Apago PDF Enhancer ILLUSTRATION 6–1 Summary of Proprietary Funds Fund Name Accrual Basis Economic Resources Focus Record Budgets Encumbrances Fund Description Fund Term Internal Service Fund ✓✓ Funds used to report activities that provide goods and services to other funds, departments, or agencies on a cost-reimbursement basis. They are used when the government is the predominant user of the goods or services. Indefinite life. Internal service funds are created by the government and exist at the discretion of the government. Enterprise Fund ✓✓ Funds used to report activities in which users are charged a fee for goods or services. They are appropriate when individuals or businesses external to the government are the predominant users. Indefinite life. Enterprise funds must be main- tained if debt is secured solely by user charges, laws require that costs be recovered through user charges, or government policy requires setting charges to cover the costs of providing the goods or service. 155 cop2705X_Ch06_154-188.indd 155cop2705X_Ch06_154-188.indd 155 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer 156 Chapter 6 Because revenues and expenses (not expenditures) are recognized on the accrual basis, financial statements of proprietary funds are similar in many respects to those of business organizations. Fixed assets used in fund operations and long-term debt serviced from fund revenues are recorded in the accounts of each proprietary fund. Depreciation on fixed assets is recognized as an expense, and other accruals and de- ferrals common to business accounting are recorded in proprietary funds. Budgets should be prepared for proprietary funds to facilitate management of fund activi- ties, but GASB standards do not require or encourage budget-actual reporting. The use of accrual accounting permits financial statement users to observe whether proprietary funds are operated at a profit or a loss. The accrual basis of accounting requires revenues to be recognized when earned and expenses to be recognized when goods and services are used. Two types of funds are classified as proprietary funds: internal service funds and enterprise funds. Internal service funds provide, on a user charge basis, services to other government departments. Enterprise funds provide, on a user charge basis, services to the public. Three financial statements are required for proprietary funds: a Statement of Net Assets (or Balance Sheet); a Statement of Revenues, Expenses, and Changes in Fund Net Assets; and a Statement of Cash Flows. As is true for governmental funds, enterprise funds are reported by major fund, with nonmajor funds presented in a separate column. However, internal service funds are reported in a single column. These statements will be discussed in more detail and illustrated later in this chapter. GASB Statement No. 20 provides guidance regarding the application of private sector accounting pronouncements to the accounting and reporting for proprietary funds. All FASB Statements and Interpretations, Accounting Principles Board Opin- ions, and Accounting Research Bulletins issued on or before November 30, 1989, that do not contradict GASB pronouncements are presumed to apply. In addition, for enterprise funds (but not for internal service funds), governments have the op- tion to apply (or not apply) FASB Statements and Interpretations that are issued after November 30, 1989, and that apply to business organizations (FASB statements and interpretations applicable only to not-for-profit organizations do not apply to gov- ernments). The option chosen must be disclosed in the notes. INTERNAL SERVICE FUNDS As governments become more complex, efficiency can be improved if services used by several departments or funds or even by several governmental units are combined in a single department. Purchasing, computer services, garages, janitorial services, and risk management activities are common examples. Activities that produce goods or services to be provided to other departments or other governmental units on a cost-reimbursement basis are accounted for by internal service funds. Internal service funds recognize revenues and expenses on the accrual basis. They account for fixed assets used in their operations and for long-term debt to be serviced from revenues generated from their operations, as well as for all current cop2705X_Ch06_154-188.indd 156cop2705X_Ch06_154-188.indd 156 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer Proprietary Funds 157 assets and current liabilities. Net assets (fund equity) are to be reported in three categories: (1) invested in capital assets, net of related debt; (2) restricted; and (3) unrestricted. Establishment and Operation of Internal Service Funds The establishment of an internal service fund is normally subject to legislative approval. The original allocation of resources to the fund may be derived from a transfer of assets of another fund, such as the General Fund or an enterprise fund, intended as a transfer not to be repaid or as a loan that is in the nature of a long- term advance to be repaid by the internal service fund over a period of years. Because internal service funds are established to improve the management of resources, they should be operated and accounted for on a business basis. For example, assume that administrators request the establishment of a fund for the purchasing, warehousing, and issuing of supplies used by a number of funds and departments. A budget should be prepared for the internal service fund (but not recorded in the accounts) to demonstrate that fund management has realistic plans to generate suf- ficient revenues to cover the cost of goods issued and such other expenses, including depreciation, that the governing body intends fund operations to recover. Departments and units expected to purchase goods and services from internal service funds should include in their budgets the anticipated outlays for goods and services. During the year, as supplies are issued or services are rendered, the internal service fund records operating revenues (Charges for Services is an account title commonly used instead of Sales). Since the customer is another department of the government, a journal entry to record the purchase is recorded at the same time the internal service fund records revenue. If the other fund is a governmental fund, the purchase is recorded as an expenditure. Periodically and at year-end, an operating statement should be prepared for each internal service fund to compare revenues and related expenses; these operating statements, called Statements of Revenues, Expenses, and Changes in Fund Net Assets, are similar to income state- ments prepared for investor-owned businesses. Illustrative Case—Supplies Fund Assume that the administrators of the Village of Elizabeth obtain approval from the Village Council in early 2012 to centralize the purchasing, storing, and issuing functions and to administer and account for these functions in a Supplies Fund. A payment of $596,000 cash is made from the General Fund which is not to be repaid by the Supplies Fund. Of the $596,000, $290,000 is to finance capital acquisitions and $306,000 is to finance noncapital acquisitions. Additionally, a long-term ad- vance of $200,000 is made from the Water Utility Fund for the purpose of acquiring capital assets. The advance is to be repaid in 20 equal annual installments, with no interest. The receipt of the transfer in and the liability to the Water Utility Fund would be recorded in the Supplies Fund accounts in the following manner. 1 1 The corresponding entry in the General Fund is entry 22 in Chapter 4. The corresponding entry in the Water Utility Fund is entry 5 in the “Illustrative Case—Water Utility Fund” section later in this chapter. cop2705X_Ch06_154-188.indd 157cop2705X_Ch06_154-188.indd 157 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer 158 Chapter 6 Debits Credits 1. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796,000 Transfers In. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,000 Advance from Water Utility Fund . . . . . . . . . . . . . . . . . . . . . . . . 200,000 To provide some revenue on funds not needed currently, $50,000 is invested in marketable securities: 2. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 Assume that early in 2012, a satisfactory warehouse building is purchased for $350,000; $80,000 of the purchase price is considered as the cost of the land. Nec- essary warehouse machinery and equipment is purchased for $100,000. Delivery equipment is purchased for $40,000. If the purchases are made for cash, the acquisi- tion of the assets would be recorded in the books of the Supplies Fund as follows: 3. Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000 Machinery and Equipment—Warehouse . . . . . . . . . . . . . . . . . . . . . 100,000 Equipment—Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490,000 Supplies are ordered to maintain inventories at a level commensurate with expected usage. No entry is needed because proprietary funds are not required to record encumbrances. During 2012, it is assumed that supplies are received and related invoices are approved for payment in the amount of $523,500; the entry needed to record the asset and the liability is as follows: 4. Inventory of Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,500 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,500 The Supplies Fund, accounts for its inventories on the perpetual inventory basis because the information is needed for proper performance of its primary function. Accordingly, when supplies are issued, the Inventory Account must be credited for the cost of the supplies issued. Because the using fund will be charged an amount in excess of the inventory carrying value, the Receivable and Revenue accounts reflect the selling price. The markup above cost should be determined on the basis of budgeted expenses and other items to be financed from net income. If the budget for the Village of Elizabeth’s Supplies Fund indicates that a markup of 30 percent on cost is needed, issues to General Fund departments of supplies costing $290,000 would be recorded by the following entries: cop2705X_Ch06_154-188.indd 158cop2705X_Ch06_154-188.indd 158 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer Proprietary Funds 159 Debits Credits 5a. Operating Expenses—Cost of Sales and Services . . . . . . . . . . . . . 290,000 Inventory of Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,000 5b. Due from General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377,000 Operating Revenues—Charges for Sales and Services ($290,000 * 130%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377,000 During the year, it is assumed that purchasing expenses totaling $19,000, warehousing expenses totaling $12,000, delivery expenses totaling $13,000, and administrative expenses totaling $11,000 are incurred. The government has chosen to separate operating expenses into three categories: (1) costs of sales and services, (2) administration, and (3) depreciation. If all liabilities are vouchered before pay- ment, the entry would be as follows: 6. Operating Expenses—Costs of Sales and Services . . . . . . . . . . . . . 44,000 Operating Expenses—Administration . . . . . . . . . . . . . . . . . . . . . . . 11,000 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 If collections from the General Fund during 2012 total $322,000, the entry would be as follows (see Chapter 4, entries 20a and 20b for General Fund entries corresponding to entries 5b and 7): 7. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,000 Due from General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,000 Assuming that payment of vouchers during the year totals the $567,500, the following entry is made: 8. Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,500 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,500 The advance from the Water Utility Fund is to be repaid in 20 equal annual installments; repayment of one installment at the end of 2012 is recorded as follows: 9. Advance from Water Utility Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 At the time depreciable assets are acquired, the warehouse building has an estimated useful life of 20 years; the warehouse machinery and equipment have an estimated use- ful life of 10 years; the delivery equipment has an estimated useful life of 10 years; and none of the assets is expected to have any salvage value at the expiration of its useful life. cop2705X_Ch06_154-188.indd 159cop2705X_Ch06_154-188.indd 159 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer 160 Chapter 6 Under these assumptions, straight-line depreciation of the building would be $13,500 per year; depreciation of machinery and equipment, $10,000 per year; and depreciation of delivery equipment, $4,000 per year. (Since governmental units are not subject to income taxes, there is no incentive to use any depreciation method other than straight-line.) Debits Credits 10. Operating Expenses—Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 27,500 Accumulated Depreciation—Building . . . . . . . . . . . . . . . . . . . . 13,500 Accumulated Depreciation—Machinery and Equipment— Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Accumulated Depreciation—Equipment—Delivery . . . . . . . . . 4,000 Organizations that keep perpetual inventory records must adjust the records periodically to reflect shortages, overages, and out-of-condition stock disclosed by physical inventories. Adjustments to the Inventory account are also considered to be adjustments to the warehousing expenses of the period. In this illustrative case, it is assumed that no adjustments are found to be necessary at year-end. Interest income is earned and received in cash on the investments purchased at the beginning of the year: 11. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 Nonoperating Revenues—Interest . . . . . . . . . . . . . . . . . . . . . . . 3,000 Assuming that all revenues, expenses, and transfers applicable to 2012 have been properly recorded by the entries illustrated, the nominal accounts should be closed as of December 31: 12. Operating Revenues—Charges for Sales and Services . . . . . . . . . 377,000 Nonoperating Revenues—Interest . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 Transfers In. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,000 Operating Expenses—Costs of Sales and Services . . . . . . . . . . 334,000 Operating Expenses—Administration . . . . . . . . . . . . . . . . . . . . 11,000 Operating Expenses—Depreciation . . . . . . . . . . . . . . . . . . . . . . 27,500 Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603,500 Recall that the net position of governmental funds is termed Fund Balance and is classified within five categories. In contrast, the excess of assets over liabilities of proprietary funds is termed Net Assets and classified within three categories: Net Assets Invested in Capital Assets, Net of Related Debt 1. Restricted Net Assets 2. Unrestricted Net Assets 3. cop2705X_Ch06_154-188.indd 160cop2705X_Ch06_154-188.indd 160 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer Proprietary Funds 161 Net Assets Invested in Capital Assets, Net of Related Debt is computed as capital assets less accumulated depreciation minus the balance of any debt associated with the acquisition of capital assets. Restricted Net Assets are defined as net resources whose use is restricted by external parties (creditors, grantors, or other governments) or by internally imposed laws. Unrestricted Net Assets is the residual account for any net resources that are not classified in either of the other two categories. For the Village of Elizabeth example, the net asset balances to be reported in the December 31, 2012, Statement of Net Assets are calculated as follows: Invested in Capital Assets, Net of Debt Restricted Unrestricted Total Invested in Capital Assets Net of Debt Capital Assets Less Accumulated Depreciation Less Advance to Enterprise Fund Restricted Unrestricted (plug) Total Net Assets $ 490,000 (27,500) (190,000) $ 272,500 -0- -0- $331,000 $331,000 $ 490,000 (27,500) (190,000) -0- 331,000 $ 603,500 The category Invested in Capital Assets, Net of Related Debt is calculated using end of period balances in capital assets, accumulated depreciation, and debt. Borrowings for operations (if any) would not be subtracted here. In most cases, internal service funds will not have Restricted Net Assets . Unrestricted Net Assets is the residual balance calculated after the other two categories. Similar to fund balances, some governments choose to allocate these amounts to individual net asset accounts through journal entry. Our approach will be to determine the components of net assets in the aforementioned manner and present the totals directly in the Statement of Net Assets. In this way we reduce the number of accounts necessary to record changes in overall fund net position. These amounts appear only in the State- ment of Net Assets (Illustration 6–3, presented later in the chapter). In addition to the Statement of Net Assets, internal service funds report a Statement of Revenues, Expenses, and Changes in Fund Net Assets (Illustration 6–4) and a Statement of Cash Flows (Illustration 6–5). OTHER ISSUES INVOLVING INTERNAL SERVICE FUNDS Risk Management Activities In recent years, governments have been turning to self-insurance for part or all of their risk financing activities. If a government decides to use a single fund to accu- mulate funds and make payments for claims, it must use either the General Fund or an internal service fund. Many use the internal service fund type. When using internal service self-insurance funds, interfund premiums are treated as interfund services provided and used. Thus, revenues are recognized in cop2705X_Ch06_154-188.indd 161cop2705X_Ch06_154-188.indd 161 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer 162 Chapter 6 the internal service fund for interfund charges, and an expenditure or expense, as appropriate, is recognized in the contributing fund. When claims are paid or ac- crued, an operating expense is recorded in the internal service fund. Charges should be based on anticipated claims or on a long-range plan to break even over time, such as an actuarial method. Payments by contributing funds in excess of the amount required to break even are recorded as transfers. If an internal service fund has a material deficit at year-end, that deficit should be made up over a reasonable period of time and should be disclosed in the notes to the financial statements. Implications for Other Funds The operation of internal service funds has important implications for other funds. As we have seen, charges for services (i.e., revenues) of the internal service fund are recorded as expenditures in the governmental fund purchasing the services (or expenses if enterprise funds are the purchaser). Since the internal service fund records the costs of providing services as operating expenses, the costs of these ser- vices are recorded in two funds in the same set of fund-basis financial statements. Additional problems arise if the internal service fund has significant positive (or negative) operating income. Operating income is the excess of service revenues over the costs of providing the service (i.e., operating expenses). Consider the case of an internal service fund servicing police, fire, and other vehicles used in depart- ments reported in the General Fund. If the internal service fund has positive operat- ing income, the expenditures reported in the General Fund exceed the true cost of operating the government. If these amounts are significant over periods of time, some of the accumulated surplus (fund balance) of the General Fund is effectively shifted to the internal service fund (net assets). The opposite is true if internal ser- vice funds have negative operating income: the General Fund understates the true cost of operating the government and net assets are effectively shifted from the internal service fund to the fund balance of the General Fund. Compounding these problems is the fact that GASB Standards do not require the use of internal service funds. Some governments choose to use internal ser- vice funds and others choose to account for the same activities in other funds. This makes comparisons between governments difficult. The problems that internal ser- vice funds create in the fund-basis financial statements were a major consideration when the GASB designed the government-wide financial statements. As we will see in detail in Chapter 8, the problems of duplicate recording of costs, potential over- or understatement of governmental expenditures, and lack of comparability between governments are resolved in the government-wide financial statements. ENTERPRISE FUNDS Enterprise funds are used by governments to account for services provided to the general public on a user-charge basis. Under GASB Statement 34, enterprise funds must be used in the following circumstances: cop2705X_Ch06_154-188.indd 162cop2705X_Ch06_154-188.indd 162 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer Proprietary Funds 163 When debt is backed solely by fees and charges. • When a legal requirement exists that the cost of providing services for an activity, • including capital costs, be recovered through fees or charges. When a government has a policy to establish fees and charges to cover the cost • of providing services for an activity. The most common examples of governmental enterprises are public utilities, notably water and sewer utilities. Electric and gas utilities, transportation systems, airports, landfills, hospitals, toll bridges, municipal golf courses, parking lots, park- ing garages, lotteries, municipal sports stadiums, and public housing projects are other examples. Enterprise funds are to be reported using the economic resources measurement focus and accrual basis of accounting. Fixed assets and long-term debt are included in the accounts. As indicated earlier in this chapter, enterprise funds are to use accounting and reporting standards provided for business enterprises issued on or before November 30, 1989 (unless that guidance conflicts with GASB guidance) and may use standards issued by the FASB for businesses issued after that date. As a result, accounting is similar to that for business enterprises and includes deprecia- tion, accrual of interest payable, amortization of discounts and premiums on debt, and so on. Governmental enterprises often issue debt, called revenue bonds, that is pay- able solely from the revenues of the enterprise. These bonds are recorded directly in the accounts of the enterprise fund. On the other hand, general obligation bonds are sometimes issued for governmental enterprises, in order to provide greater security by pledging the full faith and credit of the government in addition to enterprise revenues. If payment is to be paid from enterprise revenues, these gen- eral obligation bonds would also be reflected in the accounts of enterprise funds. Budgetary accounts are used only if required by law. Debt service and construc- tion activities of a governmental enterprise are accounted for within an enterprise fund, rather than by separate debt service and capital project funds. Thus, the re- ports of enterprise funds are self-contained; and creditors, legislators, or the general public can evaluate the performance of a governmental enterprise by the same crite- ria used to evaluate commercial businesses in the same industry. Unlike internal service funds, it is frequently desirable for enterprise funds to operate at a profit (increase in net assets). Like commercial businesses, operating profits are necessary to establish adequate working capital, provide for expansion of physical facilities, and retire debt. Additionally, governments may find it desir- able to use enterprise fund profits to support general government expenditures that would otherwise require increased taxes. State lotteries, for example, are estab- lished with the intent to operate at significant profits. The profits are then typically transferred from the lottery (enterprise fund) to the state General Fund in support of public education. By far the most numerous and important enterprise services rendered by local governments are public utilities. In this chapter we examine typical transactions of a water utility fund. cop2705X_Ch06_154-188.indd 163cop2705X_Ch06_154-188.indd 163 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer 164 Chapter 6 Illustrative Case—Water Utility Fund It is assumed that the Village of Elizabeth is located in a state that permits enterprise funds to operate without formal legal approval of their budgets. Accordingly, the budget is not recorded in enterprise accounts. Assume that as of December 31, 2011, the accountants for the Village of Elizabeth prepared the postclosing trial balance shown here: VILLAGE OF ELIZABETH Water Utility Fund Postclosing Trial Balance December 31, 2011 Debits Credits Cash $ 467,130 Customer Accounts Receivable 72,500 Allowance for Uncollectible Accounts $ 2,175 Materials and Supplies 37,500 Restricted Assets 55,000 Utility Plant in Service 4,125,140 Accumulated Depreciation of Utility Plant 886,500 Construction Work in Progress 468,125 Accounts Payable 73,700 Revenue Bonds Payable 2,700,000 Net Assets 1,563,020 Totals $5,225,395 $5,225,395 It is common for governmental enterprises, especially utilities, to report “restricted assets.” In this example, the restricted assets include $55,000 set aside for future debt service payments as required by a revenue bond indenture agreement. When utility customers are billed during the year, appropriate revenue ac- counts are credited. Assuming that during 2012 the total bills to nongovernmental customers amounted to $975,300, bills to the Village of Elizabeth General Fund amounted to $80,000, and all revenue was from sales of water, the following entry summarizes the results: (see entry 19 in Chapter 4 for the corresponding entry in the General Fund). Debits Credits 1. Customer Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975,300 Due from General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Operating Revenues—Charges for Sales and Services . . . . . . . . 1,055,300 Assume collections from nongovernmental customers totaled $968,500 for water billings: cop2705X_Ch06_154-188.indd 164cop2705X_Ch06_154-188.indd 164 2/1/10 5:47:22 PM2/1/10 5:47:22 PM [...]... $603,500 cash of $124,930 plus restricted assets of $110,000 equals the cash and cash equivalents of $234,930 (Illustration 6–5) GASB requires the direct method to report cash flows from operating activities Other differences exist between GASB requirements and the requirements by FASB for businesses and nongovernmental, not -for- profit organizations First, cash flow statements for proprietary funds of government... not -for- profit organizations Apago PDF Enhancer Accounting for Municipal Solid Waste Landfills Many of the solid waste landfills in the United States are operated by local governments The GASB requires that certain postclosure costs be estimated and accrued during the period the landfills receive solid waste The federal government requires that owners and operators of solid waste landfills be responsible for. .. liability, and any estimates of recoveries that might reduce the liability SUMMARY This chapter examines accounting and reporting for proprietary funds These funds account for those activities of the government that are business-like in nature,—i.e they charge other entities for goods and services with the purpose of measuring income Enterprise funds provide goods and services to individuals and businesses and. .. portion of those future estimated costs be charged as an expense and a liability of the landfill operation on a units -of- production method (based on capacity used divided by total capacity) as waste is accepted For example, if the total estimated costs for closure and postclosure were $10 million, and the landfill accepted 10 percent of its anticipated capacity (cubic yards) in a given year, the charge and. .. the year: Materials and supplies Costs of sales and services Administrative expenses Construction work in progress $215,000 354,000 200,000 212,200 4 Materials and supplies were used in the amount of $265,700, all for costs of sales and services 5 $8,000 of old accounts receivable were written off 6 Accounts receivable collections totaled $1,450,000 from nongovernmental customers and $48,400 from the... accrued for the year Record 9/12 of the annual amounts 11 Interest was accrued for the year 12 Closing entries were prepared Required: a Prepare entries to record the transactions b Prepare a Statement of Revenues, Expenses, and Changes in Fund Net Assets for the Year Ended December 31, 2012, for the City of Sandwich Swimming Pool Fund c Prepare a Statement of Net Assets as of December 31, 2012, for the... the City of Sandwich Swimming Pool Fund d Prepare a Statement of Cash Flows for the Year Ended December 31, 2012, for the City of Sandwich Swimming Pool Fund The Village of Parry reported the following for its Print Shop Fund for the year ended April 30, 2012 Apago PDF Enhancer 6–8 cop2705X_Ch06_154-188.indd 180 2/2/10 8:59:01 PM Proprietary Funds 181 VILLAGE OF PARRY—PRINT SHOP FUND Statement of Revenues,... (cleanup and control) In 1980, Congress passed the Comprehensive Environmental Response Compensation and Liability Act (generally referred to as the Superfund Act), which places responsibility for pollution remediation on current and past owners and users of waste sites State and local governments are increasingly finding they are responsible for the cleanup of sites found to not meet federal and state standards... responsible for the landfill after it closes Governments must assume the cost of closure, including the cost of equipment used, the cost of the landfill cover, and the cost of caring for the site for a period of 30 years after closure, or whatever period is required by regulations These costs are measured in current costs, in that the costs are estimated as if they were incurred at the time of estimate cop2705X_Ch06_154-188.indd... statements of proprietary funds include a Statement of Net Assets, a Statement of Revenues, Expenses, and Changes in Fund Net Assets, and a Statement of Cash Flows • The net position (i.e., fund equity) section of the Statement of Net Assets is displayed within three categories: (1) Invested in Capital Assets, Net of Related Debt, (2) Restricted Net Assets, and (3) Unrestricted Net Assets • The Statement of . cop2705X_Ch 06_ 154-188.indd 166 cop2705X_Ch 06_ 154-188.indd 166 2/1/10 5:47:22 PM2/1/10 5:47:22 PM Apago PDF Enhancer Proprietary Funds 167 Payment of accounts totaled $275 ,60 0, and payments of payroll. bottom of Illustration 2–11 for an ex- ample). A similar requirement exists for cash flow statements prepared for com- mercial businesses and private not -for- profit organizations. Accounting for. between GASB requirements and the requirements by FASB for businesses and nongovernmental, not -for- profit organizations. First, cash flow statements for proprietary funds of government have four