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www.downloadslide.comEssentials ofAccounting forGovernmental andNot-for-ProfitOrganizationsApago PDF EnhancerTenth EditionPaul A. Copley,Ph. D., CPAKPMG ProfessorDirector, School of AccountingJames Madison Universitycop2705X FM i-x.indd i2/1/10 6:56:30 PM

www.downloadslide.comESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND NOT-FOR-PROFITORGANIZATIONS, TENTH EDITIONPublished by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenueof the Americas, New York, NY, 10020. Copyright 2011 by The McGraw-Hill Companies, Inc. Allrights reserved. Previous editions 2008, 2007 and 2004. No part of this publication may be reproducedor distributed in any form or by any means, or stored in a database or retrieval system, without the priorwritten consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or otherelectronic storage or transmission, or broadcast for distance learning.Some ancillaries, including electronic and print components, may not be available to customers outside theUnited States.This book is printed on acid-free paper.1 2 3 4 5 6 7 8 9 0 DOC/DOC 1 0 9 8 7 6 5 4 3 2 1 0ISBN 978-0-07-352705-5MHID 0-07-352705-XVice President and Editor-in-Chief: Martin LangeVP SEM, EDP, Central Publishing Services: Kimberly Meriwether DavidEditorial Director: Stewart MattsonPublisher: Tim VertovecSponsoring Editor: Donna DillonMarketing Manager: Dean KarampelasDevelopment Editor: Emily HattebergProject Manager: Melissa M. LeickDesign Coordinator: Brenda RolwesCover Designer: Studio Montage, St. Louis, MissouriUSE Cover Image Credit: Eyewire (Photodisc)/PunchStockSenior Production Supervisor: Laura FullerMedia Project Manager: Suresh Babu / Balaji Sundararaman, Hurix Systems Pvt. Ltd.Compositor: MPS Limited, A Macmillan CompanyTypeface: 10.5/12pt Times RomanPrinter: R. R. DonnelleyApago PDF EnhancerAll credits appearing on page or at the end of the book are considered to be an extension of thecopyright page.Library of Congress Cataloging-in-Publication DataCopley, Paul A.Essentials of accounting for governmental and not-for-profit organizations / Paul A. Copley. — 10th ed.p. cm.Includes index.ISBN 978-0-07-352705-51. Administrative agencies—United States—Accounting. 2. Nonprofit organizations—United States—Accounting. I. Title.HJ9801.H39 2011657'.83500973—dc222009054187www.mhhe.com

www.downloadslide.comPrefaceThank you for considering the tenth edition of Essentials of Accounting for Governmental and Not-for-Profit Organizations. The tenth edition is updated for recent changesincluding: GASB Statement 54: Fund Balance Reporting and Governmental Fund TypeDefinitions. FASB Statement 164, Not-for Profit Entities: Mergers and Acquisitions. IRS Form 990 Return of Organization Exempt From Income Tax.In addition, the text includes a new chapter on Federal Government reporting.I have used the text with stand-alone, three semester-hour classes, with half-semesterGNP courses, and as a module in advanced accounting classes. It is appropriate foraccounting majors or as part of a public administration program. The coverage is effective in preparing candidates for the CPA examination.The focus of the text is on the preparation of external financial statements. Amongthe more challenging aspects of state and local government reporting is the preparation of government-wide financial statements. Our approach is similar to that used inpractice. Specifically, day-to-day events are recorded at the fund level using the basisof accounting for fund financial statements. Governmental activities are recorded usingthe modified accrual basis. The fund-basis statements are then used as input in thepreparation of government-wide statements. The preparation of government-wide statements is presented in an Excel worksheet. This approach has two advantages: (1) it isthe approach most commonly applied in practice, and (2) it is an approach familiar tostudents who have studied the process of consolidation in their advanced accountingclasses. State and local government reporting is illustrated using an ongoing exampleintegrated throughout Chapters 2 through 8 and 13.Additional features of the text are available on the instructor or student Web sites andinclude:Apago PDF Enhancer A continuous homework problem throughout Chapters 2 through 8 and 13. Instructor’s guide. Suggested quiz and examination questions and problems. PowerPoint slides. Excel-based assignments. An additional practice set.I thank Sandra Bitenc, University of Texas—Arlington; Angele Brill, Castleton State College; Richard C. Brooks, West Virginia University; Bradley Childs, Belmont University;Dori Danko, Grand Valley State University; Gertrude Eguae-Obazee, Albright College;Gladys Gomez, University of Mary Washington; Marina Grau, Houston Communityiiicop2705X FM i-x.indd iii2/1/10 6:56:31 PM

www.downloadslide.comivPrefaceCollege; David J. Harr, George Mason University; Maggie Houston, Wright State University; Tom Hrubec, Franklin University; Mary Jepperson, Saint John’s University;Beth Kern, Indiana University South Bend; John Lasik, Central Washington University;Rodney A. Oglesby, Drury University; Jim Shelton, Harding University; Chuck Smith,Iowa Western Community College; D. Terry Balkaran, Queens College; and BradleyTrimble, Columbus State Community College for reviewing the ninth edition and providing suggestions. I wish to thank my colleague Loretta Manktelow; co-author of theInstructor’s Guide and author of the Test Bank as well as Maggie Houston of WrightState University for her work on the online quizzes. Finally, I am indebted to the manyusers of the text for their comments. Additional comments and suggestions are welcomeand can be addressed to me at copleypa@jmu.edu.Paul A. CopleyApago PDF EnhancerIn memory of those lost:— Northern Illinois University, February 14, 2008— Virginia Tech, April 16, 2007cop2705X FM i-x.indd iv2/1/10 6:56:31 PM

www.downloadslide.comContentsPrefaceiiiChapter OneINTRODUCTION TOACCOUNTINGAND FINANCIALREPORTING FORGOVERNMENTALAND NOT-FOR-PROFITORGANIZATIONS 1Generally Accepted AccountingPrinciples 3Objectives of Accounting and FinancialReporting 6Objectives of Accounting andFinancial Reporting for the FederalGovernment 8Objectives of Financial Reporting byNot-for-Profit Entities 8Objectives of Accounting and FinancialReporting for State and LocalGovernmental Units 9Chapter TwoOVERVIEW OF FINANCIALREPORTING FORSTATE AND LOCALGOVERNMENTS 20The Governmental Reporting Entity 21Reporting by Major Funds 23Overview of the Comprehensive AnnualFinancial Report (CAFR) 23Introductory Section 24Financial Section: Auditor’s Report 25Management’s Discussion and Analysis(MD&A) 26Statement of Net Assets 28Government-wide Statement ofActivities 30Governmental Funds: Balance Sheet 32Governmental Funds: Statement ofRevenues, Expenditures, and Changesin Fund Balance 34Proprietary Funds: Statement of NetAssets 36Proprietary Funds: Statement ofRevenues, Expenses, and Changes inFund Net Assets 38Proprietary Funds: Statement of CashFlows 40Fiduciary: Statement of Fiduciary NetAssets 42Fiduciary: Statement of Changes inFiduciary Net Assets 42Notes to the Financial Statements 44Required Supplementary InformationOther than MD&A 46Combining Statements 48Statistical Information 48Apago PDF EnhancerState and Local Government FinancialReporting 10Comprehensive Annual FinancialReport 10Measurement Focus and Basis ofAccounting 12Fund Structure for State and LocalGovernment Accounting andReporting 13Number of Funds Required 16Budgetary Accounting 16Additional Resources17Special-Purpose Governments49vcop2705X FM i-x.indd v2/1/10 6:56:31 PM

www.downloadslide.comviContentsPublic Colleges and Universities 49Other Governmental Not-for-ProfitOrganizations 50Chapter ThreeMODIFIED ACCRUALACCOUNTING:INCLUDING THE ROLEOF FUND BALANCESAND BUDGETARYAUTHORITY 55Modified Accrual Accounts56Balance Sheet Accounts 56Financial Statement Activity Accounts 61Budgetary Accounts 63Expenditure Cycle 63Revenue Recognition for NonexchangeTransactions 65Summary 68Appendix: Budgetary AccountingIllustrated 69Interfund Transfers 91Interfund Reimbursements91Illustrative Case—General Fund91Recording the Budget 92Re-establishment of Encumbrances 92Recording Prior-Year Property Taxes asRevenues 92Tax Anticipation Notes Payable 93Payment of Liabilities asRecorded 93Encumbrance Entry 93Recording Property Tax Levy 94Collection of Delinquent Taxes 94Collection of Current Taxes 94Other Revenues 95Repayment of Tax Anticipation Notes 95Recognition of Expenditures forEncumbered Items 95Payrolls and Payroll Taxes 96Payment on Account and Other Items 97Correction of Errors 97Amendment of the Budget 97Interfund Transactions 98Write-off of Uncollectible DelinquentTaxes 100Reclassification of CurrentTaxes 100Accrual of Interest and Penalties 101Deferral of Property TaxRevenue 101Special Item 101Preclosing Trial Balance 101Closing Entries 103Year-End Financial Statements 105Apago PDF EnhancerBudgets and Budgetary Accounts 69Recording the Budget 70Accounting for Revenues 71Accounting for Encumbrances andExpenditures 73Budget Revisions 76Budgetary Comparison Schedule 76Classification of Estimated Revenues andRevenues 77Classification of Appropriations andExpenditures 78Chapter FourACCOUNTING FOR THEGENERAL AND SPECIALREVENUE FUNDS 87Overview of Modified AccrualAccounting 88Interfund Transactions 89Interfund Loans 89Interfund Services Provided and Used 91cop2705X FM i-x.indd viIllustrative Case—Special RevenueFund 108Motor Fuel Tax Revenues 108Expenditures for Road Repairs 108Reimbursement to GeneralFund 109Reimbursement Grant Accounting 109Closing Entry 109Year-End Financial Statements 110Recognition of Inventories inGovernmental Funds 1112/2/10 1:17:21 PM

www.downloadslide.comContentsChapter FiveACCOUNTING FOR OTHERGOVERNMENTALFUND TYPES:CAPITAL PROJECTS,DEBT SERVICE, ANDPERMANENT 122Capital Projects FundsIllustrative Case125124Other Issues Involving Acquisition ofCapital Assets 130Acquisition of General Fixed Assets byLease Agreements 130Construction of General Fixed AssetsFinanced by Special AssessmentDebt 131Debt Service Funds132The Modified Accrual Basis—AsApplied to Debt ServiceFunds 132Additional Uses of Debt ServiceFunds 133Debt Service Accounting for SerialBonds 133Illustrative Case—Regular SerialBonds 134Chapter SixPROPRIETARY FUNDSInternal Service Fundsvii154156Establishment and Operation of InternalService Funds 157Illustrative Case—SuppliesFund 157Other Issues Involving Internal ServiceFunds 161Risk Management Activities 161Implications for Other Funds 162Enterprise Funds162Illustrative Case—Water UtilityFund 164Proprietary Fund FinancialStatements 168Statement of Net Assets 170Statement of Revenues, Expenses,and Changes in Fund Net Assets 170Statement of Cash Flows 170Accounting for Municipal Solid WasteLandfills 174Pollution Remediation Costs 175Apago PDF EnhancerOther Issues Involving Payment ofLong-Term Debt 136Debt Service Accounting for DeferredSerial Bonds 136Debt Service Accounting for TermBonds 136Debt Service Accounting for CapitalLease Payments 137Bond Refundings 137Permanent Funds 138Financial Reporting for GovernmentalFunds 140Balance Sheet—GovernmentalFunds 140Statement of Revenues, Expenditures,and Changes in Fund Balances—Governmental Funds 144Summarycop2705X FM i-x.indd vii144Summary176Chapter SevenFIDUCIARY (TRUST)FUNDS 189Agency Funds190Tax Agency Funds 192Accounting for Tax Agency FundsFinancial Reporting for AgencyFunds 194Private-Purpose Trust Funds192194Accounting for Investments 194Illustrative Case—Private-PurposeTrust Funds 197A Note about Escheat Property 199Investment Trust Funds 199Public Employee Retirement Systems(Pension Trust Funds) 200Accounting and Reporting for DefinedBenefit Pension Plans 2012/1/10 6:56:31 PM