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Financial and Education Law Training Program Module 26 - Page 1 of 34Study Guide February 2003Education Finance Reporting Fund Accounting

26. FUND ACCOUNTING

Introduction

An account is established for each asset, for each liability, and for each fundbalance account of a local school system in governmental accounting. This means thatas transactions occur, that are posted into accounts that are separate for each asset, foreach liability, and for each fund balance. Each grouping of transactions that results inthe creation of assets, and liabilities, and fund balances may be considered asbelonging to business activity for a specific purpose. These could be generaloperations, the operation of the food service program, the construction of buildings, andso forth. When a group of transactions affects a specific type of operations, then theassets, liabilities, and fund balances of this group of transactions constitutes a fund,which is an independent accounting entity with its own assets, liabilities, and fund

balance. These requirements dictate the structure of the account classification.

National Account Structure

The account structure must be a master classification of balance sheet, revenue,and expenditure accounts from which selections can be made for reporting comparabletransactions on a uniform basis. In order to facilitate meaningful cost data comparisonswith national educational statistics and meet reporting requirements of various federalrevenue sources. The structure is flexible and allows for expansion to meet increasedreporting needs as well as unique needs of the individual user. The Financial

Accounting Account Classification Structure developed by the National Center for

Education Statistics and published in Financial Accounting for Local and State SchoolSystems 1990 has accommodated Generally Accepted Accounting Principles (GAAP)and the principles of the Government Accounting Standards Board (GASB) in thedescription of the three basic types of financial activity. These are the following:

Revenues and Other Sources of Funds

Expenditures and Other Uses of Funds

Transactions Affecting the Balance Sheet Only

These three types of financial activity each is described by a specific overallaccount code which is made up from a combination of classifications called

dimensions. Each dimension describes one way of classifying financial activity. Thedimensions which are applicable to each of the three types of financial activity follow inTable 26-1 which follows. This is a way of placing a full and complete description offinancial activity into a matrix which allows logical grouping of descriptors. In order tofully describe the financial activity of a government unit and to provide the informationbasis to produce financial statements of this activity, the components of the matrixabove must be employed.


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Table 26-1Types of Financial Activity and Dimensions

Revenues Expenditures Balance Sheet

Fund Fund Fund

Revenue Source Program Balance Sheet Account

Project/Reporting Function Assets

Object Liabilities

Project/Reporting Fund Equity

Level of Instruction

Operational Unit

Subject Matter

Alabamas Financial Accounting System will generally follow this matrix and thedimensions presented with the exception that some of the dimensions recognized toreport expenditures are not utilized. However, this is entirely acceptable since thehandbook classification structure described above is capable of generating moredetailed data than may be desired and can be considered as optional. The followingaccounting structure is the minimum chart of accounts that a state and its LEAs mustemploy to prepare necessary Federal reporting requirements which are found in Table26-2 below:

Table 26-2Minimum Chart of Accounts for Federal Reporting

Revenues Expenditures Balance Sheet

Fund Fund Fund

Revenue Source Program Balance Sheet Account

Function Assets

Object Liabilities

Project/Reporting Fund Equity

All of the categories in addition to these described in the Minimum Chart of Accountsare considered as option for Federal reporting. Alabamas accounting structure as willbe seen in the following exceeds the minimum requirements. The Chart of Accounts isa list of all the accounts of an LEA and the numbers assigned to the accounts .


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Fund Accounting

As is readily seen in these account structure descriptions, one element is integral

to all accounting and reporting the fund. Governmental accounting systems are thusorganized and operated on a fund basis. The diverse nature of governmentaloperations and the necessity of assuring legal compliance preclude recording andsummarizing financial transactions in a single accounting entity. Rather, the requiredaccounts are organized on the basis of funds each of which is completely independentof any other. Each fund must so be accounted for that the identity of its resources,obligations, revenues, expenditures, and fund equities is continually maintained.

Schools operate financially by a system of fund accounting which is a systemwhich is organized and reported around the types of revenue and expenditures that bestdescribe educational organizations. Certain accounting principles apply that make itpossible to track revenues and expenditures. The primary purpose of fund accountingin the requirement that each fund be used only for specific purposes and that funds arenot commingled. Therefore, the purpose of fund accounting is to recognize discretefiscal operations, to track the revenues and expenditures by function, and to provideinformation of these functions and the intended use of expenditures.

This is accomplished by providing a set of self-balancing accounts for each fundwhich shows its assets, liabilities, reserves, fund balances or retained earnings,revenues, and expenditures or expenses. A fund is a fiscal and accounting entity with aself-balancing set of accounts recording financial resources with all related liabilities,fund equity, and changes caused by the receipt of revenues and the expenditure offunds. It one were to compare fund accounting with commercial accounting, each fundwould equate to an independent business, with a separate set or records owned by oneentity, the local school system.

LEAs must use several different types of funds. The issue is not whether to usefund accounting, but how many different types to actually use. The general rule is thatthe fewer, the better. Only the minimum number of funds necessary to meet legal andoperating requirements should be established. Unnecessary numbers of funds result ininflexibility, undue complexity, and inefficient. The minimum number of funds whichshould be utilized have been jointly agreed upon by the Governmental AccountingStandards Board (GASB), the National Center for Education Statistics (NCES) andthe Association of School Business Officials (ASBO). These groups have agreedupon the classification of funds into four separate categories:

Fund Accounting in the LEA

The local school system accounting system must be organized and operated ona fund basis. Each fund is a separate fiscal entity in the school district much the same


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as various corporate subsidiaries are fiscally separate in private enterprise. Theseparate funds are established by the school district for the specific activities andobjectives in accordance with statutes, laws, regulations, restrictions, or for specificpurposes. A fund is defined in GASB Codification Section 1300 as:

. . . a fiscal and accounting entity with a self-balancing set ofaccounts recording cash and other financial resources, together with allrelated liabilities and residual equities or balances, and changes therein,which are segregated for the purpose of carrying on specific activities orattaining certain objectives in accordance with special regulations,restrictions, or limitations.

The requirement for a self-balancing set of accounts means that the familiardebit and credit framework is applied to the recording of transactions and events in theaccounting systems of each fund. But the requirement that a fund must be both a

separate fiscal and accounting entity indicates that the self-balancing feature itself is notadequate alone; account groupsto establish accounting control and accountability forthe government's general fixed assets and the unmatured principal of its long-term debtare also required.

The general long-term debt account group and a general fixed assets accountgroup are used to establish accounting control and accountability for the government'sgeneral fixed assets and the unmatured principal of its long-term debt.

Legal reporting requirements and the varied nature of school district's operationspreclude a single setof accounts for recording and summarizing all transactions. The

records must be organized on a multiple-fund basis with each of the several fundscomplete and independent accounting entities. The absolute minimum number of fundsappropriate for public school operations depends on the purposes and legalrequirements of the various activities. The identified fund types are for group activitiesthat are similar in nature or purpose. The required fund types and groups of self-balancing accounts as described in GASB Codification Section 1300.102 and 103(excerpted) follow.

Description of Fund Types

In compliance with generally accepted accounting practices, the following threetypes of funds and one account group are prescribed by the National Center forEducation Statistics in Financial Accounting for Local and State School Systems, 1990:

1. Governmental Fund Types - often called "source and disposition,""expendable," or "government-type" funds - are those through which mostgovernmental functions typically are financed. The acquisition, use, and balances of thegovernment's expendable financial resources and the related current liabilities - except


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those accounted for in proprietary funds - are accounted for through governmentalfunds (general, special revenue, capital projects, and debt service funds).

Governmental funds are in essence an accounting segregation of financial

resources. Expendable assets are assigned to the various governmental fundsaccording to the purposes for which they must be used; current liabilities are assignedto the fund from which they are to be paid; and the difference between governmentalfund assets and liabilities, the fund equity, is referred to as "Fund Balance."

The governmental fund measurement focus is on determination of financialposition and changes in financial position (sources, uses, and balances of financialresources), rather than on net income determination. The statement of revenue,expenditures, and changes in fund balance is the primary governmental fund operatingstatement. It may be supported or supplemented by more detailed schedules ofrevenues, expenditures, transfers, and other changes in fund balance.

2. Proprietary Funds - sometimes referred to as "income determination,""non-expendable," or "commercial-type" funds - are used to account for agovernment's ongoing organizations and activities that are similar to those often foundin the private sector (enterprise and internal service funds). All assets, liabilities,equities, revenues, expenses and transfers relating to the government's business andquasi-business activities - where net income and capital maintenance are measured -are accounted for through proprietary funds. The generally accepted accountingprinciples here are those applicable to similar businesses in the private sector; and themeasurement focus is on determination of net income, financial position, and cashflows. However, if the GASB has issued pronouncements applicable to those entitiesand activities, those entities and activities should be guided by GASB pronouncements.

3. Fiduciary Funds - trust and agency funds - are used to account for assetsheld by a government in a trustee capacity or as an agent for individuals, privateorganizations, other governmental units, and/or other funds. Each trust fund is classifiedfor accounting measurement purposes as either a governmental fund or a proprietaryfund. Expendable trust funds are accounted for in essentially the same manner asgovernmental funds. Nonexpendable trust funds and pension trust funds are accountedfor in essentially the same manner as proprietary funds. Agency funds are purelycustodial (assets equal liabilities) and thus do not involve measurement of results ofoperations.

However, the use of these three types of funds is inadequate to completelyprovide accountability for and control of the government's general fixed assets andgeneral long-term debt. This is accomplished through a fourth category of accountingentities, the "account groups."

4. Account Groups are used to establish accounting control and accountability


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for the government's general fixed assets and the unmatured principal of its generallong-term debt. The government's general fixed assets - all fixed assets except thoseaccounted for in proprietary funds or trust funds - are not financial resources availablefor expenditure. The unmatured principal of its general long-term debt - long-term

liabilities not accounted for in proprietary funds or trust funds - does not require anappropriation or expenditure during the current accounting period. Hence, neither isaccounted for in the governmental funds, but in self-balancing account groups. Theseaccount groups are not funds, they do not reflect available financial resources andrelated liabilities but are accounting records of the general fixed assets and generallong-term debt, respectively, and certain associated information.

In compliance with generally accepted accounting practices, the followingcategories of funds and account groups is provided by the National Center forEducation Statistics in Financial Accounting for Local and State School Systems, 1990in Table 26-3 below:

Table 26-3Matrix of Fund Usage

FUND DESCRIPTION EXAMPLES

I. GOVERNMENTAL TYPE FUNDS

1. General Fund - Accounts for all financial resourcesexcept those required to be accounted for in anotherfund.

General Fund, including the LocalMaintenance Fund, Food Service Fund, etc.

2. Special Revenue Funds - Account for the proceedsof specific revenue sources that have been restricted to

expenditure for specific purposes other thanexpendable trusts or for major capital projects.

ESEA, Title I, Part A - Improving BasicPrograms Fund, National School Breakfast

and Lunch Program Fund, VocationalEducation Fund, Campus Activity Fund,Shared Services Arrangements Funds, etc.

3. Capital Project Funds - Account for the receipt anddisbursement of resources for the purpose ofconstructing or acquiring major capital assets such asnew schools, public buildings, or recreational facilities.The Capital Projects Funds are used to account forsuch assets other than those financed by proprietaryfunds and trust funds.

Locally Defined Capital Project Funds

4. Debt Service Funds - Account for resources setaside to pay interest and principal on long-term debt.

Locally Defined Debt Service Funds

II. PROPRIETARY TYPE FUNDS

1. Enterprise Funds - Account for operations (a) thatare financed and operated in a manner similar to privatebusiness enterprises, where the intent of the governingbody is that the costs (expenses, including depreciation)of providing goods or services to the general public on acontinuing basis be financed or recovered primarily

National School Breakfast and LunchProgram Fund (food service operations areto be accounted of in this fund when aschool district intends for the food serviceoperations to be financed from the NSLPprogram and user charges, rather than from


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through user charges, or (b) where the governing bodyhas decided that periodic determination of revenuesearned, expenses incurred, and/or net income isappropriate for capital maintenance, public policy,

management control, accountability or other purposes

General Fund subsidies), State DefinedEnterprise Funds, Locally Defined EnterpriseFunds

2. Internal Service Funds - Account for the financingof goods or services provided by one department orfunds to other departments or funds within the sameschool district on a cost reimbursement basis.

Transportation Fund, Print Shop Fund,Insurance Fund, Computer Operation Fund,etc.

III. FIDUCIARY TYPE FUNDS

1. Trust Funds - Account for collection anddisbursement of assets held in trusts by the schooldistrict for an individual, a group of individuals oranother governmental unit. The three types of trustfunds are:

(a) Expendable Trust Funds - Account for fundsreceived from individuals and/or organizations forspecific purposes for which the principal, and earnedinterest or revenue may be used.

Scholarship Funds (both principal andearned interest on revenue can bedistributed

(b) Nonexpendable Trust Funds - Account for fundsreceived from individuals or organizations for which theprincipal used must be repaid to restore the originalamount and may be increased by the collection ofinterest.

Scholarship Funds (limited to the use of onlyearned interest or revenue), etc.

(c) Pension Trust Funds - Account for pension plansother than the Teachers Retirement System of

Alabama

Locally Defined Pension Trust Funds

(2) Agency Funds - Account for the collection anddisbursement of assets held in a custodial capacity by aschool district consisting of clearing accounts and fundsthat are the property of students or others.

Tax Collection Fund, Textbook WaiverRefund Fund, Payroll Clearing AccountFund, etc.

IV. ACCOUNT GROUPS

1. General Long-Term Debt Account Group -Account for non-current debts. A long-term debt will beoffset by a debit to either amounts to be provided and/oramounts available in other funds. Long-term debts ofProprietary Fund Types and similar trust funds areaccounted for through those fund types and are notincluded in this account group.

General Long-Term Debt Account Group

2. General Fixed Asset Account Group - Account forthose general fixed assets not recorded in ProprietaryFund Types and similar trust funds. This account groupis for specific pieces of property such as equipment,land, and building, and all associated costs. There is nodepreciation recorded for general fixed assets.

General Fixed Asset Account Group


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The various categories of fund types and account groups are discussed in greater detailas they relate to Alabamas School Finance Accounting System in the followingsections.

Governmental Fund Types in Alabama

The four types of governmental funds described by the National Center forEducation Statistics are employed in the Alabama School Accounting System. They aredescribed in the table below with the accounting code number used to identify them.

Accounting codes will be discussed in detail in the following sections. Please note thatthe order of reporting of debt service and capital project funds have been reversed inthe Alabama Accounting Manual from the order appearing in Financial Account forLocal and State School Systems 1990. These are found in Table 26-4:

Table 26-4Government Fund Types

GeneralCode 11

Special RevenueCode 12

Debt ServiceCode 13

Capital ProjectCode 14

This fund typeaccounts for allfinancial resourcesof the schoolsystem exceptthose required to

be accounted for inanother fund type.The primaryoperating functionsof a local schoolsystem areperformed in thegeneral fund type.

This fund typeaccounts for theproceeds of specificrevenue sources thatare legally required tobe accounted for in

some otherpredermined fundtype. The integrity ofthe individual specialrevenue will bemaintained by the useof the Fund Sourcecomponent. The SDEidentifies the staterevenue sourcesrequiring specialrevenue status. Mostfederal grant

appropriations will bemaintained as specialrevenues, especiallywhere separatebudgeting andfinancial reporting isrequired at the state offederal level. Anylocal revenue sources

This fund type accounts forthe accumulation ofresources for the payment ofgeneral long-term debt, bothprincipal and interest. Whenfinancial resources are

legally required to be setaside in a sinking fund tomeet current and(or) futureprincipal and interestobligations of a schoolsystems general long-termdebt, the debt service fundtype should be used toaccount for these obligationsand resources. Only long-term obligations andresources are required to berecorded in a debt service

fund type which involve athird party or paying agent.Capital leases, leasepurchases and otherintermediate term leases canbe budgeted and accountedfor within the fund typecreating the obligation andsupplying the resources for

This fund typeaccounts for financialresources used toacquire or constructmajor capital facilitiesother than those of

proprietary and trustfunds. When financialresources areobtained throughborrowing orcontributions for thepurpose of acquiringand(or) constructingmajor capital facilities,a capital project fundtype should be used torecord transactionsrelated to the

accumulation andexpenditure of thesefinancial resources.(Note: According to

the National Center

for Education

Statistics, Financial

Accoun t ing fo r Loca l

and State School


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requiring specialrevenue status will bedetermined by thelocal school system.

the payment of principal andinterest.

System s 1990, the

Capital Projects

Fund should be the

third fund and the

Debt Service Fundshould be the fourth

fund.)

Governmental Funds then are made up of individual funds that make up the majority offunds and revenues in educational accounting. They are called governmental fundsbecause they receive most of the actual money deposited and spent by school systemsare come from governmental sources.

Proprietary Funds

However, not all the revenues or monies received by schools come fromgovernmental sources. In fact, a limited number of school system activities moreclosely resemble private enterprise operations than they do operations in the publicsector. Therefore, the convention has been the creation of separate proprietary fundsto account for activities who, for the most part, are to be financed though charges forservices provided. In general, these activities are considered to be self-supporting. Asproprietary funds often involve the charging or fees for services, they must be keptseparate and apart from regular school system operations. As self-supporting funds,they must provide for a means of internal billing. The two types of propriety funds aredescribed in the following Table 26-5:

Table 26-5Proprietary Funds

Enterprise FundAccount Code 21

Internal Service FundAccount Code 22

This fund type is used to account for business-like operations of a school system in whichdirect goods or services are provided toconsumers. These consumers may be eitherstudents are the general public. Theconsumers are directly charged for the goods

or services and the resulting revenues areused to help pay for the costs of the operation.Common examples are food serviceoperations, interscholastic athletics, the schoolnewspaper or yearbook, the bookstoreoperations, and for fee transportation services.The idea is that these activities are likeprivate enterprises, with services provided inturn for charges. As a result, enterprise

This fund type is used to account for business-like operations of the school system wherebygoods or services are provided to operationalunits inside the school system (other programs),other school systems, or other governmentalagencies on a cost-reimbursement basis.

Internal service funds are supported by user-charges. Examples could be printing, ormaintenance, central warehousing, purchasing,data processing Internal service funds aresupported by user-charges. Examples could beprinting, or maintenance, central warehousing,purchasing, data processing and others.


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revenues and expenditures are maintainedseparately.

Fiduciary Funds

There is a third type of fund necessary to describe the financial operations of apublic school system. These are known as fiduciary funds. Not all revenues to a schoolsystem fall neatly into the categories of governmental or proprietary funds. This fundtype is used to account for assets held by the school system as trustee or agent.Revenues are deposited into a fiduciary fund and the expenditures are controlled by an

agreement detailing the purpose of the fund, how the fund is to be managed, and thedisposition of the proceeds of the fund if the agreement is ever dissolved. These arefound in Table 26-6:

Table 26-6Types of Fiduciary Funds

Non-Expendable TrustFund Type 31

Expendable TrustFund Type 32

Agency FundsFund Type 38/39

This fund accounts for financialassets held by the schoolsystem in a trusteeship forsome specified purpose. Theinvestment earnings can bespent on the object of the trust,but never the principal.Scholarships are an examplewhere only the interest of theprincipal is used for awards.The endowment of the trust isto remain intact in perpetuity.

This is a similar type of fund tothe Non-Expendable Trust Fund,with the exception that theprincipal of the fund may also bespent for the specified purposeof the fund. The school systembecomes the steward of thepurpose of the fund and maydetermine to expend the entireassets and earnings of the fund.

This type of fund is createdwhen the school system acts asan agent for hold resources foranother group and disbursesthem as directed. These couldinclude funds for teacherorganizations, parentorganizations, or studentorganizations. In this case, theschool system plays a limitedrole in the collecting andtemporary holding of funds foranother party. A school systemcould use this fund set up acentral payroll to reduce the

number of accounts needed forpayroll transactions.

Account Groups

In account to funds, there is also the need to account for a school systems


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accumulation of both fixed assets and long-term debts. These are called AccountGroups because they are a grouping of records which account for and control generalfixed assets and unmatured principal of general long-term debt. The main value is thesetypes of accounts is the separation of fixed assets and debts from general operating

monies. However these account groups are not funds and do not report operations sincethey do not contain revenue or expenditure accounts. Changes in fixed assets and longterms debts are disclosed in the notes to the financial statements rather than in anoperating statement. These are found in Table 26-7:


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Table 26-7Account Groups

General Fixed Asset

Account Group Number 88

General Long-Term Debt

Account Group Number 89The general fixed asset group is used to recordthe cost of all property, plant, and equipment ofa school system. This of course does notinclude those assets of the proprietary or non-expendable trust fund types. As this accountgroup is used to record the general fixedassets, it will serve as a control account forreporting the accumulated cost/values of thefixed assets of land, land improvements,building, building improvements, equipment,construction in progress, capital leases andother fixed assets. Additional fixed assetsaccumulated during the year should beincluded in the financial statement annuallyand items destroyed, lost, or stolen should bedeleted annually. An itemized list shouldsummarize the changes each year.

The general long-term debt accounting group isused to record the unmatured principal amount ofall long terms liabilities. This of course does notinclude those liabilities of the proprietary or non-expendable trust fund types. This account groupwill be used to report the outstanding principalbalance of the long-term debt for the obligationsof bonds, warrants, warrant anticipation notes(those which are not due within one year), capitalleases, legal judgments, special assessmentspayable to other governmental units, unfundedpersonnel costs due upon retirement, andcompensated absences.

There is no single central or aggregate financial accounting entity. Separate statementsare prepared for each fund and account group. No fund is considered to be the parentfund.

Dimensions of Accounting

The account codes will be used later in coding financial transactions involvingthese types of funds and account groups. However, at this point the concept ofaccounting dimension should be further developed. Most simply stated, a dimensionis a block of related digits in an account code. In this case the related digits, two,describe a dimension of the accounting system in which financial transactions areattributed to the fund or account group to which they relate. The total specific accountcode for a transaction is made up of a combination of classifications, which are calleddimensions. Each dimension describes one way of classifying financial activity. The totalnumber of dimensions which will be applied in the Alabama Accounting Manual is nine(9). A way of thinking of the concept of dimensions is in describing a data on thecalendar. A date has three dimensions: the day can be two digits for the firstdimension; the month can be two digits for the second dimension; and the year can befour digits for the third dimension. Consider the following example in Table 26-8:


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Table 26-8Coding for Date

1 2 3

Dimensions Day Month YearDigits XX XX XXXX

Date 17 07 2002

Therefore, the calendar date that can be electronically or visually processedcarries a numeric code consisting of three dimensions and eight digits: 17-07-2002 or17072002. This is precisely the way the account coding process will be developed inthe following sections. The following table displays the fund and account groupclassifications with the corresponding code used in Alabamas school accountingsystem in Table 26-9:

Table 26-9Fund Classifications and Codes

Classification Code Type Code

(1) Governmental Funds 10-19 General Fund 11

Special Revenue Funds 12

Debt Service Funds 13

Capital Projects Fund 14

(2) Propriety Funds 20-29 Enterprise Funds 21

Internal Service Funds 22

(3) Fiduciary Funds 30-34 Trust funds

Non-Expendable Trust 31

Expendable Trust 32

35-49 Agency Funds

Payroll Clearing 38

Accounts Payable Clearing 39

Other Agency 40

(4) Account Groups 80-89 General Fixed Assets 88

General Long-Term Debt 89


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Accounting Dimensions in Detail

Dimension Number 1- Fund Type and Account Group

The Accounting System Components for Alabama now have introduced their firstdimension, the Fund Type and Account Group as seen in Table 26-10. The furtherdevelopment of the Accounting System will describe and discuss the application of theremaining eight (8) dimensions of the nine (9) dimension accounting system. Thesystem can be viewed in the following table, which will be progressively updated withadditional dimensions as they are presented in this document.

Table 26-10Dimensions of Accounting System - 1

1

Fund/Account

Group

XX

Categories

4

As seen above, the first dimension has a two digit code with four categories ofpossibilities.

Account Type

The Account Type is used to define a descriptive heading under which arerecorded financial transactions that are similar in terms of a given frame of reference.

As was stipulated in the beginning of this document, there are three major types offinancial activity:

Revenues and Other Sources of FundsExpenditures and Other Uses of FundsTransactions Affecting the Balance Sheet Only

The transactions affecting the balance sheet were determined to be of three basic typesin the stipulation of the minimum chart of accounts. These were the following:

AssetsLiabilitiesFund Equity

Therefore, the Account Type Dimension has five categories as seen in Table 26-11.


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Table 26-11Account Type Codes

Assets Liabilities Fund Equity Revenues Expenditures

Code 1 Code 2 Code 3 Code 4 Code 5

Dimension 2 Account Type Codes

With the adding of the Account Type Codes, the second dimension has beenapplied. This code consists of one (1) digit as seen in Table 26-12. The furtherdevelopment of the Accounting System will describe and discuss the application of theremaining seven (7) dimensions of the nine (9) dimension accounting system. Thesystem can be viewed in the following table, which will be progressively updated withadditional dimensions as they are presented in this document.


1 2

Fund/Account

GroupAccount

Type

XX X

Categories Categories

4 5

Account Code

The next dimension in the Accounting System is the Account Code. Thisdimension is more complicated and will require further explanation. Each of the fivetypes of accounts described above have an accompanying four (4) digit account code tofurther identify the specific financial activity. The types of account code categories forthe Account Code dimension are found in the following Table 26-13:


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Table 26-13Account Code Categories

Balance SheetCode 0100-0399 RevenuesCode 1000-9999 ExpendituresCode 1000-9999

(1) Assets (1) State Sources (1) Instructional Services

(2) Liabilities (2) Federal Sources (2) Instructional Support Services

(3) Fund Equity (3) Local Sources (3) Operation & Maintenance Services

(4) Other Sources (4) Auxiliary Services

(5) Other Financing Sources (5) General Administrative Services

(6) Capital Outlay

(7) Debt Services

(8) Other Expenditures(9) Other Fund Uses

The code structure for Balance Sheets looks very straightforward in Table 26-14:

Table 26-14Balance Sheet Account Codes

Balance Sheet Category Balance Sheet Code Ranges

(1) Assets 0100-0199

(2) Liabilities 0200-0299

(3) Fund Equity 0300-0399

However, the fact that the codes for Revenues and Expenditures have the samenumeric values may lead to some confusion. Consider that the meaning or definition ofthe code number is determined by the Account Type specified in Dimension 2. WhenAccount Type Code 4 for Revenues has been entered, the accounting systemattaches the definition of revenues sources to the account code range entered. TheSource of Revenue is obvious, generally government tax revenues from state, federal,and local sources.

When, however, Account Type Code 5 for Expenditures has been entered, theaccounting system attaches the definition of expenditures by function to the accountcode range entered. Expenditures by function means the action a person takes or thepurpose for which a thing exists or is used. Function includes the activities or actions,which are performed to accomplish the objectives of an enterprise (four digits).Expenditure by Function describes the purpose of the expenditure. It refers to anexpenditure activity or service area aimed at accomplishing a certain purpose or end. It is


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an essential component of reporting to the National Center for Education Statistics and isused to compare the expenditure patterns of the 50 states school systems to each other.The difference between Revenue and Expenditure Codes is further displayed in thefollowing tables that display the codes that will be used by the sub-category of each

category of dimension 3, account codes in Table 26-15:

Table 26-15Revenue Account Codes

Revenue Source Category Revenue Code Range

(1) State Sources 1000-2999

(2) Federal Sources 3000-5999

(3) Local Sources 6000-7999

(4) Other Sources 8000-8999

(5) Other Financing Sources 9000-9997

The category of revenues by the source of the revenues, predominately taxes, and thetype of tax or the federal programs allocating revenues to LEAs is a relatively simpletask. Expenditures are more complex.

Expenditure Accounts

Expenditures are the cost of doing business in a school system. Expenditures

are described as the cost of goods acquired or the cost of services secured, whetherpaid of unpaid, and include expenses, provisions for retirement of debt not reported as aliability of the fund from which retired, and capital outlays. Budgeting consists ofplanning the expenditures which the district expects to make along with the revenues itanticipates receiving during the upcoming school year. Expenditure structure is morecomplex than revenue for good reasons. While revenue sources fit into five categories,expenditures can be broken into many classifications. Expenditures in every state areclassified in a program budgeting format. This means that that are identified by fund,program, function, and object. This takes the description of the expenditure from themost general to the most specific. The issue here is expenditure by function and iscategorized in the following Table 26-16:


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Table 26-16Expenditure Account Codes by Function

Expenditure Categories Function Code Range(1) Instructional Services 1000-1999

(2) Instructional Support Services 2000-2999

(3) Operation & Maintenance Services 3000-3999

(4) Auxiliary Services 4000-4999

(5) General Administrative Services 6000-6999

(6) Capital Outlay 7000-7999

(7) Debt Service 8000-8999

(8) Other Expenditures 9000-9899

(9) Other Fund Uses 9900-9999

The addition of this third dimension represents perhaps one of the most important in theaccounting structure coding process to yield useful reports from the accounting system.

Dimension 3 Account Codes

With the adding of the Account Codes, the third dimension has been applied.This code consists of four (4) digits. The further development of the Accounting Systemwill describe and discuss the application of the remaining six (6) dimensions of the nine

(9) dimension accounting system. The system can be viewed in the following Table 26-17, which will be progressively updated with additional dimensions as they arepresented in this document.


1 2 3

Fund/Account

GroupAccount

TypeAccount

Code

XX X XXXX

Categories Categories Categories

4 5 3,5,9

Object of Expenditure


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The characterization of an expenditure by the Object of Expenditure for the finalpurpose for which expenditures are made. This term refers to the service or commodityobtained as the result of a specific expenditure. Objects of Expenditure are required to beused with the Function of Expenditure Code found in Dimension 3 when recording

expenditure transactions. The category is utilized only when the financial transaction is anexpenditure that is being accounted for and is a three (3) digit code. Objects ofexpenditure are divided into major categories that are found in the following Table 26-18:

Table 26-18Object of Expenditure Account Codes

Categories of Objects of Expenditure Object Account Code Range

(1) Personal Services 001-199

(2) Employee Benefits 200-299

(3) Purchased Services 300-399(4) Materials and Supplies 400-499

(5) Capital Outlay 500-599

(6) Other Objects 600-899

(7) Other Fund Uses 900-997

Dimension 4 Object of Expenditure Codes

`With the adding of the Object of Expenditure Codes, the fourth dimension has been

applied. This code consists of three (3) digits. The further development of theAccounting System will describe and discuss the application of the remaining five (5)dimensions of the nine (9) dimension accounting system. The system can be viewed inthe following Table 26-19, which will be progressively updated with additionaldimensions as they are presented in this document.


1 2 3 4

Fund/

AccountGroup

AccountType

AccountCode

Object of

Expend-iture

XX X XXXX XXX

Categories Categories Categories Categories

4 5 3,5,9 7


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Cost Center

The next dimension is a useful way of classifying expenditures by cost center oroperational unit. This dimension categorizes school system expenditures by school

system. It can be used to collect and report expenditures by school building or otherdesignated site. The cost center component in Table 26-20 is used in the accountingsystem to identify specific units for budgeting revenue and expenditures, accumulatingtransactions, and identifying financial resources designated for a particular unit.

Table 26-20Cost Center Component Codes

Cost Center Categories Cost Center Code Range

(1) No Cost Center Required 0000

(2) Non-School Sites (Special Population) 0001

(3) School Sites 0002-5000

(4) Vocational Centers 6000-6999

(5) Cost Center Pools 8000-8999

(6) Non-Regular Instructional Cost Centers 9000-9997

The Cost Center Code allows accountability for budgeting and expenditurecontrol. Since the Foundation Program identifies school building sites or cost centers inits calculation of cost to be reimbursed cost centers, it only makes logical sense torecord budgets and expenditures by cost center. Therefore, all expenditures are

required for all expenditure transactions. As expenditure transactions are recorded,they should be direct charged to the applicable school site or vocational cost center.Expenditures which are not charged to a specific site should be charged to a cost centerpool. Cost center codes must be used with revenue accounts only when budgeting isrequired for a revenue being restricted for a designated school site.

Dimension 5 Cost Center Codes

With the adding of the Cost Center Codes, the fifth dimension has been applied.This code consists of four (4) digits. The further development of the Accounting

System will describe and discuss the application of the remaining four (4) dimensions of

the nine (9) dimension accounting system. The system can be viewed in the followingTable 26-21, which will be progressively updated with additional dimensions as they arepresented in this document.


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1 2 3 4 5

Fund/Account

GroupAccount

TypeAccount

Code

Object ofExpend-

itureCost

Center

XX X XXXX XXX XXXX

Categories Categories Categories Categories Categories

4 5 3,5,9 7 6

Fund Source

The Fund Source Dimension is used to determine the source of revenues forexpenditures. Remember that when the Account Code Dimension was used forRevenues, then a code structure for revenues was entered. However, this informationwas not available when the Account Code Dimension was coded for an expenditure.Therefore, the addition of another dimension in Table 26-22 insures the recording of thesource of revenues for an expenditure. The Fund Source Codes are the same as theRevenue Account Codes.

Table 26-22Fund Source Codes

Revenue Source Category Revenue Code Range(1) State Sources 1000-2999

(2) Federal Sources 3000-5999

(3) Local Sources 6000-7999

(4) Other Sources 8000-8999

(5) Other Financing Sources 9000-9997

Dimension 6 Fund Source Codes

With the adding of the Fund Source Codes, the sixth dimension has beenapplied. This code consists of three (3) digits. The further development of the

Accounting System will describe and discuss the application of the remaining three (3)dimensions of the nine (9) dimension accounting system. The system can be viewed inthe following Table 26-23, which will be progressively updated with additionaldimensions as they are presented in this document.


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1 2 3 4 5 6

Fund/Account

GroupAccount

TypeAccount

Code

Object ofExpend-

itureCost

CenterFund

Source

XX X XXXX XXX XXXX XXXX

Categories Categories Categories Categories Categories Categories

4 5 3,5,9 7 6 5

Appropriation Year Component

Appropriation Year Codes are the seventh dimension used in conjunction withthe fund source to identify the appropriation year, grant year, and (or) fiscal year towhich the account or transaction is to be reported. The primary objective of this code isto provide a means of reporting state and federal grants by appropriation year. This isespecially valuable when multiple appropriation and grant year transactions occur withinthe same fiscal year. All balance sheet, revenue, and expenditure transactions mustreference the appropriate fund source and fiscal year code. The majority of accountingtransactions will record the current fiscal year appropriation year code. However,special revenue fund transactions in which most federal grant programs are maintainedmust sue the appropriate grant year code is the transaction relates to a carryover orprior year appropriation. These follow in Table 26-4 below:

Table 26-4Appropriation Year Codes

Appropriation Year Code

(1) Current Year Appropriations 0

(2) LEA Carryover Appropriations 1

(3) July September (Federal) Appropriations 2

(4) Prior Year State Appropriation Encumbrances 9

Dimension 7 Appropriation Year Codes

With the adding of the Appropriation Year Codes, the seventh dimension hasbeen applied. This code consists of one (1) digit. The further development of the

Accounting System will describe and discuss the application of the remaining two (2)dimensions of the nine (9) dimension accounting system. The system can be viewed inthe following Table 26-24 which will be progressively updated with additionaldimensions as they are presented in this document.


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1 2 3 4 5 6 7Fund/

AccountGroup

AccountType

AccountCode

Object ofExpend-

itureCost

CenterFund

Source

Appro-priation

Year

XX X XXXX XXX XXXX XXXX X

Categories Categories Categories Categories Categories Categories Categories

4 5 3,5,9 7 6 5 4

Program Component

The eighth dimension is the Program Component Code. As was true in the caseof the Object of Expenditure Code, when the Account Code is a Revenue Code, then noProgram Code is required. Obviously, it is impossible to assign a Revenue Code to aProgram of Expenditure Category. The Program of Expenditure is the broadestcategorization of expenditures whereas the Object of Expenditure was the mostspecific. A program is a plan of activities and procedures designed to accomplish apredetermined objective or set of objectives. The Program Code Component allowsLEAs to charge program costs, instructional and support, directly to the benefitingprogram. For example, special education transportation cots are recorded directly to

the Special Education Program. For Regular Education Programs, this componentallows for costs to be recorded by grade level or subject area by a four (4) digit code.Table 26-25 below lists the categories and codes:

Table 26-25Program Component Codes

Program Component Categories Program Component Code Ranges

(1) No Program Code Required 0000

(2) Instructional Programs 1000-7999

Regular Education Programs 1000-1999

Special Education Programs 2000-2999

Vocational/Technical Education Programs 3000-3999

Non-Regular Day School Instructional Programs. 4000-5999

(3) Program Pools 8000-8999

(4) Non-Instructional Programs 9000-9997


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Dimension 8 Program Codes

With the adding of the Program Codes, the eighth dimension has been applied.This code consists of four (4) digits. The further development of the Accounting System

will describe and discuss the application of the remaining one(21 dimensions of the nine(9) dimension accounting system. The system can be viewed in the following Table 26,which will be progressively updated with additional dimensions as they are presented inthis document.

Table 26Dimensions of Accounting System - 8

1 2 3 4 5 6 7 8

Fund/Account

Group

Account

Type

Account

Code

Object ofExpend-

iture

Cost

Center

Fund

Source

Appro-priation

Year ProgramXX X XXXX XXX XXXX XXXX X XXXX

Categories Categories Categories Categories Categories Categories Categories Categories

4 5 3,5,9 7 6 5 4 4

Special Use Component

The ninth and final dimension, the Special Use Component, is used in thereporting classification to provide specific identification not provided in othercomponents and allow for a further breakdown or subdivision. The following codes are

provided in Table 26-27 below:

Table 26-27Special Use Component Codes

Special Use Component Categories Special Use Code Ranges

(1) No Special Use Code Necessary 0000

(2) State Department of Education Use 0001-0099

Classroom Instructional Support 0001-0019

Matching 0020-0049

State Special Use 0050-0099(3) Local School System Use 0100-9999

LEAs Use 0100-6999

Local School Accounting Activity Codes 7000-7999

Interfund Receivable/Payable 8000-8999

Payroll Deduction Designators 9000-9999


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Dimension 9 Special Use Codes

With the adding of the Special Use Codes, the Ninth and final dimension has

been applied. This code consists of four (4) digits and is found in Table 26-28 below:

Table 26-28Dimensions of Accounting System 9

1 2 3 4 5 6 7 8 9

Fund/Account

GroupAccount

TypeAccount

Code

Object ofExpend-

itureCost

CenterFund

Source

Appro-priation

Year ProgramSpecial

Use

XX X XXXX XXX XXXX XXXX X XXXX XXXXCategories Categories Categories Categories Categories Categories Categories Categories Categories

4 5 3,5,9 7 6 5 4 4 4

This completes the full complement of accounting codes used to fully recordfinancial transactions according to the Alabama School Finance Accounting Manual.It should be very clear by now that the most rigorous component of the accounting

system is the recording and reporting of expenditures. While accurate recording ofrevenues is vitally important, these data can be obtained from primary sources for themost part from which the revenues were generated. The State Department candocument the both the state and federal revenues received by LEAs. For those federalfunds not allocated by the SDE, other appropriate agencies can provide such data.

Local revenues will originate with county revenue commissioners, county commissions,or municipal boards that have their own governmental accounting standards to followand audits to be prepared. With the exception of other local revenues, the revenuescan be fully documented by other governmental entities than the LEA.

Reporting by Expenditures

The situation with expenditures is entirely different. Since expenditures arebudgeted and paid fully with the direction, oversight, and accounting of LEAs, they arethe only source of such information. This and the need for accountability with the

taxpayers dollars makes the reporting of expenditures so very important. Consideronce again the detail to which the accounting system allows the documentation ofexpenditures:

A. Expenditure by Fund. Expenditures are first classified as expenditure from agovernmental fund, proprietary fund, fiduciary fund, or an account group. Thepurpose of starting with the Fund is obvious; revenues are assigned to a fund on theexpected basis of use in supporting some type of activity of the school system.


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Expenditures must therefore be assigned to the proper fund and the balance in thefund reduced.

B. Expenditure by Program. A further classifying of expenditures is classification by

program. A program is a plan of activities and procedures designed to accomplisha predetermined objective or set of objectives. The following categories have beenidentified:1. Instructional Programs

a. Regular Education Programsb. Special Education Programsc. Vocational/Technical Education Programsd. Non-Regular Day School Instructional Programs

2. Program Pools3. Non-Instructional Programs

C. Expenditure by Function. The function represents the purpose of the expenditure.It refers to an expenditure activity or service area aimed at accomplishing a certainpurpose or end. Generally, the financial activities of school systems are divided into majorfunctions. The following categories have been identified:

1. Instructional Services2. Instructional Support Services3. Operation and Maintenance Services4. Auxiliary Services5. General Administrative Services6. Capital Outlay Real Property7. Debt Services Long-Term

8. Other Expenditures

D. Expenditure by Object. Expenditures are finally classified by object, which is the finalpurpose for which expenditures are made. This term refers to the service or commodityobtained as the result of a specific expenditure. The following categories have beenidentified:

1. Personal Services2. Employee Benefits3. Purchased Services4. Materials and Supplies5. Capital Outlay6. Other Objects7. Other Fund Uses

Responsibilities for Account Coding

Generally, the responsibility for the Dimensions for (1) Fund/Account Group, (2)


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Account Type, (3) Account Code, and (4) Object of Expenditure will be a responsibility ofthe Finance Officer of Custodian of Funds of the LEA as follows in Figure 26-1:

Figure 26-1

General Ledger and Special Reporting Codes

1 2 3 4

|- -| |-| |- - - -| |- - -|

General Ledger CodesPrimary Responsibility of Finance Officer

5 6 7 8 9|- - - -| |- - - -| |-| |- - - -| |- - - -|

Special Reporting CodesPrimary Responsibility of Program Managers/Principals

The further breaking down of expenditures will be the account coding responsibility ofthe program managers or principals at the cost center level. In summary, completelyrecording a financial transaction involves the use of nine dimensions with digitizedcodes for each:

1 is Fund Type & Account Group (2 digits) 5 is Cost Center Code (4 digits)2 is Account Type (1 digit) 6 is Fund Source Code (4 digits)3 is Account Code (4 digits) 7 is Appropriation Year(1 digit)4 is Object Code (3 digits) 8 is Program Code (4 digits)

9 is Special Use Code (4 digits)

Thus the total coding structure is thus 27 digits.

GASB Statement 34

What Is It and Where Did It Come From?

In June 1999, the GASB enacted sweeping changes in the way school districtsreport their finances to the public. These sweeping changes are embodied in GASBStatement 34, Basic Financial Statementsand Managements Discussion and

Analysisfor State and Local Governments. Statement 34 changes the format andcontents of school system financial statements to better meet the intentions of GASB


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spelled out in its Concepts Statement No. 1, Objectives of Financial Reporting.Statement 34 applies to all state and local governments, including school systems,public colleges and universities, public hospitals and healthcare organizations, publicmuseums and cultural institutions, libraries, public employee retirement systems, and so

on.

When the GASB was established, it inherited several outstanding researchissues from the National Council on Governmental Accounting (NCGA). None wasmore ambitious and wide-ranging than the project to revise the design school districtsfollow when reporting their finances publicly. The project that culminated in Statement34 spanned the entirety of the GASBs then 15 year existence.

In June 1999, the GASB issued Statement No. 34, Basic Financial Statements -and Managements Discussion and Analysis - for State and Local Governments. ThisStatement will affect how the financial statements / audits are presented for political

subdivisions. Paragraph 143 of Statement 34 sets forth a three-phase implementationschedule for the new financial statements, based on a governments total annualrevenues. The following implementation schedule in Table 26-29 is based on thepolitical subdivisions total revenue for the fiscal year ending June 30, 1999.

Table 26-29GASB Statement 34 Implementation Schedule

Total Revenues All Provisions of GASB 34 Exceptfor Retroactive Reporting of

Infrastructure Assets

Retroactive Reporting of InfrastructureAssets

$100 Million or More Starting fiscal years ending June30, 2002

Starting fiscal years ending June 30,2006

$10 Million to $100Million

Starting fiscal years ending June30, 2003

Starting fiscal years ending June 30,2007

Less than $10 Million Starting fiscal years ending June30, 2004

Retroactive Reporting of InfrastructureAssets Not Required

The numerical designation for the fiscal year comes from the calendar year inwhich it ends. For the federal government fiscal year and for the State of Alabamafiscal year, the fiscal year ends on September 30. GASB has encouraged earlyimplementation of all of Statement 34. In general, these changes are required minimumaccounting standards. This will mean significant changes in local school boards auditreports, beginning for some boards as early as this year. And, while actual accountingsystems wont change, the new reports will include some previously omittedexpenditures that will cause most school boards to look financially over-extended.


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GASB Statement 34 rules are designed to give the public, bond buyers and otherinterested parties a clearer, more realistic and easier to understand report on what itcosts governmental bodies, including school boards, to do business. These rulesschool boards and their auditors to begin releasing information about their financial

health using financial statements that show all assets, liabilities and revenues when theyonly actually when they occur, the full accrual method. The change means schoolboards that incur debts at the start of each school year (in one fiscal year) for whichthey will eventually receive state funding (in the next fiscal year), will likely at least onpaper appear to be in the red on their financial statements.

The problem occurs largely because Alabama is one of only two states with anOctober-September fiscal year, instead of a July-June year. Thus, school boards mustsplit each school years expenses between two different fiscal years. Further, in order topay teachers (and others who work less than 12 months a year) in 12 paychecksinstead of nine, a portion of their pay each month is escrowed to pay them in the

summer months. But under the new full accrual reporting method, the portion of thesalaries that are escrowed in August and September will show as a debt. The earlieryour school system resumes classes each fall, the bigger the debt will appear on youraudit statement.

State examiners do plan to include notes with school board audits explaining that theboards will receive the revenues to cover the accrued and escrowed salaries in the nextfiscal year. In addition to the new rules on accrual issues, GASB will require schoolsystems to include in their audits financial statements showing their long-term debt,depreciation of equipment and capital assets. Although most school boards have morein fixed assets (like buildings and equipment), financial statements for those that aregrowing rapidly and have long-term financing of multiple building projects likely will show

deficits here too. GASB 34 does have some redeeming qualities, however. It willrequire school systems to include in their audit reports a management discussion andanalysis that highlights and interprets changes in the budget from year to year.Specifically, the analysis must include:

A comparison of current year and prior year results, with explanations of anysignificant changes;

A comparison of the years original budget, final budget and actual revenuesand expenditures, again with explanations of the changes; and

A discussion of any other relevant situations or issues that have or will have asignificant impact on the school systems financial position.

This discussion and analysis, which likely will be written by superintendents and theirstaffs, is expected to give school boards and the public a more detailed understandingof the factors that impacted the previous years budget. It is unclear if the discussionand analysis will require school board approval. The GASB changes are being phasedin starting with the current fiscal year for school boards that had total revenues of $100million or more in FY 99 when GASB announced the changes. That means only sevenboards Baldwin County, Birmingham, Huntsville, Jefferson County, Mobile County,


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Montgomery County and Shelby County will be required to comply when the currentfiscal year is audited. Most other boards those that had revenues between $10 millionand $100 million in FY 99 will be folded in next year. The remaining boards will becovered beginning in FY 04. However, State auditors will begin using the full accrual

financial statements with the resulting deficits in audits being conducted now for the2001 fiscal year.

In addition to switching to the full accrual method as the basis of accounting,changes will also occur in fund classification. Some of the changes in reporting by fundfollow. The four classifications of funds are previously discussed would now be dividedinto the following fund types:

Governmental Funds1. General Fund2. Special Revenue Funds

3. Capital Projects Funds4. Debt Service Funds5. Permanent Funds (GASB Statement 34)

Proprietary Funds6. Enterprise Funds7. Internal Service Funds

Fiduciary Funds8. Trust and Agency Funds (this fund type is eliminated when GASB

Statement 34 is Implemented)

8. Pension Trust Funds9. Private-Purpose Trust Funds (GASB Statement 34)10. Agency Funds

Account Groups11. General Fixed Assets12. General Long-Term Debt

In the case of Governmental Funds, these are the funds through which mostLEA functions are typically financed. The reporting focus of these funds is upon

determining financial position rather than net income. A new category is createdwhen GASB Statement 34 is implemented entitled Permanent Funds. Thisgovernmental fund type was introduced as part of the governmental financial reportingmodel established by GASB Statement No. 34.

In the case ofFiduciary Funds, these are the funds used to account forassetsthat benefit individuals, private organizations, or other governments (GASBStatement 34)which are held by an LEA as trustee or agent. Each trust fund is treated


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for accounting measurement purposes in a manner similar to either a governmentalfund or a proprietary fund. Expendable trust funds(eliminated when GASB Statement34 is implemented) (Permanent Funds (GASB Statement 34) are accounted for inessentially the same manner as governmental funds. Nonexpendable trust funds

(eliminated when GASB Statement 34 is implemented)and pension trust funds areaccounted for in essentially the same manner as proprietary funds. Agency funds arepurely custodial (assets equal liabilities) and thus do not involve measurements ofresults of operations.

GASB's objective in developing the new reporting model was to improvegovernments' accountability in financial reporting and provide additional information fordecision-making. The new model includes a focus on medium- to long-term operationalaccountability in addition to the traditional focus on current-year fiscal accountability. Inthe course of generating the new financial reporting requirements, GASB's due processprocedures garnered valuable suggestions that weighed heavily on GASB's decisions.

RSI + BFS + RSI = GAAP

Under the new reporting model, governments will issue annual basic financialstatements (BFS) preceded and followed by required supplementary information(RSI). This information replaces the general purpose financial statements currentlyrequired.

Management's Discussion and Analysis (MD&A)

This is now defined as Required Supplemental Information (RSI). GASBStatement No. 34 provides that MD&A "should provide an objective and easily readableanalysis of the government's financial activities" based upon facts, decisions, orconditions known to management as of the auditor's report date. MD&A should focus onthe primary government, though comments on individual discrete component units maybe included when appropriate. MD&A should emphasize current-year activities butinclude prior-year comparisons when relevant. Statement No. 34 establishes certainminimum content requirements for MD&A while encouraging flexibility in its preparation.Briefly, these requirements include the following:

A description of the basic financial statements and the relationship of thegovernment-wide financial statements to the fund financial statements. Thediscussion should assist readers to understand whether measurements andresults presented in the fund financial statements reinforce the information in thegovernment-wide statements or provide additional information.

Comparative condensed financial information derived from the government-wide financial statements.


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Explanations for significant improvement or deterioration in financial positionand results of operations from the prior year, addressing both governmental andbusiness-type activities.

Analysis of significant changes in balances and transactions of individualfunds.

Analysis of significant differences between 1) the original and final budgetamounts and 2) the final budget amounts and actual budgetary results, for thegeneral fund.

Descriptions of capital asset and long-term debt activities taking place duringthe year.

SUMMARY

The following statements summarize the accounting principles and standards ofreporting which have been discussed in the preceding material.

1. A balance sheet shows the financial position at a given date.2. An operating statement shows the changes in financial position and results

of operations during a period ending on the balance sheet date.3. The things a district owns are called assets.4. The amounts a district owes are called liabilities.5. The excess of assets over liabilities is called equity or fund balance.6. Receipts are increases in cash.

7. Disbursements are decreases in cash.8. Increases in assets or decreases in liabilities which result in an increase in

fund balance are called revenue.9. Decreases in assets or increases in liabilities which result in a decrease in

fund balance are called expenditures.10. Increases and decreases in equity are called revenues and expenses,

respectively.11. Fund accounting is used by LEAs to permit accounting separately for

resources affected by different types of spending restrictions and/oraccounting principles.

12. Debits are entries to the left side of the account.13. Credits are entries to the right side of the account.14. Assets normally have debit balances; therefore

debits increase assetscredits decrease assets

15. Liabilities and fund balances normally have credit balances; therefore debits decrease liabilities and fund balances credits increase liabilities andfund balances.


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16. The original entry of a financial transaction in the records is made in ajournal.

17. From the journal, transactions are posted to accounts in the ledgers.18. A set of account records is called a ledger.

19. A trial balance is a listing of account titles, account numbers, and balancesfor the purpose of determining whether the accounts are in balance -whether the total of all debit account balances equals the total of all creditaccount balances.

20. Generally accepted accounting principles (GAAP) are standards foraccounting and reporting. GAAP applicable to governmental organizationsare published by the National Council on Governmental Accounting(NCGA).

21. The basis of accounting refers to the point in time at which transactions arerecognized in the accounting system.

22. In cash basis accounting, financial transactions are recognized only when

cash is taken in or paid out.23. In accrual basis accounting, revenues are recognized when they are earned

and expenditures are recognized when goods are consumed or servicesrendered. The accrual basis is used for proprietary type funds.

24. The modified accrual basis of accounting is used for governmental typefunds. On this basis, revenues are recognized when they are available andmeasurable and expenses are recognized when a liability is incurred.

25. Revenue and other financing sources accounts appear in the operatingstatement prepared at the close of the fiscal year.

Glossary - List of Acronyms

AICPA - American Institute of Certified Public AccountantsASLGU - AICPA's Audit and Accounting GuideAudits of State and Local Governmental

UnitsCAFR - Comprehensive Annual Financial ReportCART - Committee-Appointed Review TeamCFDA - Catalogue of Federal Domestic AssistanceCPA - Certified public accountantEDP - Electronic data processingFASB - Financial Accounting Standards BoardFFA - Federal financial assistanceGAAP - Generally accepted accounting principlesGAAS - Generally accepted auditing standardsGAO - United States Government Accounting OfficeGAS - Government Auditing StandardsGASB - Governmental Accounting Standards BoardGFOA Government Finance Officers AssociationGPFS - General purpose financial statements


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IBNR - Incurred but not reportedNCGA National Council on Governmental AccountingNSLP - National School Lunch ProgramOMB - United States Office of Management and Budget

SAS - AICPA Statements on Auditing StandardsSFAS - Statement on Financial Accounting StandardsSupplementary Schedule- Supplementary Schedule of Federal Financial AssistanceUSDA - United States Department of Agriculture

Appendices Which Follow

26. FUND ACCOUNTING

1. Accounting System Components: Dimensions, Categories, and Codes

2. Fund Organization Chart

3. Accounting Entities of State and Local Governments

4. Revenue Accounts

5. Expenditure Accounts

module 26 fund accountingq

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