4/28/2016 1 TODAY’S TOPICS 1. MODIFIED VS. FULLACCRUAL 2. YEAR END CLOSING PROCEDURES 3. CASH RECONCILIATION 4. MAJOR FUND DETERMINATION 5. FINANCIAL REPORTING 2 MODIFIED VERSES FULL ACCRUAL ACCOUNTING FULL ACCRUAL ACCRUAL ACCOUNTING ATTEMPTS TO RECORD THE FINANCIAL EFFECTS ON AN ENTERPRISE OF TRANSACTIONS AND OTHER EVENTS AND CIRCUMSTANCES THAT HAVE CASH CONSEQUENCES FOR AN ENTERPRISE IN THE PERIODS IN WHICH THOSE TRANSACTIONS, EVENTS, AND CIRCUMSTANCES OCCUR RATHER THAN ONLY IN THE PERIODS IN WHICH CASH IS RECEIVED OR PAID BY THE ENTERPRISE. 3 1
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL ‐ CONT ACCRUAL ACCOUNTING IS CONCERNED WITH THE PROCESS BY WHICH CASH EXPENDED ON RESOURCES AND ACTIVITIES IS RETURNED AS MORE (OR PERHAPS LESS) CASH TO THE ENTERPRISE, NOT JUST WITH THE BEGINNING AND END OF THAT PROCESS. 4 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL BASIC PRECEPTS : RECOGNIZES EXPENSES NOT EXPENDITURES REVENUES ARE RECOGNIZED IN THE PERIOD IN WHICH THEY ARE BOTH MEASURABLE AND EARNED EXPENSES, IF MEASURABLE, ARE RECOGNIZED IN THE PERIOD INCURRED 5 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL – CONT. BASIC PRECEPTS – CONT: REVENUES ARE CONSIDERED “EARNED” WHEN THE GOODS OR SERVICES ARE PROVIDED REVENUES ARE CONSIDERED “MEASURABLE” IF A REASONABLE ESTIMATE CAN BE PROVIDED EXPENSES ARE CONSIDERED MEASUREABLE AS SOON AS A COST IS INCURRED 6 2
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL – CONT. BASIC PRECEPTS – CONT: ITS USE RESULTS IN A MEASUREMENT THAT RECORDS THE SUBSTANCE OF TRANSACTIONS, NOT MERELY CASH INFLOW OR OUTFLOWS RECOGNIZES NONCASH TRANSACTIONS AT THE TIME THEY OCCUR (ACCRUALS, DEFERRALS, ALLOCATIONS AND AMORTIZATIONS) 7 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL – CONT. BASIC PRECEPTS – CONT: RECORDS AND ALLOCATES REVENUES & EXPENSES PROPERLY AMONG FISCAL PERIODS (INVENTORIES, PREPAID EXPENSES, FIXED ASSETS, ACCRUED LIABILITIES, DEBT) RECORDING ACCRUED LIABILITIES IS VALUABLE IN ACHIEVING A RELIABLE INDICATOR OF FINANCIAL POSITION & RESULTS OF OPERATIONS. 8 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL – CONT. BASIC PRECEPTS – CONT: FINANCIAL POSITION IS MORE ACCURATELY DISPLAYED BECAUSE ALL ASSETS AND LIABILITIES ARE KNOWN RESULTS OF OPERATIONS ARE MORE REALISTIC BECAUSE ALL KNOWN COSTS ARE INCURRED AND ALL REVENUES EARNED ARE RECORDED MEASUREMENT FOCUS IS ON THE FLOW OF ECONOMIC RESOURCES 9 3
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. FULL ACCRUAL – CONT. BASIC PRECEPTS – CONT: IT IS NOT USEFUL FOR CASH-FLOW MANAGEMENT, IN FACT IT MAY HIDE CASH-FLOW PROBLEMS. AS A RESULT, FULL ACCRUAL BASIS FINANCIAL STATEMENTS ARE NORMALLY ACCOMPANIED BY STATEMENTS OF CASH FLOWS 10 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. MODIFIED ACCRUAL THE MAJOR DIFFERENCES IN APPLYING THE ACCRUAL CONCEPT IN GOVERNMENTAL FUND ACCOUNTING, AS OPPOSED TO PROPRIETARY FUND AND COMMERCIAL ACCOUNTING, RELATE TO DIFFERENCES IN THE ENVIRONMENT AND IN THE ACCOUNTING MEASUREMENT OBJECTIVES. 11 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. MODIFIED ACCRUAL – CONT. MODIFICATIONS AND ADAPTIONS FOR THE PRACTICAL AND APPROPRIATE IMPLEMENTATION OF THE ACCRUAL CONCEPT IN GOVERNMENTAL FUND ACCOUNTING ARE BEST REFERRED TO AS THE “MODIFIED ACCRUAL BASIS” AND SHOULD BE APPLIED IN ALL GOVERNMENTAL FUND ACCOUNTING AND REPORTING 12 4
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. MODIFIED ACCRUAL – CONT. BASIC PRECEPTS : RECOGNIZES EXPENDITURES NOT EXPENSES REVENUES ARE RECOGNIZED IN THE PERIOD IN WHICH THEY BECOME SUSEPTIBLE TO ACCRUAL, THAT IS WHEN THE ARE BOTH MEASURABLE AND AVAILABLE EXPENDITURES, IF MEASURABLE, ARE RECOGNIZED IN THE PERIOD INCURRED 13 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. MODIFIED ACCRUAL ‐ CONT BASIC PRECEPTS – CONT: REVENUES ARE CONSIDERED “MEASURABLE” IF A REASONABLE ESTIMATE CAN BE PROVIDED REVENUES ARE AVAILABLE IF THEY ARE COLLECTIBLE WITHIN THE CURRENT PERIOD OR SOON ENOUGH THEREAFTER TO BE USED TO PAY LIABILITIES OF THE CURRENT PERIOD 14 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. MODIFIED ACCRUAL ‐ CONT BASIC PRECEPTS – CONT: EXPENDITURES ARE CONSIDERED MEASUREABLE AS SOON AS A COST IS INCURRED MEASUREMENT FOCUS IS ON THE FLOW OF CURRENT FINANCIAL RESOURCES ATTEMPTS TO MATCH CURRENT RESOURCES WITH CURRENT COSTS 15 5
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. CASH BASIS BASIC PRECEPTS: SIMPLEST TO ACCOMPLISH BUT PROVIDES THE LEAST DISCLOSURE MEASUREMENT FOCUS IS ON THE FLOW OF CASH RESOURCES IS CONSIDERED A BASIS OF ACCOUNTING OTHER THAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 16 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. PRACTICAL DIFFERENCES: • RECEIPT OF LONG-TERM DEBT PROCEEDS • REPAYMENT OF THE PRINCIPAL OF LONG-TERM DEBT • CAPITAL ACQUISITION • EXHAUSTION OF CAPITAL ASSETS • DEFERRALS AND AMORTIZATIONS 17 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. ILLUSTRATIVE ENTRIES RECEIPT OF LONG-TERM DEBT PROCEEDS: PROPRIETARY FUNDS: DR CR CASH $20,000 BONDS PAYABLE $20,000 GOVERNMENTAL FUNDS: CASH $20,000 OTHER FINANCES SOURCES $20,000 18 6
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. ILLUSTRATIVE ENTRIES – CONT. REPAYMENT OF THE PRINCIPAL OF LONG-TERM DEBT: PROPRIETARY FUNDS: DR CR BONDS PAYABLE $5,000 INTEREST EXPENSE 300 CASH $5,300 GOVERNMENTAL FUNDS: EXPENDITURE- BOND PRIN. $5,000 EXPENDITURE-BOND INTEREST 300 CASH $5,300 19 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. ILLUSTRATIVE ENTRIES – CONT. CAPITAL ACQUISITION: DR CR PROPRIETARY FUNDS: EQUIPMENT $20,000 CASH $20,000 GOVERNMENTAL FUNDS: EXPENDITURE- CAP. OUT. $20,000 CASH $20,000 20 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. ILLUSTRATIVE ENTRIES - CONT PROPRIETARY FUNDS: DR CR DEPRECIATION EXPENSE $2,000 ACCUMULATED DEPRECIATION $2,000 GOVERNMENTAL FUNDS: DEPRECIATION IS NOT RECORDED 21 7
4/28/2016 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. ILLUSTRATIVE ENTRIES- CONT. DEFERRALS AND AMORTIZATIONS: PROPRIETARY FUNDS: DR CR DEFERRED CHARGES $26,000 CASH $26,000 AMORTIZATIONS EXPENSE $2,000 DEFERRED CHARGES $2,000 22 MODIFIED VERSES FULL ACCRUAL ACCOUNTING – CONT. ILLUSTRATIVE ENTRIES- CONT. GOVERNMENTAL FUNDS: DR CR EXPENDITURE - ISSUE COSTS $26,000 CASH $26,000 23 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES GENERAL 1. Review year ‐ end budget to actual expenditure report for budget overdrafts. Cover budget overdrafts by a resolution of the governing body authorizing the transfer of appropriations per Section 7 ‐ 6 ‐ 4031, MCA. However, total budget appropriations should remain the same within each fund as amended by resolution . 24 8
4/28/2016 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES ‐ cont. 2. Verify that Transfers In (383XXX) equal Transfers Out (521XXX) within all funds. 3. Verify that interfund loans receivable (131XXX – short ‐ term 133XXX – long ‐ term) equal interfund loans payable (211XXX – short ‐ term or 233XXX – long ‐ term). 4. Verify that the trial balance for each fund is in balance . 25 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES ‐ cont. 5. Verify that the expenditure detail is equal to the expenditure control (242000), and that the revenue detail is equal to the revenue control (172000) in those systems where control accounts are used. 26 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES ‐ cont. 6. Taxes/Assessments Receivable A. Reconcile all taxes/assessment receivable accounts (11XXX) with the County Treasurer’s receivables, including protested taxes. B. Adjust deferred revenue accounts (223XXX) to the corresponding receivable accounts for real, personal, protested and special assessments, and offset to the appropriate revenue accounts. (Do not defer taxes for proprietary funds.) 27 9
4/28/2016 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES ‐ cont. 6. Taxes/Assessments Receivable C. Reconcile the deferred assessment receivable account (119000) for each special improvement district (S.I.D.) with the future year’s principal assessments. (Verify that all prepaid assessments have been deducted from the deferred assessment receivable account.) 28 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES ‐ cont. GOVERNMENTAL FUNDS AND ACCOUNT GROUPS 1. Review payroll and claims expenditures for possible accruals, if deemed material. This would include any goods or services received prior to the end of the fiscal year. Also, review debt service funds for accruing any bond interest payable at year ‐ end or for bond principal payable within the next fiscal year. (Reclassify principal from general long ‐ term debt account group to short ‐ term payable of debt service fund.) 29 CHECKLIST FOR YEAR ‐ END CLOSING ENTRIES ‐ cont. GOVERNMENTAL FUNDS AND ACCOUNT GROUPS 2. Review revenue accounts for possible accruals, if deemed material, But, keep in mind that these revenues must meet the revenue recognition criteria of measurable and available. Revenue for federal and/or state grants that are reimbursed upon expenditure, should be recognized when the expenditure is made. (Some revenue susceptible to accrual may be interest on investments, state shared revenue P & I on delinquent taxes, etc.) 30 10
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