Question

1. How long are Capital Project and Debt Service funds open for?

2. What type of funds are proprietary funds, and how do the differ from govermental funds.

3. Compare and contrast the Fiduciary-Type Funds.

4. Are general fixed assets reported by state and local governmtnes? If so, where ae they reported?

Answer 1

Legally mandated or resources are being accumulated for principal and interest payments for future years; otherwise general fund is used

debt service fund do? These funds are used to make interest and principal payments on general long term debt.
What does it not service

Do not make payments on short-term liabilities or "specific debt" (revenue bonds/capital project debt and long-term debt attributable to proprietary funds).

Relationship between debt fund and long term debt accounting

Debt Service Funds do not record or report the long-term debt. They only "service" the debt by making the required interest payments and principal re-payments. The long-term debt is recorded in off-books schedules until it matures (e.g., becomes due). Once the debt has matured, the debt service funds record the currently due portions of the debt. When used in reference to general long-term debt, the terms "current," "due" and, "currently due" mean matured debt, that is, debt that is on or past the due date.

entries in debt service fund

1. Record receipt of resources to be used to pay interest and repay principal on general obligation long-term debt;
2. Record investment of those resources and recognition of investment earnings;
3. Record liabilities related to matured interest and principal on general obligation long-term debt;
4. Record payment of matured interest and principal.

Receipt of resources

Cash XXX
Other Financing Sources - Transfers In XXX

Debt fund: Investments and earnings entries?

Making investment:
Investments XXX
Cash XXX

Accrue interest receivable:
Cash/Interest receivable XXX
Interest revenue XXX

Used to facilitate resource accumulation and manage expenditures for major capital projects; not necessary for all capital acquisitions/construction

Capital project fund characteristics

Capital Projects Funds use modified accrual basis accounting and recognized encumbrances. They may also use budgetary accounting.
1. Capital projects funds are "limited life funds:" they exist for the life of the project and are then closed.
2. Surplus monies in the fund at closing are transferred either to a debt service fund or to the general fund. Assets acquired or constructed through capital projects funds are reported in the Government-wide financial statements

Accounting when bond funded

Bond proceeds are "other financing sources"

Government Funds

Remember that Gs have a General Fund & can set up other funds for other G activities that are common • G can set up: – Special Revenue Funds – Permanent Funds – Capital Projects Funds – Debt Service Funds

Special Revenue Funds • Law or donor restricts on what operations Special Revenue funds can spend money • G can spend all of the Special Revenue Funds – But, only for specified purposes

Permanent Funds • Permanent Funds also known as “Public Purpose Trusts” • Earnings – can spend for a specified purpose • Principal - not expendable. • If you could spend all of fund – Fund would be a Special Revenue Fund • If for benefit of individuals/private parties – Fund would be a F fund

Capital Projects Fund • Capital Projects Funds account for major, general capital assets – Purchase – Construction – Capital lease • Doesn’t include capital assets of P Funds & F Funds – Account for their own LT assets & LT liabilities

Debt Service Funds • Account for payment principal & interest on general G obligation • Interest & principal recognized when due • Budget entries are seldom used In Debt Service Funds – Amounts of principal & interest are known – No need to compare actual & budget numbers

• P Funds used when G acts like a business • If G provides goods & services to private parties – Enterprise Fund • G provides goods & services to other G entities – Internal Service Fund

A proprietary fund is used in governmental accounting to account for activities that involve business-like interactions, either within the government or outside of it. The two types of proprietary funds are enterprise funds and internal service funds. An enterprise fund is used to account for any activity for which external users are charged a fee for goods and services. An activity must be reported in an enterprise fund under any of the following circumstances:

• The activity is funded with debt that is only secured by a pledge of the net proceeds from the activity.
• The activity’s service provision costs must be recovered with fees, as stipulated by laws and regulations.
• The activity’s pricing policy is designed to recover its costs.

An internal service fund is used to account for activities that provide goods or services to other funds, as well as departments or agencies of the primary government, or to other government entities on a cost-reimbursement basis. This fund should only be used when the reporting government is the primary participant in the activity. When this is not the case, an enterprise fund should be used instead.

Fiduciary Funds

Fiduciary fund reporting focuses on net position and changes in net position. Fiduciary funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the government’s own programs. Resources held in trust for the benefit of the agency’s own programs or Texas citizenry are accounted for in a governmental fund rather than a fiduciary fund. The fiduciary fund category includes:

• Agency funds (FT09)
• Pension and other employee benefit trust funds (FT10)
• External investment trust funds (FT18)
• Private-purpose trust funds (FT20)

The three types of trust funds are used to report resources held and administered by the agency when it is acting in a fiduciary capacity for individuals, private organizations or other governments. Generally, these funds are distinguished from agency funds by the existence of a trust agreement that affects the degree of management involvement and the length of time the resources are held.

Financial statements used to present fiduciary fund financial information include:

• Statement of fiduciary net position
• Statement of changes in fiduciary net position (except agency funds)
• Statement of changes in assets and liabilities (agency funds only)

These statements provide a separate column for each fiduciary fund type (combined statement) and fund (combining statement). Use the economic resources measurement focus and the full accrual basis of accounting.

• Recognize revenues in the fiscal year they are earned
• Recognize expenses in the fiscal year they are incurred

GASB 34 excludes the reporting of fiduciary activities on the government-wide financial statements.

Agency Funds (FT09)

Agency funds are used to report resources held by the agency in a purely custodial capacity (assets held for others that cannot be used to support the agency’s own programs). Agency funds typically involve only the receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments. GAAP requires the use of an agency fund to account for debt service transactions involving special assessment debt for which the state is not obligated in any manner.

Assets must equal liabilities on the statement of fiduciary net position. Agency funds are required to use the statement of changes in assets and liabilities rather than the statement of changes in fiduciary net position (as agency funds do not recognize revenues, expenditures or expenses). The statement of changes in assets and liabilities reports:

• Beginning balances
• Additions
• Deductions
• Ending balances

Do not report agency funds on the statement of changes in fiduciary net position.

When an agency fund is used as a clearing account, any assets held in the agency fund (at the reporting date) that are pending distribution to other funds are not reported in the agency fund. These assets are reported in a governmental or proprietary fund as appropriate. If:

• FT09 GAAP fund 0900 (the departmental suspense fund) is used as a clearing account to distribute financial resources to other funds of the agency:
  • Do not report the portion of the balance that belongs in other funds in fund 0900
• There are material cash balances belonging to the state:
  • Reclassify the amounts out of fund 0900
  • Record in the appropriate fund type
    (see Reclassifying Material Cash Balances That Remain in Suspense Fund FT09 at Fiscal Year-End)

Funds being held in fund 0900 for an outside entity (such as a city or county government or a private individual) or for another agency will remain in the agency fund.

Pension and Other Employee Benefit Trust Fund (FT10)

Pension and other employee benefit trust funds are used to report resources required to be held in trust for the members and beneficiaries of:

• Defined benefit pension plans
• Defined contribution plans
• Other postemployment benefit plans
• Other employee benefit plans

GAAP requires the use of separate trust funds for each individual pension plan.

External Investment Trust Fund (FT18)

GASB 31 requires the reporting of the state’s external investment pool funds. The sponsoring government of an external investment pool is required to report the external portion of each pool as a separate investment trust fund (a fiduciary fund).

GASB 31 defines an external investment pool as an arrangement that commingles (pools) the monies of more than one legally separate entity and invests on the participants’ behalf in an investment portfolio. One or more of the participants must not be part of the sponsor’s reporting entity. An external investment pool can be sponsored by one of the following:

• An individual government
• More than one government jointly
• A nongovernmental entity

An investment pool sponsored by an individual state or local government is an external investment pool if it includes participation by a legally separate entity that is not part of the same reporting entity as the sponsoring government. If a government-sponsored pool includes only the primary government and its component units, it is an internal investment pool — not an external investment pool.

Private-Purpose Trust Fund (FT20)

Private-purpose trust funds, as defined in GASB 34, report all other trust arrangements under which the principal and income benefits individuals, private organizations or other governments.

Escheat property held for individuals, private organizations or another government may be reported in a private-purpose trust fund, or in a governmental or proprietary fund

Reporting

Within governmental funds, equity is reported as fund balance; proprietary and fiduciary fund equity is reported as net assets. Fund balance and net assets are the difference between fund assets and liabilities reflected on the balance sheet or statement of net assets. Because of the current financial resources measurement focus of governmental funds, fund balance is often considered a measure of available expendable financial resources. This is a particularly important measure in the general fund because it reflects the primary functions of the government and includes both state aid and local tax revenues. The relative amount of unreserved fund balance reflected in the general fund is used by rating agencies as a measure of financial strength of the government. Declines in the amount of unreserved fund balance may signal deterioration in the financial condition of the entity.

Governmental entities are required to present the governmentwide financial statements on the accrual basis of accounting. Thus, the Statement of Activities reflects the expenses of the entity for the reporting period. Entities are required to report all expenses by activities and programs (by function), except certain indirect expenses, as explained below. GASB has defined direct expenses as those that are specifically associated with a service, program or department and thus are clearly identifiable to a particular function. Direct expenses include both operating and nonoperating expenses, including depreciation and amortization of assets.

Functions, such as general administration or data processing services, may include indirect expenses of other functions. Governmental entities are not required to allocate indirect expenses to other functions, but may choose to do so. If indirect expenses are allocated, direct and indirect expenses should be presented in separate columns. A column totaling direct and indirect expenses may be presented, but is not required. Indirect expenses may be allocated to any of the primary government's functions. Although there are no standards for determining an allocation methodology, there should be a reasonable basis for expense allocations.