Accounting Government
by hammerUte
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,Essentials of Accounting for Governmental and Not-for-Profit Organizations Apago PDF
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Paul A. Copley, Ph. D., CPA
KPMG Professor Director, School of Accounting James Madison University
,ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT
ORGANIZATIONS, TENTH EDITION Published by McGraw-Hill/Irwin, a business unit of The
McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright
© 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Previous editions © 2008,
2007 and 2004. No part of this publication may be reproduced or distributed in any form or by
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All credits appearing on page or at the end of the book are considered to be an extension of the
copyright page. Library of Congress Cataloging-in-Publication Data Copley, Paul A. Essentials
of accounting for governmental and not-for-profit organizations / Paul A. Copley. — 10th ed. p.
cm. Includes index. ISBN 978-0-07-352705-5 1. Administrative agencies—United States—
Accounting. 2. Nonprofit organizations—United States— Accounting. I. Title. HJ9801.H39 2011
657'.83500973—dc22 2009054187 www.mhhe.com
,Preface
Thank you for considering the tenth edition of Essentials of Accounting for Governmental and
Not-for-Profit Organizations. The tenth edition is updated for recent changes including: • GASB
Statement 54: Fund Balance Reporting and Governmental Fund Type Definitions. • FASB
Statement 164, Not-for Profit Entities: Mergers and Acquisitions. • IRS Form 990 Return of
Organization Exempt From Income Tax. In addition, the text includes a new chapter on Federal
Government reporting. I have used the text with stand-alone, three semester-hour classes, with
half-semester GNP courses, and as a module in advanced accounting classes. It is appropriate
for accounting majors or as part of a public administration program. The coverage is effective in
preparing candidates for the CPA examination. The focus of the text is on the preparation of
external financial statements. Among the more challenging aspects of state and local
government reporting is the preparation of government-wide financial statements. Our approach
is similar to that used in practice. Specifically, day-to-day events are recorded at the fund level
using the basis of accounting for fund financial statements. Governmental activities are
recorded using the modified accrual basis. The fund-basis statements are then used as input in
the preparation of government-wide statements. The preparation of government-wide
statements is presented in an Excel worksheet. This approach has two advantages: (1) it is the
approach most commonly applied in practice, and (2) it is an approach familiar to students who
have studied the process of consolidation in their advanced accounting classes. State and local
government reporting is illustrated using an ongoing example integrated throughout Chapters 2
through 8 and 13. Additional features of the text are available on the instructor or student Web
sites and include:
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• A continuous homework problem throughout Chapters 2 through 8 and 13. • Instructor’s guide.
• Suggested quiz and examination questions and problems. • PowerPoint slides. • Excel-based
assignments. • An additional practice set. I thank Sandra Bitenc, University of Texas—Arlington;
Angele Brill, Castleton State College; Richard C. Brooks, West Virginia University; Bradley
Childs, Belmont University; Dori Danko, Grand Valley State University; Gertrude Eguae-
Obazee, Albright College; Gladys Gomez, University of Mary Washington; Marina Grau,
Houston Community iii
,iv Preface
College; David J. Harr, George Mason University; Maggie Houston, Wright State University;
Tom Hrubec, Franklin University; Mary Jepperson, Saint John’s University; Beth Kern, Indiana
University South Bend; John Lasik, Central Washington University; Rodney A. Oglesby, Drury
University; Jim Shelton, Harding University; Chuck Smith, Iowa Western Community College; D.
Terry Balkaran, Queens College; and Bradley Trimble, Columbus State Community College for
reviewing the ninth edition and providing suggestions. I wish to thank my colleague Loretta
Manktelow; co-author of the Instructor’s Guide and author of the Test Bank as well as Maggie
Houston of Wright State University for her work on the online quizzes. Finally, I am indebted to
the many users of the text for their comments. Additional comments and suggestions are
welcome and can be addressed to me at copleypa@jmu.edu. Paul A. Copley
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In memory of those lost: — Northern Illinois University, February 14, 2008 — Virginia Tech, April
16, 2007
,Contents
Preface iii Chapter One INTRODUCTION TO ACCOUNTING AND FINANCIAL REPORTING
FOR GOVERNMENTAL AND NOT-FOR-PROFIT ORGANIZATIONS 1 Generally Accepted
Accounting Principles 3 Objectives of Accounting and Financial Reporting 6 Objectives of
Accounting and Financial Reporting for the Federal Government 8 Objectives of Financial
Reporting by Not-for-Profit Entities 8 Objectives of Accounting and Financial Reporting for State
and Local Governmental Units 9
Chapter Two OVERVIEW OF FINANCIAL REPORTING FOR STATE AND LOCAL
GOVERNMENTS 20 The Governmental Reporting Entity 21 Reporting by Major Funds 23
Overview of the Comprehensive Annual Financial Report (CAFR) 23 Introductory Section 24
Financial Section: Auditor’s Report 25 Management’s Discussion and Analysis (MD&A) 26
Statement of Net Assets 28 Government-wide Statement of Activities 30 Governmental Funds:
Balance Sheet 32 Governmental Funds: Statement of Revenues, Expenditures, and Changes in
Fund Balance 34 Proprietary Funds: Statement of Net Assets 36 Proprietary Funds: Statement
of Revenues, Expenses, and Changes in Fund Net Assets 38 Proprietary Funds: Statement of
Cash Flows 40 Fiduciary: Statement of Fiduciary Net Assets 42 Fiduciary: Statement of
Changes in Fiduciary Net Assets 42 Notes to the Financial Statements 44 Required
Supplementary Information Other than MD&A 46 Combining Statements 48 Statistical
Information 48
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State and Local Government Financial Reporting 10
Comprehensive Annual Financial Report 10 Measurement Focus and Basis of Accounting 12
Fund Structure for State and Local Government Accounting and Reporting 13 Number of Funds
Required 16 Budgetary Accounting 16
Additional Resources
17
Special-Purpose Governments
49
v
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Contents
Public Colleges and Universities 49 Other Governmental Not-for-Profit Organizations 50
Illustrative Case—General Fund
Interfund Transfers 91 Interfund Reimbursements
91
Chapter Three MODIFIED ACCRUAL ACCOUNTING: INCLUDING THE ROLE OF FUND
BALANCES AND BUDGETARY AUTHORITY 55 Modified Accrual Accounts
Balance Sheet Accounts 56 Financial Statement Activity Accounts 61 Budgetary Accounts 63
56
Expenditure Cycle 63 Revenue Recognition for Nonexchange Transactions 65 Summary 68
Appendix: Budgetary Accounting Illustrated 69
Budgets and Budgetary Accounts 69 Recording the Budget 70 Accounting for Revenues 71
Accounting for Encumbrances and Expenditures 73 Budget Revisions 76 Budgetary
Comparison Schedule 76 Classification of Estimated Revenues and Revenues 77 Classification
of Appropriations and Expenditures 78
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Chapter Four ACCOUNTING FOR THE GENERAL AND SPECIAL REVENUE FUNDS 87
Overview of Modified Accrual Accounting 88 Interfund Transactions 89
Illustrative Case—Special Revenue Fund 108
Recording the Budget 92 Re-establishment of Encumbrances 92 Recording Prior-Year Property
Taxes as Revenues 92 Tax Anticipation Notes Payable 93 Payment of Liabilities as Recorded
93 Encumbrance Entry 93 Recording Property Tax Levy 94 Collection of Delinquent Taxes 94
Collection of Current Taxes 94 Other Revenues 95 Repayment of Tax Anticipation Notes 95
Recognition of Expenditures for Encumbered Items 95 Payrolls and Payroll Taxes 96 Payment
on Account and Other Items 97 Correction of Errors 97 Amendment of the Budget 97 Interfund
Transactions 98 Write-off of Uncollectible Delinquent Taxes 100 Reclassification of Current
,Taxes 100 Accrual of Interest and Penalties 101 Deferral of Property Tax Revenue 101 Special
Item 101 Preclosing Trial Balance 101 Closing Entries 103 Year-End Financial Statements 105
91
Interfund Loans 89 Interfund Services Provided and Used 91
Recognition of Inventories in Governmental Funds 111
Motor Fuel Tax Revenues 108 Expenditures for Road Repairs 108 Reimbursement to General
Fund 109 Reimbursement Grant Accounting 109 Closing Entry 109 Year-End Financial
Statements 110
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vii
Chapter Five ACCOUNTING FOR OTHER GOVERNMENTAL FUND TYPES: CAPITAL
PROJECTS, DEBT SERVICE, AND PERMANENT 122 Capital Projects Funds
Illustrative Case
Chapter Six PROPRIETARY FUNDS
Internal Service Funds 156
154
Other Issues Involving Acquisition of Capital Assets 130
125
124
Other Issues Involving Internal Service Funds 161 Enterprise Funds Risk Management
Activities 161 Implications for Other Funds 162 Illustrative Case—Water Utility Fund 164
Establishment and Operation of Internal Service Funds 157 Illustrative Case—Supplies Fund
157
Debt Service Funds
Acquisition of General Fixed Assets by Lease Agreements 130 Construction of General Fixed
Assets Financed by Special Assessment Debt 131 The Modified Accrual Basis—As Applied to
Debt Service Funds 132 Additional Uses of Debt Service Funds 133 Debt Service Accounting
for Serial Bonds 133 Illustrative Case—Regular Serial Bonds 134
162
Proprietary Fund Financial Statements 168
132
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Summary 176
, Statement of Net Assets 170 Statement of Revenues, Expenses, and Changes in Fund Net
Assets 170 Statement of Cash Flows 170 Accounting for Municipal Solid Waste Landfills 174
Pollution Remediation Costs 175
Other Issues Involving Payment of Long-Term Debt 136
Permanent Funds 138 Financial Reporting for Governmental Funds 140 Balance Sheet—
Governmental Funds 140 Statement of Revenues, Expenditures, and Changes in Fund
Balances— Governmental Funds 144
Debt Service Accounting for Deferred Serial Bonds 136 Debt Service Accounting for Term
Bonds 136 Debt Service Accounting for Capital Lease Payments 137 Bond Refundings 137
Chapter Seven FIDUCIARY (TRUST) FUNDS 189
Agency Funds
Tax Agency Funds 192 Accounting for Tax Agency Funds Financial Reporting for Agency
Funds 194
190
192
Private-Purpose Trust Funds
Investment Trust Funds 199 Public Employee Retirement Systems (Pension Trust Funds) 200
Accounting and Reporting for Defined Benefit Pension Plans 201
Accounting for Investments 194 Illustrative Case—Private-Purpose Trust Funds 197 A Note
about Escheat Property 199
194
Summary
144
