Transcript How to Prepare the Government

How to Prepare the Governmentwide Financial Statements
Government Finance Officers Association
GASB Statement 34 Preparer’s Series No. 1
June 28, 2000
Overview
Scope, measurement focus, and basis of
accounting
Format of statement of net assets
Format of statement of activities
Converting from governmental funds to
governmental activities
Consolidation
Section 1
Scope, Measurement Focus,
and Basis of Accounting of
Government-wide Financial
Statements
Scope
Include
Governmental activities of primary
government
Business-type activities of primary
government
Nonfiduciary component units
Exclude
Fiduciary activities
Fiduciary-type component units
Measurement focus and
basis of accounting
Economic resources measurement focus
Report changes in net assets
Accrual basis of accounting
Recognize transactions and events
independent of the timing of related cash
flows
Assets
Business-type activities - no change from
fund statements
Governmental activities
Add capital assets (including infrastructure)
Add deferred items (e.g., issuance costs)
Liabilities
Business-type activities - no change from
fund statements
Governmental activities
Add liabilities not requiring the use of current
financial resources (e.g., compensated
absences, claims and judgments)
Add deferred items (e.g., premiums and
discounts)
Less “unavailable” deferred revenue
Activities
Business-type activities - no change from
fund statements
Governmental activities
Expenses versus expenditures (e.g.,
depreciation versus capital outlay)
Elimination of availability criterion
Recognition in operating statement of the
effect of liabilities as incurred
Part 2
Format of
Statement of Net Assets
Columns
Governmental activities
Business-type activities
Total for primary government
Component units
Optional comparative presentations
Columns (illustration)
Primary Government
Business-Type
Governmental
Activities
Activities
$
13,597,899
27,365,221
12,833,132
175,000
322,149
170,022,760
224,316,161
$
10,279,143
3,609,615
(175,000)
126,674
151,388,751
165,229,183
Component
Units
Total
$
23,877,042
27,365,221
16,442,747
448,823
321,411,511
389,545,344
$
303,935
7,428,952
4,042,290
83,697
37,744,786
49,603,660
Formatting alternatives
Two formatting alternatives
Assets - liabilities = net assets (preferred)
Assets = liabilities + net assets
Terminology identical regardless of
alternative selected
Never “balance sheet”
Never “equity”
Net assets format
(illustration)
ASSETS
Cash and cash equivalents
Investments
Receivables (net)
Internal balances
Inventories
Capital assets, net (Note 1)
Total assets
LIABILITIES
Accounts payable
Deferred revenue
Noncurrent liabilities (Note 2):
Due within one year
Due in more than one year
Total liabilities
NET ASSETS
Invested in capital assets, net of related debt
Restricted for:
Capital projects
Debt service
Community development projects
Other purposes
Unrestricted (deficit)
Total net assets
$
13,597,899
27,365,221
12,833,132
175,000
322,149
170,022,760
224,316,161
6,783,310
1,435,599
9,236,000
83,302,378
100,757,287
103,711,386
11,705,864
3,020,708
4,811,043
3,214,302
(2,904,429)
$ 123,558,874
“Balance sheet” format
(illustration)
ASSETS
Current assets:
Cash and cash equivalents
Investments
Receivables (net)
Internal balances
Inventories
Total current assets
Noncurrent assets:
Restricted cash and cash equivalents
Capital assets (Note 1):
Land and infrastructure (see G-5)
Buildings, property, and equipment, net
Total noncurrent assets
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Deferred revenue
Current portion of long-term obligations (Note 2)
Total current liabilities
Noncurrent liabilities:
Noncurrent portion of long-term obligations (Note 2)
Total liabilities
NET ASSETS
Invested in capital assets, net of related debt
Restricted for:
Capital projects
Debt service
Community development projects
Other purposes
Unrestricted (deficit)
Total net assets
Total liabilities and net assets
$
13,597,899
27,365,221
12,833,132
175,000
322,149
54,293,401
118,620,361
51,402,399
170,022,760
$ 224,316,161
$
6,783,310
1,435,599
9,236,000
17,454,909
83,302,378
100,757,287
103,711,386
11,705,864
3,020,708
4,811,043
3,214,302
(2,904,429)
123,558,874
$ 224,316,161
Sequencing of assets and
liabilities
Two options (both based on liquidity)
Focus on classes of similar items
“Relative order of liquidity”
Based on average liquidity of class
Focus on individual items
“Classified presentation”
Based on liquidity of individual items
Relative order of liquidity preferred
Relative order of liquidity
Special considerations
Liquidity of assets affected by restrictions
The liquidity of individual items within a
given class may vary significantly
Separate reporting required within classes of
liabilities with an average maturity in excess
of one year
Amount due within one year
Amount due in more than one year
Relative order of liquidity
(illustration)
ASSETS
Cash and cash equivalents
Investments
Receivables (net)
Internal balances
Inventories
Capital assets, net (Note 1)
Total assets
LIABILITIES
Accounts payable
Deferred revenue
Noncurrent liabilities (Note 2):
Due within one year
Due in more than one year
Total liabilities
NET ASSETS
Invested in capital assets, net of related debt
Restricted for:
Capital projects
Debt service
Community development projects
Other purposes
Unrestricted (deficit)
Total net assets
$
13,597,899
27,365,221
12,833,132
175,000
322,149
170,022,760
224,316,161
6,783,310
1,435,599
9,236,000
83,302,378
100,757,287
103,711,386
11,705,864
3,020,708
4,811,043
3,214,302
(2,904,429)
$ 123,558,874
Classified presentation
Private-sector approach
Standard set by ARB No. 43
Liquidity of assets and liabilities affected
by restrictions
Restricted assets
Liabilities payable from restricted assets
Classified presentation
(illustration)
ASSETS
Current assets:
Cash and cash equivalents
Investments
Receivables (net)
Internal balances
Inventories
Total current assets
Noncurrent assets:
Restricted cash and cash equivalents
Capital assets (Note 1):
Land and infrastructure (see G-5)
Buildings, property, and equipment, net
Total noncurrent assets
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Deferred revenue
Current portion of long-term obligations (Note 2)
Total current liabilities
Noncurrent liabilities:
Noncurrent portion of long-term obligations (Note 2)
Total liabilities
NET ASSETS
Invested in capital assets, net of related debt
Restricted for:
Capital projects
Debt service
Community development projects
Other purposes
Unrestricted (deficit)
Total net assets
Total liabilities and net assets
$
13,597,899
27,365,221
12,833,132
175,000
322,149
54,293,401
118,620,361
51,402,399
170,022,760
$ 224,316,161
$
6,783,310
1,435,599
9,236,000
17,454,909
83,302,378
100,757,287
103,711,386
11,705,864
3,020,708
4,811,043
3,214,302
(2,904,429)
123,558,874
$ 224,316,161
Categories of net assets
Focus on accessibility versus capital
maintenance
Invested in capital assets, net of related debt
Restricted
Unrestricted
Components of net assets
CAPITAL-RELATED DEBT
CAPITAL ASSETS
RESTRICTED RESOURCES
NET ASSETS INVESTED IN
CAPITAL ASSETS NET OF
RELATED DEBT
LIABILITIES RELATED TO
RESTRICTED RESOURCES
RESTRICTED NET ASSETS
OTHER LIABILITIES
OTHER ASSETS
UNRESTRICTED NET
ASSETS
Invested in capital assets
Capital assets
Do not include unspent proceeds
Report net of depreciation
Related debt
No need to remove immaterial portion of
debt proceeds applied to non-capitalizable
items
Do not include debt used to finance capital
acquisition by other governments
Restricted
Nature of restrictions
Restrictions imposed by outside parties (e.g.,
creditors, grantors, contributors, laws or regulations
of other governments)
Restrictions imposed by constitution or enabling
legislation
Must be narrower than purpose of reporting unit
Distinguish permanent restrictions from
temporary restrictions
Reported net of related debt (e.g., bond-funded
restricted asset accounts)
Unrestricted
Residual category
Often may report deficit
Capital assets not available to offset
unfunded accrued liabilities (e.g.,
compensated absences)
Debt issued to finance capital grants
Explanations limited to note disclosure
Designations should not be reported
Part 3
Format of Statement of
Activities
Basic format
Expenses before revenues
Direct expenses
Less: program revenues
Net program cost
Governmental activities
Business-type activities
Component units
General revenues and other items
Basic format (illustration)
DIRECT EXPENSES
BY FUNCTIONAL
ACTIVITY
[A]
LESS: PROGRAM REVENUES
OPERATING
CAPITAL
FEES AND
GRANTS AND
GRANTS AND
CONTRIBUTIONS CONTRIBUTIONS
CHARGES
[X]
[Y]
[Z]
NET EXPENSES BY
FUNCTIONAL ACTIVITY
(I.E., “NET PROGRAM
COST”)
A – (X+Y+Z) = [A1]
GENERAL REVENUES
INFLOWS
[B]
OUTFLOWS
“SPECIAL”
AND SIMILAR
ITEMS
[C]
“SPECIAL”
AND SIMILAR
ITEMS
[D]
INCREASE OR
(DECREASE) IN NET
ASSETS
B + C – (A1 + D) = [E]
Direct expenses
By function/segment (minimum)
Include depreciation on capital assets
Sole-use assets
Shared-use assets
Generally exclude interest
Other depreciation
Infrastructure (2 options)
Functional activity associated with acquisition
or maintenance
Separate line for “unallocated depreciation”
Capital assets other than infrastructure
(2 options)
General government
Separate line for “unallocated depreciation”
Direct expenses
(illustration)
Functions/ Programs
Primary government:
Governmental activities:
General government
Public safety
Public works
Engineering services
Health and sanitation
Cemetery
Culture and recreation
Community development
Education (payment to school district)
Interest on long-term debt
Total governmental activities
Expenses
$
9,571,410
34,844,749
10,128,538
1,299,645
6,738,672
735,866
11,532,350
2,994,389
21,893,273
6,068,121
105,807,013
Indirect expenses
Allocation permitted
Separate column to display allocations
No requirement for “full cost” column
No requirement for disallocation if
allocation automatic
Allocation of indirect
expenses (illustration)
Functions/ Programs
Primary government:
Governmental activities:
General government
Public safety
Public works
Engineering services
Health and sanitation
Cemetery
Culture and recreation
Community development
Education (payment to school district)
Interest on long-term debt
Total governmental activities
Expenses
$
9,571,410
34,844,749
10,128,538
1,299,645
6,738,672
735,866
11,532,350
2,994,389
21,893,273
6,068,121
105,807,013
Indirect
Expenses
Allocation
$ (5,580,878)
4,059,873
3,264,380
111,618
558,088
55,809
1,858,966
1,740,265
(6,068,121)
Program revenues
Three categories
Amounts received from those who purchase,
use or directly benefit from a program
Amounts received from parties outside the
reporting entity’s citizenry (e.g., grants and
contributions) that are restricted to one or
more specific programs.
Earnings on investments that are legally
restricted for a specific program
Identifying program
revenues
Fees and charges are program revenues even
when they are not restricted to use in the
program.
 All taxes, even those that are levied for a
specific purpose, are general revenues
In the case of multi-purpose grants, the amount
attributable to each program must be identified
in either the grant award or the grant
application to qualify as program revenue
Presenting program
revenues
Charges for services should be reported
separately from grants and contributions
Operating grants and contributions should be
reported separately from capital grants and
contributions
Grants or contributions that may be used for
either capital or operating purposes should be
treated as an operating grant or contribution
Program revenues
(illustration)
Functions/ Programs
Primary government:
Governmental activities:
General government
Public safety
Public works
Engineering services
Health and sanitation
Cemetery
Culture and recreation
Community development
Education (payment to school district)
Interest on long-term debt
Total governmental activities
Program Revenues
Operating
Charges for
Grants and
Services
Contributions
Expenses
$
9,571,410
34,844,749
10,128,538
1,299,645
6,738,672
735,866
11,532,350
2,994,389
21,893,273
6,068,121
105,807,013
$
3,146,915
1,198,855
850,000
704,793
5,612,267
212,496
3,995,199
$
843,617
1,307,693
Capital
Grants and
Contributions
$
62,300
2,252,615
575,000
2,450,000
2,580,000
15,720,525
5,176,310
4,894,915
General revenues and
other items
General revenues
Endowment and permanent fund
contributions (no need to distinguish
permanently and temporarily restricted
amounts)
Special and extraordinary items
Transfers
Changes in accounting principle
General revenues and
other items (illustration)
General revenues:
Taxes:
Property taxes, levied for general purposes
Property taxes, levied for debt service
Franchise taxes
Public service taxes
Payment from Sample City
Grants and contributions not restricted to specific programs
Investment earnings
Miscellaneous
Special item --gain on sale of park land
Transfers
Total general revenues, special items, and transfers
Change in net assets
Net assets--beginning
Net assets--ending
51,693,573
4,726,244
4,055,505
8,969,887
$
1,457,820
1,958,144
884,907
2,653,488
501,409
76,900,977
(3,114,286)
126,673,160
123,558,874
Special items
Subject to management control and either
Unusual in nature (i.e., possessing a high
degree of abnormality and clearly unrelated
to, or only incidentally related to, the ordinary
and typical activities of the entity) or
Infrequent in occurrence (i.e., not reasonably
expected to recur in the foreseeable future,
taking into account the environment in which
the entity operates).
Part 4
Converting from
Governmental Funds to
Governmental Activities
Basic approach
Statement of net assets
Fund balance
Net assets - governmental activities
Statement of activities
Net change in fund balances
Changes in net assets - governmental
activities
Statement of net assets
Assets and Liabilities
Reported in
Governmental
Fund Financial
Statements?
Reported in
Government
-wide
Financial
Statements?
Action
Required
Start:
Fund Balance
Capital assets
Assets and Liabilities
Capital assets of the
general government
(e.g., land, buildings
and improvements,
equipment,
infrastructure,
intangibles, certain
investments in joint
ventures)
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Action
Required
Start:
Fund Balance
Yes
Report
capital
assets net of
accumulated
depreciation
Add: Carrying
value of capital
assets
Issuance costs
Assets and
Liabilities
Deferred charges
for issuance costs
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Action
Required
Start:
Fund Balance
Yes
Report
unamortized
balance of
deferred
charge
Add:
Unamortized
balance of
deferred charge
for issuance
costs
Inventories and prepaids
Assets and
Liabilities
Inventories and
prepaids
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Action
Required
Start:
Fund Balance
Yes
Report
inventories
outstanding
and
unamortized
portion of
prepaid
items
Add:
inventories
outstanding and
unamortized
portion of
prepaid items
Unmatured long-term debt
Assets and
Liabilities
Unmatured longterm debt (e.g.,
bonds, notes,
capital lease
obligations,
certificates of
participation) net
of unamortized
premiums,
discounts and
similar items.
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Action
Required
Yes
Report
unmatured
long-term
debt net of
unamortized
premiums,
discounts
and similar
items
Start:
Fund Balance
Less: Net
unmatured
long-term debt
Accrued interest
Assets and
Liabilities
Accrued interest
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Action
Required
Start:
Fund Balance
Yes
Report
liability for
accrued
interest
payable
Less: Accrued
interest payable
Certain accrued liabilities
Assets and
Liabilities
Certain accrued
obligations not
normally expected
to be liquidated
with available
financial resources
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Yes
Action
Required
Report
accrued
liabilities
outstanding
Start:
Fund Balance
Less: Certain
accrued
liabilities not
reported in
governmental
funds
Assets of internal service
funds
Assets and
Liabilities
Assets of internal
service funds that
primarily serve
govenmental funds
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Action
Required
Start:
Fund Balance
Yes
Report
assets of
internal
service
funds
Add: Assets of
internal service
funds
qualifying as
governmental
activities
Liabilities of internal
service funds
Assets and
Liabilities
Liabilities of
internal service
funds that
primarily serve
governmental
funds
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Government
-wide
Financial
Statements?
Yes
Action
Required
Start:
Fund Balance
Report
liabilities of
internal
service
funds
Less:
Liabilities of
internal service
funds
qualifying as
govenrmental
activities
Earned but deferred
revenue
Assets and
Liabilities
Liability for earned
but deferred
revenue
Reported in
Governmental
Fund Financial
Statements?
Yes
Reported in
Government
-wide
Financial
Statements?
Action
Required
No
Remove
Liability
Start:
Fund Balance
Less: Earned
but deferred
revenue
Liability for unearned
deferred revenue
Assets and
Liabilities
Reported in
Governmental
Fund Financial
Statements?
Reported in
Government
-wide
Financial
Statements?
Action
Required
Liability for
unearned deferred
revenue
Yes
Yes
No Change
Required
Start:
Fund Balance
No effect
End:
Net Assets –
Governmental
Activities
Statement of activities
Transaction/
Event
Reported in
Governmental
Fund Financial
Statements?
Reported in
Governmentwide Financial
Statements?
Action Required
Start:
Net Change in Fund
Balances –
Governmental Funds
Capital outlays
Transaction/
Event
Capital
outlays
Reported in
Governmental
Fund Financial
Statements?
Yes
Reported in
Governmentwide Financial
Statements?
Action Required
Start:
Net Change in Fund
Balances –
Governmental Funds
No
Remove
capitalizable
expenditures
incurred for the
acquisition or
construction of
capital assets
Add: Capitalizable
expenditures incurred
for the acquisition or
construction of capital
assets
Debt service principal payments
and refunding payments
Transaction/
Event
Debt service
principal
payments
and
refunding
payments
Reported in
Governmental
Fund Financial
Statements?
Yes
Reported in
Governmentwide Financial
Statements?
Action Required
Start:
Net Change in Fund
Balances –
Governmental Funds
No
Remove
expenditures and
other financing
uses incurred for
debt service
principal
payments and
refunding
payments
Add: Expenditures
and other financing
uses incurred for debt
service principal
payments and
refunding payments
Source/uses/expenditures
resulting from issuance of debt
Transaction/
Event
Other
financing
sources
uses and
expenditures
resulting
from the
issuance of
debt
Reported in
Governmental
Fund Financial
Statements?
Yes
Reported in
Governmentwide Financial
Statements?
No
Action
Required
Start:
Net Change in Fund
Balances – Governmental
Funds
Remove
other
financing
sources,
uses and
expenditures
resulting
from the
issuance of
debt
Less: Other financing
sources for debt and
related premiums
Add: Other financing
uses for discounts
Add: Expenditures for
issuance costs
Add: Excess of
acquisition cost of
refunded debt over
carrying value of
refunded debt
Less: Excess of carrying
value of refunded debt
over acquisition cost of
refunded debt
Donations of capital assets
Transaction/
Event
Donations of
capital
assets
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Action
Required
Start:
Net Change in Fund
Balances – Governmental
Funds
Yes
Record
donations of
capital
assets
Add: Donations of capital
assets
Sales of capital assets
Transaction/
Event
Sales of
capital
assets
Reported in
Governmental
Fund Financial
Statements?
Yes, in the
amount of the
proceeds of the
sale
Reported in
Governmentwide Financial
Statements?
Action
Required
Yes, but only in
the amount of
the gain or loss
on the sale
Replace
amount of
proceeds by
gain or loss
on
transaction
Start:
Net Change in Fund
Balances – Governmental
Funds
Less: Sale proceeds less
gain
Less: Sale proceeds plus
loss
Sales of fund assets
Transaction/
Event
Sales of
fund assets
(e.g,
foreclosure
assets held
for resale)
Reported in
Governmental
Fund Financial
Statements?
Yes, but
reported as
revenues or
expenditures
(or reduction
of revenue)
Reported in
Governmentwide Financial
Statements?
Action
Required
Yes, but
reported as
gains or losses
Reclassify
revenue and
expenditures
(or
reductions
of revenue)
related to
fund asset
sales as
gains or
losses
Start:
Net Change in Fund
Balances – Governmental
Funds
No Effect
Revenues/expenditures
related to prior periods
Transaction/
Event
Revenues
and
expenditures
related to
prior periods
Reported in
Governmental
Fund Financial
Statements?
Yes
Reported in
Governmentwide Financial
Statements?
Action
Required
No
Remove
revenues
and
expenditures
related to
prior periods
Start:
Net Change in Fund
Balances – Governmental
Funds
Less: Revenues related to
prior periods
Add: Expenditures
related to prior periods
Earned but unavailable
revenues
Transaction/
Event
Revenues
earned
during the
period but
not yet
available
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Action
Required
Start:
Net Change in Fund
Balances – Governmental
Funds
Yes
Record
revenue
earned
during the
period but
not yet
available
Add: Revenue earned
during the priod but not
yet available
Expenses not expected to be
liquidated with current resources
Transaction/
Event
Expenses
incurred
during the
period, but
not normally
expected to
be liquidated
with current
available
financial
resources
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Action
Required
Yes
Record
expenses
incurred
during the
period
related to
liabilities
that are still
outstanding
at year end
that are not
normally
expected to
be liquidated
with current
available
financial
resources
Start:
Net Change in Fund
Balances – Governmental
Funds
Less: Expenses incurred
during the period related
to liabilities that are still
outstanding at year end
for:
- accrued interest
- compensated
absences
- claims and judgments
- special termination
benefits
- landfill closure and
postclosure care costs
- operating leases with
scheduled rent
increases
- net pension
obligation
Depreciation
Transaction/
Event
Depreciation
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Action
Required
Yes
Record
depreciation
expense
Start:
Net Change in Fund
Balances – Governmental
Funds
Less: Depreciation
expense
Amortization
Transaction/
Event
Amortization
of issuance
costs,
premiums,
discounts and
similar items
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Yes
Action
Required
Adjust
revenues and
expenses for
amortizations
Start:
Net Change in Fund
Balances – Governmental
Funds
Less: Amortization of
issuance costs and
discounts (and net
refunding difference if a
debit)
Add: Amortization of
premiums (and net
refunding difference if a
credit)
Inventories
Transaction/
Event
Inventories
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Action
Required
Start:
Net Change in Fund
Balances – Governmental
Funds
Yes
Record
expense for
inventories
consumed
during the
period
Less: Inventory consumed
during the period
Internal service fund
activities
Transaction/
Event
Activities of
internal
service funds
properly
included
within
govenrmental
activities
Reported in
Governmental
Fund Financial
Statements?
No
Reported in
Governmentwide Financial
Statements?
Action
Required
Yes
Record
internal
service fund
revenues and
expenses not
subject to
consolidation
Start:
Net Change in Fund
Balances – Governmental
Funds
Add: Net profit (after
“look back”
consolidation)
Less: Net loss (after
“look back”
consolidation)
End:
Change in Net Assets –
Governmental Activities
Part 5
Consolidation
Basic rules
Must consolidate within activities columns
May use separate column in fund financial
statements for this purpose
Must consolidate within total column for
primary government
Consolidation not applicable to interfund
services provided and used
Statement of net assets
Interactivity balances
Option 1: Report interfund receivables and
payables on single line
Explains zero balance in total column for primary
government
Option 2: Report interfund receivables with
assets and interfund payables with liabilities
Line will not cross-foot to total for primary
government (note required to explain)
Internal service funds
Inherently redundant (cost-allocation
mechanism)
Consolidated based upon types of funds
served
Most often part of governmental activities
May be part of business-type activities if
primarily used to serve enterprise fund(s)
Assets and liabilities
Reported as part of governmental or
business-type activities
Equity classified as appropriate
Revenues and expenses
External revenues and expenses reported
without adjustment
Interest revenue
Interest expense
Revenues from external customers
Expenses related to services provided to
external customers
Net profit eliminated through “look back”
Internal service fund
example
Operating activities:
Revenues from customers
Cost of services provided
Operating income
$74,800
68,000
$ 6,800
Nonoperating activities:
Interest expense
Increase in net assets
($250)
$ 6,550
Step 1: Identify external
customer revenues
Operating revenues:
Internal customers
External customers
Total revenues
$55,000
19,800
$74,800
Step 2: Identify expenses
related to external customers
Operating activities:
Revenues from customers
Cost of services provided
Operating income
$74,800
68,000
$ 6,800
Profit margin:
Revenues $74,800 Expenses $68,000 = 1.1
External revenues $19,800/1.1 = $18,000
Step 3: Calculate internal
profit/loss
Operating revenues:
Internal
External
Total
$55,000
19,800
$74,800
Internal
$55,000
$50,000
$18,000
$68,000
$50,000
$5,000
$1,800
$6,800
$5,000
$55,000
External
$19,800
$19,800
Operating expenses:
Internal
External
$50,000
$18,000
$18,000
Operating income:
Internal
External
Total
$1,800
Step 4: Allocate internal
profit/loss
Function
Function A (governmental)
Function B (governmental)
Function C (governmental)
Function D (governmental)
Function E (business-type)
Percentage of
Participation
65%
25%
5%
3%
2%
100%
Profit
Allocation
$5,000
$5,000
$5,000
$5,000
$5,000
$3,250
$1,250
$250
$150
$100
$5,000
Step 5: Apply allocations
Treat as an adjustment of expenses in
governmental and business-type activities
Adjust receivables/payables for businesstype activities
Report $100 receivable for interfund
activities in business-type activities
Report $100 payable for interfund activities
in governmental activities
Summary
Internal Service Fund Activity
Operating revenues:
Internal customers $55,000
External customers
19,800
Total:
$74,800
Operating expenses:
Internal customers ($50,000)
External customers ( 18,000)
Total:
($68,000)
Operating profit/(loss)
$6,800
Nonoperating:
Interest expense*
($250)
Report in
Governmental
Activities
Eliminate from
Governmental
Activities
Reflect as
Reduction of
Functional
Expenses
$55,000
$19,800
($50,000)
($18,000)
$1,800
($250)
$5,000
$5,000
Special reclassification
option
Enterprise funds normally are classified as
business-type activities
Option to classify selected enterprise
funds as governmental activities
If option selected, reconciliation required
between enterprise funds and businesstype activities in fund financial statements