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Preface
For more than 60 years, Accounting for Governmental & Nonprofit Entities has led the
market in governmental accounting. It is a comprehensive government and not-for-
profit accounting text, written for students who will be auditing and working in public
and not-for-profit sector entities. Originally published in 1951 and written by Profes-
sor R. M. Mikesell, this book—and the many subsequent editions revised by Profes-
sors Leon Hay, Earl Wilson, Susan Kattelus, Jacqueline Reck, Suzanne Lowensohn, and
Daniel Neely—have given generations of instructors and students a comprehensive
knowledge of the specialized accounting and financial reporting practices of govern-
ment and not-for-profit organizations, as well as an understanding of how those orga-
nizations can better meet the information needs of a diverse set of financial statement
users and decision makers. The vision of the early authors continues to be reflected in
this 18th edition, and their strategy of providing a large and innovative set of instruc-
tional support materials prepared and tested in the classroom by the authors continues
to be a guiding principle today. The current author team brings to this edition their
extensive experience teaching government and not-for-profit courses as well as in-
sights gained from their professional experience, scholarly writing, and professional
activities. The result is a relevant and accurate text that includes the most effective
instructional tools.

ORGANIZATION AND CONTENT

The 18th edition of Accounting for Governmental & Nonprofit Entities is separated
into three parts: Part One covers state and local governments (Chapters 2 through 9),
Part Two focuses on accountability for public funds (Chapters 10 through 12), and
Part Three examines not-for-profit organizations (Chapters 13 through 16) and the
federal government (Chapter 17). Chapter 1 continues to form a broad foundation for
the more detailed material in Chapters 2 through 17. The order of the chapters is the
same as the last edition, with one exception. Chapters 13 and 14 were reversed so that
a general discussion of not-for-profit organizations precedes accounting for such orga-
nizations. The chapters are ordered to facilitate a variety of courses and formats used
by adopters of the text. For example, a course focused on state and local governments
may cover Chapter 1 and Parts One and Two, while a course focused on not-for-profit
organizations may cover Chapter 1 and Parts Two and Three. Part Two is a bridge
between the public and not-for-profit sectors that includes accountability topics
(e.g., financial analysis, auditing, and budgeting) applicable to all types of entities that
receive public funds.

KEY CHANGES IN THIS EDITION

With the 18th edition, we are pleased to continue to expand options available under
McGraw-Hill’s Connect and LearnSmart educational technology systems. Connect is
a digital teaching and learning platform for homework completion and review that
helps improve student performance over a variety of critical outcomes while aiding
instructor grading and assessment efficiency. LearnSmart is an adaptive study tool
that helps identify specific topics and learning objectives individual students need to
study.
vii
viii Preface

As always, readers can count on this edition to include authoritative changes from
the Governmental Accounting Standards Board, Financial Accounting Standards
Board, Federal Accounting Standards Advisory Board, American Institute of Certified
Public Accountants, Office of Management and Budget, Internal Revenue Service,
and Government Accountability Office. Update bulletins will be provided periodically
on the text website as new authoritative statements are issued.
Since publication of the 17th edition, important changes affecting accounting, fi-
nancial reporting, and auditing for government and not-for-profit organizations have
occurred, which include
∙ Governmental Accounting Standards Board standards (particularly Statement Nos.
76, 84, and 87) have been issued, and these describe new GAAP hierarchy as well
as significant changes to accounting and reporting fiduciary funds and leases.
∙ The Financial Accounting Standards Board issued Accounting Standards Update
2016-14, which modified net assets classification, certain financial statement pre-
sentations, and note disclosures of not-for-profit organizations.
Each of the changes in this abbreviated list has been incorporated into the text.
Several notable improvements have been made in this edition of the text. The dis-
cussion of the conceptual framework was moved from Chapter 9 to Chapter 2 at the
request of some of our users. To improve the flow, discussion and journal entries re-
lated to budget amendments and the closing process have been added to Chapter 3.
Chapter 4 includes new coverage of deferred inflows of resources. Chapter 8 has ex-
tensive modifications based upon GASB Statement No. 84 changes. Chapter 9 con-
tains a reorganized and expanded discussion on component units. Coverage of auditor
independence under generally accepted government auditing standards has been en-
hanced in Chapter 11. As mentioned earlier, Chapters 13 and 14 were rearranged so
that a general discussion of not-for-profit organizations precedes accounting for such
organizations. Chapter 14 reflects important changes to net assets classification and
includes revised discussions of special events, investments, and acquisitions. Chap-
ters 15 and 16 include new illustrations demonstrating the calculation of financial
health indicators for colleges and universities, and hospitals, respectively. Finally,
learning objectives are linked to all end-of-chapter material in the text as well as in the
instructor’s manual.
This edition continues to feature two comprehensive and effective computerized
practice sets, the City of Bingham and the City of Smithville. As with the prior edi-
tion, a short version of the City of Smithville practice set is available for those in-
structors who wish a less comprehensive case. Both practice sets are available within
Connect.

INNOVATIVE PEDAGOGY
For state and local government accounting, the authors have found that dual-track ac-
counting is an effective approach in showing the juxtaposition of government-wide
and fund financial statements in GASB’s integrated model of basic financial state-
ments. It allows students to see that each transaction has an effect on the fund financial
statements (that are designed to show fiscal compliance with the annual budget), on
the government-wide financial statements (that demonstrate accountability for opera-
tional performance of the government as a whole), or both. This approach better serves
students who will design and use accounting information systems to allow information
 Preface ix

to be captured once and used for several purposes. Accounting for federal agencies
as well as nongovernmental, not-for-profit entities closely parallels this approach as
traditional fund accounting may be appropriate for keeping track of resources with
restricted purposes, but citizens and donors also need to see the larger picture provided
by the entity as a whole.
Governments will continue to prepare fund-based statements throughout the year
and convert to accrual-based government-wide statements at the end of the year until
they invest in information systems that can deliver real-time information for decision
making. We want students to think beyond being transaction-bookkeepers and aspire
to design and use the systems that will make government-wide financial information
available when managers and citizens need it. The City of Bingham and City of
Smithville Continuous Computerized Problems are teaching tools that develop these
skills and perspective. The authors feel so strongly that this general ledger software
tool helps students understand the material that we again provide it with the text.
Students have enthusiastically told us that they like “learning by doing” and that
these continuous computerized problems helped them to understand the concepts in
the book.

TARGET AUDIENCE
The text continues to be best suited for senior and graduate accounting majors who
plan to sit for the certified public accountant (CPA) exam and then audit government
or not-for-profit entities. Public administration and other students who plan to pro-
vide financial management or consulting services to government and not-for-profit
entities report that the text provides a more comprehensive set of competencies than
traditional public budgeting texts. Students in not-for-profit management education
programs find that the coverage of accounting, financial reporting, auditing, taxation,
and information systems for both government and not-for-profit entities provides the
exposure they need to work across disciplines and sectors. Finally, students preparing
for the certified government financial manager (CGFM) or the certified public fi-
nance officer (CPFO) exam also will find Chapters 1 through 12 useful. We encour-
age all students who use this book to consider the challenges and rewards of careers
in public service—in federal, state, and local governments as well as not-for-profit
organizations.

ADDITIONAL INSTRUCTOR AND STUDENT RESOURCES

The Connect Instructor Library is a repository for additional resources to improve
student engagement in and out of class. You can select and use any asset that enhances
your lecture. The following ancillary materials are prepared by the authors to ensure
consistency and accuracy and are available in the Instructor Resources within the
Connect Library, and via the Additional Student Resources within the eBook. The Connect
Instructor Library includes
∙ Instructor’s Guide and Solutions Manual.
∙ PowerPoint lecture presentations.
∙ Test bank (including TestGen).
TestGen is a complete, state-of-the-art test generator and editing application software
that allows instructors to quickly and easily select test items from McGraw-Hill’s test
x Preface

bank content. The instructors can then organize, edit, and customize questions and
answers to rapidly generate tests for paper or online administration.
∙ The City of Bingham and City of Smithville Continuous Computerized Problems––
general ledger practice sets, downloadable from Connect.
∙ The City of Bingham and City of Smithville Instructor’s Version software, provid-
ing guidance for instructors, solution data files, and solution page image (.pdf) files
for all required financial statements, schedules, and reports.

ROGER CPA
McGraw-Hill Education has partnered with Roger CPA Review, a global leader in
CPA Exam preparation, to provide students a smooth transition from the accounting
classroom to successful completion of the CPA Exam. While many aspiring accoun-
tants wait until they have completed their academic studies to begin preparing for the
CPA Exam, research shows that those who become familiar with exam content earlier
in the process have a stronger chance of successfully passing the CPA Exam. Accord-
ingly, students using these McGraw-Hill materials will have access to sample CPA
Exam Multiple-Choice questions and Task-based Simulations from Roger CPA Re-
view, with expert-written explanations and solutions. All questions are either directly
from the AICPA or are modeled on AICPA questions that appear in the exam. Task-
based Simulations are delivered via the Roger CPA Review platform, which mirrors
the look, feel and functionality of the actual exam. McGraw-Hill Education and Roger
CPA Review are dedicated to supporting every accounting student along their journey,
ultimately helping them achieve career success in the accounting profession. For more
information about the full Roger CPA Review program, exam requirements and exam
content, visit www.rogercpareview.com.
The Dual‐Track
Accounting Approach
The GASB reporting model requires government-
wide, accrual-based financial statements to provide
information that goes beyond the familiar fund ac-
counting information. Analysts increasingly use
government-wide “big picture” information in per-
formance analysis, and some council members find
that, relative to fund accounting information, accrual-
based statements are better suited to demonstrate ac-
countability for interperiod equity. For example,
these statements provide the information necessary
to explore critical questions such as, Has the govern-
ment shifted the liability for current services to future
generations? However, to date, governmental ac-
counting software vendors have not provided gov-
ernments with systems that can directly produce
government-wide financial statements on the re-
quired accrual basis, particularly on an interim basis,
such as monthly.
The dual-track approach helps students under-
stand how two different sets of accounting records
are used to collect financial data as transactions oc-
cur. One set of records collects information using
the short-term measurement focus and near-cash ba-
sis of accounting traditionally used in governmental
fund accounting. This set of records includes a chart
of accounts, general journal, general ledger, trial
balances, and financial statements for each fund.
The other set of records collects the same underlying
information using a long-term measurement focus
similar to that used by business; that is, the accrual
basis of accounting. The second set of records assists
in preparing statements for governmental activities
and business-type activities. Each time a transaction
is presented, we illustrate or explain what, if any,
effect it will have on the fund and governmental
activities record.
The text does illustrate the reclassification ap-
proach in Chapter 9 because that approach is used in
practice by most governments. Governments that
continue to release only fund financial information
throughout the year and must then convert (or reclas-
sify) the data to government-wide information for the
purposes of the financial statement preparation and
year-end audit are not as accountable or transparent
as governments that make GAAP-based information
available throughout the year.
Governments, even small ones, are complex enti-
ties and there is no easy approach to learning the ex-
ternal governmental financial model. But the authors
believe that the dual-track approach is conceptually
superior to the reclassification approach in that it
gives students the tools to understand “why” and
“how” financial statements are prepared and used. A
greater conceptual understanding of governmental
financial statements also makes it easier for students
to understand the reclassification approach when it is
encountered. The dual-track pedagogy can help stu-
dents see the short- and long-term effects of the deci-
sions made by government managers and oversight
bodies from the perspective of all stakeholders.
xi
 McGraw-Hill Connect® is a highly reliable, easy-to-
use homework and learning management solution
that utilizes learning science and award-winning
adaptive tools to improve student results.

Homework and Adaptive Learning

▪ Connect’s assignments help students

contextualize what they’ve learned through
application, so they can better understand the
material and think critically.
▪ Connect will create a personalized study path
customized to individual student needs through
SmartBook®.
▪ SmartBook helps students study more efficiently
by delivering an interactive reading experience
through adaptive highlighting and review.

Over 7 billion questions have been

answered, making McGraw-Hill Using Connect improves retention
rates by 19.8%, passing rates by
Education products more intelligent, 12.7%, and exam scores by 9.1%.
reliable, and precise.

73% of instructors
who use Connect
Quality Content and Learning Resources require it; instructor
satisfaction increases
by 28% when Connect
▪ 
Connect content is authored by the world’s best subject is required.
matter experts, and is available to your class through a
simple and intuitive interface.
▪ 
The Connect eBook makes it easy for students to
access their reading material on smartphones
and tablets. They can study on the go and don’t
need internet access to use the eBook as a
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Multimedia content such as videos, simulations,
and games drive student engagement and critical
thinking skills. ©McGraw-Hill Education
Robust Analytics and Reporting

▪ Connect Insight® generates easy-to-read

reports on individual students, the class as a
whole, and on specific assignments.
▪ The Connect Insight dashboard delivers data
on performance, study behavior, and effort.
Instructors can quickly identify students who ©Hero Images/Getty Images

struggle and focus on material that the class

has yet to master.
▪ Connect automatically grades assignments
and quizzes, providing easy-to-read reports
on individual and class performance.

More students earn

As and Bs when they
use Connect.

Trusted Service and Support

▪ Connect integrates with your LMS to provide single sign-on and automatic syncing
of grades. Integration with Blackboard®, D2L®, and Canvas also provides automatic
syncing of the course calendar and assignment-level linking.
▪ Connect offers comprehensive service, support, and training throughout every
phase of your implementation.
▪ If you’re looking for some guidance on how to use Connect, or want to learn
tips and tricks from super users, you can find tutorials as you work. Our Digital
Faculty Consultants and Student Ambassadors offer insight into how to achieve
the results you want with Connect.

www.mheducation.com/connect
Connect Features
Connect End-of-Chapter Material
Connect helps students learn more efficiently by providing feedback and practice ma-
terial when they need it, where they need it. Connect grades homework automatically
and gives immediate feedback on any questions students may have missed. The exten-
sive assignable, gradable end-of-chapter content includes a new multi-tab design for
easier navigation for select exercises. A selection of auto-graded static and algorithmic
exercises is available for each chapter within Connect.

McGraw-Hill Education Customer Experience Group Contact Information

At McGraw-Hill Education, we understand that getting the most from new technology
can be challenging. That’s why our services don’t stop after you purchase our prod-
ucts. You can contact our Product Specialists 24 hours a day to get product training
online. Or you can search the knowledge bank of Frequently Asked Questions on our
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fashion.

xiv
 Connect Features xv

Assurance of Learning Ready

Many educational institutions today are focused on the notion of assurance of learning,
an important element of some accreditation standards. Accounting for Governmental
& Nonprofit Entities is designed specifically to support your assurance of learning
initiatives with a simple, yet powerful solution.
Each test bank question for Accounting for Governmental & Nonprofit Entities
maps to a specific chapter learning objective listed in the text. You can use Connect to
easily query for learning outcomes/objectives that directly relate to the learning objec-
tives for your course. You then can use the reporting features of Connect to aggregate
student results in a similar fashion, making the collection and presentation of assur-
ance of learning data simple and easy.

AACSB Statement
McGraw-Hill Education is a proud corporate member of AACSB International. Un-
derstanding the importance and value of AACSB accreditation, Accounting for Gov-
ernmental & Nonprofit Entities recognizes the curricula guidelines detailed in the
AACSB standards for business accreditation by connecting selected questions in the
test bank to the eight general knowledge and skill guidelines in the AACSB standards.
The statements contained in Accounting for Governmental & Nonprofit Entities are
provided only as a guide for the users of this textbook. The AACSB leaves content
coverage and assessment within the purview of individual schools, the mission of the
school, and the faculty. While Accounting for Governmental & Nonprofit Entities and
the teaching package make no claim of any specific AACSB qualification or evalua-
tion, within the Test Bank to accompany Accounting for Governmental & Nonprofit
Entities we have labeled selected questions according to the eight general knowledge
and skill areas.
City of Bingham and City
of Smithville Continuous
Computerized Problems
Note: The City of Bingham and City of Smithville computerized problems can be found within Con-
nect, in the Instructor Library and in the Additional Student Resources for students.
A great way to understand the GASB financial re-
porting model is to be actively engaged in learning
through these “hands-on” continuous problems for
small governmental entities. The City of Bingham
and City of Smithville web supplement is general
ledger software in which students record transactions
in the appropriate general journals of each city.
Transaction analysis is the first and most important
step in the accounting cycle of any organization. Af-
ter journal entries have been recorded, the software
conveniently posts changes to all accounts in general
and to subsidiary ledgers. From this point, students
can preview trial balances, export them to a Micro-
soft Excel file, and then prepare financial statements
from those data.
This instructional supplement substantially aids
students’ learning by requiring them to decide
whether each transaction has an effect on the fund fi-
nancial statements, the government-wide financial
statements, or both. The City of Bingham and City of
Smithville are built on the dual-track approach de-
scribed in a subsequent section and in the textbook.
Students can apply the conceptual framework that
connects the government-wide financial statements
(that report on the flow of total economic resources
of the government using the accrual basis of account-
ing) and the fund financial statements (that report on
the flow of current financial resources using the
modified accrual or near-cash basis of accounting).
STUDENTS
Several examples are provided here to show how the
software facilitates learning. When a government
xvi
sends out property tax bills for the year, this transaction
is recorded in the General Fund general journal be-
cause it impacts the governmental funds statement of
revenues, expenditures, and changes in fund balance
and in the governmental activities general journal be-
cause it has an impact on the government-wide state-
ment of activities. Within each practice set, you can
easily toggle among the journals for each fund and
governmental activity. Drop-down menus make it
easy to decide which revenue account should be in-
creased or decreased, as the chart of accounts is em-
bedded in the software. Journal entries must balance
before one can proceed. When the government re-
cords its budget or encumbers items related to pur-
chase orders, however, these journal entries affect
only the governmental funds. Budgetary account ti-
tles are available for selection in the governmental
funds general journals but not in the governmental
activities general journal because funds, not govern-
mental activities, capture information to show com-
pliance with the short-term, legally approved budget.
Conversely, depreciation expense of general capital
assets is recorded only in the general journal of gov-
ernmental activities because the accrual basis of ac-
counting captures and matches the cost of using up
the utility of capital assets with the time period in
which the assets generate revenues.
INSTRUCTORS
This software can be used in several ways. You
can project it each day as part of the classroom ex-
perience and discuss transactions that are keyed to
the chapter under discussion. Depending on your
 City of Bingham and City of Smithville Continuous Computerized Problems xvii

objectives, you can require a small set of the transac-
tions be recorded for each fund or governmental
activity or you can assign either of the full problems
as a semester-long case. Regardless of how you
choose to use the cases, we recommend that students
work on the City of Bingham or City of Smithville
problem as they are studying the related chapter in
the text and turn in each chapter as they go along.
You may find that small student work groups provide
an efficient way for students to learn from each other.
We continue to be encouraged by our students’
positive reaction as they learn by doing the City of
Bingham and City of Smithville Continuous Com-
puterized Problems.
Acknowledgments
We are thankful for the encouragement, suggestions, and counsel provided by many
instructors, professionals, and students in writing this book. They include the follow-
ing professionals and educators who read portions of this book and previous editions
in various forms and provided valuable comments and suggestions:

Kimball Adams Laurie Henry

City of Largo, Florida Old Dominion University
Jack Armitage Kristen Hockman
University of Nebraska—Omaha University of Missouri—Columbia
Terry D. Balkaran Andrew C. Holman
Queens College RitzHolman CPAs
Kelli A. Bennett Larita Killian
City and County of Denver IUPUI—Columbus Center
Irfan Bora Randall Kinnersley
Rutgers University Western Kentucky University
Michael Crawford Leon Korte
Crawford & Associates University of South Dakota
William Delia Barbara Lippincott
Pima Community College Tampa, Florida
Lynda Dennis Allen McConnell
University of Central Florida University of Northern Colorado
Erin Dischler Dean Mead
Milwaukee Area Technical College Governmental Accounting Standards
Ruth W. Epps Board
Virginia Commonwealth University Michele Nix
Renee Flasher City of Columbia, Missouri
Ball State University Suzanne Ogilby
Mary Foelster California State University,
American Institute of Certified Public Sacramento
Accountants Susan Paris
Karen Foust Nova Southeastern University
Tulane University Lisa Parker
Michael Gallagher Governmental Accounting Standards
University of Maryland University College Board
Jacob Gatlin Veronica Paz
Athens State University Indiana University of Pennsylvania
Marina Grau Wendy Potratz
Houston Community College University of Wisconsin—Oshkosh
Debra Gula Annette Pridgen
University of South Florida Jackson State University
Richard Hawk Walter A. Robbins
Horry Georgetown Technical College University of Alabama

xviii
 Acknowledgments xix

Gail Sanderson Cindy Vance

Lebanon Valley College Shepherd University
Ken Schermann Scott Hsu-dze Wang
Governmental Accounting Standards Baker College
Board Shunda Ware
Mark Sutter Atlanta Technical College
El Paso, Texas Tammy Waymire
Relmond P. Van Daniker Middle Tennessee State University
Association of Government Earl R. Wilson
Accountants University of Missouri—Columbia

Dr. Reck thanks her family for their support and dedicates her work to the memory
of Albert for the inspiration he will always provide. Dr. Lowensohn would like to
express appreciation to her family—Tom, Grant, and Tara—for their support and
patience and to her friend and colleague Dr. Laurence Johnson for his professional
guidance. Dr. Neely thanks his family—Xiaoting, Stephanie, and Ann—for their support
and encouragement.
Although we are extremely careful in checking the text and end-of-chapter mate-
rial, it is possible that errors and ambiguities remain in this edition. As readers encoun-
ter such, we urge them to let us know, so that corrections can be made. We also invite
every user of this edition who has suggestions or comments about the material in the
chapters to share them with one of the authors, either by regular mail or e-mail. The
authors will continue the service of issuing Update Bulletins to adopters of this text
that describe changes after the book is in print. These bulletins can found in the In-
structor Resources tab in the Connect Library.
Dr. Jacqueline L. Reck
Lynn Pippenger School of Accountancy
University of South Florida
4202 East Fowler Avenue, BSN 3403
Tampa, FL 33620
jreck@usf.edu
Dr. Suzanne L. Lowensohn
The University of Vermont
Grossman School of Business
55 Colchester Avenue
Burlington, VT 05405
Suzanne.Lowensohn@uvm.edu
Dr. Daniel G. Neely
The University of Wisconsin–Milwaukee
Sheldon B. Lubar School of Business
3202 North Maryland Avenue
Milwaukee, WI 53211
neely@uwm.edu
Brief Contents
Preface vii 12 Budgeting and Performance
1 Introduction to Accounting and Financial Measurement 487
Reporting for Government and Not-for-
Profit Entities 1 PART THREE
Accounting and Financial Reporting for
PART ONE Not-for-Profit Organizations and the
State and Local Governments Federal Government
2 Principles of Accounting and Financial 13 Not-for-Profit Organizations—
Reporting for State and Local Regulatory, Taxation, and Performance
Governments 21 Issues 525
3 Governmental Operating Statement 14 Accounting for Not-for-Profit
Accounts; Budgetary Accounting 69 Organizations 557
4 Accounting for Governmental Operating 15 Accounting for Colleges and
Activities—Illustrative Transactions and Universities 613
Financial Statements 113 16 Accounting for Health Care
5 Accounting for General Capital Assets Organizations 655
and Capital Projects 171 17 Accounting and Reporting for the Federal
6 Accounting for General Long-Term Government 693
Liabilities and Debt Service 211
7 Accounting for the Business-type GLOSSARY 739
Activities of State and Local
Governments 259 GOVERNMENT AND NOT-FOR-
8 Accounting for Fiduciary Activities— PROFIT ORGANIZATIONS 752
Custodial and Trust Funds 311
9 Financial Reporting of State and Local INDEX 757
Governments 361

PART TWO
Accountability for Public Funds
10 Analysis of Government Financial
Performance 413
11 Auditing of Government and Not-for-
Profit Organizations 447

xx
Table of Contents
Preface vii Conceptual Framework—Providing Useful
Financial Reports 22
Chapter 1 Elements and Measurement 23
Introduction to Accounting and Financial Activities of Government 25
Reporting for Government and Not-for- Financial Reporting Model 26
Profit Entities 1 Government-wide Financial Statements 27
Welcome to Government and Not-for-Profit Fund Financial Statements 28
Accounting 1 Fund Reporting 30
Distinguishing Government and Not-for-Profit Fund Categories 31
Organizations 2 Classification of Governmental Fund Balances 34
What Are Government and Not-for-Profit Major Fund Reporting 35
Organizations? 2 Fund Reporting of Budgetary Information 37
Distinguishing Characteristics of Government and Summary of Government-wide and Fund
Not-for-Profit Organizations 3 Characteristics 37
Sources of Financial Reporting Standards 4 Appendix A: Illustrative Financial Statements from
Objectives of Financial Reporting 5 the City and County of Denver, Colorado 39
Overview of Financial Reporting for State and Local Appendix B: Summary Statement of Governmental
Governments, the Federal Government, and Not-for- Accounting and Financial Reporting Principles 53
Profit Organizations 7 Key Terms 57
Financial Reporting of State and Local Governments 7 Selected References 58
Financial Reporting of the Federal Government 10 Questions 58
Financial Reporting of Not-for-Profit Organizations Cases 58
(NFPs) 11 Exercises and Problems 61
Expanding the Scope of Accountability
Reporting 12 Chapter 3
Overview of Chapters 2 through 17 13 Governmental Operating Statement
GASB Principles, Standards, and Financial Reporting 13 Accounts; Budgetary Accounting 69
Accountability for Public Funds 13
Not-for-Profit Organizations and the Federal Reporting of Expenses and Revenues at the
Government 13 Government-wide Level 70
A Caveat 13 Reporting Direct and Indirect Expenses 70
Key Terms 14 Program Revenues and General Revenues 72
Questions 14 Reporting Special Items and Transfers 73
Cases 15 Structure and Characteristics of the General Fund
Exercises and Problems 16 and Other Governmental Funds 74
Governmental Fund Balance Sheet and Operating
PART ONE Statement Accounts 74
State and Local Governments Reporting Budgeted and Actual Results 76
Terminology and Classification for Budgetary and
Chapter 2 Operating Statement Accounts 80
Principles of Accounting and Financial Classification of Appropriations and Expenditures 80
Reporting for State and Local Classification of Estimated Revenues and
Governments 21 Revenues 82

xxi
xxii Table of Contents
Budgetary Accounting 87
Recording the Budget 88
Budgetary Control of Revenues 89
Budgetary Control of Encumbrances and
Expenditures 90
Revision of the Budget 93
Closing Budgetary Accounts 94
Accounting for Allotments 94
Concluding Remarks 95
Appendix A: Accounting for Public School
Systems 96
Appendix B 98
Key Terms 99
Selected References 99
Questions 99
Cases 100
Exercises and Problems 102
Chapter 4
Accounting for Governmental Operating
Activities—Illustrative Transactions and
Financial Statements 113
Illustrative Case 114
Financial Statement Comparisons 114
Dual-Track Accounting Approach 116
Illustrative Journal Entries 117
Recording the Budget 117
Encumbrances and Purchasing Transactions
Payment of Liabilities 120
Payrolls and Payroll Taxes 120
Accounting for Property Taxes 122
Other Revenues 128
Tax Anticipation Notes 129
Forecasting Amount of Tax Anticipation
Borrowing 129
Repayment of Tax Anticipation Notes 130
Special Topics 131
Revision of the General Fund Budget 131
Receipt of Goods Ordered in a Prior Year 131
Exchange Transactions with Proprietary Funds 132
Accounting for Supplies 135
Adjusting Entries 138
Pre-Closing Trial Balance 138
Closing Entries 139
Reclassification of Fund Balances 139
General Fund Financial Statements 140
Special Revenue Funds 143
Accounting for Operating Grants 144
Financial Reporting 144
Interfund Activity 146
Intra- versus Inter-activity Transactions (Government-
wide Level) 147
Permanent Funds 148
Budgetary Accounts 148
Illustrative Case 148
Appendix A: Concepts and Rules for Recognition of
Revenues and Expenses (or Expenditures) 151
Appendix B: Interim Financial Reporting 154
Key Terms 155
Selected References 156
Questions 156
Cases 157
Exercises and Problems 159
Chapter 5
Accounting for General Capital Assets and
Capital Projects 171
Accounting for General Capital Assets 172
Required Disclosures about Capital Assets 173
Classification of General Capital Assets 174
General Capital Assets Acquired under Lease
Agreements 178
Costs Incurred after Acquisition 180
117 Reduction of Cost or Asset Disposal 181
Asset Impairments and Insurance Recoveries 182
Service Concession Arrangements 183
Capital Projects Funds 184
Illustrative Transactions—Capital Projects Funds 184
Illustrative Financial Statements for a Capital
Projects Fund 190
Alternative Treatment of Residual Equity or Deficits 190
Bond Premium, Discount, and Accrued Interest on
Bonds Sold 191
Retained Percentages 192
Claims and Judgments Payable 193
Bond Anticipation Notes Payable 193
Investments 195
Multiple-Period and Multiple-Project Funds 195
Capital Projects Financed by Special Assessments 196
Financial Reporting for Capital Projects Funds 197
Key Terms 198
Selected References 198
 Table of Contents xxiii

Questions 198 Dissolution of an Internal Service Fund 272

Cases 198 Special Topics Associated with Internal Service
Exercises and Problems 201 Funds 272
Enterprise Funds 275
Chapter 6 Water Utility Funds 276
Accounting for General Long-Term Current and Accrued Assets 276
Liabilities and Debt Service 211 Restricted Assets 278
Utility Plant 278
General Long-Term Liabilities 211
Current Liabilities 279
Accounting for Long-Term Liabilities 212
Liabilities Payable from Restricted Assets 279
Long-Term Liability Disclosures 213
Long-Term Liabilities 279
Debt Service Funds 221
Net Position 280
Number of Debt Service Funds 221
Illustrative Case—Water Utility Fund 280
Use of General Fund to Account for Debt Service 221
Illustrative Statements Using Water Utility Fund 286
Budgeting for Debt Service 221
External Financial Reporting of Enterprise Funds 289
Types of Bonds 223
Appendix: Special Topics in Accounting for the
Accounting for Bonds 223
Business-type Activities of State and Local
Financial Reporting 232 Governments 290
Accounting for Bond Premiums, Accrued Interest, Key Terms 294
and Bond Issue Costs 233 Selected References 294
Valuation of Debt Service Fund Investments 235 Questions 295
Deposit and Investment Disclosures 236 Cases 295
Debt Service Accounting for Special Assessment Exercises and Problems 298
Debt 237
Use of Debt Service Funds to Record Lease Chapter 8
Payments 239 Accounting for Fiduciary Activities—
Accounting for Debt Refunding 240 Custodial and Trust Funds 311
Other Long-Term Liabilities 242
Compensated Absences 242 Identifying Fiduciary Activities 312
Pollution Remediation Obligations 243
Custodial Funds 312
Custodial Fund for Special Assessment Debt
Claims and Judgments 243
Service 312
Key Terms 244
Tax Custodial Funds 314
Selected References 244
Questions 244 “Pass-through” Custodial Funds 319
Cases 244 Financial Reporting of Custodial Funds 320
Exercises and Problems 249 Trust Funds 321
Investment & Private-purpose Trust Funds 321
Chapter 7 Investment Pools 321
Accounting for the Business-type Activities Private-purpose Trust Funds 330
of State and Local Governments 259 Illustrative Financial Statements 331
Pension Trust Funds 332
Proprietary Funds 260 General Characteristics of Government Pension
Financial Reporting Requirements 260 Plans 333
Internal Service Funds 263 Required Financial Reporting for Defined Benefit
Illustrative Case—Supplies Fund 263 Pension Plans 334
Illustrative Statements Using Supplies Fund 269 Illustrative Transactions for a Defined Benefit
External Financial Reporting of Internal Service Pension Plan 339
Funds 271 Employer’s Pension Accounting 342
xxiv Table of Contents
Employer Recording and Reporting of Pension
Expenditure/Expense 344
Other Postemployment Benefits (OPEB) 344
Termination Benefits 345
Appendix A: Managing Investments 345
Key Terms 347
Selected References 347
Questions 347
Cases 347
Exercises and Problems 349
Chapter 9
Financial Reporting of State and Local
Governments 361
The Government Reporting Entity 361
Defining the Financial Reporting Entity 362
Reporting Component Units 363
Reporting by Other Government Organizations 366
Government Financial Reports 367
Interim Financial Reports 367
Annual Financial Reports 368
Preparation of Basic Financial Statements 370
Fund Financial Statements 377
Required Reconciliations 379
Intra-entity Transactions 380
Other Financial Reporting Issues and Topics
Popular Reporting 382
Special Purpose Frameworks 383
International Accounting Standards 383
Appendix A: Converting Accounting Information
from the Modified Accrual to the Accrual Basis of
Accounting 384
Appendix B: Management’s Discussion and Analysis
(MD&A)—City and County of Denver 387
Key Terms 397
Selected References 397
Questions 397
Cases 398
Exercises and Problems 402
PART TWO
Accountability for Public Funds
Chapter 10
Analysis of Government Financial
Performance 413
The Need to Evaluate Financial Performance 413
Government Financial Performance Concepts 414
Financial Position and Financial Condition 415
Economic Condition 415
Internal Financial Trend Monitoring 416
Environmental Factors 418
Organizational Factors 421
Financial Factors 422
Analyzing Government Financial Statements 422
Analyzing Governmental Fund Financial
Statements 422
Analyzing Government-wide Financial Statements 424
Use of Benchmarks to Aid Interpretation 426
Sources of Government Financial Data 427
Electronic Municipal Market Access 430
Credit Analyst Models 430
Key Terms 432
Selected References 432
Questions 433
Cases 433
Exercises and Problems 435
Chapter 11
Auditing of Government and Not-for-Profit
Organizations 447
Financial Audits by Independent CPAs 448
382 Generally Accepted Auditing Standards 448
Format of the Audit Report 449
Types of Opinions 451
The Audit Process 452
Materiality for Government Audits 454
Required Supplementary and Other Information 454
Government Auditing Standards 455
Types of Audits and Engagements 456
GAGAS Financial Audits 457
Ethics and Independence 459
Single Audits 462
History of the Single Audit 463
Determining Who Must Have a Single Audit 464
Single Audit Requirements 466
Selecting Programs for Audit 468
Reports Required for the Single Audit 470
Other Single Audit Requirements 473
Special Topics Related to Audits of Governments
and Not-for-Profits 473
Single Audit Quality 473
The Impact of the Sarbanes-Oxley Act of 2002 474
Auditing Guidance 475
Another random document with
no related content on Scribd:
energy and nerve, making it just a little harder to take the break that
would finally come.
Phil March, driving a slim, pale green rocket, made that break. He
found a hole between Ziggy and Chuck Larson and came blasting up
from the third level to fill it. That stirred up things below. Through my
floor plates I caught a glimpse of two rockets shooting for the place
the pale green rocket had just left.
They hit that hole at the same time, both going too fast to avoid a
crash. Sparks lanced out from behind as they came together. They
careened toward the force fence, and I saw a gentile ripple run along
the color bands. A high, pulsating whine ripped into my earphones.
For a fraction of a second those two rockets appeared to hang
motionless, nose up, back there in the tube. Then a sheet of flame
lashed out, enveloping them both. I felt the hair beneath my helmet
crawl, the way it always does when a bad crash turns up.
I counted to five fast before my radio picked up the warning bell from
the supersonic fire extinguisher. A moment later the starter's voice
cracked out.
"All clear on levels one, two, and three," he gave us the go ahead.
"On four, keep to the outside fence."
That gave us racing room, and the faster rockets were beginning to
come up now in bellowing roars, spraying heat and taking their
openings where they found them. With March's green rocket beside
him, Ziggy left off crowding me and went to work on him, pulling
every trick he knew out of that screwy brain of his. For the first time
in over a hundred races I found myself riding out in front, and that old
devil speed got me.
We high-blasted into the grandstand stretch, the racing jets churning
the big torpedoes toward the fence and the cushioning jets slamming
them back again. And with that crowd out there keyed up to hysteria
pitch, some of the excitement appeared to seep through to Ziggy. All
at once he seemed to go completely haywire.
It's funny how a thing like that can catch you in a race, but it can. You
go along, driving for all you've got, and all at once your mind whips
back to something some other rider did in another race. You start
hating that guy with every fiber in your body. You rake him with the
hottest coals in Hades, and that's not enough. You pull him apart and
slam him in the face with the pieces. You're beyond all logic and all
reason for the moment.
With the feel of the grandstand in him, it was that way with Ziggy.
Without any warning he started to swarm all over the green rocket.
Surprised by this outburst, March tried to go up where there wasn't
any up.
I could see the red glow flashing in his cockpit as the radar sent out
its fence warning. Instantly, to keep from crashing, March braked, at
the same time giving out with his full jet-cushioning power. That
shoved him back and down, and he kept right on diving to the bottom
tier to miss the jet blasts of the lower rockets.
Maruu came churning up from below, trying for the hole that Ziggy
had left and was closing it up rapidly. It was suicidal driving, even for
Maruu. Maybe the little Martian was expecting Ziggy to give him
room. Or maybe he was so set on getting out between Skid and
Steve, so they could get on with their private feud, that he tossed all
caution to the winds.
With anybody but Maruu and Ziggy it would have been quick curtains
right there and then. As it was, the crowd saw action that would have
made the inside of a working atom smasher look like a nursery
hotted up in that tube. In a moment the track was a maelstrom of
skittering rockets going into fantastic little dances as the drivers
fought desperately for control. The scene was all set for searing,
brain-numbing disaster.
And then, suddenly, it was over. Somehow that jam uncorked itself.
One instant I was gritting my teeth for the first searing pain of
snapping bones, and reaching for my crash button, and the next
instant I was riding all alone on the top level, with just Skid and Steve
packed together a couple of rocket lengths behind, and the rest of
the field streaming back toward the bend.
That knocked the last vestige of caution out of me. I really set sail.
Now it was not the kid in the big white Space Star who was seeing
himself winning the Astrola. It was not the kid in the white rocket,
with one or two races under his belt and the crowd noise still in his
brain and dreaming of a girl in the stands. It was a guy with a face
like a gargoyle, a guy with a hundred wrecks on a hundred different
tracks behind him.
Just like that I forgot the long months spent in plastic braces,
learning the hard way how to ride the sizzle sticks. I forgot the bitter
pain and the midnight horror of waking up screaming, fighting the
controls of some sluing nightmare monster. I forgot I was the only
guy who ever fired his rocket off the force fence and lived to tell
about it, and I went into the curve like a meteor diving into the sun.
It must have looked good from the stands. It must have picked that
mass of screaming rocket fans up in one hysterical wave. But it
couldn't last. For almost a lap, so hopped up was I, I managed to
stay out in front of Skid and Steve and the trailing field. Then they
began to inch their way up, picking up pace, high-blasting into the
corners and out again, the two blackened hulks of the burned-out
rockets marking the laps like death-stones.
They crept up and went out in front. They took a corner locked
together, sliding until they almost skimmed the outside fence. They
came swinging back, Skid's blue rocket skidding dangerously close
in front of me, his blast driving me to the side.
And then I began to get it. I began to understand that headlong pace,
and the shock of understanding drove all the exhilaration of speed
out of me. Those two maniacs weren't riding a race, they were
having themselves a duel—fighting it out for a girl there at the top of
the tube. I hung on grimly, my eyes almost popping from my head,
waiting for the crack-up that this killing speed was bound to bring.
It came with millisecond suddenness. I saw Steve claw his big
space-black rocket over the way a marsh-grafk pulls over just before
he charges. The tail of his rocket whipped once with a sort of
challenging motion. Then he gunned straight for Skid.
I braked, momentum driving my harness deep into my ribs. Through
the screen of my bow jets I caught a blurred impression of streaking
color. Out of that blur Skid's ship came plunging, starting a horrible
side slip toward the fence. Just before it hit, it straightened out, its
crumpled jets somehow managing to compensate for the slide.
And out of that blur Steve's Space Ace also came hurtling. It
pinwheeled end over end, spraying out sparks like a crazy lightning
bug. Only it didn't straighten out. It slammed into the force fence,
drawing a red hot streak from bow to stern. It raised a screech that
must have drowned out the single horrified roar from the stands as it
nosed along the fence, its starboard jet out of commission, its port
firing at full blast and holding it to the fence with relentless pressure.
And inside his rocket Steve was slowly frying to death.
In a thousand nightmares I had seen that thing happen over and
over again until it came to have a terrible familiarity about it. I didn't
even have to think—there wouldn't have been time for that. When I
acted it was in a precision pattern that had been acid-etched in my
brain one afternoon on the force fence at Zeta park. Just like Captain
Space in the video color cartoon I set sail for the ventro-fin of Steve's
smoking cylinder. The shearing nose of my rocket cut through it and
into the blasting core of the jet behind it.
With that kind of leverage something had to give, and I reached for
the crash button just as blackness hit me....

An airy green room, filled with the heady odor of Moon orchids, came
floating up out of that blackness. The combination was old stuff to
me. I didn't even have to feel for the bandages or see Skid's big grin
just beyond the fever chart to know where I was. Only this time one
thing was not exactly the same. This time Suvia was standing beside
Skid. She worked up a shaky sort of smile for me.
Skid came trotting around the side of the bed.
"We're all set for the Big Blast, pal," he said happily. "Even with our
tubes curled we managed to win the 'Double.'"
Well, it's always nice to win.
"How's Steve?" I asked.
"A little scorched around the edges," Skid said. "But he'll pull
through. You pried him off the fence in the nick of time. That was
nice work, Pete."
All of a sudden I began to feel sorry for Steve. Maybe Astrola was
kind of important to him too. Maybe winning it was also the
difference to him between a girl with the sun in her hair and a glow
that runs soft as moonlight in her eyes and an ache as big as the
Alisco crater.
Nothing as sentimental as that could have shown on my mug, but
Suvia seemed to get the idea anyway.
"Judy Carlyle is with Steve now, Pete," she told me. "She took the
first tube in from the Coast when she heard Steve was hurt. They're
planning on getting married as soon as he's well again. Steve is
going to give up racing."
I shot a quick glance at Skid, but the grin on his face was
undisturbed, and I knew by this that losing or winning a race was
more important to Skid than losing or winning a girl.
Now that everything was all right with both Steve and Skid, I began
to feel sorry all for myself. Maybe I tried to tell myself, I can still fix up
my crate and dig out a second or third at Canyon Track. Maybe, with
a little luck and a heavy foot on the corners, I can still get enough
cash for my face.
That couldn't have shown, either, but Suvia got it. The next instant
she was on her knees beside my bed, her head buried on my pillow.
"You big lug," she said in my ear, "do you think I care about a few
scars—the kind of scars you get from taking the fence at Zeta rather
than wreck another rocket—the kind of scars you pick up throwing
away a first at Astrola to try to save another rider from the fence?"
Just like that I forgot the look in that little Venusian fire dancer's
eyes. All those space kids are screwballs anyway.
 *** END OF THE PROJECT GUTENBERG EBOOK THE JET
JOCKEYS ***

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