Lecture note Government and not-for-profit accounting: Concepts and practices (7/e) – Chapter 5: Recognizing expenditures in governmental funds

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Lecture note Government and not-for-profit accounting: Concepts and practices (7/e) – Chapter 5: Recognizing expenditures in governmental funds. Chapter 5 - Recognizing expenditures in governmental funds. In this chapter, the learning objectives are: Modified accrual basis of accounting for expenditures, difference between accrual and full accrual, accounting for particular expenditures, types of interfund activities and how they are reported, other financing sources and uses, limitations of the fund statement.
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Lecture note Government and not-for-profit accounting: Concepts and practices (7/e) – Chapter 5: Recognizing expenditures in governmental funds. Chapter 5 - Recognizing expenditures in governmental funds. In this chapter, the learning objectives are: Modified accrual basis of accounting for expenditures, difference between accrual and full accrual, accounting for particular expenditures, types of interfund activities and how they are reported, other financing sources and uses, limitations of the fund statement..

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Click icon to add picture Chapter 5 Recognizing Expenditures in Governmental Funds Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | 1 All rights reserved. Thoughts to Ponder: Chapter 5 “The same prudence which in private life would forbid our paying our own money for unexplained projects, forbids it in the dispensation of public moneys.” - President Thomas Jefferson “It is your tax which pays for public spending. The government have no money of their own. There is only taxpayers’money.” - Margaret Thatcher “Hence as a private man has a right to say what wages he will give in his private affairs, so has a Community to determine what they will give and grant of their substance for the Administration of public affairs.” - Samuel Adams Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Learning Objectives •Modified accrual basis of accounting for expenditures •Difference between accrual and full accrual •Accounting for particular expenditures •Types of interfund activities and how they are reported •Other financing sources and uses •Limitations of the fund statement Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Financial Statements Two types of financial statements: Governmental Fund financial statements Basis of Accounting: Modified accrual basis Provides information relating to Inter-period equity Government-wide financial statements Basis of Accounting: Full accrual basis Presents revenues and expenses from the perspective of the entity as a whole and not of the individual funds. Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. GAAP GASB Codification, paragraphs 1600.102 through 1600.105. The Codification asserts that the “accrual basis is the superior method of accounting for the economic resources of any organization,” and states that the “use of the accrual basis to the fullest extent practicable is recommended.” Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Governmental Fund Statements •Required Financial Statements • Balance sheet • presents the fund’s resources at a particular point in time. • Operating statement • presents the net change in resources during a particular period of time. •Basis of Accounting • Modified accrual basis •All measurements are in accordance with GAAP. Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Modified Accrual Accounting 2 Criteria Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Expenditures vs. Expenses •Expenditures • Definition: “measure of fund liabilities liquidated with current resources” • Decreases net current financial resources (i.e. Fund Net Assets) • Used in ModifiedAccrual Basis • i.e. Fund Financial Statements •Expenses • Definition: “measure of costs expired or consumed during a period” • Reduction in net economic resources (overall net assets) • Used in Full Accrual Basis • i.e. Government-wide Statements Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Expenditures Closely tied to cash flows and near-cash flows Governmental funds report only current liabilities and not long-term liabilities. Expenditures recognized when cash is paid or fund liability accrued for goods/services received. Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 5 | All rights reserved. Liability Accrued “Revised” Expenditure Definition: Decreases in net current financial resources (i.e. Fund Net Assets) NOT resulting from transfers (and refunding transactions) NORM – Recognize when FUND Liability is incurred Exceptions include: Materials, Supplies, and Prepaid Items Recognize based on either Purchases or Consumption Basis Debt Service Expenditures on Government Long Term Debt Recognize when Legally Due Pensions, Claims and Judgments, Compensated Absences

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