Learning Accounting for Governments and Not-for-Profits Learning Guide

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Rationale

UK generally accepted accounting principles

Learning Objects and Outcomes

Teaching and Learning Resources

Introduction to Accounting and Financial Reporting
Overview of Financial Reporting for State and Local Governments
Budgetary Accounting for General and Special Revenue Funds
Accounting for General and Special Revenue Funds
Proprietary Funds. Fiduciary Funds, Interfund Transactions
Government-Wide Statements, Fixed Assets, Long-Term Debt
Analysis of Governmental Financial Statements, GASB Accounting
Accounting for Not-for-Profit Organizations
College and University Accounting-Private Institutions
Accounting for Hospitals and Other Health-Care Providers
Governmental Auditing, the Single Audit Act, Tax Exempt Entities

Case Studies

Related Workshops

Learner Support

Recommended Text

Resources

Governmental Accounting--Funds, government operating statement accounts, budgetary accounting, principals, capital assets, capital projects, CAFR, and minimum basic financial statements

Assignments, Assessments

Assessment Regulations

Learning Centres

Accounting for Governments and Not-for-Profits

Rationale

Governmental Accounting is an umbrella term which refers to the various accounting systems used by various public sector entities. In the United States, for instance, there are three levels of government which follow different accounting standards set forth by independent, private-sector boards. At the federal level, the Federal Accounting Standards Advisory Board (FASAB) sets forth the accounting standards to follow. Similarly, there is the Governmental Accounting Standards Board (GASB) for state level government and Federal Accounting Standards Board (FASB) for local level government.

There is an important difference between private sector accounting and governmental accounting. The main reasons for this difference is the environment of the accounting system. In the government environment, public sector entities have differing goals, as opposed to the private sector entities' one main goal of gaining profit. Also, in government accounting, the entity has the responsibility of fiscal accountability, which is to demonstrate that it is in compliance in its use of resources in a budgetary context. In the private sector, the budget is just a tool in financial planning and it isn't mandatory to comply with it.

These two differences in environment have affected the governmental accounting system in three major ways.

First, the governmental accounting system uses the historic system of fund accounting, which is having a set of separate, self balancing accounts to account for resources that are used for a specific purpose based on regulations or limitations.

Second, the governmental accounting system has a different focus for measurement and basis of accounting. Rather than measuring the inflows and outflows of economic resources, governmental accounting measures the inflows and outflows of financial resources, which changes revenue and expense recognition. Rather than recognizing revenues when they are earned and expenses when they are incurred, revenues are recognized when there is money available to liquidate liabilities within the current accounting period and expenses are recognized when there is a drain on current resources.

Third, governmental financial statements must be accompanied by required supplementary information (RSI). The RSI is a comparison of the actual expenses compared to the original budget created at the beginning of the fiscal year.

A non-profit organization (abbreviated as NPO, also known as a not-for-profit organization[1]) is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals.[2] Examples of NPOs include charities (i.e. charitable organizations), trade unions, and public arts organizations. Most governments and government agencies meet this definition, but in most countries they are considered a separate type of organization and not counted as NPOs. They are in most countries exempt from income and property taxation.

See also

External links

UK generally accepted accounting principles

The Generally Accepted Accounting Principles in the UK, or UK GAAP, are the overall body of regulation establishing how company accounts must be prepared in the United Kingdom. This includes not only accounting standards, but also UK company law.

Accounting standards derive from a number of sources. The chief standard-setter is the Accounting Standards Board (ASB), which issues standards called Financial Reporting Standards (FRSs). The ASB is a private-sector organisation, funded by the accounting firms, and it replaced the Accounting Standards Committee (ASC), which was disbanded in 1990 following a number of criticisms of its work. To the extent that the ASC's pronouncements, known as Statements of Standard Accounting Practice (SSAPs), have not been replaced by FRSs, they remain in force.

The ASB has a formal exposure process for proposed standards. Early concepts are issued as Discussion Papers. These are released to the public and comments invited. Where a new standard is to be proposed, a Financial Reporting Exposure Draft (FRED) is released for comment. The standard in final form is only issued when comments have been incorporated or addressed. This aims to address the criticisms levelled at the ASC, whose comment process was less rigorous.

Issues that require an immediate solution are considered by the Urgent Issues Task Force (UITF). The UITF comprises a number of senior figures from industry and accounting firms. It meets as necessary to consider pressing issues and issues Abstracts which become binding immediately.

The principal legislation governing reporting in the UK is laid down in the Companies Act 1985 and the Companies Act 1989 (together often referred to as the Companies Act). The Companies Act sets out certain minimum reporting requirements for companies and, for example, requires private limited companies to make their accounts available to the general public.

From 2005, this framework is likely to change as a result of the European Commission requiring that all listed European companies report under International Accounting Standards instead of their existing accounting policies. The ASB has controversially issued eight FREDs during 2002 which may become part of UK GAAP before 2005. Additionally FRS 17, Pensions, and FRS 19, Deferred Tax, both issued in December 2000, had introduced new requirements that were inconsistent with IAS. These changes, part of the ASB's aim of setting the agenda on convergence to IAS, have been met with widespread criticism by UK industry. Industry leaders are concerned that as a result of these new standards UK GAAP will change significantly every year from 2002 through 2005.

See also

Generally Accepted Accounting Principles

Learning Objectives and Outcomes

This is a non-taught unit designed for self-directed study by those intending to enhance their professional or managerial competence, knowledge, understanding, and skills in business finance.

Knowledge

After completing the course, students will understand

1. Accounting and Financial Reporting concepts and standards

2. Financial Reporting for State and Local Governments

3. The pinciples of Budgetary Accounting for General and Special Revenue Funds

4. The principles of Proprietary Funds, Fiduciary Funds and Interfund Transactions

5. Government-Wide Statements, Fixed Assets and Long-Term Debt

6. Analysis of Governmental Financial Statements and GASB Accounting

7. Accounting for Not-for-Profit Organizations

8. College and University Accounting-Private Institutions

9. Accounting for Hospitals and Other Health-Care Providers

10. Governmental Auditing, the Single Audit Act, Tax Exempt Entities

Skills

After completing the course, students will be able to

1. Analyse Governmental Financial Statements

Today's Videos

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Teaching and Learning Resources

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Learning Contents

Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations

Tutorials

Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations

Readings

In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover. Some companies receive revenue from
interest, dividends or royalties paid to them by other companies.^[1] Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received during a period of time, as in "Last year, Company X had revenue of $42 million." Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted with the "bottom line" which denotes net income.^[2]

For non-profit organizations, annual revenue may be referred to as gross receipts.^[3] This revenue includes donations from individuals and corporations, support from government agencies, income from activities related to the organization's mission, and income from fundraising activities, membership dues, and financial investments such as stock shares in companies.

In general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales revenue or revenues is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers.

In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice or the rules established by a government or government agency. Two common accounting methods, cash basis accounting and accrual basis accounting, do not use the same process for measuring revenue. Corporations that offer shares for sale to the public are usually required by law to report revenue based on generally accepted accounting principles or International Financial Reporting Standards.

In a double-entry bookkeeping system, revenue accounts are general ledger accounts that are summarized periodically under the heading Revenue or Revenues on an income statement. Revenue account names describe the type of revenue, such as "Repair service revenue", "Rent revenue earned" or "Sales".^[4]

See also

External links

Measurement Focus and Basis of Accounting

Fund Structure

Internal Control Structure

Overview of Financial Reporting for State and Local Governments

Tutorials

Readings

Government financial statements are annual financial statements or reports for the year. The financial statements, in contrast to budget, present the revenue collected and amounts spent. The government financial statements usually include a statement of activities (similar to an income statement in the private sector), a balance sheet and often some type of reconciliation. Cash flow statements are often included to show the sources of the revenue and the destination of the expenses.

United States

In the United States, financial reporting in the federal government (national) must be in accordance with the Chief Financial Officer Act. The elements of financial reports are regulated by Office of Federal Financial Management. At the state and local level of the United States, the Government Accounting Standards Board (GASB) make the accounting and financial rules. A major change came in June 1999 when GASB introduced accrual and consolidated rules with fund accounting taking a secondary role.

United Kingdom

The Financial Reporting Manual (FReM) is the technical accounting guide that complements guidance on the handling of public funds published separately by the relevant authorities. The Manual is prepared following consultation with the Financial Reporting Advisory Board and is issued by the relevant authorities in England and Wales, Scotland and Northern Ireland.

Financial Reporting of State and Local Governments

References

Budgetary Accounting for General and Special Revenue Funds

Tutorials

Budgetary Accounting for General and Special Revenue Funds

Readings

Budgetary Accounting. A method of accounting in which the planned amounts and actual amounts spent and received are both included in the accounts, so that you can see at any time how much of the planned amount remains.

Budgetary Accounting in the Federal Government

Accounting for General and Special Revenue Funds. Accounting for Other Governmental Fund Types: Capital Projects, Debt Service, and Permanent

Tutorials

Readings

Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments. In this system, a fund is a self-balancing set of accounts, segregated for specific purposes in accordance with laws and regulations or special restrictions and limitations.^[1]

The label, fund accounting, has also been applied to investment accounting, portfolio accounting or securities accounting – all synonyms describing the process of accounting for a portfolio of investments such as securities, commodities and/or real estate held in an investment fund such as a mutual fund or hedge fund.^[2]^[3] Investment accounting, however, is a different system, unrelated to government and nonprofit fund accounting.

Overview

State and local government funds

Federal government funds

Nonprofit organizations

Basis of accounting and financial reporting

Fund accounting fiscal cycle (fictitious example)

See also

References

External links

John R. Throop (July 1, 2006). "Fund Accounting—Making sense of church finances". Christianity Today. Retrieved 2010-03-15.

State of Maryland Comprehensive Annual Financial Report, FY 2009 Example of financial statements prepared by a state government.

Tim Riley (December 5, 2009). The Accountancy Model See chapters 16–20 (p. 207–232) for a quick reference to journal entries and math useful for state and local government fund accounting. The "Funds Characteristics Tree" on p. 207 illustrates relationships between funds.

Statement of Federal Financial Accounting Concepts 5 Federal Accounting Standards Advisory Board (December 26, 2007). Definitions of elements and basic recognition criteria for accrual-basis financial statements for federal agencies.

For an example of nonprofit financial reporting, see the Consolidated Financial Statements of the American National Red Cross for the fiscal year ended June 30, 2009.

Proprietary Funds. Fiduciary Funds, Interfund Transactions.

Tutorials

Readings

Proprietary funds include the following.^[7]

Internal service funds are used for operations serving other funds or departments within a government on a cost-reimbursement basis. A printing shop, which takes orders for booklets and forms from other offices and is reimbursed for the cost of each order, would be a suitable application for an internal service fund.^[12]

Enterprise funds are used for services provided to the public on a user charge basis, similar to the operation of a commercial enterprise.^[13] Water and sewage utilities are common examples of government enterprises.^[14]

See also

Fiduciary funds are used to account for assets held in trust by the government for the benefit of individuals or other entities.^[15] The employee pension fund, created by the State of Maryland to provide retirment benefits for its employees, is an example of a fiduciary fund.^[13] Financial statements may further distinguish fiduciary funds as either trust or agency funds; a trust fund generally exists for a longer period of time than an agency fund.^[16]

A proprietary fund is an account in which certain transactions by the government and many nonprofit organizations are handled. The services that are accountable by these funds are not relative to the services that are considered to be entitled to their clients. Therefore, these accounts operate similar to a business model. The services that fit into a proprietary fund are grouped by similarities to evaluate their performance.

The Facts

Proprietary funds are accounts that are part of the accounting practices of a government and other nonprofit organizations. These funds call for the services rendered under these accounts to be paid for by their patrons who use them, basically working like a business. Although the model can result in a profit or loss for the company, most operating a proprietary fund aren't eligible to make a profit. Therefore, the ideal situation is for its costs to balance out with its revenue.

Benefits

Having a proprietary fund keeps track of services that are important but not a requirement to run a business. With the services depending on variables of consumption and other costs such as gas, food and wages, it's sensible for this fund to operate in a business manner. Also, by deferring the costs of providing service to the consumer who benefits from using them, it doesn't burden the taxpayer or company whose margin for operation can be minimal.

Government-wide Statements, Fixed Assets, Long-Term Debt

Tutorials and Readings

Readings

Overview

Governments currently prepare combined financial statements focusing on fund types rather than the government as a whole. GASB Statement No. 34 requires preparation of consolidated, government-wide financial statements. Government-wide statements consist of a statement of net assets* and a statement of activities * prepared using the economic resources measurement focus and the accrual basis of accounting. These statements will report all assets, liabilities, revenues and expenses of the primary government distinguishing between the governmental and business-type activities (note: school districts and BOCES are not permitted to use enterprise funds). Fiduciary activities will be excluded from the government-wide statements. Discretely presented component units, as determined in accordance with the provisions of GASB Statement No. 14, will be reported in a separate column to the right of the primary government.

*Examples from GASB Statement 34 included in this bulletin, copyright by the Governmental Accounting Standards Board, 401 Merritt 7, Norwalk, CT 06856 are reprinted by permission.

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Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts such as the UNSNA, NIPAs and the European System of Accounts (ESA). The concept dates back to the NBER studies of Simon Kuznets of capital formation in the 1930s, and standard measures for it were adopted in the 1950s. Statistically it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and "pure" households (excluding their unincorporated enterprises) less disposals of fixed assets. GFCF is a component of the expenditure on GDP, and thus shows something about how much of the new value added in the economy is invested rather than consumed.

GFCF is called "gross" because the measure does not make any adjustments to deduct the consumption of fixed capital (depreciation of fixed assets) from the investment figures. For the analysis of the development of the productive capital stock, it is important to measure the value of the acquisitions less disposals of fixed assets beyond replacement for obsolescence of existing assets due to normal wear and tear. "Net net fixed investment" excludes the depreciation of existing assets from the figures for new fixed investment, and is called net fixed capital formation.

Obviously GFCF is not a measure of total investment, because only the value of net additions to fixed assets is measured, and all kinds of financial assets are excluded, as well as stocks of inventories and other operating costs. If, for example, one examines a company balance sheet, it is easy to see that fixed assets are only one component of the total annual capital outlay.

The most important exclusion from GFCF is land sales and purchases. The original reason, leaving aside complex valuation problems involved in estimating the value of land in a standard way, was that if a piece of land is sold, the total amount of land already in existence, is not regarded as being increased thereby; all that happens is that the ownership of the same land changes. Therefore, only the value of land improvement is included in the GFCF measure as a net addition to wealth. In special cases, such as land reclamation from the sea, a river or a lake (e.g. a polder), new land can indeed be created and sold where it did not exist before, adding to fixed assets. The GFCF measure always applies to the resident enterprises of a national territory, and thus if e.g. oil exploration occurs in the open seas, the associated new fixed investment is allocated to the national territory in which the relevant enterprises are resident.

Data is usually provided by statistical agencies annually, but sometimes quarterly. Fluctuations in this indicator are often considered to show something about future business activity, business confidence and the pattern of economic growth. In times of economic uncertainty or recession, typically business investment in fixed assets will be reduced, since it ties up additional capital for a longer interval of time. with a risk that it will not pay itself off (and fixed assets may therefore also be scrapped faster). Conversely, in times of robust economic growth, fixed investment will increase across the board, because the observed market expansion makes it likely that such investment will be profitable in the future.

See also

Government debt (also known as public debt, national debt)^[1]^[2] is the debt owed by a central government. (In the U.S. and other federal states, "government debt" may also refer to the debt of a state or provincial government, municipal or local government.) By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year, that is, the increase of debt over a particular year.

Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions.

As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Sovereign debt usually refers to government debt that has been issued in a foreign currency. Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid.

See also

Government finance:

Specific:

General:

References

Economic survey of Belgium 2007: Securing the sustainability of fiscal policy in a rule-based system

External links

Databases

Public Debt Database A complete listing of all Public Debt securities issued by the United States Treasury and its predecessors between 1775 and 1976.
CLYPS dataset on public debt level and composition in Latin America

Analysis of Governmental Financial Statements, GASB Accounting for Special Purpose Entities, Accounting for Public Institutions of Higher Education

Tutorials

Analysis of Governmental Financial Statements, GASB Accounting for Special Purpose Entities, Accounting for Public Institutions of HE

Readings

A financial statement (or financial report) is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by accountants.

For a business enterprise, all the relevant financial information, presented in a structured manner and in a form easy to understand, are called the financial statements. They typically include four basic financial statements, accompanied by a management discussion and analysis:^[1]

Statement of Financial Position: also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time.

Statement of Comprehensive Income: also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time. A Profit & Loss statement provides information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.

Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period

Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities.

For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements^[2] and explanation of financial policies and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.

See also

References

^ "Presentation of Financial Statements" Standard IAS 1, International Accounting Standards Board. Accessed 24 June 2007.
^ http://www.svtuition.org/2011/08/corporate-financial-reporting.html
^ ^a ^b "The Framework for the Preparation and Presentation of Financial Statements" International Accounting Standards Board.

External links

Government financial statements

The rules for the recording, measurement and presentation of government financial statements may be different from those required for business and even for non-profit organizations. They may use either of two accounting methods: accrual accounting, or cash accounting, or a combination of the two (OCBOA). A complete set of chart of accounts is also used that is substantially different from the chart of a profit-oriented business

See also

Fund accounting

Summary of Statement No. 34

Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments

This Statement establishes new financial reporting requirements for state and local governments throughout the United States. When implemented, it will create new information and will restructure much of the information that governments have presented in the past. We developed these new requirements to make annual reports more comprehensive and easier to understand and use.

The GASB's first concepts Statement,* issued in 1987 after extensive due process, identifies what we believe are the most important objectives of financial reporting by governments. Some of those objectives reaffirm the importance of information that governments already include in their annual reports. Other objectives point to a need for new information. For this reason, this Statement requires governments to retain some of the information they currently report, but also requires them to reach beyond the familiar to new and different information. This Statement will result in reports that accomplish many of the objectives we emphasized in that concepts Statement.

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Accounting for Not-for-Profit Organizations

Tutorials

Accounting for Not-for-Profit Organizations

Readings

Non-Profit Making Organisations

Introduction

This resource aims to give students help with financial statements from non-profit making organisations including clubs and societies. The nature of these types of organisations means that students should also be able to understand the effect of life membership schemes and donations.

The resource is relevant to:

OCR: Module 2502, Final accounts
AQA: Module 5, Further aspects of financial accounting

What are non-profit making organisations? Are they businesses that make losses? Are they businesses that are run badly?

Non-profit making organisations are also known as 'not for profit' organisations and this is the name we give them simply because they want to do something or provide something rather than make more and more money.

What kind of organisations are we talking about that just want to do something rather than making money? Well, is there a Youth club near you? Or a Garden Society? Or a Working Men's Club? They are probably examples of non-profit making organisations. Here's a bigger list!

Associations
Clubs
Societies
Unions
Charities
Universities
Churches

Walk around town with your eyes open and you'll find loads of them!

College and University Accounting - Private Institutions

Tutorials

Readings

A public university is a university that is predominantly funded by public means through a national or subnational government, as opposed to private universities. A national university may or may not be considered a public university, depending on regions. In some regions of the world prominent public institutions are highly influential centers of research; many of these universities are ranked among the best in the world by THES - QS World University Rankings and the Academic Ranking of World Universities, including the University of Cambridge, University of California, Berkeley, Swiss Federal Institute of Technology Zurich, the University of Toronto, and Imperial College London.^[1]

The Development of Accounting Policies for the Further Education Sector

Accounting for Special Purpose Entities, including Public Colleges and Universities

See also

References

Accounting for Hospitals and Other Health-Care Providers

Tutorials

Readings

Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.

In contrast to financial accountancy information, management accounting information is:

primarily forward-looking, instead of historical;
model based with a degree of abstraction to support decision making generically, instead of case based;
designed and intended for use by managers within the organization
usually confidential and used by management, instead of publicly reported;
computed by reference to the needs of managers, often using management information systems

See also

External links

CAM-I Consortium for Advanced Manufacturing–International
AICPA Financial Management Center – Resource for CPAs working in business, industry and government.
Institute of Management Accountants – Resource for Management accountants (CMA's) working in industry.
Chartered Institute of Management Accountants – Chartered Institute of Management Accountants
[4] – International Federation of Accountants

A managerial accounting analysis of hospital costs

Variance analysis, an accounting technique, is applied to an eight-component model of hospital costs to determine the contribution each component makes to cost increases. The method is illustrated by application to data on total costs from 1950 to 1973 for all U.S. nongovernmental not-for-profit short-term general hospitals. The costs of a single hospital are analyzed and compared to the group costs. The potential uses and limitations of the method as a planning and research tool are discussed.

External links