manual (MOM) related to accounting

• (MOM 302 Governmental Accounting Overview) (one of many)

4

3

ACCOUNT CODES

5

ACCOUNT CLASSIFICATIONS

Accounts Classification Normal Balance 1xxx Assets / Deferred Outflows Debit 2xxx Liabilities / Deferred Inflows Credit 4xxx Equity Credit 5xxxxx Revenue Credit 6xxxx Expense Debit

6

4

SABHRS – LOOK UP CHARTFIELD VALUES

7

Chartfield Values allows you to look up specific chartfield items such as ACCOUNT.

QUERY – ACTIVE GL ACCOUNTS

8

Query shows all active accounts for the State as of the date entered.

5

9

Website address: Accounting request forms for Chartfields and various transactions Follow Link to Procedures.

RUNNING A TRIAL BALANCE

10

Trial Balance Queries:

MTGL_TB_FUND_CHOOSE_LEDGER

6

RUNNING A TRIAL BALANCE (cont)

11

MODIFIED VS FULL ACCRUAL ACCOUNTING

12

7

MODIFIED ACCRUAL BASIS OF ACCOUNTING

• Recognizes increases and decreases in financial resources only to the

extent that they reflect near‐term inflows or outflows of cash (60 days)

• Revenue is only recognized to the extent that it is available to finance

expenditures of the current period

• Certain expenditures are only recognized when payment is due

because it is only at that time that they normally are liquidated with expendable available financial resources

13

FULL ACCRUAL BASIS OF ACCOUNTING

• Recognizes increases and decreases in economic resources as soon as

the underlying transaction or event occurs.

• Using full accrual accounting, revenues are recognized as soon as they

are earned, and expenses are recognized as soon as the related liability is incurred, regardless of the timing of related cash flows.

14

8

MODIFIED VS FULL ACCRUAL

Modified Accrual (current financial resources measurement focus)

• Used only by governmental funds and only in the fund financial statements
• Represents current operations/resources for the fund
• No capital assets or long‐term debt are reflected

Full Accrual (economic resources measurement focus)

• Used by all funds for the government‐wide financial statements
• Used by proprietary and fiduciary funds in the fund financial statements
• Represents all activity for the fund

15

Basis of Accounting

Modified Accrual Full Accrual Measurement Focus Current Economic Resources – transactions that affect current financial resources Total Economic Resources – all transactions for that reporting period Objective Determine if current inflows are sufficient to cover current outflows Match revenues with expenditures Revenue Recognition When earned, measurable and available – 60 days When earned and measurable Expenditure Recognition When delivery has

• ccurred or services

have been rendered with several exceptions When delivery has

• ccurred or services

have been rendered

16

9

FUND ACCOUNTING

17

FUND ACCOUNTING

• Fund: A fiscal and accounting entity with a self‐balancing set of

accounts recording cash and other financial resources, together with all related liabilities residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations

18

10

ACCOUNTING EQUATION

Assets + Deferred Outflows of Resources

=

Liabilities + Deferred Inflows of Resources + Fund Equity

19

FUND CLASSIFICATIONS

• Governmental funds
• General Fund
• Special Revenue (State & Federal)
• Debt Service
• Capital Projects
• Permanent
• Proprietary funds
• Enterprise
• Internal Service

Fiduciary funds

• Pension Trust
• Private‐Purpose Trust
• Investment Trust
• Agency

20

11

REQUESTING A FUND

• Form 121 – Fund Code
• http://sfsd.mt.gov/SAB/AccountingFormsInfo
• Responsible agency submits to State Accounting Bureau, designating access

to other agency

• Agency monitors by running query, MTGL_Fund_by_Resp_BU, filter for the

Agency once saved

• Additionally funds can be shared between multiple agencies
• One agency receives resources
• Another agency allowed to spend
• Reduces transfers among agencies funds

21

FINANCIAL REPORTING

22

12

GOVERNMENTAL FUNDS

23

Fund Type Fund Number Fund Accounts For

General 01100 All government financial resources not required to be accounted for in another fund State Special Revenue 02xxx Budgeted & 080xx‐08499 Nonbudgeted Resources from state/other nonfederal sources with imposed restrictions Federal Special Revenue 03xxx Resources from a federal sources with imposed restrictions Debt Service 04xxx Accumulation of resources for the payment of general long‐ term debt Capital Projects 05xxx Resources to be used for the acquisition/construction of major capital projects Permanent 09xxx‐09499 Resources whose principle portion is legally required to remain intact

PROPRIETARY FUNDS

24

Fund Type Fund Number Fund Accounts For Enterprise 06xxx‐06499 The financing of goods

• r services to the

general public when the intent is that costs will be recovered primarily though user charges Internal Service 065xx The financing of goods

• r services provided by
• ne state agency to

another on a cost‐ reimbursement basis

13

FIDUCIARY FUNDS

25

Fund Type Fund Number Fund Accounts For Agency 07xxx Resources held temporarily in a purely custodial capacity for an individual, private organization or other government Investment Trust 085xx The external portion of investment pools reported by the state Private‐Purpose Trust 086xx Trust arrangements under which principal and income benefit an individual, private organization or other government Pension Trust 095xx Resources required to be held in trust for the members and beneficiaries of an employee benefit plan

BASIC CAFR FINANCIAL STATEMENTS

26

Government‐Wide Statements 1) Balance Sheet 2) Statement of Revenues, Expenditures, and Changes in Fund Balance 3) Reconciliation to Government‐Wide Statements Governmental Fund Statements 1) Statement of Net Position 2) Statement of Activities Component Units Proprietary Fund Statements 1) Statement of Net Position 2) Statement of Revenues, Expenses, and Changes in Net Position 3) Cash Flow Statement Fiduciary Fund Statements 1) Statement of Net Position 2) Statement of Changes in Net Position

14

SABHRS LEDGERS

THREE PRIMARY SABHRS LEDGERS

• ACTUALS Ledger
• Basic operations of an agency (all budgeted activity)
• All cash transactions for an agency
• Capital assets/long‐term debt for full‐accrual funds only
• Used for Legislative Audit Schedules and CAFR financial statements
• ENTITYWIDE Ledger
• Records conversion entries that allow governmental funds to be reported on a

full accrual basis in the government‐wide financial statements

• Not used for Legislative Audit Schedules, but used for CAFR financial statements
• A_ACCRUAL Ledger
• Reservation of budget
• Encumbers resources for goods/services received after fiscal year‐end
• Must have valid contract/agreement in place prior to fiscal year‐end
• Used for Legislative Audit Schedules, not used for CAFR financial statements

28

15

TREATMENT FOR GOVERNMENTAL FUNDS ONLY

Type of Transaction Modified Accrual – Actuals Ledger Full Accrual – Entitywide Ledger Cash is received in advance of good/service being provided Recorded as unearned revenue in the actuals ledger No Entry Customer is billed, a good/service is provided, but the cash will not be available to finance expenditures for the current fiscal year (or within 60 days of year‐end) Receivable and unavailable inflows of resources are established The Unavailable inflows

• f resources are

reversed and revenue is established

29

EXAMPLE

30

16

TREATMENT FOR PROPRIETARY FUNDS ONLY

Type of Transaction Full Accrual – Actuals Ledger Cash is received in advance of good/service being provided Recorded as unearned revenue in the actuals ledger Customer is billed, a good/service is provided, but the cash will not be available to finance expenditures for the current fiscal year (or within 60 days of year‐end) Receivable and revenue is established

31

GOVERNMENTAL FUNDS

ACTUALS Ledger

32

Governmental Funds ENTITYWIDE Ledger Government‐wide Financial Statements: Full Accrual Fund Financial Statements: Modified Accrual

Full Accrual Conversion Path Modified Accrual Path

17

TRIAL BALANCE – ACTUALS AND ENTITYWIDE BALANCE

QUERY: MTGL_TB_FUND_ACT_ENTWIDE_COMB

33

Query shows ACTUALS and ENTITYWIDE ledgers and how they combine for financial reporting.

GOVERNMENTAL FUNDS RECONCILIATION EXAMPLE (CAFR)

34

18

PROPRIETARY AND FIDUCIARY FUNDS

Fund Type Measurement Focus Basis of Accounting Ledgers Financial Statements Proprietary Total Economic Resources Full Accrual ACTUALS

• nly
• Statement of Net Position
• Statement of Revenues,

Expenses, and Changes in Net Position

• Cash Flow Statement

Fiduciary Total Economic Resources Full Accrual ACTUALS

• nly
• Statement of Net Position
• Statement of Changes in

Net Position

35

FUND EQUITY

FUND BALANCE OR NET POSITION

36

19

FUND BALANCE

• Defined in MOM 311 ‐ Fund Equity
• Fund balance is the difference between (a) assets and deferred outflows of

resources and (b) liabilities and deferred inflows of resources using the current financial resources measurement focus and the modified accrual basis of accounting (ACTUALS Ledger for governmental funds)

37

FUND BALANCE – GASB 54 GOVERNMENTAL FUNDS

38

• Only used by governmental funds and only in the ACTUALS Ledger:
• Broken down into five designation
• Non‐spendable: Account 4120
• Restricted: Account 4125
• Committed: Account 4130
• Assigned: Account 4135
• Unassigned: Account 4140

Non‐ spendable Restricted Committed Assigned Unassigned

20

NONSPENDABLE FUND BALANCE

• All governmental funds
• Not in a spendable form
• Inventory or prepaid amounts
• Legally required to remain intact
• Corpus of a permanent fund
• Additional requirements in the General Fund:
• Long‐term amounts of loans and notes receivable
• Property acquired for resale

39

RESTRICTED FUND BALANCE

• Amounts can only be used for specific purposes and
• The constraints placed on those funds are either imposed
• By external party
• By constitutional provisions
• By enabling legislation that is legally enforceable by an external party

40

21

COMMITTED FUND BALANCE

• Amounts can only be used for specific purposes and constraints placed on

resources are imposed by formal action of the legislature

• However, legislature may redirect the resources or change the constraint by a

formal action similar to the action used to initially constrain the resources

41

ASSIGNED FUND BALANCE

• Constraints placed on the resources do not meet the definition of

Nonspendable, Restricted nor Committed and

• Imposed by the management’s intent to be used for a specific purpose

42

22

UNASSIGNED FUND BALANCE

• Used only by the General Fund
• Constraints placed on the resources are not Nonspendable, Restricted,

Committed nor Assigned

43

NET POSITION

44

• Used for proprietary and fiduciary fund financial statements and

government‐wide financial statements

• Defined in MOM 311 ‐ Fund Equity

Proprietary Fund Financials Fiduciary Fund Financials Government- Wide Financials

23

NET POSITION CLASSIFICATIONS

• NET INVESTMENT IN CAPITAL ASSETS
• capital assets, net of accumulated depreciation and related debt
• RESTRICTED
• constraints placed by external parties and imposed law or enabling

legislation

• UNRESTRICTED
• net position that does not meet the definitions of items noted above

45

WHERE FUND EQUITY IS REPORTED

46

Fund Type Fund Balance Classification Actuals Ledger Account Entity‐Wide Ledger Account Governmental Nonspendable 4120 4202 Governmental Restricted 4125 4201 Governmental Committed 4130 4101 Governmental Assigned 4135 4101 Governmental Unassigned 4140 4101 Enterprise N/A 4101/4201 N/A Internal Service N/A 4101 N/A Fiduciary N/A Varies (not 4120‐4140) N/A

24

TRIAL BALANCE FYE

47

• Trial balance as of June 30

TRIAL BALANCE AFTER CLOSE

48

• Trial Balance as of July 1 after closing process
• Total of Expense and Revenue plus the prior fund balance ‐55,027.20 + 55,147.95
• Equals new fund balance of 120.75 after the FYE Closing process is complete

25

FUND EQUITY TRANSACTIONS

• Prior Period Adjustments (One fiscal year prior)
• Agencies code entries directly to applicable revenue or expense/expenditure

accounts using the prior year as the program year

• Impacts budget carryover
• For CAFR purposes, treated as current year

49

FUND EQUITY TRANSACTIONS

• Prior‐Prior Period Adjustments
• Correction of an error from a previous period that occurred at least two fiscal

years prior to the current fiscal year:

• Correction of a FY16 error made in FY18
• Fund Equity Transaction Form (required)
• SABHRS entry to fund equity account is created by the agency and

approved by the State Accounting Bureau

• For CAFR purposes treated as prior period

50

26

COMPONENT UNITS

51

COMPONENT UNITS (CU)

• Separate legal entities
• Governing body is primarily appointed by the primary government or for

which there is a financial burden/benefit with the primary government

• Misleading to exclude
• Discretely Presented CU for State of Montana are separate column in

Financial Statements

• Montana State University
• University of Montana
• Montana Board of Housing
• Facility Finance Authority
• Montana State Fund
• Teachers Retirement System
• Montana Pension Employee Retirement System

52

27

COMPONENT UNIT PRESENTATION

53

Discretely Presented Component Units on Government‐ Wide financial statements

QUESTIONS & ANSWERS

28

TRUE OR FALSE

When using an Enterprise Fund, capital assets are reflected in the ENTITYWIDE SABHRS Ledger

ANSWER: FALSE – ENTERPRISE FUNDS ARE FULL ACCRUAL AND ALL INFORMATION IS ENTERED INTO THE ACTUALS LEDGER

55

TRUE OR FALSE

An unrestricted cash balance is considered Nonspendable in a governmental fund

ANSWER: FALSE – UNRESTRICTED CASH FALLS INTO OTHER GOVERNMENTAL FUND CATEGORIES DEPENDING ON FUND USE

56

29

TRUE OR FALSE

Full Accrual accounting has a measurement Focus of Total Economic Resources

ANSWER: TRUE – TOTAL ECONOMIC RESOURCES ARE ASSOCIATED WITH THE FULL ACCRUAL BASIS OF ACCOUNTING

57

TRUE OR FALSE

For governmental funds, resources are considered to be available if collected within 30 days

ANSWER: TRUE – GOVERNMENTAL FUNDS HAVE UP TO 60 DAYS TO CONSIDER REVENUE AVAILABLE.

58

30

TRUE OR FALSE

Fiduciary activity is included in the government‐wide financials

ANSWER: FALSE – FIDUCIARY ACTIVITY IS REPORTED SEPARATELY IN ITS OWN STATEMENTS OUTSIDE OF GOVERNMENT‐WIDE FINANCIAL STATEMENTS

59

ACCOUNTING RELATED QUESTIONS

SAB Help Desk 444‐4681 Saccounting@mt.gov Cody Pearce, State Accountant 444‐4609 Kristin Reynolds, Financial Reporting Manger 444‐5584

60