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Unformatted text preview: CHAPTER 16 UNDERSTANDING THE ISSUES 1. Capital projects funds are used to account for the inflows and outflows of financial resources raised and expended to acquire major capital assets used by the general government. This accounting is in ac- cordance with the flows of financial resources meas- urement focus adopted for governmental funds. Fixed assets acquired with proceeds from general obligation bonds are accounted for in the general fixed assets account group subsequent to acquisi- tion. 2. Closing of a capital projects fund at the end of a period is desirable to adjust and balance the fund accounts for the annual preparation of the financial statements. As part of this process, the fund bal- ance, unreserved, undesignated is determined. This amount is the balance available for completion of the project. Also, the total amount of expenditures on a project is determined, which is recorded in the gen- eral fixed assets account group as the cost of a com- pleted asset or as Construction in Progress. 3. Capital special assessments are levied in in- stallments to provide more time over which to spread collections. Only the portion available in the current period is recognized as revenue. Recognition of rev- enue must be deferred for those installments to be collected in future periods. 4. The due date and amounts of principal and in- terest payments are known. No useful data would be produced by using budgetary accounts. 5. Revenue (control) would be credited if re- sources were received from a source outside of the governmental unit that need not be repaid. An ex- ample is a property tax levy. If repayment is re- quired, as in the case of a bond issue, the credit is to Other Financing Sources (control). The latter ac- count is also used for amounts received from other funds of the same governmental unit if that unit had previously recorded the resources as revenue. The procedure prevents recognizing the same resources twice as revenue. 6. Both funds account for public purpose trusts. If the resources and any earnings on investments can be used to finance government programs, then a special revenue fund is used. If only the earnings can be spent, a permanent fund is used. 7. Two major types of interfund transfers are oper- ating transfers and equity transfers. Operating trans- fers are of a frequent and recurring nature and re- cord billings for goods or services provided, or trans- fers between funds for such items as debt servicing, financing of specific programs, or funding of major construction projects. Equity transfers are infrequent and often nonrecurring. These transfers are often in conjunction with the initiating or closing of a fund. Operating or equity transfers between governmental funds use other financing sources and other finan- cing uses accounts. Operating transfers between proprietary funds and governmental funds or between two proprietary funds are recorded as rev- enues and expenditures/expenses. Equity transfers enues and expenditures/expenses....
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- Spring '08