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 A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial
resources, together with all other related liabilities and residual equities or balances, and changes therein.
Fund resources are segregated for the purposes of carrying out specific activities (e.g. water and sewer
operations) or attaining certain objectives (e.g. providing drinking water and wastewater management
services to customers).

 Fund accounting enables service and mission-driven organizations to easily monitor compliance with spending
purpose (legal restrictions), spending limits (budget and financial control), and other fiscal accountability
objectives.

 Governmental (and not for profit) organization reporting is designed to demonstrate the accountability of
each organization for the stewardship of the resources in their care. Governments do not measure net income
or increase in wealth as business do, but are focused on providing efficient and effective delivery of service
with public resources. Both operational and fiscal accountability are important to the financial reporting

 Wages and salaries are example of object classification. This is the most specific classification in the hierarchy
and represents the chart of accounts title. Expenditure of government resources should be classified by object
classes, according to the type of items purchased or services obtained.

 An agency fund is custodian in nature. Transactions for which the governmental unit has no direct
responsibility but simply is acting as an agent for third party are recorded in the agency fund.

 Restricted fund balances represent resources whose use has been limited by external sources such as Creditors
(e.g. debt covenants), contributors, other governments, laws, constitutional provisions or enabling legislation

 If expenditure incurred for specific purposes exceed the amount restricted, committed or assigned to those
purposes, it may be necessary to report negative unassigned fund balance

 If encumbrance don’t lapse at year end, and are considered material, the aggregate amount disclosed in the
notes to the financial statements.

 Permanent fund are used to account for principal that is restricted and may not be expended. Earnings may
be used for purposes that benefit the public.

 Accounting and reporting for proprietary funds is similar to accounting and reporting of business enterprise.
Thus full accrual basis of accounting is used and measurement focus is on net income and capital maintenance.

 The incremental portion of current rates (increased prices for specific purposes) established at a level
adequate to recover costs that are expected to be incurred in the future would be displayed as deferred inflow
of resources.

 Receiving state appropriations represents a non-exchange transaction and will be treated as non-operating
revenue. Operating grants and subsidies represent non-exchange transactions that are not derived from
operations. They are treated as non-operating revenue.

 The property retained by government a general capital asset in the governmental activities column of
government-wide statement of net position and is capitalized at lower of cost or market value

 An enterprise fund is used to account for operations financed and operated in a manner similar to private
business enterprise. This fund is also used for governmental facilities and services intended to primarily (>50%)
self-supported by user charges.

 Changes in government’s pension liability that result from changes in actuarial assumptions are accounted for
as deferred outflows and deferred inflows. The reduction in the liability is a deferred inflow presented
between liabilities and net position on the statement of net position.
 When serial bonds are serviced through debt service fund with cash provided by the general fund, the debt
service fund should report cash receipts as “Transfers’ (other financing sources) and cash payments as
“operating expenditures”

 The purchase method initially records additions to inventory as an expenditure and then establishes inventory
balances and related non-spendable fund balance amounts based on physical counts and valuations at year
end

 The state grant would be reported as revenue in the capital projects fund, and the transfer from the general
fund wouldn’t (it would be recorded as “other financing source” and not as revenue). The receivable
associated with capital project assumes revenue have been earned by either incurring eligible capital outlay
expenditures or by satisfaction of other pertinent grant requirements prior to accruing the receivable.

 Inventories are considered non-spendable. Non-spendable fund balances represent resources in a form that
cannot be spent (e.g. inventories or prepaid expenditures) or legally or contractually required to be maintained
whole (e.g. permanent fund principal)

 Relevance means information must bear a logical relationship with the needs for its purpose. It must also be
reliable. The achievement of this reporting objectives is more difficult to establish that it is to demonstrate
consistency (adherence to consistent application of GAAP from year to year) or comparability (the use of GAAP
in a manner comparable to other governments). The timeliness objective requires that reports be issued early
enough to facilitate timely decisions. The timeliness of reporting is relatively easy to demonstrate.

 Government fund must present their statement of financial position in a balance sheet rather than net position
format. A balance sheet format sets assets and deferred outflows of resources equal to liabilities and deferred
inflow of resources plus fund balance.

 IRC Section 457, deferred compensation plans for other than proprietary fund employees, should be reported
in a pension (and other employee benefit) trust fund

 Unassigned fund is the residual classification for the general fund. This classification represents fund balance
that has not been assigned to other funds and has not been restricted, committed or assigned to specific
purposes within general fund.

 The gift will be accounted for in permanent fund. Permanent funds are used to report resources that are legally
restricted to the extent of income, and not principal, may be used for purposes supporting the reporting
government’s programs for the benefit of the public. The library is to be supported by gift endowment and
the library is intended to support the needs of the general community, not a specifically identified individual.

 A local governmental unit could have funds using both the “accrual basis” and the “modified accrual basis” of
accounting. The governmental funds (GRaSPP) are required to use Modified accrual, while proprietary and
fiduciary funds (SE PAPI) are required to use accrual basis.

 Derivative will qualify for hedge accounting treatment (changes in value are presented as either deferred
outflows of resources or deferred inflow of resources) if they are effective. High effectiveness describes the
high degree to which fluctuations in the fair value or cash flow of a hedge and a hedged item offset.

 For purposes of government-wide financial statements, internal service funds are normally reported in the
governmental activities column of the government wide statement of net position and statement of activities
since they are generally established to service the governmental funds

 Encumbrance are commitments or assignment of fund balance representing the amount of unperformed
contracts for goods or services. Encumbrances at the yearend do not constitute expenditure or liabilities.
Therefore, at year-end encumbrances are reclassified as a commitment of assignment of fund balance that is
not appropriate for expenditure.

 A special assessment is accounted for in the fund most appropriate for the transaction unless the government
has no obligation relative to the assessment. In this case, the bonds are issued by the city and are payable
 from a pledge of special assessment proceeds specifically levied for debt repayment. The special assessment
is accounted for in the debt service fund in order to account for the accumulation of resources to repay debt.

 An exchange transaction is a reciprocal transfer in which each party receives and sacrifices something of
approximately equal value. A non-exchange transaction involves giving/receiving value without
receiving/giving equal value in return. With an exchange transaction, there is bargained value in transaction,
with a non-exchange transaction there is no bargained value or arms’ length transaction.

 Pension expense includes the effect of changes in the employer’s net pension liability (except for deferred
outflows/inflows of resources). The government should recognize the effect of change in benefits in pension
expense immediately to the extent that a change is attributable to prior service and amortize the balance over
the remaining service life of the affected individuals.

 Standalone business-type activities are accounted for an enterprise fund and would include both basic
financial statements and required supplementary information consistent with GASB # 34 guidance. Enterprise
fund often used for utilities, and the required financial statements will be statement of net position (balance
sheet), statement of revenue, expenses, and changes in net position (income statement), statement of cash
flows, and footnotes. In addition, Management’s Discussion and Analysis (MD&A) and required supplementary
information (RSI) must also be included. An enterprise fund may be used to account for the provision of goods
and services that are financed mainly by user charges. The fund financial statements and “government-wide”
financial statements would be identical so they would only be presented once.

 Fiduciary fund must present their statement of financial position in a net position format i.e. Assets and
deferred outflow of resources minus liabilities and deferred inflow of resources equals net position. A balance
sheet format (Contra to net position format) sets assets and deferred outflow of resources equal to liabilities
and deferred inflow of resources plus fund balance. A net position shows assets owned by the entity (assets
and deferred outflows) minus resources owned by the entity (liabilities and deferred inflows) equal to net
position

 The most restrictive classification of governmental funds is the “Committed” classification. Committed funds
are internally limited by formal action of the government’s highest level of decision-making authority.

 Separate fund financial statement should be presented for governmental and proprietary funds to report
additional and detailed information about the primary government

 For state and local government units, GAAP require that encumbrances outstanding at the year-end be
reported as a component of committed or assigned fund balance so that funds will be available when goods
and/or services are received

 A balanced budget demonstrate inter-period equity. Inter-period equity is a significant part of accountability
on behalf of governmental entity. It helps users assess whether current year revenue are sufficient to pay for
the services provided that year and whether future taxpayers will be required to assume burdens for services
previously provided.

 A statement of cash flow must be presented for all proprietary funds as part of a set of financial statements.
This requirement is apply to both public benefit corporations and governmental utilities.
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 Government wide financial statement focus on the operational accountability of the government. Operational
accountability takes an economic view that reports on the long-term efficient and effective use of resources.
Fiscal accountability takes a short-term view that focuses the reader on compliance and current year
performance.

 The value of contributed services should be recorded as both a contribution and an expense if the services
performed are normal part of program or supporting services and would other be performed by salaried
personnel. Donor-imposed restrictions that are met in the same period they are received may be recorded as
unrestricted support (contribution revenue), provided that the organization discloses and consistently applies
the accounting policy.

 A CAFR (comprehensive annual financial report) divided into three sections: Introductory, Financial, and
Statistical. The statistical section isn’t part of Basic Financial Statement.

 Depreciation is reported as an element of expenses in not for profit organization’s Statement of Activities not
as a separate component of change in equity presentation.

 Reciprocal interfund activity includes interfund loans and interfund services provided and used. Non-reciprocal
transfers include interfund transfers (which are displayed as either other financing sources or uses on the
governmental fund financial statements or purely as transfers in proprietary fund financial statement) and
interfund reimbursements (which are not shown on the face of financial statement)

 The criteria for determining major funds includes qualification as to revenue, expenditures/expenses, assets,
or liabilities that are at least 10 percent of the associated total for all governmental OR enterprise (as
appropriate) AND at least 5 percent of the total of the associated totals for ALL governmental AND enterprise
funds.

 The reconciliation of governmental fund financial statements to government-wide presentation would be

found on either the face of the financial statements or in accompanying schedules with expended disclosure
in the notes to financial statements, both of which are components of Basic Financial Statements defined by
GASB # 34.

 The MD&A is part of required supplementary information and is meant to introduce the basic financial
statements and provide an analytical overview of the government’s financial activities. The MD&A may include
objective analysis of current conditions, comparison of prior and current year activities and significant results
reported in fund financial statement. Reconciliation of the fund financial statements and government-wide
financial statements wouldn’t be included in the MD&A.

 Fiduciary activities are excluded from government-wide financial statements. Transactions with fiduciary
funds are treated as if those transactions were conducted with an independent trustee for purposes of display
in govt-wide FS.

 Not for Profit corporations are required to produce the following financial statements: Statement of Financial
Position, Statement of Activities and Statement of Cash Flows. They are also encouraged but not required to
prepare statement of Functional expenses.

 The modified approach allows government to not report depreciation expense for eligible infrastructure assets
if (a) the government manages the eligible infrastructure asset using an asset management system that
possesses certain characteristics and (b) documents that the eligible infrastructure assets are being preserved
at (or above) a condition level established by the government. The government report the assessed condition
of infrastructure every three years and annual amount to maintain and preserve the condition level
established and disclosed.

 Investing activities in statement of cash flows should include proceeds from the long lived assets or insurance
proceeds associated with loss of long lived assets. Entities that don’t capitalize their permanent collections
display insurance proceeds from lost, stolen or damaged items on the statement of activities in an appropriate
 change in net asset clarification separate from revenue, expenses, gains and losses. Investing activities include
making and collecting loans and acquiring and disposing of debt or equity instruments including interest and
dividend income. Non capital financing activities include borrowing for noncapital purposes as well as cash
receipts from grants or subsidies, property taxes, internal transfers, etc.

 Government wide financial statement should classify net assets as: Net investment in capital assets, Restricted
and Unrestricted. Community helpers never received unrestricted contribution revenue from the bequest.

 Financial statements prepared in accordance with the provision of GASB # 34 will include: government-wide
financial statements prepared using accrual basis of accounting, fund financial statements, note to the
financial statements and required supplementary information that encompasses a letter titled
“management’s discussion & analysis,” and budget versus actual comparison including display of the originally
adopted budget and the changes that resulted in the final amended budget.

 Beneficiaries recognize an interest in net assets of the recipient when organizations are financially
interrelated. both grants to other organizations and depreciation are recorded as expenses in not for profit
organization

 The data from GRaSPP and S funds would appear in the governmental activities column of a government’s
government-wide financial statements. The GRaSPP S funds include the General, Special Revenue, Debt
Service, Capital Project, Permanent and Internal Service funds. Debt Service funds are included, while the
remaining funds, all fiduciary wouldn’t appear in the government wide financial statements at all.

 In order for not for profit organizations to be financially interrelated as defined by FASB ASC 958-605, their
relationship must share both characteristics: one organization must be able to influence operating and
financial decisions of other AND have an ongoing economic interest in the net assets of the other.

 Gain or losses on disposal of government operations are displayed as a special item by the disposing
government. Good faith deposits associated with conditional promises would be recorded as liability titled
“refundable advance”

 Donated works of art meeting certain criteria are eligible for optional capitalization at the election of
government receiving the works of art and depreciation isn’t required even if government elects to capitalize.
To qualify for this treatment, the works of art must be held for public exhibition, be protected/unencumbered
and proceeds from the sale of any of the works must be reinvested in more works of art.

 When government-wide financial statements are prepared for a governmental entity, interfund receivables
and payables that occur between funds categorized as governmental activities and funds classified as business
type activities should be reported as internal balances and aligned so that they sum to zero on the financial
statements. They are not eliminated from individual fund activities prior to preparation of government-wide
financial statements.

 When special assessment debt is to be repaid from general resources of the government, the debt should be
recorded as general long term liabilities in the governmental activities column of government-wide financial
statement of net position. Any debt that is to be repaid from general resources would be displayed in this way.

 Program service expenses included charges associated with the activities of which the organization is
chartered. Teacher salaries, for an educational organization, would be program expense. Expenses not related
to program services, support services, include publicity costs (e.g. membership development), management
and general expenses (e.g. management salaries) and fundraising expenses.

 Fund received by a college from donors who have stipulated that the principal is nonexpendable but that
income generated may be expended by current operating funds would be accounted for in endowment fund.

 Donated services are recorded at fair value if they create/enhance a non-financial asset or the required
specialized skills the provider possesses and would otherwise have been purchased by the organization
receiving the services.
 The recognition of depreciation expense on depreciable assets is always displayed in the externally published
financial statements of “private not-for-profit colleges,” but not always required for “public colleges” in their
externally published fund financial statements. Although public universities may use a proprietary fund model,
they may also use a fund model that precludes the recognition of depreciation in the fund financial statements.
Depreciation expense would be eligible for recognition in the government-wide financial statements
regardless of the model used.

 The reporting status of governmental unit is determined by whether it can stand-alone by it SELF based on
following organizational characteristics: Separately, Elected Governing Body, Legally separate entity, and
Financially independent status

 Quasi-endowment funds account for assets that have been internally designated by the institution for specific
purpose. Quasi-endowment funds would be displayed as unrestricted net assets on externally published
financial statements.

 Major fund treatment for purposes of fund financial statement presentation requires that a fund be both 10%
of its fund category’s assets, revenues, or expenditures/expenses and 5% of the combined governmental and
enterprise assets, revenues and expenditures/expenses.

 Unassigned fund balance represents the amount of current resources carried forward into the following year
that will be available for appropriations. Assuming there are no encumbrances at year end and expenditures
were less than appropriations, any commitment or assignment of fund balance for encumbrances would be
released and unassigned fund balance would increased

 Only donors can restrict contributions. Internal board designated funds are considered unrestricted

 The original budget is needed to prepare the budgetary comparison schedules for a local government.
Budgetary comparison schedule must show the original budget, the final amended budget, and actual
amounts. Variance computations and process descriptions are optional.

 Permanent funds are used to report resources that are legally restricted to the extent that income, and not
principal, may be used for purposes that support the reporting government's programs. Enterprise funds are set
up to account for the acquisition and operation of governmental facilities and services that are intended to be
primarily self- supported by user charges.

 To reconcile the change in Fund Balance of Governmental Funds to the change in Net Position of
Governmental Activities on the government-wide financial statements, follow the GOES BARE mnemonic. For
differences between changes in fund balance per fund financial statements and changes in net position per
governmental activities on government-wide financial statements related to measurement focus:
o Add governmental changes in fund balances.
o Subtract other financing sources associated with new debt proceeds or capital leases.
o Add expenditures related to capital outlay in excess of depreciation and add expenditures related to
debt service principal.
o Add/subtract internal service fund change in net position activity.
o For differences between changes in fund balance per fund financial statements and changes in net
position per governmental activities on government-wide financial statements related to basis of
accounting
o Add additional accrued revenue associated with earnings recognized under accrual vs. modified
accrual basis.
o Subtract additional accrued expenses recognized under accrual vs. modified accrual basis.