Govt 4421 Ch2

Chapter Two

FUND ACCOUNTING

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Thought to Ponder: Chapter 2 “That government is best which governs the least, because its people discipline themselves”

Henry David Thoreau

Chapter 2

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Learning Objectives

After studying Chapter 2, you should understand: The nature of funds The hierarchy classification of fund balances The three basic fund types of a state or local government: -Governmental funds, -Proprietary funds, and -Fiduciary funds

The main components of a CAFR The primary F/S issued by governments The difference between the “current” and the “old” accounting models.

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Business

One company

“Fund” used as an informal term (multiple meanings)

May refer to working capital (current net assets) May refer to cash or investments available May have other definitions

The company is a single fiscal and accounting entity A = L + E (“E” usually called “Owners’ Equity”)

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Governmental

Multiple “entities” --“Fund” used as a formal term (single meaning) “A fiscal and an accounting entity with a selfbalancing set of accounts.” Each fund is like its own “entity” --In other words, a fund is an entity with its own set of books (i.e., chart of accounts , general journal, general ledger, trial balances, and financial statements) Fund accounting uses the equation: Assets = Liabilities + Fund balance (often referred to as net assets)

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GASB Statement No. 54

In February 2009, the GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, to improve the usefulness, and understandability of governmental fund balance information.

– The statement is effective for years beginning after June 15, 2010. (i.e. June 30, 2011 year ends)

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Brief Summary

• Fund balances of governmental type funds are now to be reported based on a hierarchy in five different classifications: –...