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Accountancy 4365/7365Exam 1 Study Guide
Summer 2011
Exam 1 will cover Chapters 1-6 of the textbook. The exam may consist of multiple-choice
questions, matching, and problems requiring the preparation of journal entries. You will
not be asked to prepare any financial statements on the exam. In order to properly preparefor this exam, I recommend reading Chapters 1-6 in the textbook, reviewing the
PowerPoint slides, and practicing the suggested homework problems assigned for each
chapter. There are also a number of journal entry examples in the textbook that would be
beneficial for you to review. Additionally, you should make sure you have a goodunderstanding of the bold-faced terms from each chapter. Specific suggestions for what
information to focus on in Chapters 1-6 are as follows:
Chapter 1
Understand what distinguishes governmental and not-for-profit entities frombusiness organizations
1. Benefits are not proportional to resources provided
2. Lack of a profit motive3. Absence of transferable ownership rights
Be able to determine whether a not-for-profit organization should be considered a
governmental entity1. Public corporations and bodies corporate and politic
2. Other organizations with one or more of the following characteristics:1. Popular election of officers or appointment of a controlling majority
of the governing body by officials of another government
2. Potential dissolution by a government with net assets reverting to a
government3. Power to enact and enforce a tax levy
4. Guidance from the AICPA states that NPOs who meet any of the
above characteristics are considered to be governmental entities.5. Public corporations and bodies corporate and politic public
hospital, public library, public college as opposed to private
hospital, private library, or private college
3. Know the minimum financial reporting requirements for state and local
governments (Illustration 1-3)
1. GASB standards recommend, but dont require, that eachgovernmental entity prepare a CAFR. The minimum
reporting requirements to meet generally accepted
accounting principles (GAAP) were listed on the previousslide: MD&A, Basic Financial Statements, and RSI other
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U.S. Comptroller General, Secretary of the Treasury, and Director of
the Office of Management and Budget.
5. Financial Accounting Standards Board (FASB)
1. The designated organization in the private sector for establishing
standards of financial accounting and reporting since 1973.
6. Fiscal accountability1. Current-period financial position and budgetary compliance reported
in fund-type financial statements of governments. See also Financial
Accountability.
7. Fund financial statements
1. A category of the basic financial statements that assist in assessing
fiscal accountability.
8. General purpose governments
1. Governments that provide many categories of services to their
residents, such as states, counties, municipalities, and townships.
Typical services include public safety, road maintenance, and health
and welfare.9. Generally accepted accounting principles (GAAP)1. The body of accounting and financial reporting standards,
conventions, and practices that have authoritative support from
standards-setting bodies such as the Governmental Accounting
Standards Board and the Financial Accounting Standards Board, or
for which a degree of consensus exists among accountingprofessionals at a given point in time. Generally accepted accounting
principles are continually evolving as changes occur in the reporting
environment.
10. Governmental Accounting Standards Board (GASB
1. )The independent agency established under the Financial
Accounting Foundation in 1984 as the official body designated bythe AICPA to set accounting and financial reporting standards for
state and by the AICPA local governments.
11. Government-wide financial statements1. Two statements prescribed by GASBS 34 designed to provide a
highly aggregated overview of a government's net assets and results
of financial activities.
12. Interperiod equity
1. A term coined by the Governmental Accounting Standards Board
indicating the extent to which current-period revenues are adequate
to pay for current-period services.
13. Major fund
1. Funds are classified as major if they are significantly large with
respect to the whole government. A fund is "major" if (a) totalassets, liabilities, revenues, or expenditures/expenses of the
individual governmental or enterprise fund are at least 10 percent of
the corresponding total of assets, liabilities, revenues, or
expenditures/expenses for all funds of that category or type (total
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governmental or total enterprise funds), and (b) total assets,
liabilities, revenues, or expenditures/expenses of the individual
governmental fund or enterprise fund are at least 5 percent of thecorresponding total for all governmental and enterprise funds
combined.
14. Management's Discussion and Analysis (MD&A)1. Narrative information, in addition to the basic financial statements,
in which management provides a brief, objective, and easily
readable analysis of the governments financial performance for theyear and its financial position at year-end. An MD&A is required by
GASBS 34 for state and local governments and by FASABs
SFFAC No. 3 for federal agencies.
15. Operational accountability
1. Information useful in assessing operating results and short- and
long-term financial position and the cost of providing services from
an economic perspective reported in entitywide financial statements.
16. Required supplementary information (RSI)1. Information that is required by generally accepted accounting
principles to be included with the audited annual financialstatements, usually directly following the notes to the general
purpose external financial statements.
17. Service efforts and accomplishments (SEA)
1. A conceptualization of the resources consumed (inputs), tasksperformed (outputs), goals attained (outcomes), and the relationship
among these items in providing services in selected areas (e.g.,
police protection, solid waste garbage collection, and elementaryand secondary education).
18. Special purpose governments
1. Governments that provide only a single function or a limited numberof functions, such as independent school districts and special
districts. Formerly called limited purpose governments.
Chapter 2
1. Accrualbasisa. The basis of accounting under which revenues are recorded when earned
and expenditures (or expenses) are recorded as soon as they result in
liabilities for benefits received, notwithstanding that the receipt of cash orthe payment of cash may take place, in whole or in part, in another
accounting period. See also Accrue and Levy.
2. Agencyfundsa. Funds consisting of resources received and held by the government as an
agent for others; for example, taxes collected and held by a municipality for
a school district. Note: Sometimes resources held by a government for other
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organizations are handled through an agency fund known as a pass-through
agency fund
3. Available
a. Collectible within the current period or soon enough thereafter to be used to
pay liabilities of the current period.
4. Blendedpresentationa. The method of reporting the financial data of a component unit in a manner
similar to that in which the financial data of the primary government are
presented. Under this method the component unit data are usually combinedwith the appropriate fund types of the primary government and reported in
the same columns as the data for the primary government except General
Funds. See Discrete Presentation.
5. Business-typeactivitiesa. Commercial-type activities of a government, such as public utilities (e.g.,
electric, water, gas, and sewer utilities), transportation systems, toll roads,
toll bridges, hospitals, parking garages and lots, liquor stores, golf courses,
and swimming pools.6. Capitalprojectsfunds
a. A fund created to account for all resources to be used for the construction oracquisition of designated capital assets by a government except those
financed by proprietary or fiduciary funds.
7. Componentunits
a. Separate governments, agencies, or not-for-profit corporations that,pursuant to the criteria in the GASB Codification, Section 2100, are
combined with other component units to constitute the reporting entity
(q.v.).8. Currentfinancialresources
a. Cash or items expected to be converted into cash during the current period
or soon enough thereafter to pay current period liabilities.
9. Debt service funds
a. A fund established to finance and account for the payment of interest and
principal on all tax-supported debt, serial and term, including that payablefrom special assessments.
10. Discretepresentationa. The method of reporting financial data of component units in a column(s)
separate from the financial data of the primary government.
11. Economic resources measurement focus
a. Attention on measuring the total economic resources that flow in and out of
the government rather than on measuring current financial resources only.12. Enterprisefunds
a. A fund established to finance and account for the acquisition, operation, and
maintenance of governmental facilities and services that are entirely orpredominantly self-supporting by user charges; or for when the governing
body of the government has decided periodic determination of revenues
earned, expenses incurred, and/or net income is appropriate.
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a. A generic classification used by the GASB to refer to all funds other than
proprietary and fiduciary funds. The General Fund, special revenue funds,
capital projects funds, debt service funds, and permanent funds are the typesof funds referred to as governmental funds.
22. Internal service funds
a. Funds established to finance and account for services and commoditiesfurnished by a designated department or agency to other departments and
agencies within a single government or to other governments. Amounts
expended by the fund are restored thereto either from operating earnings orby transfers from other funds, so that the original fund capital is kept intact.
Formerly called a working capital fund or intragovernmental service fund.
23. Investment trust funds
a. Funds used to account for the assets, liabilities, net assets, and changes innet assets corresponding to the equity of the external participants.
24. Major funds
a. Funds are classified as major if they are significantly large with respect to
the whole government. A fund is "major" if (a) total assets, liabilities,revenues, or expenditures/expenses of the individual governmental or
enterprise fund are at least 10 percent of the corresponding total of assets,liabilities, revenues, or expenditures/expenses for all funds of that category
or type (total governmental or total enterprise funds), and (b) total assets,
liabilities, revenues, or expenditures/expenses of the individual
governmental fund or enterprise fund are at least 5 percent of thecorresponding total for all governmental and enterprise funds combined.
25. Modified accrual basis
a. Under the modified accrual basis of accounting, required for use bygovernmental funds (q.v.), revenues are recognized in the period in which
they become available and measurable, and expenditures are recognized at
the time a liability is incurred pursuant to appropriation authority.
26. Pension trust funds
a. The organizations that collect retirement and other employee benefit
contributions from government employers and employees, manage assets,and make payments to qualified retirants, beneficiaries, and disabled
employees.
27. Permanent funds
a. Governmental-type funds used to account for public-purpose trusts forwhich the earnings are expendable for a specified purpose, but the principal
amount is not expendable (i.e., an endowment).
28. Primary government
a. A state government or general purpose local government. Also, a special-
purpose government that has a separately elected governing body, is legally
separate, and is fiscally independent of other state or local governments.
29. Private-purpose trust funds
a. Funds that account for contributions received under a trust agreement in
which the investment income of an endowment is intended to benefit an
external individual, organization, or government.
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30. Proprietary funds
a. Sometimes referred to as income determination, business-like, or
commercial-type funds of a state or local government. Examples areenterprise funds and internal service funds.
31. Reporting entity
a. The primary government and all related component units, if any, combinedin accordance with GASB Codification Section 2100 constitute the
governmental reporting entity.
32. Special revenue funds
a. Funds used to account for revenues from specific taxes or other earmarked
revenue sources that by law are designated to finance particular functions or
activities of government. After the fund is established, it usually continues
year after year until discontinued or revised by proper legislative authority.An example is a motor fuel tax fund used to finance highway and road
construction.
In Chapter 2, you will learn about the different types of funds used by governmentalentities.
Activites of Government
o Governmental Activities
o Business-Type Activities
o Fiduciary Activities
The following two sets of basic financial statements are required:
o Government-Wide Financial Statements (Illustrations 1-4, 1-5, and 2-1)
Present financial information using the accrual basis of accounting
and the economic resources measurement focus (i.e., similar to for-
profit companies)
Report the primary governments financial information in twocolumns (Governmental Activities and Business-Type Activities)
Internal Service Fund information is usually reported in theGovernmental Activities column
Fiduciary activities are not reported at all in the Government-Wide
Financial Statements
o Fund Financial Statements (Illustrations 1-6 through 1-13 and 2-1)
Two financial statements for Governmental Funds
A category used for all funds other than those considered to
be Proprietary Funds or Fiduciary Fundso Types
General Fund
Only one per governmental entity
Used to account for most general
government operating activities
Special Revenue Funds
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Enterprise Funds are reported as Business-
Type Activities in the Government-WideFinancial Statements
Examples include electric and water utilities,
airports, golf courses, parking garages,
transportation systems, and liquor stores Two financial statements for Fiduciary Funds
Any fund held by a governmental unit in a fiduciary capacity
(agent or trustee) for an external party
o Agency Funds
Used to account for financial resources in
which the government is acting in an agency
capacity
Accounting is simple: Assets = Liabilities
No revenue, expense, or fund equity accounts
are used
Examples are tax agency funds, specialassessment debt service funds, and pass-
through agency funds
o Investment Trust Funds
Used to account for external investment poolsin which the assets are held for other external
governments along with funds of the
sponsoring government
The assets, liabilities, net assets, and changes
in net assets corresponding to the equity of
the external participants are reported in these
funds.
o Private-Purpose Trust Funds
Used to account for nonexpendable financial
resources in which the government is actingin a trustee capacity
Created to benefit private individuals
Accounting is virtually identical to that of an
Enterprise Fund
o Pension Trust Funds
Used to account for financial resources in
which the government is acting in a trusteecapacity for the employees of the governmentto provide retirement benefits
Follow business-type accounting practices
o
Illustration 2-3 provides a great summary of the characteristics of each fund type.
Understand the measurement focus and basis of accounting concepts
n Modified Accrual Basis
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1. Revenues are recognized when measurable and available
2. Expenditures are recognized when incurred
n Accrual Basis (or Full Accrual Basis)1. Revenues are recognized when earned
2. Expenses are recognized when incurred
n
Economic Resources Measurement Focus1. Report on the determination of financial position, net income, and
cash flows (i.e., capital maintenance)
2. Used to assess operational accountability
n Current Financial Resources Measurement Focus
1. Report on the inflows and outflows of current financial resources
(cash or other items expected to be converted into cash during the
current period)2. Used to assess fiscal accountability
Know what a governmental financial reporting entity consists of1. primary government is:
1. A state government,
2. A general-purpose local government (e.g., city, town,county, etc.), or a
3. Special-purpose government that has a separately elected
governing body, is legally separate, and is fiscally
independent of other state or local governments.AND2. The component units of the primary government
1. A component unit is:2. A legally separate organization for which the elected
officials of a primary government are financially accountable
Know the characteristics of each fund type (Illustration 2-2)
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Think about different fund types like different savings accounts. Lets say your parents give
you a certain amount of money each month for college expenses (tuition and books). And
lets also say that you have a job. The money you make from your job goes towardsapartment expenses (rent, utilities, telephone), groceries, gas, and extracurricular activities.
If you wanted to segregate your money to make sure you had money set aside to cover
each of those expenses, you could set up separate savings accounts. You might set up onesavings account for your college expenses, and all the money your parents give you gets
deposited directly into this account. That way, you don't accidentally spend that money on
other things like groceries or extracurricular activities. Then you might set up anothersavings account to set aside money from your job that needs to cover your apartment
expenses, groceries, and gas. Finally, you might set up a third savings account to set aside
any leftover money that can be used for extracurricular activities and other miscellaneous
expenses. Now, I realize you probably wouldn't really set up three different savingsaccounts like I have suggested above. This is just an example to try to help you understand
the purpose of a governmental entity setting up different funds. Each fund is like a separate
savings account for the governmental entity. The purpose of having different funds is to
segregate money, so the governmental entity can make sure the money they receive fromvarious resources is spent on what it was intended to be used for. Each fund has its own set
of books which a governmental entity must record journal entries into, and trial balancesand financial statements are then prepared for each individual fund.
It is equally important for you to understand that there are two sets of financial statements
that must be prepared for governmental entities. These two sets of financial statements areessentially presenting the same financial information, but in different ways. The
government-wide financial statements are like a for-profit company's consolidated
financial statements that provide a picture of how efficiently and how effectively thegovernmental entity is performing overall. The fund financial statements are like the
individual subsidiary financial statements of a for-profit company. These financial
statements are used to ensure the government is staying within the budget and complyingwith the applicable laws and regulations for each individual fund.
Chapter 3
1. Activity
a. A specific and distinguishable line of work performed by one or more
organizational components of a government for the purpose of
accomplishing a function for which the government is responsible. Forexample, food inspection is an activity performed in the discharge of the
health function. See also Function, Subfunction, and Subactivity.
2. Ad valorem property taxesa. In proportion to value. A basis for levy of taxes on property.
3. Allotment
a. A part of an appropriation (or, in federal usage, parts of an apportionment)that may be encumbered (obligated) or expended during an allotment
period.
4. Appropriation
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a. Authorizations granted by a legislative body to incur liabilities for purposes
specified in the Appropriation Act (q.v.). Note: An appropriation is usually
limited in amount and as to the time when it may be expended. See,however, Indeterminate Appropriation.
5. Budgetary accounts
a. Those accounts that reflect budgetary operations and condition, such asestimated revenues, appropriations, and encumbrances, as distinguished
from proprietary accounts. See also Proprietary Accounts.
6. Character
a. A basis for distinguishing expenditures according to the periods they are
presumed to benefit. See also Character Classification.
7. Direct expenses
a. Those expenses that can be charged directly as a part of the cost of aproduct or service or of a department or operating unit as distinguished
from overhead and other indirect costs that must be prorated among several
products or services, departments, or operating units.
8. Encumbrancesa. Accounts used to record the estimated amount of purchase orders, contracts,
or salary commitments chargeable to an appropriation. The account iscredited when goods or services are received and the actual expenditure of
the appropriation is known.
9. Estimated other financing sources
a. Amounts of financial resources estimated to be received or accrued during aperiod by a governmental or similar type fund from interfund transfers or
from the proceeds of noncurrent debt issuance.
10. Estimated other financing uses
a. Amounts of financial resources estimated to be disbursed or accrued during
a period by a governmental or similar type fund for transfer to other funds.
11. Estimated revenues
a. For revenue accounts kept on an accrual basis (q.v.), this term designates
the amount of revenue estimated to accrue during a given period regardless
of whether or not it is all to be collected during the period. For revenueaccounts kept on a cash basis (q.v.), the term designates the amount of
revenue estimated to be collected during a given period. Under the modified
accrual basis (q.v.), estimated revenues are those that are measurable and
available. See also Revenue, Cash Basis, Accrual Basis, and ModifiedAccrual Basis.
12. Extraordinary items
a. Unusual and infrequent material gains or losses.
13. Functions
a. A group of related activities aimed at accomplishing a major service or
regulatory responsibility for which a government is responsible. Forexample, public health is a function. See also Subfunction, Activity,
Character, and Object.
14. General revenues
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a. Revenues that are not directly linked to any specific function or do not
produce a net revenue.
15. Indirect expensesa. Those expenses that are not directly linked to an identifiable function or
program.
16. Objecta. A basis for distinguishing expenditures by the article purchased or the
service obtained (as distinguished from the results obtained from
expenditures). Examples are personal services, contractual services,materials, and supplies.
17. Organization unit
a. Units or departments within an entity, such as police department or city
attorney department.
18. Other financing sources
a. An operating statement classification in which financial inflows other than
revenues are reported, for example, proceeds of long-term debt and transfers
in.19. Other financing usesa. An operating statement classification in which financial outflows other than
expenditures are reported, for example, transfers out.
20. Penalty
a. A legally mandated addition to a tax on the day it became delinquent
(generally, the day after the day the tax is due).
21. Program revenues
a. Revenues linked to a specific function or program and reported separately
from general revenues on the government-wide statement of activities.
22. Programs
a. Activities, operations, or organizational units grouped together because they
share purposes or objectives.
23. Property assessment
a. A process by which each parcel of taxable real and personal property owned
by each taxpayer is assigned a valuation.
24. Special items
a. Operating statement items that are either unusual or infrequent and are
within management control.
25. Taxable property
a. All property except that which is exempt from taxation; examples of exempt
property are property owned by governments and property used by some
religious and charitable organizations.
Understand the difference between direct and indirect expenses and the difference
between program revenues and general revenues1. Expenses should be reported by function or program
1. Direct Expenses: Those directly associated with a function or
program
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2. Indirect Expenses: Those that are not directly linked to an
identifiable function
2. Revenues should be distinguished between1. Program Revenues: Reported in the program/functions section of
the statement
2. General Revenues: Not directly linked to any program/function,these are reported in a separate section
Know what types of transactions would be classified as Other Financing Sources
and Other Financing Uses in the financial statements1. Other Financing Sources (OFS) represent operating transfers in from other
funds and proceeds of long-term borrowing
2. Other Financing Uses (OFU) represent operating transfers out to other
fundsIn Chapter 3, you need to have a good understanding of the 5 budgetary accounts: Estimated
Revenues, Estimated Other Financing Sources (OFS), Appropriations, Encumbrances, and
Estimated Other Financing Uses (OFU). Estimated Revenues, Estimated Other Financing Sources,
and Encumbrances are debited when recording budgetary entries to these accounts. Appropriations
and Estimated Other Financing Uses are credited when recording budgetary entries to these
accounts. There are only 3 times you should make journal entries to Estimated Revenues,
Estimated OFS, Appropriations, and Estimated OFU: (1) At the beginning of the year to record the
approved budget, (2) During the year if there are any amendments to the budget, and (3) At the end
of the year to close the budgetary accounts. Encumbrances is the only budgetary account that you
will make entries to throughout the year as goods/services are ordered and received or as contracts
are signed and fulfilled.
Please make sure you understand that Other Financing Sources is a special type of revenue account
used in governmental accounting to record the proceeds of bonds or cash transferred into a fund
from another fund (that will not be re-paid), and Other Financing Uses is a special type of
expenditure account used in governmental accounting to record cash transferred out of one fund
and into another (that will not be re-paid).
Know the budgetary accounts and review Illustration 3-3 and Illustration 3-4
Be able to record the original budget at the beginning of a fiscal year, record
amendments to the budget, and close budget accounts at the end of the fiscal year
Chapter 4
Review and have a good understanding of the journal entries shown in Chapter 4 ofthe textbook in the Illustrative Journal Entries section and the Accounting for
Property Taxes section
Know what makes a governmental funds interim financial statements different
from its year-end financial statements (Note: You will not be asked to prepareinterim or year-end financial statements for this exam)
Understand the purpose for using a special revenue fund
1. Special Revenue Funds are created when revenues are received that areearmarked for a specific operating purpose
1. Examples include:
1. Motor fuel taxes earmarked for streets, roads, and bridges
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4. Capital improvements funda. A fund to accumulate revenues from current taxes levied for major repairs
and maintenance to capital assets of a nature not specified at the time therevenues are levied. Appropriations of this fund are made in accord with
state law at the time specific projects become necessary.
5. Capital leasesa. A lease that substantively transfers the benefits and risks of ownership of
property to the lessee. Any lease that meets certain criteria specified in
applicable accounting and reporting standards is a capital lease. See alsoOperating Lease.
6. Capital projects funds
a. A fund created to account for all resources to be used for the construction or
acquisition of designated capital assets by a government except thosefinanced by proprietary or fiduciary funds.
7. Force account construction
a. The determination of the cost of construction of buildings and
improvements by some agency of the government.8. General capital assetsa. Those capital assets of a government that are not recognized by a
proprietary or fiduciary fund.
9. Historical cost
a. The amount paid or liability incurred by an accounting entity to acquire an
asset and make it ready to render the services for which it was acquired.
10. Infrastructure assets
a. Roads, bridges, curbs and gutters, streets, sidewalks, drainage systems, and
lighting systems installed for the common good. See also Improvements.
11. Intangible assets
a. Capital assets that lack physical substance, have a useful life of more than
one reporting period, and are nonfinancial in nature.12. Interfund transfers
a. Amounts transferred from one fund to another.
13. Modified approach
a. An approach that allows the government to elect not to depreciate certain
eligible infrastructure assets provided certain requirements are met.
14. Operating leases
a. A rental-type lease in which the risks and benefits of ownership aresubstantively retained by the lessor, and thus do not meet the criteria
defined in applicable accounting and reporting standards for a capital lease
(q.v.).
15. Special assessments
a. A compulsory levy made against certain properties to defray part or all of
the cost of a specific improvement or service that is presumed to be ageneral benefit to the public and of special benefit to such properties.
Review Illustration 5-1 to understand how general capital assets are recorded
1. General Capital Assets are:
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Review and have a good understanding of the journal entries shown in Chapter 5 of
the textbook in the Illustrative Entries section and the Illustrative Transactions
Capital Projects Funds section
Chapter 6
Know where general long-term liabilities are recorded
1. All General Long-Term Liabilities are reported in the Governmental
Activities column of the Government-Wide Statement of Net Assets.1. They are NOT reported as liabilities of Governmental Funds in the
fund financial statements.
2. A Debt Service Fund may be established to account for the principal and
interest payments on General Long-Term Liabilities.
Know what the required disclosures are for debt
Understand the terms debt limit and debt margin and be able to compute the
debt limit and legal debt margin
1. Debt Limit1. A ceiling on the amount of debt a governmental entity is allowed to
take on2. Typically defined as a statutory percentage of assessed valuation or
some other valuation of taxable property
2. Debt Margin1. The difference between the debt limit and the amount of debt
outstanding subject to the limit
2. Self-supporting debt being repaid from user charges (i.e., water orsewer charges) is typically not subject to the limit
3. Usually only net debt (total debt minus cash available for principal
repayment in a Debt Service Fund) is subject to the limit Understand the difference between serial bonds and term bonds, and know the 4
different types of serial bonds
1. Serial Bonds - Principal matures in annual installments, For regular serialbonds, resources raised each year approximate debt service requirements;
thus, investments will be minimal. However, any idle cash balances should
be invested. For deferred serial bonds, some resources are likely to be
raised and invested during the years before the first principal paymentbecomes due. Advantage: Self-amortizing, no sinking fund needed
1. Regular Serial Bonds
1. The total principal is repayable in a specified number of
equal annual installments over the life of the issue2. Deferred Serial Bonds
1. The first installment is delayed for a period of more than oneyear after the date of the issue, but installments are due on a
regular basis thereafter
3. Annuity Serial Bonds
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1. The amount of annual principal repayments is scheduled to
increase each year by approximately the same amount
interest payments decrease4. Irregular Serial Bonds
1. The pattern of repayment does not fit into any of the other
three serial bond categories listed above2. Term Bonds - Principal matures in one lump-sum amount at the end of the
bond term. Not used as frequently for financing as serial bonds.
Disadvantages: Usually requires a sinking fund and therefore, investmentmanagement, and involves more complex accounting than serial bonds
Review the journal entry examples shown in Chapter 6 of the textbook for regular
serial bonds and term bonds
You will learn that we do not record capital assets in governmental funds. Capital assets that
have been acquired or constructed with governmental fund money should immediately be
recorded as an expenditure in governmental funds (at the fund level). This is because capital
assets are long-term in nature, and we only focus on the short-term with our governmentalfunds. However, we do have to record such capital assets at the government-wide level in
Governmental Activities. So when a capital asset has been acquired or constructed with
governmental fund money, we would typically debit an expenditure account at the
governmental fund level, while we would debit a capital asset account (building, equipment,
etc.) at the government-wide level.