Chapter 19

Governmental Entities: Proprietary Funds, Fiduciary Funds,& Comprehensive Annual Financial Report

Proprietary Funds
Enterprise Internal

Funds

Service Funds

Enterprise Funds
Account

for commercial-type activities of a governmental entity . Are used to account for operations that are financed and operated in a manner similar to private business enterprises. Examples are: Public Utilities (water companies and electric companies), Airports, Public Hospitals, Transportation systems.
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Accounting and Reporting for Enterprise Funds

Enterprise Neither

use the accrual basis of accounting.

budgetary accounts nor encumbrances are recorded in enterprise fund. fund must be accounted for in the same manner as a privately owned commercial business.

Enterprise

Accounting and Reporting for Enterprise Funds

Among the ways in which financial statements of a governmental entity's enterprise fund differ from financial statements of a business enterprise are

the absence of property taxes expense the absence of capital stock the presence of restricted assets (segregated from Current Assets) the presence of liabilities payable from restricted assets.

Accounting and Reporting for Enterprise Funds

The

operating transfers section of an enterprise fund's statement of revenues, expenses, and changes in retained earnings includes subsidytype transfers to the governmental entity's general fund, and the

Accounting and Reporting for Enterprise Funds

Statement of cash flows for an enterprise fund has four categories of cash flows. From operating activities From non capital financing activities From capital and related financing activities. From Investing activities.

1. 2. 3. 4.

Accounting and Reporting for Enterprise Funds

Operating income, rather than increase (decrease) in net assets is reconciled to net cash provided by operating activities. Non capital financing activities cash flows include operating grants from other governmental entities and operating transfers to or from other funds of the governmental entities. Temporary investments of cash received from borrowings for plant assets are reported as cash flow from capital and related financing activities, rather than with cash flows from investment activities.

Internal Service Funds

Internal

service funds are established to finance and account for services and supplies provided exclusively to other government entity. This fund is created to ensure uniformity and economies in the procurement of supplies and services for the governmental entity as a whole

Internal Service Funds.

Examples

are:

Central Garage and motor pools Central Printing and duplicating services Central Repair shops

The

operational of internal service funds resemble those of a business enterprise, except that internal service funds are not profit motivated.

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Accounting of Internal Service Funds

Financial

statements of internal service funds are nearly identical in form and content to financial statements of business enterprises because internal service funds do not issue revenue bonds or receive contributions or deposits from customers, as do enterprise funds

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Accounting and Reporting for Internal Service Funds

This

fund use the accrual basis of accounting.

Neither

budgetary accounts nor encumbrances are recorded in this fund. Service fund must be accounted for in the same manner as a privately owned commercial business.

Internal

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Accounting and Reporting of Internal Service Funds

Similar

to Enterprise Funds, internal service funds do not have owners equity in their statement of new assets. net assets ledger account balance typically supports that amount in the liabilities and net assets section of the statement of new assets for an internal service fund.

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Financial Statements of Internal Service Funds

Balance Sheet Income Statement- Statement of Revenues and Expenses Statement of Cash Flows Footnotes

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Applicability of FASB Pronouncements to Proprietary Funds

GASB

Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds . . ., " provided temporary guidance to governmental entities for applying business enterprise-type accounting standards, as appropriate, to their proprietary funds.

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Fiduciary Fund
Fiduciary

Fund consists of

agency funds private-purpose trust funds pension trust funds and investment trust funds

The

position of a governmental entity with respect to fiduciary funds is that of a custodian or trustee rather than an owner.

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Accounting of Fiduciary Fund

Fiduciary Fund use the accrual basis of accounting. Neither budgetary accounts nor encumbrances are recorded in enterprise fund. For Fiduciary Fund, GASB has mandated preparation of a statement of fiduciary net assets and a statement of changes in fiduciary net assets.

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Accounting and Reporting of Agency Funds

Agency

funds are of short duration. Agency Funds are used to accounts for sales taxes collected by a state government on behalf of municipalities and townships of state. Do not have operations during a fiscal year. Only a statement of fiduciary assets and a statement of changes in fiduciary assets are issued for agency funds.
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Financial statements of Fiduciary Fund

Statement of Fiduciary Assets. Assets Cash xxx Liabilities Vouchers Payable xxx ----------------------------------------------------------------------------------------------------Statement of Changes in Assets & Liabilities Open.Bal Additions Deductions Cl.Balance Assets xxx xxx xxx xxx Liabilities xxx xxx xxx xxx

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Private Purpose Trust Fund

1. 2. 3.

Both a statement of fiduciary net assets and a statement of changes in fiduciary net assets are issued for private-purpose trust funds There are three types of trust funds: Pension Trust funds Nonexpendable Trust funds Expendable Trust funds

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Expendable and Nonexpendable Private Purpose Trust

Expendable: An expendable private-purpose trust fund is one whose principal and income both may be expended to achieve the objectives of the trust. It is classified further as a permanent (governmental) fund, in which the agreement must specify the income from the investment of assets be utilized for benefit of government and its citizens as a whole. Principal of the assets in the fund is legally restricted and cannot be expended.

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Expendable and Nonexpendable Private Purpose Trust

Non Expendable:

Only the revenues of a non-expendable private-purpose trust fund may be expended; the principal of such a fund must be maintained intact. Accordingly, a nonexpendable private-purpose trust fund requires two separate accounting units one for principal and one for revenues. It is classified as a Proprietary (Fiduciary) Fund in which the agreement specifies the principal and/or income for the benefit of individuals, private organizations , or other governments.

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Pension Trust Funds

Pension Trust Fund use the accrual basis of accounting. (no budget and no encumbrances are used) Pension trust funds account for assets, liabilities, and net assets reserves of defined benefit pension plans of governmental entities, which require actuarial assumptions as to life expectancies of governmental entity employees and rates of earnings on pension trust fund assets

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Financial Statements of Pension Trust Funds

Statement Statement Schedule

of Plan Net Assets of Changes in Plan Net Assets

of Funding Progress of Cash Flow (optional)

Statement

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Investment Trust Funds

Sponsoring

governments are required by GASB Statement No. 31, Accounting and Financial Reporting for . . . External Investment Pools,

to establish investment trust funds for investments of smaller governmental entities entrusted to the sponsoring government for investments in higheryielding financial instruments than the smaller governmental entities have the capacity to acquire.

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Financial Statements of Investment Trust Funds

Statement Statement Schedule

of Plan Net Assets of Changes in Plan Net Assets

of Funding Progress of Cash Flow (optional)

Statement

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Comprehensive Annual Financial Report

Components of the comprehensive annual financial report issued by state and local governmental entities are

an introductory section; a management discussion and analysis; basic financial statements; required supplementary information; and combining and individual fund statements, schedules, narrative explanations, and statistical section.

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