Question

Hello Tutor: Could you please explain why do we use (debit) the "Due from State Government" for the amount given???

Here is the prompt again: During FY 2020, the City of Smithville received notification that the state government would send $150,000 at the beginning of the next fiscal year. Based on the city’s definition of “available for use,” the city considers the funds available for General Government’s use in the current reporting period. The budget for the current year included this amount as "Intergovernmental Revenue.” Required: Record this transaction as a receivable and revenue in the General Fund and governmental activities journals. (Note: Select “Accrued Revenue” in the [Description] menu in the Detail Journal). At the government-wide level, assume that this item is an operating grant to the Culture and Recreation function.

Answer 1

Journal entry would be

Due from State Government     Dr                            150,000

                To intergovernmental revenue                                                 150,000

Just think what would be revenue for a city’ municipality or local government- obviously taxes and other grants received from government or other places. So somehow debtors (trade receivable) would be government and other tax payers. So if grant is an income source, who going to pay that grant- straight forward anser i.e. State Government which will become debtor (trade receivable) for city. So a city government can recognize this revenue in its accounts but would be received next year. That’s why ‘Due from State Government’ would be debited to make them trade receivable