Enterprise FundsLearning ObjectivesTransition ChapterCommon Characteristics & PrinciplesAccounting EquationAccounting PrinciplesAccounting Standards for Proprietary FundsFinancial StatementsStatement of Fund Net AssetsCategories of Fund Net AssetsCalculations of Net Asset AmountsInvested in Capital Assets, Net of Related DebtRestricted Net AssetsRestrictions Imposed By:Important Points about Restricted Net AssetsCalculation of Restricted Net AssetsUnrestricted Net AssetsCalculation of Unrestricted Net AssetsStatement of Revenues, Expenses, & Changes in Fund Net AssetsKey Difference from Private SectorStatement of Cash FlowsSections of the SCFCash Flows from Operating ActivitiesCash Flows from Noncapital Financing ActivitiesCash Flows from Capital & Related Financing ActivitiesCash Flows from Investing ActivitiesNoncash TransactionsEnterprise Funds vs. Internal Service FundsWhen Use of Enterprise Fund Is RequiredCommon Examples of EFsGovernments may elect to use EFs even when not requiredSpecific EF TopicsRestricted Asset AccountsBudgeting and AppropriationsInterfund ActivityIntergovernmental GrantsInterest CapitalizationLong-Term Debt RefundingsEssence of the Refunding DifferencesSituation #1 – No new debtSituation #1 – RefundingDeferred Interest Expense AdjustmentEF IllustrationAcquire existing plantPay amount dueClose Transfer accountOrdering and receiving materials: Consumption method requiredBill customersPurchase equipment on accountNonoperating Revenue: RentCash collectionsBill from ISF for servicesCash paymentsTransfer to General FundDonation from a developerAdjusting Entries: AccrualsOther Adjusting EntriesSlide 58Accounting for Customer DepositsCustomer Deposits (continued)Slide 61Slide 62Capital ProjectsCapital Projects (continued)Slide 65Slide 66Debt Service Fund TypesDebt Service TransactionsDebt Service (continued)Slide 70Slide 71Unbilled ReceivablesSlide 73Enterprise FundsChapter 10Learning ObjectivesDetermine what activities should be reported using Enterprise Funds.Understand the Proprietary Fund accounting principles.Understand Proprietary Fund reporting for intergovernmental grant revenues and debt refundings.Review typical Proprietary Fund transactions.Understand the formats & classifications of Proprietary Fund financial statements.Understand and be able to compute the three components of Proprietary Fund Net Assets.Prepare the Proprietary Fund financial statements.Transition ChapterLeaving behind the new material:Governmental Fund Accounting & ReportingMoving to material that will look more familiar:Proprietary Fund Accounting & ReportingCommon Characteristics & PrinciplesAccounting EquationAccounting PrinciplesFinancial StatementsAccounting EquationOtherNoncurrentAssetsNetAssetsCurrentAssetsCapitalAssets++CurrentLiabilitiesLong-TermLiabilities+ +Traditional Balance Sheet EquationNetAssetsCurrentAssetsOtherNoncurrentAssetsCapitalAssets++CurrentLiabilitiesLong-TermLiabilities+New Net Asset EquationORAccounting PrinciplesVery similar to private sector counterpartsOften use fixed budgetsMay cause activity to be accounted for on budgetary basis during the yearConverted to GAAP basis at end of the yearLegal or contractual reporting requirements that differ from GAAP met in CAFR or by issuing special purpose reportsAccounting Standards for Proprietary FundsAll Proprietary Funds follow:GASB StandardsCAP Bulletins, APB Opinions, and FASB Standards through #102, unless pronouncement conflicts with GASB StandardsGASB #20 requires governments to eitherFollow FASB Standards issued after #102, unless it conflicts with GASB Standards, ORNot to apply subsequent standards [usual choice]Financial StatementsStatement of Fund Net Assets (or Balance Sheet)Statement of Revenues, Expenses, and Changes in Fund Net Assets (or Fund Equity)Statement of Cash FlowsStatement of Fund Net AssetsTwo formats allowed:Traditional Balance Sheet formatNew Net Asset formatEither way, statement must be classifiedStatement presents current and noncurrent assets and current and noncurrent liabilities similar to private sectorWhat is different is the equity sectionCategories of Fund Net AssetsInvested in Capital Assets, Net of Related DebtRestricted Net AssetsUnrestricted Net AssetsContributed Capital and Retained Earnings no longer usedCalculations of Net Asset AmountsMaintaining separate accounts during the year unnecessary – amounts do not articulate with other financial statementsTransactions may cause reclassifications among amounts – entry to record unnecessaryAmounts usually calculated at year-endInvested in Capital Assets,Net of Related DebtHistorical cost of capital assets– Accumulated Depreciation= Net Book Value– Capital asset-related debt of the fund (adjusted for unspent proceeds)= Invested in Capital Assets, Net of Related DebtRestricted Net AssetsAmount of restricted assets in excess of non-capital borrowing and other liabilities payable from restricted assetsConstraints must be narrower than general limits of activityRestrictions Imposed By:Creditors, grantors, contributors, or laws and regulations of other governmentsConstitutional provisionsEnabling legislations thatAuthorizes government to assess, levy, charge or otherwise mandate payment of resources externally, ANDPlaces legally enforceable purpose restriction on those resourcesImportant Points about Restricted Net AssetsMust be more limited than scope of activities accounted for in fundMay not be reported as a negative amount – if liabilities exceed assets, amount is reported as zero and excess deducted from Unrestricted Net AssetsIf assets must be maintained in perpetuity, must classify Restricted Net Assets as expendable and nonexpendable (rare)Amount reported may be different than restricted assets less liabilities payable from restricted assets due to classification problemsCalculation ofRestricted Net AssetsAssets restricted to a particular purpose– Noncapital liabilities directly associated with and payable from restricted assets– Capital debt equal to unexpended proceeds of capital debt included in restricted assets= Restricted Net AssetsUnrestricted Net AssetsRemainder of net assets not reported elsewhere (a “plug” number?)Designated by managementImportant pointsDesignations are internal and may be changed by managementNot the same as