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Essentials of Accounting for
Governmental and
Not-for-Profit Organizations
Chapter 8
Government-Wide Statements, Capital
Assets, Long-Term Debt
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of Chapter 8

Overview of entity-wide conversion
process




Example of conversion process
Reconciliation schedules
Fixed Assets
Long-term Debt
8-2
Overview of Entity-Wide
Conversion Process

Entity-wide statements are prepared at year end
by



converting government type funds to the accrual basis;
including inclusion of depreciation, long-term assets and
long-term liabilities,
Adding in the asset and liability balances from internal
service funds along with any income earned through
transactions with external parties,
consolidating fund statements (other than fiduciary funds).
8-3
Enterprise funds are entered
directly into the business
activities columns of the
government-wide statements.
Governmental funds are
converted to the Accrual
Basis and Economic
Resource Measurement
Focus through worksheet
entries and then appear in
the Governmental Activities
columns of the governmentwide statements.
Internal Service Funds are
added to Governmental
Activities through worksheet
entries.
Fiduciary
Funds are not
included in
governmentwide
8-4
Conversion Adjustments:
Capital Assets
1. Beginning of the year capital assets of governmental
activities (net of accumulated depreciation) are recorded
through worksheet entry.
2. The balance in “Capital expenditures” is eliminated and
replaced with assets acquired during the year .
3. Depreciation for the current period is recorded.
4. The balance in “Proceeds from sale of capital assets” is
eliminated, the assets and accumulated depreciation
are removed, and the resulting gain or loss is recorded.
8-5
Conversion Adjustments:
Capital Assets
1 Capital Assets (net)
Net assets(position) beginning of year
Dr.
2 Capital Assets (net)
Dr.
Cr.
Capital Expenditures
Cr.
3 Depreciation Expense
Capital Assets (net)
Dr.
4 Proceeds from sale of capital assets
Capital Assets (net)
Gain on sale of capital assets
Dr.
Cr.
Cr.
Cr.
8-6
Conversion Adjustments:
Long-Term Debt
1. Beginning of the year long-term liabilities of government
activities are recorded through worksheet entry.
2. Convert this year’s “bond proceeds” to bond liability (and
premium if applicable)
3. Eliminate balance in “expenditure - bond principal” and
reduce the balance of the liability
4. Amortize premium/discount on bonds
8-7
Conversion Adjustments:
Long-term Debt
1 Net assets(position) beginning of year
Bonds Payable
Dr.
2 Proceeds from sale of bonds
Dr.
Proceeds from bond premium
Bonds payable
Bond Premium
Cr.
Dr.
Cr.
Cr.
Dr.
3 Bonds payable
Expenditure - principle on bonds
4 Bond premium
Interest expense
Cr.
Cr.
Dr.
Cr.
8-8
Conversion Adjustments: Other
1.
Deferred Revenue = Property taxes deferred under the 60 day
rule may need to be recognized under the accrual basis (and
prior year’s accrual reversed)
2. Expenses not recorded in government funds under their current
economic resources model may need to be accrued (e.g. the
long-term portion of compensated absences )
3. Accrue interest on bonds outstanding and other accruals as
necessary
4. Eliminate interfund transfers
8-9
Conversion Adjustments:
Other
1. Deferred property taxes
Dr.
Property tax revenue
(current year deferred taxes)
Property tax revenue
Cr.
Dr.
Net assets(position) beginning of year
(reverse previous year deferred
taxes)
2. Expenditures
Liability for compensated absences
Cr.
Dr.
Cr.
8-10
Conversion Adjustments:
Other
3. Interest expense
Interest payable
(current year accrual)
Net Assets(position) –beginning of year
Interest expense
(prior year accrual – reversal)
4. Transfers In
Transfers out
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
8-11
What to Do with Internal Service
Funds

Internal Service Funds: Generally they are
included with the Governmental Activities.
However…

Although internal service funds are reported as proprietary funds, the
activities accounted for in them are usually more governmental than
business-type in nature. If enterprise funds are the predominant or only
participant in an internal service fund, however, the government should
report that internal service fund’s residual assets and liabilities with the
business-type activities.
(GASB 34)
8-12
Worksheet entries for internal service funds
included in governmental activities
1. Add Internal Service Fund’s Assets and Liabilities to the
Governmental Activities section of the Government-wide Statement
of Net Assets(position)
2. Income of the Internal Service Fund with entities external to the
governmental activities should be brought into the Statement of
Activities. Most commonly this is interest expense or investment income.
3. Reduce (increase) governmental expenditures by the amount of ISF
operating income (deficit)
4. Eliminate Interfund activities between the Internal Service Fund and
other Funds represented within Governmental Activities.
8-13
Worksheet entries:
Internal Service Funds
1. Cash
Due from other funds
Supplies Inventory
Capital Assets (net)
Dr.
Dr.
Dr.
Dr.
Accounts payable
Note payable
Net Assets(position)
This will be
eliminate against
“transfers out”
Cr.
Cr.
Cr.
2 Net Assets(position)
Investment income
Dr
3. Net Assets(position)
General government expenses
Dr.
4 Net Assets(position)
Transfers In
Dr.
Cr.
Cr.
Cr.
8-14
Government-wide Statements:
Statement of Net Assets
1.
Statement of Net Position required after 2013)
Statement of Activity
2.

No cash flow statement
8-15
Government-wide Statements:
Statement of Net Assets(Position)

Separate columns are presented for Government
and Business type activities (statements are
‘consolidated’ within columns)


Would have another column for component units if
the government has any (discretely presented).
Government Activities column includes government
type funds and (most) Internal service funds.

Fiduciary Assets and Liabilities are not included
8-16
Government-wide Statements:
Statement of Activities

Net cost approach:



Start with functional expenses less allocable program
revenues shows net cost.
From the net cost add general revenues, special items
and transfers to show the overall change in net
assets(position) for Governmental and Business type
activities.
Change plus beginning net assets(position) = ending
balance
(this should agree with Statement of Net Assets/Position)
8-17
Reconciliation of Governmental Fund Balances
to Government-Wide Net Assets/position



Starts with Government fund balances
Summarizes all the changes made to get entitywide governmental activities net assets(position)
Note typical reconciliation items include:




Addition of long-term assets (+)
Inclusion of ISF assets & liabilities (usually +)
Handling of deferred revenue as revenue instead of
as liability (+)
Addition of long-term liabilities (-)
8-18
Activity Statement Reconciliation


Reconciles changes in fund balances to changes in
net assets(position) for the governmental activities
(Shows difference in accrual vs. modified accrual)
Examples:






Excess of depreciation over capital outlay expenditures
Gain/loss on sale of assets vs. “proceeds”
Deferred revenue items treated as revenues under accrual
Difference in bond proceeds and retirements
Net Internal Service Fund profit from government funds
Bond premium amortization
8-19
Capital Assets: Record Keeping

While no specific method of keeping track of long-term assets is
required by GASB, obviously some type of records should be
kept on the cost, location, and life of all fixed assets in order to
support amounts reported in the government-wide statements.

Historically this was done in the General Fixed Asset Account
Group

An account group is merely a listing of balances of
capital assets
8-20
Capital Assets: Collections

Capitalized, exhaustible


Capitalized, inexhaustible


Record as asset and depreciate
Record as asset, do not depreciate
Noncapitalization option (reported as
expense if not capitalized)



Must be held for public exhibit, education or
research
Protected
Proceeds of any sale must be put back into other
collections
8-21
Capital Assets: Infrastructure


Examples include roads, bridges, drainage systems,
sewer systems, dams, lighting …
 Capitalization was optional before GASB 34
Once capitalized, governments may depreciation or
use “modified approach” which does not require
depreciation if assets adequately maintained
8-22
Modified Approach to
Infrastructure Accounting

To quality for the modified approach, a government must:
Maintain an inventory of infrastructure
 Do condition assessments every 3 years
 Estimate annual cost to maintain at target level
And,
 Document that target maintenance level is being met



Under the modified approach, the cost of maintaining
charged to expense rather than taking depreciation.

The cost to extend the life of existing assets is charged to
expense, rather than capitalized under either option
8-23
Long-Term Debt

Common Types:





Most general obligation bonds
Long-term lease obligation amounts
Compensated absence amounts
Claims and judgments
Landfill closure liabilities
8-24
Long-term Debt: Record Keeping


Similar to capital assets, some record must be
maintained of the balances and changes to
long-term liabilities.
Historically this was done in the General Longterm Debt Account Group

An account group is merely a listing of balances of
long-term liabilities
8-25
Long-Term Debt: Additional Reporting




Schedule of Changes in Long-Term Debt
 Shows difference in new debt vs. amount paid off.
Schedule of Debt Service Requirements to Maturity
 Helps users see any future ballooning of debt service
that may require tax increases.
Computation of Legal Debt Margin
 Shows additional debt that can be legally issued.
Schedule of Direct and Overlapping Debt
 Helps citizens see their total debt obligation.
8-26