Define Governmental Operating Activities Principles of Cost Analysis

Terminal Learning Objective • Task: Define governmental operating activities • Condition: You are a

What’s the Difference? • Consider the purchasing sequence: Plan Order Receive Pay Consume When

Why a Different Method of Accounting? • Different entities have different external reporting requirements

What’s the Difference? • Consider the purchasing sequence: Plan Order Receive Pay Consume Cash

What’s the Difference? • Consider the purchasing sequence: Plan Commitment Order Obligation Receive Pay

What’s the Difference? • Consider the purchasing sequence: Plan Order Receive Pay Asset &

Check on Learning • Which method of accounting records the cost when cash is

Review: Budgetary Terminology • Appropriation • Authorization to spend • Obligation • Order placed;

Fund Accounting • Governmental entities account for activities using Funds • A Fund is

Budgetary Accounting • The following equation: Unobligated Open = Appropriations - Expenditures Balance Obligations

Budgetary Accounting Highlights Unobligated Balance to help managers avoid overspending • The following equation:

Budgetary Accounting • The following equation: Appropriations Unobligated Open = - Expenditures & Other

GFEBS Open Obligation Report © Dale R. Geiger 2011 14

Check on Learning • What is the budgetary accounting equation? • What is the

Lacy’s Lemonade Stand • Lacy Simmons receives a $200 appropriation from the family and

Lacy’s Lemonade Stand • Orders flyers from the print shop at an estimated cost

Lacy’s Lemonade Stand • Buys a pitcher, a juicer and a table at a

Lacy’s Lemonade Stand • Receives the flyers and pays the bill for $10 Description

Lacy’s Lemonade Stand • Pays Bert $5 to pass out flyers Description Balance Forward

Lacy’s Lemonade Stand • Purchases supplies: cups $15; napkins $5; lemons, $25; sugar, $10

Lacy’s Lemonade Stand • First day’s sales: $15 in cash and $20 in IOUs

Lacy’s Lemonade Stand • Receives $5 cash toward the IOUs Description Balance Forward Approp

Lacy’s Lemonade Stand • Receives $5 cash toward the IOUs Description Approp & Other

Lacy’s Lemonade Stand • Purchases $40 in supplies on account at the grocery store

Lacy’s Lemonade Stand • Makes cash sales of $50 Description Balance Forward Approp &

Lacy’s Lemonade Stand • Makes cash sales of $50 Description Approp & Other Obligations

Statement of Net Cost Expenditures: Supplies Utensils Advertising Total Expenditures Less Revenues: Net Cost

What about Cash Basis? • How does Lacy’s Lemonade Stand measure up on a

Check on Learning • When will an expenditure be recorded under budgetary accounting rules?

Practical Exercise © Dale R. Geiger 2011 39

Budgetary Accounting Spreadsheet Enter Lacy’s transaction data to track her unobligated balance © Dale

Budgetary Accounting Spreadsheet This spreadsheet permits tracking multiple sub-appropriations © Dale R. Geiger 2011

Practical Exercise © Dale R. Geiger 2011 42

Slides: 42

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Define Governmental Operating Activities Principles of Cost Analysis and Management © Dale R. Geiger 2011 1

Terminal Learning Objective • Task: Define governmental operating activities • Condition: You are a cost advisor technician with access to all PCAM course handouts, readings, and spreadsheet tools, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. • Standard: with at least 80% accuracy • Describe timing differences between cash-based, budgetary and accrual accounting methods • Identify key budgetary inputs and outputs from GFEBS • Record operating transactions © Dale R. Geiger 2011 2

What’s the Difference? • Consider the purchasing sequence: Plan Order Receive Pay Consume When does the Accounting System “count” the cost? © Dale R. Geiger 2011 3

Why a Different Method of Accounting? • Different entities have different external reporting requirements • Individuals report income on a cash basis • Governmental entities report activities on a budgetary basis • Businesses, revolving funds and the proprietary governmental accounts report activities on an accrual basis © Dale R. Geiger 2011 4

What’s the Difference? • Consider the purchasing sequence: Plan Order Receive Pay Consume Cash based accounting records a Cost at the time it is paid © Dale R. Geiger 2011 5

What’s the Difference? • Consider the purchasing sequence: Plan Commitment Order Obligation Receive Pay Consume Expenditure Budgetary accounting records a Commitment when the plan is made …an Obligation when an order is placed …and an Expenditure when goods are received © Dale R. Geiger 2011 6

What’s the Difference? • Consider the purchasing sequence: Plan Order Receive Pay Asset & Liability Remove Liability Consume Expense Accrual accounting records an Asset and a Liability when the goods are received …and an Expense when goods are consumed © Dale R. Geiger 2011 7

Check on Learning • Which method of accounting records the cost when cash is paid? • Which method of accounting records the cost when goods are received? © Dale R. Geiger 2011 8

Review: Budgetary Terminology • Appropriation • Authorization to spend • Obligation • Order placed; Appropriation is no longer available to be spent • Expenditure • Goods or services received; Appropriation used up • Unobligated Balance • What is left in the envelope; Appropriation still available to be spent © Dale R. Geiger 2011 9

Fund Accounting • Governmental entities account for activities using Funds • A Fund is a separate Accounting Entity within the larger governmental entity • Has its own self-balancing set of accounts • Produces its own separate financial statements • Ensures segregation of monies for specific purposes © Dale R. Geiger 2011 10

Budgetary Accounting • The following equation: Unobligated Open = Appropriations - Expenditures Balance Obligations • Can be restated as: Open Appropriations = Expenditures + + Unobligated Obligations Balance & Other Budgetary Resources = Status of Budgetary Resources © Dale R. Geiger 2011 11

Budgetary Accounting Highlights Unobligated Balance to help managers avoid overspending • The following equation: Appropriations Unobligated Open = - Expenditures & Other Balance Obligations • Can be restated as: Open Appropriations = Expenditures + + Unobligated Obligations Balance & Other Budgetary Resources = Status of Budgetary Resources © Dale R. Geiger 2011 12

Budgetary Accounting • The following equation: Appropriations Unobligated Open = - Expenditures & Other Balance Obligations Highlights budgetary resources to promote accountability to external users • Can be restated as: Open Appropriations = Expenditures + + Unobligated Obligations Balance & Other Budgetary Resources = Status of Budgetary Resources © Dale R. Geiger 2011 13

GFEBS Open Obligation Report © Dale R. Geiger 2011 14

Check on Learning • What is the budgetary accounting equation? • What is the smallest budgetary unit in GFEBS for which financial statements can be produced? © Dale R. Geiger 2011 15

Lacy’s Lemonade Stand • Lacy Simmons receives a $200 appropriation from the family and starts a lemonade stand • Record the appropriation in the table below: Description Approp & Other Obligations (-) © Dale R. Geiger 2011 Expenditures (-) Unobligated Balance 16

Lacy’s Lemonade Stand • Lacy Simmons receives a $200 appropriation from the family and starts a lemonade stand • Record the appropriation in the table below: Description Appropriation Balance Approp & Other Obligations (-) Expenditures (-) Unobligated Balance +200 200 © Dale R. Geiger 2011 17

Lacy’s Lemonade Stand • Orders flyers from the print shop at an estimated cost of $10 Description Balance forward Approp & Other Obligations (-) 200 © Dale R. Geiger 2011 Expenditures (-) Unobligated Balance 200 18

Lacy’s Lemonade Stand • Orders flyers from the print shop at an estimated cost of $10 Description Balance forward Approp & Other Obligations (-) 200 Orders Flyers Balance 200 Expenditures (-) Unobligated Balance 200 +10 -10 10 190 © Dale R. Geiger 2011 19

Lacy’s Lemonade Stand • Buys a pitcher, a juicer and a table at a yard sale for $20 Description Balance forward Approp & Other Obligations (-) 200 10 © Dale R. Geiger 2011 Expenditures (-) Unobligated Balance 190 20

Lacy’s Lemonade Stand • Buys a pitcher, a juicer and a table at a yard sale for $20 Description Balance Forward Approp & Other Obligations (-) 200 10 Buys Table & Utensils Balance 200 Expenditures (-) 10 © Dale R. Geiger 2011 Unobligated Balance 190 +20 -20 20 170 21

Lacy’s Lemonade Stand • Receives the flyers and pays the bill for $10 Description Balance forward Approp & Other Obligations (-) 200 10 © Dale R. Geiger 2011 Expenditures (-) 20 Unobligated Balance 170 22

Lacy’s Lemonade Stand • Receives the flyers and pays the bill for $10 Description Balance Forward Approp & Other Obligations (-) 200 Receives flyers Expenditures (-) 10 -10 Balance 0 Pays Bill Balance 20 200 © Dale R. Geiger 2011 0 Unobligated Balance 170 +10 20 180 +10 -10 30 170 23

Lacy’s Lemonade Stand • Pays Bert $5 to pass out flyers Description Balance Forward Approp & Other Obligations (-) 200 © Dale R. Geiger 2011 Expenditures (-) 0 30 Unobligated Balance 170 24

Lacy’s Lemonade Stand • Pays Bert $5 to pass out flyers Description Balance Forward Approp & Other Obligations (-) 200 Expenditures (-) 0 Pays Bert Balance 200 © Dale R. Geiger 2011 0 Unobligated Balance 30 170 +5 -5 35 165 25

Lacy’s Lemonade Stand • Purchases supplies: cups $15; napkins $5; lemons, $25; sugar, $10 and ice, $10 Description Balance Forward Approp & Other Obligations (-) 200 © Dale R. Geiger 2011 Expenditures (-) 0 35 Unobligated Balance 165 26

Lacy’s Lemonade Stand • Purchases supplies: cups $15; napkins $5; lemons, $25; sugar, $10 and ice, $10 Description Balance Forward Approp & Other Obligations (-) 200 Expenditures (-) 0 Purchases supplies Balance 200 © Dale R. Geiger 2011 0 Unobligated Balance 35 165 +65 -65 100 27

Lacy’s Lemonade Stand • First day’s sales: $15 in cash and $20 in IOUs Description Balance Forward Approp & Other Obligations (-) 200 Expenditures (-) 0 Unobligated Balance 100 • Collections from customers increase Lacy’s spending authority © Dale R. Geiger 2011 28

Lacy’s Lemonade Stand • First day’s sales: $15 in cash and $20 in IOUs Description Approp & Other Obligations (-) Balance Forward 200 Cash Collections +15 Balance 215 Expenditures (-) 0 Unobligated Balance 100 +15 0 100 115 • Collections from customers increase Lacy’s spending authority © Dale R. Geiger 2011 29

Lacy’s Lemonade Stand • Receives $5 cash toward the IOUs Description Balance Forward Approp & Other Obligations (-) 215 © Dale R. Geiger 2011 Expenditures (-) 0 100 Unobligated Balance 115 30

Lacy’s Lemonade Stand • Receives $5 cash toward the IOUs Description Approp & Other Obligations (-) Balance Forward 215 Cash Collections +5 Balance 220 © Dale R. Geiger 2011 Expenditures (-) 0 100 Unobligated Balance 100 +5 0 100 120 31

Lacy’s Lemonade Stand • Purchases $40 in supplies on account at the grocery store Description Balance Forward Approp & Other Obligations (-) 220 © Dale R. Geiger 2011 Expenditures (-) 0 100 Unobligated Balance 120 32

Lacy’s Lemonade Stand • Purchases $40 in supplies on account at the grocery store Description Balance Forward Approp & Other Obligations (-) 220 Expenditures (-) 0 Purchased supplies Balance 220 © Dale R. Geiger 2011 0 Unobligated Balance 100 120 +40 -40 140 80 33

Lacy’s Lemonade Stand • Makes cash sales of $50 Description Balance Forward Approp & Other Obligations (-) 220 © Dale R. Geiger 2011 Expenditures (-) 0 140 Unobligated Balance 80 34

Lacy’s Lemonade Stand • Makes cash sales of $50 Description Approp & Other Obligations (-) Balance Forward 220 Cash Sales +50 Balance 270 © Dale R. Geiger 2011 Expenditures (-) 0 140 Unobligated Balance 80 +50 140 130 35

Statement of Net Cost Expenditures: Supplies Utensils Advertising Total Expenditures Less Revenues: Net Cost $105 20 15 $140 70 $70 © Dale R. Geiger 2011 36

What about Cash Basis? • How does Lacy’s Lemonade Stand measure up on a cash basis? Cash collections: Less Cash Payments: Supplies $65 Utensils 20 Advertising 15 Total payments: Net Loss © Dale R. Geiger 2011 $70 $100 $30 37

Check on Learning • When will an expenditure be recorded under budgetary accounting rules? • How does the collection of cash affect the budgetary equation? © Dale R. Geiger 2011 38