Governmental And Nonprofit Accounting: Theory And Practice

by Freeman, Robert J.; Shoulders, Craig D.; Allison, Gregory S.; Patton, Terry K.; Smith, G. Robert

• ISBN13: 9780131851290
• ISBN10: 0131851292
• Edition: 8th
• Format: Hardcover
• Copyright: 2009-01-01
• Publisher: Pearson College Div

Summary

For undergraduate and graduate Accounting courses such as Governmental Accounting, Public Sector Accounting, Government and Nonprofit Accounting, and Fund Accounting. Governmental and Nonprofit Accounting 8/e provides a thorough basis for understanding the logic behind and nature of all the funds and nonfund accounts associated with governments. Its unique 4-Step Pedagogical approach allows students to fully grasp the accounting and reporting framework necessary before focusing on deriving the new government-wide financial statements.

Table of Contents

Preface	xxi
Governmental and Nonprofit Accounting: Environment and Characteristics	1	(33)
Learning Objectives	1	(1)
Characteristics and Types of G&NP Organizations	2	(4)
G&NP Sector Significance	3	(1)
The G&NP Environment	3	(3)
Objectives of G&NP Accounting and Financial Reporting	6	(1)
Authoritative Sources of G&NP Accounting Principles and Reporting Standards	7	(7)
Separate Principles Established	8	(1)
AICPA Audit Guides	8	(1)
The FASB	9	(1)
FASB-GASB Jurisdictions	9	(1)
``Government'' Defined	10	(1)
The GASB	11	(2)
GAAP Hierarchies	13	(1)
Concepts and Objectives of SLG Accounting and Financial Reporting	14	(9)
Governmental-Type Activities	15	(4)
Financial Report Users	19	(1)
Financial Report Uses	20	(1)
Business-Type Activities	20	(2)
Users and Uses of Financial Reports	22	(1)
Financial Reporting Objectives	22	(1)
Characteristics of SLG Accounting and Financial Reporting	23	(4)
Fund Accounting	23	(1)
Budgets and Appropriations	24	(2)
Other Distinguishing Characteristics	26	(1)
Commercial Accounting Comparison	26	(1)
Concluding Comments	27	(1)
Appendix 1--1 Evolution of Accounting Principles and Standards---Prior to the GASB	27	(1)
Initial Evolution (1900--1933)	27	(1)
National Committees on Municipal and Governmental Accounting (1934--1974)	28	(1)
National Council on Governmental Accounting (1974--1984)	29	(5)
State and Local Government Accounting Principles	34	(38)
Learning Objectives	34	(1)
Overview of the GASB Financial Reporting Model	35	(2)
The GASB Principles	37	(26)
Accounting System Capabilities	39	(1)
Fund Accounting	40	(9)
Transaction Analysis	49	(2)
Nonfund Accounts	51	(2)
MFBA	53	(2)
Classification and Terminology	55	(3)
Annual Financial Reporting	58	(5)
Concluding Comments	63	(9)
Budgeting, Budgetary Accounting, and Budgetary Reporting	72	(40)
Learning Objectives	72	(2)
Budgetary Planning, Control, and Evaluation	74	(1)
Planning	74	(1)
Control	74	(1)
Evaluation	75	(1)
Basic Budgetary Terminology	75	(2)
Capital vs. Current Budgets	75	(1)
Tentative vs. Enacted Budgets	75	(2)
General vs. Special Budgets	77	(1)
Fixed vs. Flexible Budgets	77	(1)
Executive vs. Legislative Budgets	77	(1)
Budgetary Approaches and Emphases	77	(1)
The Budget as Information	77	(1)
Recommended Budgeting Practices	78	(1)
Illustrative Budget Comparison Statement	78	(1)
Budget Preparation	79	(7)
Overview	80	(1)
Preliminary Estimates	80	(1)
Preparing the Budget	81	(5)
Legislative Consideration and Action	86	(1)
Budget Execution	87	(1)
Budgetary Accounting Overview	88	(5)
General Ledger	88	(1)
Subsidiary Ledgers	88	(5)
Budgetary Reporting Overview	93	(4)
The Budgetary Basis	93	(1)
Interim Budgetary Statements	94	(2)
Annual Budgetary Comparisons	96	(1)
Concluding Comments	97	(1)
Appendix 3--1 Alternative Expenditure Budgeting Approaches	98	(1)
The Object-of-Expenditure Approach	98	(2)
The Performance Approach	100	(2)
The Program and Planning-Programming-Budgeting (PPB) Approaches	102	(2)
The Zero-Base Budgeting Approach	104	(1)
In Sum	105	(1)
Selecting an Appropriate Approach	106	(6)
The General Fund and Special Revenue Funds	112	(57)
Learning Objectives	112	(3)
General Fund Accounting---Illustrative Example	115	(18)
Entries During 20X1	116	(10)
Year-End Adjustments	126	(1)
Preclosing Trial Balances	126	(1)
Illustrative Example Worksheets	126	(1)
20X1 Closing Entries	127	(2)
Closing Entry Approaches	129	(2)
Reserve for Encumbrances	131	(1)
Budgetary Fund Balance	132	(1)
Postclosing Trial Balance	133	(1)
Balance Sheets	133	(7)
Interim Balance Sheet	133	(1)
Year-End Balance Sheet	134	(1)
Fund Balance	135	(1)
Fund Balance Reserves	136	(2)
Unreserved Fund Balance	138	(1)
Fund Balance Designations	139	(1)
Interfund Receivables and Payables	139	(1)
Capital Assets and Long-Term Liabilities	139	(1)
Statement of Revenues, Expenditures, and Changes in Fund Balances	140	(2)
Total Fund Balance	140	(1)
Restatements	141	(1)
Extraordinary and Special Items	142	(1)
Budget Comparison Schedule or Statement of Revenues, Expenditures, and Changes in Fund Balances---Budget and Actual	142	(1)
Entries During 20X2	143	(2)
Combining Special Revenue Fund Statements	145	(1)
Alternative Account Structure and Entries	145	(3)
Concluding Comments	148	(1)
Appendix 4--1 General Ledger Worksheet and Subsidiary Ledgers	149	(20)
Revenue Accounting---Governmental Funds	169	(47)
Learning Objectives	169	(1)
Revenue Definition and Recognition	170	(5)
Classification of Revenue Accounts	175	(1)
General Fund Revenues	175	(1)
Other Governmental Funds Revenues	175	(1)
Governmental Unit Revenues	175	(1)
Taxes	176	(10)
Taxpayer-Assessed Taxes	176	(2)
Property Taxes	178	(8)
Property Tax Statements/Schedules	186	(1)
Licenses and Permits	186	(1)
Intergovernmental Revenues	187	(5)
Intergovernmental Revenue Classifications	187	(1)
Intergovernmental Revenue Accounting	188	(4)
Charges for Services	192	(2)
Interfund Services vs. Reimbursements	192	(1)
Charges for Services	192	(2)
Fines and Forfeits	194	(1)
Miscellaneous Revenues	195	(4)
Investment Earnings	195	(3)
Capital Asset Sales/Losses	198	(1)
PILOTs	199	(1)
Escheats	199	(1)
Private Contributions	199	(1)
Revenue Budget Revisions	199	(1)
Revenue Reporting: GAAP vs. Budgetary	200	(1)
Changes in Accounting Principles	200	(3)
New GASB Standards	203	(1)
Prospective Application	203	(1)
Retroactive Application	203	(1)
Error Correction	203	(1)
Concluding Comments	204	(12)
Expenditure Accounting---Governmental Funds	216	(49)
Learning Objectives	216	(1)
Expenditure Definition and Recognition	217	(4)
Capital Outlay Expenditures	219	(1)
Debt Service Expenditures	219	(1)
Intergovernmental Expenditures	219	(2)
Current Operating Expenditures	221	(1)
Inventories and Prepayments	221	(1)
Expenditure Accounting Controls	221	(1)
Expenditure Accounting Procedures	221	(11)
Personal Services	222	(1)
Materials and Supplies	223	(5)
Other Services and Charges	228	(4)
Classification of Expenditures	232	(1)
Accounting for Allocations and Allotments	233	(1)
Appropriations Revisions	234	(1)
Adjusting Entries	235	(7)
Encumbrances	236	(1)
Debt Service	236	(1)
Claims and Judgments	237	(3)
Compensated Absences	240	(1)
Pension/OPEB Plan Contributions	241	(1)
Expenditure Reporting: GAAP vs. Budgetary	242	(1)
Changes in Accounting Principles	243	(4)
Alternative Principles	243	(4)
New GASB Standards	247	(1)
Error Correction	247	(1)
Concluding Comments	247	(1)
Appendix 6--1 Classification of Expenditures	248	(1)
Classification by Function or Program	248	(1)
Classification by Organization Unit	249	(1)
Classification by Activity	250	(1)
Classification by Character	251	(1)
Classification by Object Classes	252	(13)
Capital Projects Funds	265	(42)
Learning Objectives	265	(2)
Capital Projects Fund Operations and Accounting Standards	267	(8)
CPF Financial Resources	267	(1)
Number of Funds	267	(2)
CPF Life Cycle	269	(2)
The Budget	271	(1)
General--Subsidiary Ledgers	271	(1)
Interim Financing	271	(2)
Project Costs	273	(2)
Intergovernmental Revenues	275	(1)
Recording Bond Issues	275	(1)
Capital Projects Fund---Case Illustration Begun, 20X1	275	(9)
General Ledger Entries	276	(1)
Budgetary Entry	276	(1)
Transaction/Event Entries	277	(2)
General Ledger Worksheet(s)	279	(1)
Preclosing Trial Balance	279	(1)
Closing Entries	279	(3)
Financial Statements	282	(2)
Capital Projects Fund---Case Illustration Concluded, 20X2	284	(5)
20X1 Accounts Closed	284	(1)
Case Illustration Assumptions	285	(1)
20X2 Entries	285	(2)
General Ledger Worksheet	287	(1)
20X2 Financial Statements	287	(2)
Other Capital Projects Fund Operations, Accounting, and Reporting Matters	289	(4)
Bond Anticipation Notes (BANs)	290	(2)
Investments and Arbitrage	292	(1)
Remaining Fund Balance	292	(1)
Reporting Multiple Projects	292	(1)
Combining CPF Statements	293	(1)
Concluding Comments	293	(1)
Appendix 7--1 General Ledger Worksheet and Subsidiary Ledgers	293	(14)
Debt Service Funds	307	(38)
Learning Objectives	307	(1)
Debt Service Fund Environment, Financing, and Expenditure Recognition	308	(5)
Long-Term Liabilities	309	(1)
Fixed vs. Variable Rates	310	(1)
Debt Service Payments	310	(1)
Bonds and Fiscal Agents	310	(1)
Required DSF Reserves	311	(1)
Bond Ratings	311	(1)
Bond Insurance	311	(1)
Sources of Financing	312	(1)
DSF Investments	312	(1)
DSF Expenditure Recognition	312	(1)
Debt Service Fund for a Serial Bond Issue: Case Illustration	313	(3)
Illustrative Entries	314	(2)
Financial Statements	316	(1)
Special Assessment Debt Service Funds	316	(5)
Illustrative Entries	318	(2)
Illustrative Financial Statements	320	(1)
Other Conventional Debt Service Fund Considerations	321	(1)
Nonaccrual of Interest	321	(1)
Combining Balance Sheet	321	(1)
Combining Operating Statement	321	(1)
Multiple Bond Issues	321	(1)
Debt Service Fund for a Term Bond Issue	321	(2)
Sinking Fund Requirements	323	(1)
Debt Service Funds for Deep Discount Issues	324	(1)
Refundings	325	(3)
Reasons for Refundings	325	(1)
Refundings Defined	326	(1)
Defeasance of Debt	326	(2)
Debt Service Funds for Refundings	328	(6)
Current Refunding	329	(1)
Advance Refunding	329	(1)
Debt and Non-debt Financing	330	(1)
Reporting Refundings	330	(2)
Advance Refunding Disclosures	332	(2)
Concluding Comments	334	(11)
General Capital Assets; General Long-Term Liabilities; Permanent Funds: Introduction to Interfund-GCA-GLTL Accounting	345	(49)
Learning Objectives	345	(1)
Overview of General Capital Assets and General Long-Term Liabilities Accounting Procedures	346	(1)
General Capital Assets	347	(19)
General Capital Assets Defined	348	(1)
Initial Valuation	348	(1)
Classification	349	(1)
Infrastructure Assets	349	(1)
Capitalization Policy	350	(1)
Property Records	351	(2)
Capital Assets Inventory	353	(1)
Additions, Betterments, and Renewals	353	(1)
Depreciation/Accumulated Depreciation	353	(2)
Updating GCA Accounts	355	(3)
Recording Depreciation	358	(1)
Sale, Replacement, or Retirement	359	(1)
Intragovernmental Transactions	360	(2)
Damage or Destruction	362	(1)
Impairment	362	(3)
Insurance Recoveries	365	(1)
Reporting and Disclosures	366	(1)
General Long-Term Liabilities	366	(9)
CPF-DSF-GLTL	367	(1)
Serial Debt	367	(2)
Special Assessment Debt	369	(1)
Other Government Liabilities	370	(2)
Interest-Related Adjustments	372	(1)
Defaulted Bonds	372	(1)
In-Substance Defeasance	373	(1)
GLTL Records	373	(1)
GLTL Reporting and Disclosures	374	(1)
Permanent Funds	375	(2)
Introduction to Interfund-GCA-GLTL Accounting	377	(4)
Concluding Comments	381	(13)
Enterprise Funds	394	(48)
Learning Objectives	394	(1)
Common Characteristics and Principles of Proprietary Funds	395	(7)
Accounting Equation	395	(1)
Accounting Principles	395	(1)
Financial Statements	396	(6)
Enterprise Funds	402	(23)
Enterprise Funds Defined	403	(2)
Specific EF Topics	405	(4)
EF Accounting Illustrated	409	(16)
Combining Enterprise Fund Financial Statements	425	(2)
Concluding Comments	427	(15)
Internal Service Funds	442	(32)
Learning Objectives	442	(1)
Overview of Accounting Principles	443	(6)
Initial Establishment	444	(2)
Pricing Policies	446	(1)
Pricing Methods	447	(1)
Relation to Budget	448	(1)
Financial Statements	448	(1)
Internal Service Fund Accounting Illustrated	449	(11)
Automotive Equipment Unit	449	(5)
Central Stores Fund	454	(2)
Self-Insurance Fund	456	(4)
Disposition of Increase or Decrease in Net Assets	460	(1)
Changes in Net Asset Balance	460	(1)
Dissolution of an Internal Service Fund	461	(1)
Combining Internal Service Fund Financial Statements	461	(1)
Concluding Comments	461	(13)
Trust and Agency (Fiduciary) Funds: Summary of Interfund-GCA-GLTL Accounting	474	(35)
Learning Objectives	474	(2)
The Accountability Focus	476	(1)
Agency Funds	476	(7)
Simpler Agency Funds	477	(2)
Tax Agency Funds	479	(3)
Special Assessment Agency Funds	482	(1)
Trust Funds	483	(11)
Private-Purpose Trusts	484	(3)
Investment Trusts	487	(1)
Pension Trusts	487	(7)
Combining Trust and Agency Fund Financial Statements	494	(1)
Additional Interfund---General Capital Asset---General Long-Term Liability Accounting Illustrations	494	(6)
Concluding Comments	500	(9)
Financial Reporting: The Basic Financial Statements and Required Supplementary Information	509	(47)
Learning Objectives	509	(3)
Basic Financial Statements Overview	512	(1)
Government-Wide Financial Statements	513	(11)
Statement of Net Assets	514	(1)
Statement of Activities	515	(3)
Measurement Focus	518	(1)
Reporting Expenses	518	(2)
Program vs. General Revenues	520	(2)
Internal Service Funds	522	(1)
Infrastructure Capital Assets	522	(2)
Fund Financial Statements	524	(13)
Major Fund Reporting	524	(9)
Fund-Based Financial Statements	533	(3)
Note Disclosures	536	(1)
Required Supplementary Information	537	(2)
Management's Discussion and Analysis	537	(1)
Other RSI	537	(2)
Special Purpose Governments	539	(1)
Concluding Comments	539	(1)
Appendix 13--1 Illustrative Management's Discussion & Analysis	539	(1)
State of Florida Management's Discussion and Analysis	539	(17)
Financial Reporting: Deriving Government-Wide Financial Statements and Required Reconciliations	556	(40)
Learning Objectives	556	(2)
Deriving Government-Wide Governmental Activities Data	558	(2)
Deriving Government-Wide Financial Statement Data for Governmental Activities---A Worksheet-Based Illustration	560	(17)
GCA-GLTL Related Adjustments	563	(4)
Basis of Accounting Adjustments	567	(2)
Eliminating Interfund Transactions	569	(3)
Completing the Worksheet	572	(1)
Government-Wide Financial Statements	572	(3)
Required Reconciliations	575	(2)
Additional Worksheet Adjustments	577	(1)
Incorporating Internal Service Funds	578	(1)
Deriving Government-Wide Business-Type Activities Data	578	(4)
Concluding Comments	582	(14)
Financial Reporting: The Comprehensive Annual Financial Report and the Financial Reporting Entity	596	(38)
Learning Objectives	596	(1)
The Comprehensive Annual Financial Report	597	(12)
The Introductory Section	597	(5)
The Financial Section	602	(3)
The Statistical Section	605	(4)
Supplemental and Special Purpose Reporting	609	(1)
Financial Reporting---Complex Entity Structure	609	(7)
Reporting Entity Definition	612	(1)
Reporting Entity Disclosures	613	(3)
Integrating Component Units into the Reporting Entity	616	(4)
Blending	617	(1)
Discrete Presentation	618	(1)
Other Issues	619	(1)
Separate Issuance of Primary Government Financial Statements	620	(1)
Related Organizations, Joint Ventures, and Jointly Governed Organizations	620	(1)
Concluding Comments	621	(13)
Non-SLG Not-for-Profit Organizations: SFAS 116 and 117 Approach	634	(40)
Learning Objectives	634	(2)
Classification of Organizations	636	(1)
Voluntary Health and Welfare Organizations	636	(1)
Other Not-for-Profit Organizations	637	(1)
Classes of Net Assets	637	(1)
Non-GAAP Accounting and Reporting Requirements	638	(1)
Basis of Accounting	639	(1)
SFAS 117 Financial Statements	640	(10)
Balance Sheet	640	(2)
Statement of Activities	642	(7)
Statement of Cash Flows	649	(1)
Statement of Functional Expenses	650	(1)
Nongovernment VHWO and ONPO Accounting and Reporting Illustration	650	(12)
Transactions and Entries	650	(7)
Illustrative Financial Statements	657	(5)
Concluding Comments	662	(12)
Accounting for Colleges and Universities	674	(40)
Learning Objectives	674	(2)
Classification as ``Engaged Only in Business-Type Activities''	676	(1)
GAAP Reporting Requirements	677	(7)
Balance Sheet	678	(1)
Operating Statement	679	(5)
Statement of Cash Flows	684	(1)
Case Illustration---A Government University	684	(14)
Other Resources	689	(9)
Annuity and Life Income	698	(2)
Annuity Gifts	699	(1)
Life Income Gifts	700	(1)
Colleges and Universities Engaged in Both Governmental and Business-Type Activities	700	(1)
Nongovernment Not-for-Profit University Reporting	701	(1)
Concluding Comments	702	(12)
Accounting for Health Care Organizations	714	(32)
Learning Objectives	714	(2)
Funds---Government Hospitals	716	(1)
Basic Principles	717	(1)
Unique Measurement and Display Features	717	(6)
Distinguishing Primary Activities	717	(1)
Classes of Revenues	717	(3)
Gains	720	(1)
Donations	721	(1)
Expense Classification	721	(1)
Restricted Assets	722	(1)
Property, Plant, and Equipment	722	(1)
Illustrative Case	723	(8)
Summary of Transactions and Events	723	(8)
Financial Statements	731	(2)
Balance Sheets	731	(1)
Operating Statement	731	(1)
Statement of Cash Flows	731	(2)
Nongovernment Not-for-Profit Hospital Reporting	733	(4)
Concluding Comments	737	(9)
Federal Government Accounting	746	(36)
Learning Objectives	746	(1)
The Federal Financial Management Environment	747	(4)
Financial Accounting Responsibilities	747	(3)
Overview	750	(1)
The Budgetary Process	751	(2)
The Budget Cycle	751	(2)
Exceeding Budget Authority	753	(1)
Accounting Principles and Standards for Federal Agencies	753	(9)
The Federal Model	754	(3)
Standard General Ledger	757	(2)
Federal Fund Structure	759	(1)
Financial Reporting	760	(2)
Federal Agency Accounting and Reporting Illustrated	762	(14)
A Case Illustration	762	(1)
Maintaining Budgetary Control	763	(3)
Maintaining Proprietary Accounts	766	(1)
Other Transactions and Entries	766	(4)
Closing Entries	770	(1)
Reporting	771	(5)
Concluding Comments	776	(6)
Auditing Governments and Not-for-Profit Organizations	782	(43)
Learning Objectives	782	(1)
Overview	783	(1)
What is an Audit?	783	(5)
Classifications of Audits	783	(2)
Management's Representations	785	(1)
External Auditor Classifications	785	(3)
The Audit Contract	788	(1)
Auditing Standards	788	(3)
AICPA Auditing Standards	789	(1)
GAO Auditing Standards	789	(2)
GAGAS Summary	791	(1)
The Financial Audit	791	(4)
Auditing Standards	792	(1)
Audit Procedures	793	(1)
The Audit Report	793	(2)
The Single Audit	795	(18)
Purposes	795	(1)
Overview	796	(3)
Applicability	799	(1)
Definitions	799	(1)
Auditee Responsibilities	799	(1)
Auditor Responsibilities	799	(2)
Auditing Guidance	801	(3)
Major FFA Programs	804	(4)
Findings & Questioned Costs	808	(1)
Illegal Acts	809	(1)
Subrecipients	809	(1)
Auditor Reports---Single Audit	810	(1)
Auditee Reporting Responsibilities	811	(2)
Other Matters	813	(1)
Concluding Comments	813	(1)
Appendix 20--1 Glossary	813	(2)
Appendix 20--2 Data Collection Form for Reporting on Audits of States, Local Governments, and Nonprofit Organizations	815	(10)
Index	825