Governmental Entities:

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Chapter 19

• Governmental Entities
• Proprietary Funds,
• Fiduciary Funds

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Proprietary Funds

• Enterprise Funds
• Internal Service Funds

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Enterprise Funds

• Account for commercial-type activities of a
  governmental entity .
• Are used to account for operations that are
  financed and operated in a manner similar to
  private business enterprises.
• Examples are Public Utilities (water companies
  and electric companies), Airports, Public
  Hospitals, Transportation systems.

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Accounting and Reporting for Enterprise Funds

• Enterprise use the accrual basis of accounting.
• Neither budgetary accounts nor encumbrances are
  recorded in enterprise fund.
• Enterprise fund must be accounted for in the same
  manner as a privately owned commercial business.

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Accounting and Reporting for Enterprise Funds

• Among the ways in which financial statements of a
  governmental entity's enterprise fund differ from
  financial statements of a business enterprise are
• the absence of property taxes expense
• the absence of capital stock
• the presence of restricted assets (segregated
  from Current Assets)
• the presence of liabilities payable from
  restricted assets.

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Accounting and Reporting for Enterprise Funds

• The operating transfers section of an enterprise
  fund's statement of revenues, expenses, and
  changes in retained earnings includes
  subsidy-type transfers to the governmental
  entity's general fund, and the

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Accounting and Reporting for Enterprise Funds

• Statement of cash flows for an enterprise fund
  has four categories of cash flows.
• From operating activities
• From non capital financing activities
• From capital and related financing activities.
• From Investing activities.

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Accounting and Reporting for Enterprise Funds

• Operating income, rather than increase (decrease)
  in net assets is reconciled to net cash provided
  by operating activities.
• Non capital financing activities cash flows
  include operating grants from other governmental
  entities and operating transfers to or from other
  funds of the governmental entities.
• Temporary investments of cash received from
  borrowings for plant assets are reported as cash
  flow from capital and related financing
  activities, rather than with cash flows from
  investment activities.

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Internal Service Funds

• Internal service funds are established to finance
  and account for services and supplies provided
  exclusively to other government entity.
• This fund is created to ensure uniformity and
  economies in the procurement of supplies and
  services for the governmental entity as a whole

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Internal Service Funds.

• Examples are
• Central Garage and motor pools
• Central Printing and duplicating services
• Central Repair shops
• The operational of internal service funds
  resemble those of a business enterprise, except
  that internal service funds are not profit
  motivated.

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Accounting of Internal Service Funds

• Financial statements of internal service funds
  are nearly identical in form and content to
  financial statements of business enterprises
  because internal service funds do not issue
  revenue bonds or receive contributions or
  deposits from customers, as do enterprise funds

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Accounting and Reporting for Internal Service
Funds

• This fund use the accrual basis of accounting.
• Neither budgetary accounts nor encumbrances are
  recorded in this fund.
• Internal Service fund must be accounted for in
  the same manner as a privately owned commercial
  business.

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Accounting and Reporting of Internal Service Funds

• Similar to Enterprise Funds, internal service
  funds do not have owners equity in their balance
  sheet.
• A net assets ledger account balance typically
  supports that amount in the liabilities and net
  assets section of the balance sheet for an
  internal service fund.

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Financial Statements of Internal Service Funds

• Balance Sheet
• Income Statement- Statement of Revenues
• and Expenses
• Statement of Cash Flows
• Footnotes

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Applicability of FASB Pronouncements to
Proprietary Funds

• GASB Statement No. 20, "Accounting and Financial
  Reporting for Proprietary Funds . . ., " provided
  temporary guidance to governmental entities for
  applying business enterprise-type accounting
  standards, as appropriate, to their proprietary
  funds.

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Fiduciary Fund

• Fiduciary Fund consists of
• agency funds
• private-purpose trust funds
• pension trust funds and
• investment trust funds
• The position of a governmental entity with
  respect to fiduciary funds is that of a custodian
  or trustee rather than an owner.

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Accounting of Fiduciary Fund

• Fiduciary Fund use the accrual basis of
  accounting.
• Neither budgetary accounts nor encumbrances are
  recorded in enterprise fund.
• For Fiduciary Fund, GASB has mandated preparation
  of a statement of fiduciary net assets and a
  statement of changes in fiduciary net assets.

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Accounting and Reporting of Agency Funds

• Agency funds are of short duration.
• Agency Funds are used to accounts for sales taxes
  collected by a state government on behalf of
  municipalities and townships of state.
• Do not have operations during a fiscal year.
• Only a statement of fiduciary assets and a
  statement of changes in fiduciary assets are
  issued for agency funds.

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Financial statements of Fiduciary Fund

• Statement of Fiduciary Assets.
• Assets
• Cash xxx
• Liabilities
• Vouchers Payable xxx
• --------------------------------------------------
  --------------------------------------------------
  --
• Statement of Changes in Fiduciary Assets
• Open.Bal Additions Deductions Cl.Balance
• Assets xxx xxx xxx xxx
• Liabilities xxx xxx xxx xxx

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Private Purpose Trust Fund

• Both a statement of fiduciary net assets and a
  statement of changes in fiduciary net assets are
  issued for private-purpose trust funds.

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Expendable and Nonexpendable Private Purpose Trust

• Expendable An expendable private-purpose trust
  fund is one whose principal and income both may
  be expended to achieve the objectives of the
  trust.
• Non Expendable
• Only the revenues of a non-expendable
  private-purpose trust fund may be expended
• the principal of such a fund must be maintained
  intact.
• Accordingly, a nonexpendable private-purpose
  trust fund requires two separate accounting
  units?one for principal and one for revenues.

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Pension Trust Funds

• Pension Trust Fund use the accrual basis of
  accounting. (no budget and no encumbrances are
  used)
• Pension trust funds account for assets,
  liabilities, and net assets reserves of defined
  benefit pension plans of governmental entities,
  which require actuarial assumptions as to life
  expectancies of governmental entity employees and
  rates of earnings on pension trust fund assets

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Financial Statements of Pension Trust Funds

• Statement of Plan Net Assets
• Statement of Changes in Plan Net Assets
• Schedule of Funding Progress
• Statement of Cash Flow (optional)

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Investment Trust Funds

• Sponsoring governments are required by GASB
  Statement No. 31, Accounting and Financial
  Reporting for . . . External Investment Pools,
• to establish investment trust funds for
  investments of smaller governmental entities
  entrusted to the sponsoring government for
  investments in higher-yielding financial
  instruments than the smaller governmental
  entities have the capacity to acquire.

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Financial Statements of Investment Trust Funds

• Statement of Plan Net Assets
• Statement of Changes in Plan Net Assets
• Schedule of Funding Progress
• Statement of Cash Flow (optional)

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Comprehensive Annual Financial Report

• Components of the comprehensive annual financial
  report issued by state and local governmental
  entities are
• an introductory section
• a management discussion and analysis
• basic financial statements
• required supplementary information and
• combining and individual fund statements,
  schedules, narrative explanations, and
  statistical section.