Chapter 14D - Financial Reporting: Financial Deriving...

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Unformatted text preview: Financial Reporting: Financial Deriving Government-Wide Financial Statements and Financial Required Reconciliations Required Chapter 14 Learning Objectives Learning Understand and explain the types of worksheet Understand adjustments needed to derive Governmental Activities data for the Government-Wide Financial Statements from Governmental Funds financial statement data. statement Understand and explain the types of worksheet Understand adjustments needed to derive Business-Type Activities data for the Government-Wide Financial Statements from Enterprise Funds financial statement data. statement Learning Objectives Learning Understand Understand both the two-worksheet approach (chapter) and one-worksheet approach (appendix) to deriving governmental activities data governmental Prepare the Government-Wide Financial Prepare Statements from information derived in the conversion worksheets conversion Prepare the required reconciliations of Fund Prepare Financial Statements to Government-Wide Financial Statements Financial Getting Started Getting Fund Fund financial statements are the necessary foundation for the Governmentnecessary Wide Financial Statements Preparing the G-W statements is a matter Preparing of converting fund information into G-W information information Conversion process occurs at the end of Conversion the year the Sources of Information for Conversion Process Conversion Fund Fund financial statements – primarily the Total columns columns Governmental Governmental Funds are affected by the most adjustments adjustments Limited adjustments to the Enterprise Funds Internal Service Funds will be eliminated Fiduciary Funds not included in adjustment process Fiduciary as they are not included in Government-Wide Financial Statements Financial General Capital Assets General Long-Term Liabilities Major Reporting Differences for Statements: G-W vs. Funds Statements: Reporting Reporting governmental activities in single entity in G-W statements rather than multiple fund entities entities Reporting GCA and GLTL in G-W financial Reporting statements, whereas excluded from governmental fund statements governmental Reporting using single MFBA in G-W statements Reporting rather than multiple MFBAs in fund statements rather Excluding ISFs from G-W statements Types of Worksheet Adjustments: Balance Sheet Balance GCA Issues Add capital assets Deduct accumulated Deduct depreciation depreciation GLTL Issues Add Bonds Payable and Add Bond Premium Bond Deduct Bond Discount Add Unamortized Bond Add Issue Costs (to noncurrent assets) noncurrent Adjust for accrued Adjust interest payable interest Adjust for other Adjust noncurrent liabilities not reported as expenditures: OPEB, CA, and C&J OPEB, Types of Worksheet Adjustments: Balance Sheet (continued) (continued) Other adjustments Reduce Deferred Revenues by amounts earned Reduce or levied but deferred because of availability criterion criterion Eliminate or reclassify interfund receivables and Eliminate payables payables Eliminate Eliminate intra-governmental receivables and payables payables Reclassify net interfund receivables and payables Reclassify with Enterprise Funds to Internal Balances Internal Types of Worksheet Adjustments: Operating Statement Operating GCA Issues Eliminate Capital Outlay Eliminate expenditures expenditures Add Depreciation Add Expense to functional areas areas Deduct carrying value of Deduct capital assets disposed of (converts proceeds received to gain/(loss)) received GLTL Issues Eliminate OFS and OFU Eliminate related to bond issues, including bond issue cost expenditures expenditures Eliminate Expenditures Eliminate and OFU related to retirement/defeasance of debt debt Convert interest Convert expenditure to interest expense expense Convert other “when due” Convert expenditures to expenses expenditures Types of Worksheet Adjustments: Operating Statement (continued) (continued) Other adjustments Convert revenue measurements from current Convert financial resource measurement focus (modified accrual) to economic resource measurement focus (accrual) focus Eliminate or reclassify interfund transfers Eliminate intra-governmental transfers Reclassify net transfers with Enterprise Funds as Reclassify transfers with business-type activities (could result in recording transfers not previously reported) recording Steps in the Conversion Process Steps 1. 2. 3. Enter governmental funds financial Enter statement total column amounts in first column of worksheet column Enter adjustments to be made in this Enter information to convert it of governmentinformation wide data (see previous slides) Sum the first four columns Textbook Presentation: Textbook Balance Sheet Conversion Process Description Description of process in Illustration 14-8, page 566 page Sample adjustments for Farley County in Sample Illustration 14-9, page 568 Illustration Journal entry adjustments demonstrated Journal on pages 569–570 (entries 1 thru 5) on Notes about Balance Sheet Notes Conversion Worksheet Initially, Initially, accounts are listed in same order as on Governmental Funds Balance Sheet Governmental Accounts in italics are added as a result of the Accounts conversion process conversion Fund Balance / Net Assets shown on single line Classifications Classifications of fund balance not important – only total Fund Balance total Net Assets classifications will be determined later Journal Journal entries summarize what is recorded in worksheet – Net Assets used as balancing account whenever necessary account #1 GCA Adjustment [Page 569] [Page Land Buildings Machinery & Equipment Infrastructure Construction in Progress Accumulated Depreciation – Buildings Accumulated Depreciation – Machinery & Equipment Accumulated Depreciation – Infrastructure Net Assets 125,000 1,250,000 398,000 2,000,000 2,540,000 860,000 160,000 1,300,000 3,993,200 Notes on GCA Adjustment Notes Information Information comes from GCA note to the financial statements financial Will always result in an increase to Fund Will always Balances / Net Assets Balances #2a GLTL Adjustments [Page 569] [Page Net Assets Bonds Payable – Due within One Year Bonds Payable Premium on Bonds Due within One Year Premium on Bonds 2,428,000 200,000 2,200,000 5,400 22,600 #2b & c GLTL Adjustments [Page 569] [Page #2b Unamortized Bond Issue Costs Net Assets 16,000 Net Assets Accrued Interest Payable 18,750 16,000 18,750 #3a & b GLTL Adjustments [Page 570] [Page #3a Net Assets Claims & Judgments Payable – Due within One year Claims and Judgments Payable Net Assets Compensated Absences Payable – Due within One year Compensated Absences Payable 150,000 2,000 148,000 92,000 3,000 89,000 Notes on GLTL Adjustments Notes Most Most information comes from GCA note to the financial statements the 2b must be separately accounted for Not part of GCA or GLTL Reported as noncurrent asset 2c 2c results from interest not previously accrued because it is not yet due because Will Will always result in a decrease to Fund always Balances / Net Assets Balances #4 & #5 Other Adjustments [Page 570] [Page #4 Deferred Tax Revenues Net Assets Due to Special Revenue Fund Due from General Fund 30,800 30,800 1,000 1,000 Notes on Other Adjustments Notes Revenues Revenues deferred because availability criterion not met will be recognized as revenues in government-wide financial statements so long as they are earned and levied for current period and Intra-governmental fund receivables and Intra-governmental payables cancel each other out payables Textbook Presentation: Textbook Operating Statement Conversion Process Description Description of process in Illustration 14-11, page 573 page Sample adjustments for Farley County in Sample Illustration 14-12, page 575 Illustration Journal entry adjustments demonstrated Journal on pages 576–578 (entries 1 thru 5) on Notes about Operating Statement Notes Conversion Worksheet Initially, Initially, accounts are listed in same order as on Governmental Funds Operating Statement and in same format in No accounts are added; only adjustments in No amounts amounts Change in Fund Balance / Net Assets shown on Change single line – Fund Balance information on statement not important here statement Journal entries summarize what is recorded in Journal worksheet – Change in Net Assets used as balancing account whenever necessary balancing #1a GCA Adjustment: #1a Capital Outlay [Page 576] [Page Change in Net Assets Expenditures – Capital Outlay – Expenditures Construction Construction Expenditures – Capital Outlay – Equipment 2,958,200 2,540,000 58,200 #1b GCA Adjustment: #1b Depreciation [Page 576] [Page Depreciation Expense – General Government Depreciation Expense – Public Safety Depreciation Expense – Highways & Streets Depreciation Expense – Health & Sanitation Depreciation Expense – Other Change in Net Assets 11,000 55,000 133,000 8,000 3,000 210,000 #1c GCA Adjustment: #1c Sale of GCA [Page 576] [Page OFS – GCA Sale Proceeds Gain on Sale of GCA Change in Net Assets 50,000 10,000 40,000 Notes on GCA Adjustments Notes Capital Capital outlay expenditures that do not meet capitalization threshold would be reclassified as functional expenses functional If capital outlay expenditures charged as If functional expenditures during the year, these would be deducted from those functional expenditures expenditures Information for depreciation comes from GCA Information schedule in notes schedule When adjusting sale proceeds to gain or loss Gain reported as General Revenues Loss reported as functional expense #2a & b GLTL Adjustments: #2a Bond Entries [Page 577] [Page OFS effects OFS – Bonds OFS – Premium on Bonds Change in Net Assets Expenditure effects Change in Net Assets Expenditures – Debt Service – Principal Retirement Expenditures – Debt Service – Bond Issue Costs 1,800,000 12,000 1,812,000 210,000 200,000 10,000 #2c GLTL Adjustments: #2c Interest [Page 577] Interest [Page Change in Net Assets Interest Expense Components of Adjustment Amortization of Premium Amortization of Bond Issue Costs Interest Payable adjustment Total adjustment 8,250 8,250 (4,000) 2,000. (6,250) (6,250 (8,250) #3 Other GLTL Adjustments [Page 578] [Page #3a Claims and Judgments Expenses – Public Safety Change in Net Assets #3b Compensated Absences Change in Net Assets Expenses – General Government Expenses – Public Safety Expenses – Highways & Streets Expenses – Health & Sanitation 10,000 10,000 8,000 2,500 3,000 1,500 1,000 Notes on GLTL Adjustments Notes All All bond-related items – OFS, OFU, and expenditures – are not expenses and must be eliminated eliminated Interest must be adjusted for amortizing Interest premiums, discounts, bond issue costs, deferred charges resulting from refundings, and accrual adjustment for interest accrued but not previously recognized since it wasn’t due previously Adjust for changes in GLTL items – claims & Adjust judgments and compensated absences – not previously recognized as expenditures previously #4 & #5 Other Adjustments [Page 578] [Page #4 Revenue recognition Change in Net Assets Revenues – Taxes #5 Transfers OFS – Transfer from GF OFS – Transfer from SRFs OFU – Transfer to CPFs OFU – Transfer to DSFs OFU – Transfer to GF 10,800 10,800 176,000 20,000 16,000 160,000 20,000 Notes on Other Adjustments Notes Revenue adjustment has two parts Increase Increase in revenues from deferral on Balance Sheet Conversion Worksheet Sheet Decrease in revenues for collections made in Decrease current year but recognized as revenues in previous year(s) previous Transfer Transfer adjustment similar to receivables and payables adjustment on Balance Sheet Conversion worksheet – does not affect change in fund balance affect Reconciliations Reconciliations Reconciliations Fund Fund Balance to Net Assets [Page 571] [Page Change in Fund Balance to Change in Net Assets [Page 579] [Page Tied directly to preceding adjustments Adjustment #5 on both worksheets has no effect Adjustment on Net Assets or Change in Net Assets on Reconciliations should be prepared at same time Reconciliations as the conversion worksheets as Business-Type Activities Adjustments Business-Type Enterprise Enterprise Funds and Business-Type Activities (BTAs) have same MFBA – simplifies adjustment process adjustment Principal adjustments Intra-EF Intra-EF receivables, payables, and transfers are eliminated eliminated Reclassification of some capital contributions as Reclassification transfers if from governmental activities transfers Netting of receivables & payables with Governmental Netting Funds as Internal Balances and netting transfers with Internal Governmental Funds Governmental ISF elimination Completion of Completion Statement of Net Assets Takes Takes data from GF Balance Sheet Conversion Worksheet and Enterprise Funds total column ( ± Worksheet adjustments) adjustments) Must demonstrate reconciliation of internal Must balances balances Calculate components of Net Assets Invested in Capital Assets, Net of Related Debt Restricted Net Assets Unrestricted Net Assets Completion of Completion Statement of Activities Takes Takes data from GF Balance Sheet Conversion Worksheet and Enterprise Funds total column ( ± Worksheet adjustments) adjustments) Transition process from worksheet typically Transition more complicated than Statement of Net Assets more Classification Classification of revenues as either program revenues or general revenues or Classification of program revenues to appropriate Classification functions functions Classification of grants and contributions as operating Classification or capital and program or general revenues or More on Reconciliations More Formal Formal reconciliations prepared once G-W statements are complete statements Governmental Funds reconciliations placement: Bottom of statement Separate page Enterprise Enterprise Funds reconciliations usually at bottom of respective statements bottom May present summary reconciliations in financial May statements with details in the notes statements The One-Worksheet Approach Approach Appendix 14-1 Broad Steps Broad 1. 2. 3. 4. 5. Addition of beginning balances of GCA Addition and GLTL accounts to Governmental Funds preclosing trial balance preclosing Capital assets-related adjustments and Capital conversions conversions Long-term liabilities-related adjustments Long-term and conversions and Other MFBA adjustments Elimination of interfund activities GCA Adjustments GCA Eliminate Eliminate capital outlay expenditures and record assets acquired record Eliminate OFS for the proceeds from sale Eliminate of capital assets, remove carrying value of assets sold or disposed of, and recognize gain or loss on sale or disposal gain Record depreciation expense GLTL Adjustments GLTL Eliminate Eliminate OFS/OFU from GLTL issuances and related expenditures for bond issue costs costs Eliminate expenditures for retirement of Eliminate GLTL principal GLTL Convert interest expenditures to interest Convert expense expense (a) Capital Outlay Expenditures (a) [Page 590] Construction in Progress Machinery & Equipment Expenditures – Capital Outlay – Expenditures Construction Construction Expenditures – Capital Outlay – Equipment 2,540,000 58,200 2,540,000 52,800 (b) Sales of Capital Assets [Page 590] [Page Other Financing Source – Proceeds from Sale of GCA Accumulated Depreciation – Machinery and Equipment Machinery and Equipment Gain on Sale of GCA 50,000 20,000 60,000 10,000 (c) Record Depreciation Expense (c) [Page 591] Expenses – General Government Expenses – Public Safety Expenses – Highways & Streets Expenses – Health & Sanitation Expenses – Other Accumulated Depreciation – Buildings Accumulated Depreciation – Accumulated Machinery & Equipment Machinery Accumulated Depreciation – Infrastructure 11,000 55,000 133,000 8,000 3,000 80,000 30,000 100,000 (d) Long-Term Debt Issues [Page 591] [Page (d) OFS – Bonds OFS – Bond Premium Deferred Bond Issue Costs Bonds Payable Premium on Bonds Expenditures – Debt Service – Bond Issue Costs 1,800,000 12,000 10,000 1,800,000 12,000 10,000 (e) Long-Term Debt Retirement (e) [Page 592] Bonds Payable Expenditures – Debt Service – Bond Principal Retirement 200,000 200,000 (f) Convert Interest Expenditures to Interest Expense [Page 592] [Page Net Assets Accrued Interest Payable on Bonds Accrued Interest Payable on Bonds Expenditures/Expense – Interest on Bonds Premium on Bonds Deferred Bond Issuance Costs Expenditures/Expense – Interest on Bonds 25,000 25,000 6,250 6,250 4,000 2,000 2,000 Special Notes on Interest Adjustment Special Some Some of expenditures for current year may be expenses in previous year may Must accrue interest incurred since last Must interest payment dates interest Basis of Accounting Adjustments Basis Convert Convert claims and judgments expenditures to expenses expenditures Convert compensated absences Convert expenditures to expenses expenditures Convert modified accrual tax revenues to Convert accrual basis tax revenues accrual (g) Claims & Judgments [Page 593] [Page Expenses – Public Safety Claims & Judgments Liability – Claims Long-Term Long-Term 10,000 10,000 (h) Compensated Absences [Page 593] [Page Compensated Absences Liability – Long-Term Expenses – General Government Expenses – Public Safety Expenses – Highways & Streets Expenses – Health & Sanitation 8,000 2,500 3,000 1,500 1,000 Notes on Pensions, Claims & Judgments, and Compensated Absences Adjustments Absences Increases Increases in GLTL will probably be expenses of current year expenses Decreases in GLTL may represent Decreases expenses in prior year and are already included in expenditures included Net change in GLTL may substitute for Net above changes as adjustments to current year expenses year (i) Converting Revenues [Page 594] [Page Deferred Tax Revenues Net Assets 20,000 Deferred Tax Revenues Revenues – Taxes 10,800 20,000 10,800 Notes on Converting Revenues Notes Year-end adjustments Part Part of balance could be revenues of a previous year previous Remaining balance could be revenues of Remaining current year current Revenues Revenues of current year may also include revenues of previous year revenues In any case, must assure that revenue In recognition criteria in GASB #33 are met recognition (j) Eliminate Interfund Receivables/ Payables and Transfers [Page 594] [Page Due to SRFs Due from General Fund Transfers from General Fund Transfers from SRFs Transfers to CPFs Transfers to DSFs Transfers to General Fund 1,000 1,000 176,000 20,000 16,000 160,000 20,000 Notes on Receivables, Notes Payables, & Transfers Receivables Receivables and payables between Governmental Activities and Business-Type Activities Activities Should Should be converted to Internal Balances Will cancel out on GW Statement of Net Assets Transfers Transfers between Governmental Activities and Business-Type Activities remain – will cancel out on GW Statement of Activities on (l) Complete the Worksheet (l) [Page 595] Fund Balance Net Assets 317,514 317,514 ...
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This note was uploaded on 10/17/2011 for the course ACCT 4325 taught by Professor Staff during the Spring '08 term at UT Arlington.

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