IMPLEMENTATION GUIDE

 ACCOUNTING FOR REVENUE AND

OTHER FINANCING SOURCES

June 1996
This guide presents illustrations and

explanations intended to help practice and

understanding; it does not constitute

authoritative standards for preparers and

auditors of financial statements. Authoritative

guidance on display (format) of financial

reports prepared pursuant to the Chief Financial

Officers Act of 1990 (as amended) is provided by

the Office of Management and Budget (OMB) in its

periodic bulletins on the form and content of

agency financial statements. Further guidance on

applying Statements of Federal Financial

Accounting Standards (SFFAS) and interpretations

of those standards may be requested from OMB,

Office of Management and Budget, pursuant to OMB

Circular 134, Financial Accounting Principles

and Standards (May 20, 1993). Also, guidance on

specific questions that arise in practice

concerning the proper account(s) to use to

record a given transaction may be sought from

the Standard General Ledger Board.

IMPLEMENTATION GUIDE FOR

ACCOUNTING FOR REVENUE

AND

OTHER FINANCING SOURCES
IMPLEMENTATION GUIDE TO ACCOUNTING FOR REVENUE

AND OTHER FINANCING SOURCES

TABLE OF CONTENTS

CHAPTER 1: REPORTING ON REVENUE AND OTHER FINANCING SOURCES ..... 1

INTRODUCTION................................................. 1

OVERVIEW OF NEW FINANCIAL STATEMENTS......................... 2

Statement of Net Cost (3); Statement of Custodial

Activity (4); Statement of Changes in Net Position

(5); Statement of Budgetary Resources (5); Statement

of Financing (6)

HOW FINANCIAL STATEMENTS HAVE BEEN CHANGED................... 7

Changes to the Statement of Operations (7); Changes to

the Balance Sheet (9); New Statements of Budgetary

Resources and Financing (12)

TERMINOLOGY AND THE EVOLVING FEDERAL REPORTING MODEL......... 12

Disclosure (12); Required Supplementary Information

(12); Required Supplementary Stewardship Information

(13); Other Accompanying Information (13)

CHAPTER 2: NEW FINANCIAL STATEMENTS.............................. 16

STATEMENT OF NET COST........................................ 16

Rationale (16); Illustrative Statement of Net Cost

(19); Attributing revenue to the costs of earning it

(23); Implications for the display of special cases

(26)

STATEMENT OF CUSTODIAL ACTIVITY.............................. 29

Rationale (29); Illustrative Statement of Custodial

Activity (30)

STATEMENT OF CHANGES IN NET POSITION......................... 31

Illustrative Statement of Changes in Net Position

(32); Implications of the term "net results of

operations" (32)

STATEMENT OF BUDGETARY RESOURCES............................. 33

Rationale (33); Illustrative Statement of Budgetary

Resources (34)

STATEMENT OF FINANCING....................................... 35

Rationale (35); Illustrative Statement of Financing

(37); Preparing the Statement of Financing (37);

Obligations and nonbudgetary resources (38); Resources

that do not fund net cost of operations (39); Costs

that do not require resources (40); Financing sources

yet to be provided (41)

REPORTING REVENUE............................................ 42

CHAPTER 3: COMPARISON BETWEEN ACCOUNTING AND BUDGETARY

CLASSIFICATIONS OF TRANSACTIONS.............................. 44

INTRODUCTION................................................. 44

TRANSACTIONS WITH THE PUBLIC................................. 44

General comparison (44); User charges (47)

INTRAGOVERNMENTAL TRANSACTIONS............................... 48

CHOICE OF CLASSIFICATION SYSTEM.............................. 49
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

CHAPTER 4: CASE STUDY AND ILLUSTRATIONS.......................... 53

ILLUSTRATIVE CASE TRANSACTIONS, JOURNAL ENTRIES, AND TRIAL

BALANCES ............................................... 59

ILLUSTRATIVE FINANCIAL STATEMENTS PREPARED FOR CASE STUDY

ENTITIES ............................................... 67

CHAPTER 5: ADDITIONAL GUIDANCE FOR PREPARING THE STATEMENT OF

FINANCING ........................................................ 81

INTRODUCTION................................................. 81

DECREASE IN THE ANNUAL LEAVE LIABILITY....................... 82

ASSETS ACQUIRED BY CAPITAL LEASE............................. 83

TRANSFERS OF ASSETS IN AND OUT WITHOUT REIMBURSEMENT......... 87

SALE OF CAPITALIZED ASSETS................................... 89

EXCHANGE REVENUE FROM THE PUBLIC............................. 90

SPECIAL TOPICS RELATED TO DISCRETIONARY DIRECT LOAN AND

LOAN GUARANTEE PROGRAMS ................................ 93

Introduction (93); Reconciliations and the chapter 4

case (94); Subsidy reestimates (96); Pre-credit reform

loans (101); Subsidy expense for defaulted guaranteed

loans: credit reform (104)

APPENDIX: CIRCULAR A-134 ........................................ 105
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

CHAPTER 1: REPORTING ON REVENUE

AND OTHER FINANCING SOURCES

INTRODUCTION

1. Statement of Federal Financial Accounting

Standards Number 7, Accounting for Revenue and

Other Financing Sources and Concepts for

Reconciling Budgetary and Financial Accounting

(SFFAS No. 7), provides authoritative standards

for classifying, recognizing, and measuring

inflows of resources to the U.S. Government and

its component reporting entities. These standards

help provide better information about the cost of

the Government's activities, make Federal

financial reporting more supportive of the budget

and performance measurement, and demonstrate

accountability. The standards reflect the concepts

adopted in Statement of Federal Financial

Accounting Concepts No. 1, Objectives of Federal

Financial Reporting (SFFAC No. 1), and Statement

of Federal Financial Accounting Concepts No. 2,

Entity and Display (SFFAC No. 2).

2. This document is an implementation guide for

SFFAS No. 7. It is not authoritative material. The

guide presents illustrations, explanations, and a

case study intended to help practice and

understanding. Authoritative guidance on form and

content (i.e., display) of financial reports

prepared pursuant to the Chief Financial Officers

Act of 1990 (as amended) is provided by OMB in its

periodic bulletins on the form and content of

agency financial statements. Further guidance on

applying SFFAS No. 7 and interpretations of it and

other Federal accounting standards may be

requested from the Office of Federal Financial

Management, Office of Management and Budget,

pursuant to OMB Circular A-134, Financial

Accounting Principles and Standards (May 20, 1993,

or as subsequently amended).1 Also, guidance on

specific questions that arise in practice

concerning the proper account(s) to use to record

a given transaction may be sought from the

Standard General Ledger Board.

 

1

A-134 is reproduced in the Appendix to this Implementation Guide.
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Accounting for Revenue and Other Financing Sources

Implementation Guide

3. FASAB prepared this implementation guide

pursuant to Paragraph III.I, "Pronouncements," of

FASAB's approved rules of procedure. Subparagraph

3 of paragraph III.I reads: "The FASAB may, in

its discretion and with or without appointment of

task forces, research, notice, public hearings, or

public exposure, issue in its name or at its

direction other communications of an informational

nature related to Federal accounting and financial

reporting, including the FASAB's mission,

policies, and activities. Such communications may

include, among others, discussion memorandums,

summary and related documents, research reports,

responses to requests and inquiries, and

statements of policy dealing with matters of

Federal accounting and financial reporting." Most

of this Guide is a revision or expansion of parts

of the material included in the exposure draft,

Accounting for Revenue and Other Financing Sources

(July 1995). It has been revised in light of the

comments on that exposure draft. 

4. This implementation guide is organized largely

in terms of the new basic financial statements for

component Federal reporting entities. The

following new financial statements illustrate the

application of the standards in SFFAS No. 7:

o Statement of Net Cost,

o Statement of Custodial Activity,

o Statement of Changes in Net Position,

o Statement of Budgetary Resources, and

o Statement of Financing.

5. Some accounting and disclosure issues peculiar

to the consolidated financial statements of the

U.S. Government (required by the Government

Management Reform Act) have not yet been addressed

by the Board. Those consolidated statements may

differ from the statements of the component units

described in this guide.

OVERVIEW OF NEW FINANCIAL STATEMENTS
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

6. The standards in SFFAS No. 7 contemplate that

for each component reporting entity, all costs

will be shown in a Statement of Net Cost, along

with applicable exchange (i.e., earned) revenues.

Another statement, the Statement of Changes in Net

Position, will report nonexchange revenues and

appropriations. Separating costs and exchange

revenues from nonexchange revenues and other

financing sources is necessary to calculate the

net cost incurred by a reporting entity in

providing its outputs and its contributions to

outcomes. 

Statement of Net Cost

7. Under the new accounting standards, exchange

revenues will be deducted from gross costs on a

Statement of Net Cost to show the net cost of

the entity's operating activities. Gross cost

consists of all the costs recognized by an

entity for a given period under Federal

accounting standards. Net cost is the amount

for which the entity is responsible and may,

with appropriate details or "breakdowns" by

suborganizations and programs, be compared with

the entity's outputs to evaluate its

performance. Gross cost also is relevant to

performance measurement and, for some purposes,

is more useful than net cost. Net cost is also

the amount that, with some exceptions, must

ultimately be paid by the taxpayer. The only

major exception is for intragovernmental sales

of goods and services. The extent to which

taxpayers bear the costs of these goods and

services depends on whether the goods and

services are sold to entities that in turn sell

goods and services to the public, or to

entities that are financed by taxes. The net

cost of operations may also be financed by

other nonexchange revenue such as fines and

donations.

8. Details or breakdowns within the Statement

will also show exchange revenues deducted from

the related costs of the transactions that

generated these revenues. This will show the

extent to which the costs of goods and services

sold to the public are recovered by exchange

revenues. Exchange revenues will be included in

the Statement of Net Cost regardless of whether

the entity retains the amounts or transfers

them to others.

 
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Statement of Net Cost

Focuses on: 

Operating costs (gross costs) and

related exchange revenues of the

reporting entity

Presents information about:

All costs less earned revenues in total

and by suborganizations and programs

Emphasizes:

Net cost of operations for comparison

with performance measures

 

Statement of Custodial Activity

9. For reporting entities such as the Internal

Revenue Service (IRS) that collect taxes for

other entities, such custodial collections and

the adjustments to measure revenue will be

reported in statements that are separate from

those used to report on the collecting entity's

own operations. A Statement of Custodial

Activity will reflect the collections by type,

the adjustments to calculate the revenue, and

the disposition of the amounts to the entities

entitled to receive them. The collecting

entities will not recognize inflows from these

custodial activities as their own revenue.2

 Statement of Custodial Activity

Focuses on:

Revenue collections on behalf of other

entities

Presents information about:

Source and disposition of collections

and related accruals

Emphasizes:

Accountability for collections

 

2

The IRS and the Customs Service now prepare a Statement of Custodial

Activity.
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Statement of Changes in Net Position

10. The Statement of Changes in Net Position

provides a summary of all the entity's

transactions that affect its net position. The

net result of the entity's operations will be

calculated by deducting from the net cost of

operations the financing for that net cost. The

financing is provided by nonexchange revenues,

appropriations used, and other financing

sources. To arrive at the change in net

position during the period, adjustments will be

made for any prior period adjustments and

changes in unused but available appropriations.

Statement of Changes in Net Position

Focuses on:

Financing sources for operations

Presents information about:

All flow transactions of the entity

Emphasizes:

The components of net results of operations

and the change in net position

Statement of Budgetary Resources

11. The other financial statements do not

provide information about the flow of budgetary

resources on the budgetary basis of accounting.

Information on that basis is used to control

the obligation of budgetary resources and the

outlays to liquidate those obligations. A

Statement of Budgetary Resources will show this

information and provide a reference point for

the accrual-based financial statements. This

Statement tracks the execution of the budget

from the budgetary resources, to obligations of

those budgetary resources, and finally to 

outlays (usually in cash) to satisfy

obligations. Budgetary integrity will be

enhanced because this Statement will be subject

to audit.

 Statement of Budgetary Resources

Focuses on:

Budgetary resources provided, the

status of these resources, and outlays
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Presents information about:

Budgetary data from budgetary

resources, to obligation of funds, to

outlays

Emphasizes:

Showing budget execution on a budget

basis of accounting

Statement of Financing

12. Finally, a Statement of Financing will

explain how the obligations incurred on a

budget basis of accounting, together with

nonbudgetary resources, finance the net cost of

operations of the reporting entity. The

Statement of Financing provides a

reconciliation or "translation" from the budget

to the financial statements. The Statement will

help those who work with the budget to

understand the financial statements and the

cost information they provide.

Statement of Financing

Focuses on:

Reconciling budget obligations with net

cost of operations

Presents information about:

Budgetary and nonbudgetary resources and

the items which explain the differences

between the budget basis and financial

statement basis of accounting

Emphasizes:

Making financial information more

comparable and useful

HOW FINANCIAL STATEMENTS HAVE BEEN

CHANGED

13. Readers who know how Federal agencies have

reported in the past may find it helpful to

read this section, which illustrates how the

new standards have changed reporting by

Government component units.
REPORTING ON REVENUE AND OTHER FINANCING SOURCES 7



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Changes to the Statement of Operations

14. Past practice combined all costs, revenues,

and other financing sources in a single

Statement of Operations. Past practice did not

recognize appropriations as a financing source

when they were used to acquire assets, but it

did accrue anticipated appropriations for

incurred expenses. These practices often caused

the bottom line in the old Statement of

Operations to approximate zero.

15. The illustration on page 8 shows that

applying the new standards will mean that the

old Statement of Operations will be divided

into separate statements. Costs and exchange

revenues, on the one hand, will be shown in the

new Statement of Net Cost, where they will

determine the net cost of operations.

Nonexchange revenue and other financing, on the

other hand, will be shown in the new Statement

of Changes in Net Position, where they will be

deducted from the net cost of operations to

determine the operating results. The operating

results will be calculated in such a way that

they will no longer often approximate zero as a

matter of definition. This is because the

appropriation will be recognized as used in the

same period that budgetary accounting

recognizes an expended appropriation. This will

simplify accounting for appropriations. The

Statement of Changes in Net Position will also

show how the operating results and other

adjustments determine the change in net

position.

16. The figure on page 8 illustrates the

changes described above, but does not show the

interaction between the Statement of Custodial

Activity and the Statement of Changes in Net

Position (i.e., the flow of nonexchange

revenues from the collecting entity's Statement

of Custodial Activity to the recipient entity's

Statement of Changes in Net Position).
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide



 STATEMENT OF OPERATIONS 

 (Old Format) 

 < Revenues 

  

  Appropriations used> 

   

  Less: Expenses>  

    

  Difference (often approximately 0)   



  STATEMENT OF NET COST   

  (New)   

    

  Cost of goods and services sold <  

 > Less: Exchange (earned) revenues   

  Net cost of exchange transactions   

  Other costs <  

   

  > Net cost of operations  



   STATEMENT OF CHANGES IN NET POSITION  

   (New)  

    

  > Net cost of operations  

   

  Appropriations used < 

  

 > Nonexchange revenues and other financing 

 

 Net result of operations 

 Prior period adjustments 

 Change in cumulative results of operations 

 Change in unexpended appropriations 

 Change in net position 


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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Changes to the Balance Sheet 

 

17. The old Balance Sheet will be simplified. The

flow effects of current capital transactions will

be shown in the Statement of Changes in Net

Position as illustrated at the bottom of the

preceding page, and certain capital balances will

be consolidated in the Balance Sheet. Previously,

donations and transfers-in of assets without

reimbursement were reflected directly in the

Balance Sheet as additions to capital (i.e.,

without being reflected in operations). Also,

appropriations used to acquire capital assets were

reflected in the Balance Sheet as invested

capital. They were not reflected in operations

until the assets were depreciated. As a result,

the current period effects of these transactions

and events were obscured: only accumulated

balances (i.e., stocks rather than flows) at the

end of the accounting period were shown.

18. New accounting standards will govern

accounting for unreimbursed asset transfers

between Government entities, for donations, and

for appropriations used. These standards will

require that flows from the related transactions

and events be separately recognized in the

Statement of Changes in Net Position. The results

of these flows will be combined with the results

of other operating flows in one capital account,

"cumulative results of operations." This standard

and SFFAS No. 1's requirement for separate

disclosure of current liabilities that are not

covered by budgetary resources eliminate the need

for the capital account for future funding

requirements. These standards, together with OMB's

form and content requirement that the Balance

Sheet separately report liabilities that are

covered by budgetary resources and those that are

not covered, eliminate the need separately to

report future funding requirements as a negative

item in net position in the Balance Sheet. The

only other capital account on the current Balance

Sheet, "unexpended appropriations," will remain

unchanged. Entities with reason to do so may

continue to report this information separately

within cumulative results of operations or as a

disclosure.

19. Eliminating separate balances showing the

accumulated amounts of invested capital,

donations, and transfers from other Government

entities will omit some information from the

Balance Sheet. That information, however, is not
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

ordinarily used and, in the case of future

financing, is misleading. It is misleading because

it only represents amounts that were expensed, not

items that were capitalized (such as assets under

capital lease). Hence, looking at the unfunded

liabilities (rather than the negative capital

account for future funding requirements) gives a

truer picture of the future budgetary resources

needed for assets and expenses recognized in the

proprietary financial statements of the reporting

period.

20. The figure on the next page shows how the

Balance Sheet will be condensed and how flow

information in the Statement of Changes in Net

Position affects related Balance Sheet elements.
REPORTING ON REVENUE AND OTHER FINANCING SOURCES 11



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide



 BALANCE SHEET 

 (Old Format) 

 

 Fund balance with Treasury 

 Other assets 

 Liabilities 

 Capital: 

 Unexpended appropriations 

 < Transferred-in capital 

  < Donated capital 

   < Invested capital 

    < Future funding/financing requirements 

     Cumulative results of operation 

     Net position 



     BALANCE SHEET 

     (New) 

     

     Fund balance with Treasury 

     Other assets 

     Liabilities 

     Capital 

     Unexpended appropriations< 

 >Cumulative results of operations <  

 Net position   



 STATEMENT OF CHANGES IN NET POSITION   

 (New)   

   

 Net cost of operations   

 Appropriations used   

 Nonexchange revenues (including donations)   

 Transfers (in and out)   

 Net result of operations   

 Prior period adjustments   

 Net change in cumulative results >  

 Change in unexpended appropriations > 

 Change in net position 


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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

New Statements of Budgetary Resources and

Financing

21. These two new statements provide budgetary

information on a budget basis and relate that

information to the financial statements by

reconciling budget obligations with the net cost

of operations. The next illustration shows how

these statements relate to each other and how

certain elements relate to the Balance Sheet.



 STATEMENT OF BUDGETARY RESOURCES 

 (new) 

 Budgetary resources 

 Status of budgetary resources: 

 < Obligations incurred 

  Other 

  Outlays 



  STATEMENT OF FINANCING 

  (new) 

 >Obligations incurred 

 Less: Spending authority from offsetting 

 collections and adjustments  

  Other financing sources (nonbudgetary) 

 Total obligations, as adjusted, and 

 nonbudgetary resources 

 Reconciling items: 

 Minus: Resources that do not fund net 

 cost of operations during the period> 

 >Plus: Costs that do not require current  

  or future resources to be provided  

  Plus: Financing sources yet to be provided 

  Net cost of operations  



  CURRENT YEAR BALANCE SHEET < 

 < PRIOR YEAR BALANCE SHEET 
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

TERMINOLOGY AND THE EVOLVING FEDERAL

REPORTING MODEL

22. "Disclosure" in this document indicates 

reporting information in notes or narrative

regarded as an integral part of the basic

financial statements. "Supplementary" indicates

reporting information in schedules or narrative

regarded as "Required Supplementary Information"

(RSI) as that term is used by the Financial

Accounting Standards Board (FASB) and the

Governmental Accounting Standards Board (GASB) in

accounting standards and by the General Accounting

Office (GAO) and the American Institute of

Certified Public Accountants (AICPA) in auditing

standards. Government auditing standards (which

incorporate the AICPA's standards by reference)

require more limited auditing procedures for RSI

than is required for basic information. "Required

Supplementary Stewardship Information" (RSSI) is a

new category unique to Federal Government

accounting and auditing standards. It refers to

certain information for which FASAB expects the

GAO and OMB in collaboration to agree upon

appropriate auditing procedures.3 "Other

Accompanying Information" (OAI) refers to

unaudited information that accompanies the audited

financial statements. These terms are intended to

indicate the Board's expectations regarding the

minimum auditor's responsibility for the

information, not its placement in reports.

23. To provide a context for the new standard, the

table on page 15 depicts the terms and categories

used in accounting and auditing standards to

define the auditor's normal degree of association

and responsibility in connection with an

examination of financial statements. The word

"normal" acknowledges that the scope of any given

engagement can be modified by the relevant

authorities, e.g., by adding agreed-upon

procedures to be performed on certain RSI or OAI.

24. Until such time as the GAO and OMB have

defined the audit procedures for RSSI and

Government Auditing Standards have been modified,

the existing categories should be used.

Operationally, similar field work results can be

 

3

In its Statement of Recommended Accounting Standards, Supplementary

Stewardship Reporting, FASAB recommends designating certain information as

RSSI, with the expectation that OMB and GAO will in collaboration agree upon

audit procedures appropriate to apply to this information.
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Implementation Guide

achieved under the existing standards by defining

information as RSI or OAI as appropriate, with any

additional desired agreed upon audit procedures

specified by OMB in its instructions regarding

audit of these financial statements. As is

illustrated in the table on page 15, different

reporting standards would apply under the proposed

standards.

 

25. The new standard calls for certain information

to accompany the financial statements as other

accompanying information. This includes

information about the revenue gap, a perspective

on the income tax burden, and estimates of revenue

forgone as a result of not charging full cost or

market price for transactions with the public. The

standard also recognizes that reporting entities

may wish to present other accompanying information

about other subjects, including directed flows of

resources and tax expenditures related to programs

for which the entities are responsible. This will

mean that the auditor will treat this information

as other accompanying information that is provided

by the statement preparer but not required by a

standards setter. Except as otherwise directed by

the authority engaging for audit, or as may be

subsequently directed by future developments in

auditing and/or accounting standards, the auditor

is not responsible for auditing this information.

The auditor merely notes any material inconsistency between this information and the audited

financial statements.
15

CATEGORIES OF INFORMATION AND AUDITOR'S NORMAL ROLE IN CURRENT AND NEW STANDARDS

 Basic Information Accompanying Information

Basic Financial Statements and Notes

[highest level of audit work]

Required Supplementary

Information (RSI) [limited

audit procedures]

Other Accompanying

Information (OAI) [not

audited]

Fieldwork: The auditor examines the basic

information and expresses an opinion

whether it is fairly presented in

accordance with relevant accounting

standards. Each line in the statements,

and each number in the statements and

notes, is a separate "assertion" to be

tested, but the auditor's tests are

performed, and the auditor's opinion is

expressed, in light of the auditor's

judgment about materiality (whether a

user's decision would be influenced). The

judgment about materiality is influenced

by the objectives of the financial

statement or report and the uses

contemplated for the information in it.

Reporting: If basic information is

missing or materially misstated the

auditor expresses an adverse or

"qualified" opinion (or, in some cases,

disclaims an opinion).

Fieldwork: The auditor

performs limited procedures

specified by professional

standards to review the RSI.

These procedures are mainly

inquiry and limited analytical

procedures such as comparing

information obtained for

consistency with the auditor's

knowledge and the evidence

collected in connection with

the examination of the basic

information. Reporting: If

RSI is missing or materially

misstated, the auditor notes

this, but may still express an

unqualified opinion on the

basic financial statements, if

warranted.

Fieldwork: The auditor

reads the other accompanying

information to see whether

it appears materially

inconsistent with the

financial statements, but

does not audit the

information. Reporting: The

auditor notes any material

inconsistency with the

financial statements, but

may still express an

unqualified opinion on the

basic financial statements,

if warranted.

Required Supplementary Stewardship Information (RSSI): Fieldwork: to be defined by the GAO and OMB;

varies for each item. Reporting: same as for "basic" information--i.e., auditor must qualify or

disclaim if RSSI is missing or materially misstated.
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

16

CHAPTER 2: NEW FINANCIAL STATEMENTS

STATEMENT OF NET COST

Rationale

26. The Statement of Net Cost is designed to

explain and analyze the net cost of operations of

an entity. The display of the information in this

Statement reflects the thinking that underlies the

standards in SFFAS No. 7 for distinguishing

exchange revenue from nonexchange revenue and

other financing sources, for recognizing exchange

revenue, for matching exchange revenue with cost,

and for assigning exchange revenue to the costs of

earning it. The concept of this Statement is also

discussed in SFFAC No. 2, Entity and Display.

4

27. The illustration of the Statement of Net Cost

on page 19 expands upon the illustration in SFFAC

No. 2, Entity and Display. As explained in the

introduction to this guide, the Statement of Net

Cost shows separately the components of the net

cost of the reporting entity's operations for the

period. It consists of a display showing (1) the

gross cost of the goods and services provided at a

price, (2) the amount of related exchange revenue,

(3) the resulting shortfall, or net cost,5 (4) the

gross cost of the goods, services, transfers, and

grants not provided at a price (which comprise

most of the Government's expenses), (5) the costs

that cannot be assigned to specific outputs or

programs, and (6) the exchange revenues that

cannot be attributed to specific outputs or

programs.

28. The costs in items (1), (4), and (5) of

paragraph 0 are the gross costs of the reporting

entity during the period and comprise all the

costs recognized by the entity for a given period

according to Federal accounting standards. The

costs that cannot be assigned to outputs or

programs consist of (a) high level general

management and administrative support costs that

cannot be directly traced, assigned on a cause-and

effect-basis, or reasonably allocated to segments

 

4

See pp. 31-34.

5

The exchange revenue may be more than the gross cost, in which case the

net cost is negative, i.e., the difference is a net revenue.
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and their outputs and (b) those "non-production

costs" that cannot be assigned to a particular

program (non-production costs are costs that,

under Federal accounting standards, are linked to

events other than the production of goods and

services).6

29. The total net cost of operations of the

reporting entity will be the net cost of all its

outputs, whether or not provided at a price, plus

the costs (and minus the exchange revenues) that

are not assigned to outputs. The elements of the

display on the Statement of Net Cost will be

related to each other in a way that shows how the

net cost of operations is determined for the

reporting entity as a whole and its suborganizations and programs.

30. Suborganizations are generally equivalent to

responsibility segments, for which cost accounting

is performed to measure and report the costs of

the segment's outputs.7 More than one

suborganization may incur costs for a single

program, as in cases where other suborganizations

provide supporting services or goods without

charge to the program. Net program cost equals the

net cost of outputs plus any non-production costs

that can be assigned to the program but not to its

outputs.

31. The following example of a Statement of Net

Cost illustrates some of the basic relationships

that might be displayed, depending on the nature

of the entity.

o Program A produces outputs that are entirely

sold to the public.

o Program B produces outputs all of which are

also sold, but some to the public and the

rest to other Government entities.

o Programs C and D produce outputs that are not

sold. Program C provides goods, services,

transfers, or grants to the public; program D

provides services to both the public and

 

6

See SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for

the Federal Government, especially pp. 37-38 and 42, paragraphs 92 and 104.

7

See ibid., pp. 31-35. Also see SFFAC No. 2, Entity and Display, pp. 25-

26, para. 75 and footnote 14.
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other Government entities.

o Program E produces two outputs for the public,

of which one is sold and the other is not.

32. The net program cost is calculated separately

for each program as gross costs less revenue

earned, if any. Some of the programs illustrated

in this Statement are carried out within a single

suborganization, while others are not. If a

program is carried out by more than one suborganization, the net program cost is calculated

both for each of these suborganizations separately

and for all suborganizations together that are

responsible for that program. All three suborganizations in the illustration incur some

general management and administrative support

costs that cannot be assigned to programs and

outputs and are thus reported as "costs not

assigned to programs."8 Suborganization C earns an

insignificant amount of revenue that cannot be

attributed to its outputs or programs and so is

reported for the suborganization as a whole.

 

8

SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the

Federal Government, pp. 37-38, para. 92, defines such costs more fully and

requires that they be reported in the entity's financial statements, such as

the Statement of Net Cost, as costs not assigned to programs. Also see SFFAC

No. 2, Entity and Display, pp. 33-34, para. 94-96.
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Illustrative Statement of Net Cost

Sub- Sub- Suborgani- organi- organization A zation B zation C Total



Costs:

 Program A:

Public .. $XX $XX $XX

 Less earned revenues .. X ..

Net program costs .. XX XX XX

 Program B:

Intragovernmental $XXX .. .. XXX

Public XXX .. .. XXX

Total XXX .. .. XXX

 Less earned revenues XX .. .. XX

Net program costs XXX .. .. XXX

 Program C:

Program costs, public XXX XXX XXX XXX

 Program D:

Intragovernmental XXX XXX .. XXX

Public XXX XXX .. XXX

Program costs XXX XXX .. XXX

 Program E:

Output 1:

 Public XX .. .. XX

 Less earned revenues X .. .. X

 Net cost of output 1 XX .. .. XX

Output 2:

 Public XXX .. .. XXX

Net program costs XXX .. .. XXX

Costs not assigned to programs XX XX XX XX

 Less other earned revenues

 not attributed to programs .. .. X X

Net Cost of Operations $XXX $XXX $XXX $XXX

33. Other variations on the Statement of Net Cost

will also be appropriate depending on the types of

programs that the reporting entity carries out and

OMB=s guidance on the form and content of agency

financial statements. For example, a program that

makes transfer payments to the public might

differentiate these payments from its

administrative costs because the transfer payments
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are a measure of the benefits provided by the

program:

Program F:

 Public:

 Transfer payments XXX

 Administrative costs X

 Program costs XXX

34. Stewardship investment might also be

differentiated: costs incurred for Federally

financed physical property that is owned by state

and local governments, for certain education and

training, and for research and development. These

costs have a distinctive importance because they

are investments to increase economic growth and

provide benefits to the nation over an extended

period of time:9

Program G:

 Public:

Costs for stewardship

 investment XXX

Administrative costs X

Other costs X

 Program costs XXX

35. As another example, a program might incur nonproduction costs, which are costs linked to events

other than the production of goods and services in

the period when the costs were recognized. For

example, the cost of acquiring weapons systems and

other Federal mission property, plant, and

equipment (PP&E) is recognized as a cost on the

Statement of Net Cost when acquired, rather than

through depreciation over the Federal mission

property's estimated useful life.10 Federal cost

accounting does not assign non-production costs

such as this to the goods and services produced in

the period when the cost is recognized. Nonproduction costs might usefully be differentiated

from other costs on the Statement of Net Cost in

order to show and analyze separately those costs

that were incurred during the reporting period for

producing outputs in that period. For this reason,

SFFAS No. 6, Accounting for Property, Plant, and

 

9

See FASAB's Statement of Recommended Accounting Standards, Supplementary

Stewardship Reporting (May 1996), pp. 5 and 31-43.

10SFFAS No. 6, Accounting for Property, Plant, and Equipment, p. 16,

para. 53.
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Equipment, requires that the cost of Federal

mission PP&E, heritage assets, and stewardship

land be separately disclosed, either on the face

of the Statement of Net Cost or in footnotes,

depending on the materiality of the amounts and

the need to distinguish them from other costs

relating to outputs and outcomes. In the case of

weapons systems purchases, the distinction might

be shown as follows:11

Program H:

Weapons system purchases XXX

Other costs XXX

 Program costs XXX

36. If a program produces several large and

distinct outputs, regardless of whether it earns

any revenue, it may be illuminating to display the

costs of each. If such a program has material nonproduction costs, they may be displayed separately

from the production costs of the outputs:

Program I:

 Public:

Output 1 XX

Output 2 XX

 Non-production costs X

 Program costs XX

 

11For further analysis of accounting for non-production costs, see SFFAS

No. 4, Managerial Cost Accounting Concepts and Standards for the Federal

Government, especially para. 97, 103, and 104; and related discussion in SFFAS

No. 4's Basis for Conclusions, para. 214-215. For the case of Federal mission

PP&E, heritage assets, and stewardship land, see SFFAS No. 6, Accounting for

Property, Plant, and Equipment, para. 53, 61, and 69.
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37. As illustrated by these diverse possibilities,

the Statement of Net Cost will emphasize

information about the cost of operations. By this

means, it will help achieve the objectives of

Federal financial reporting and managerial cost

accounting. Managers responsible for programs can

often obtain cost information they need from

internal cost reports and in other ways. Other

users, however, depend partially or wholly on

general purpose financial reports for cost

information. These users include higher-level

management of the entity, high-level Executive

Branch officials and their staffs, and the

Congress. They may need to refer to general

purpose financial reports not only for the

information contained in them but also to help

them interpret the cost information they receive

directly from management and to relate it to other

information and events. Budget or program

analysts, academic researchers, and members of the

specialized news media and interest groups may

depend even more on the information provided in an

entity's general purpose financial reports.

Members of the general news media and the public

who wish to consult Government financial reports

may rely entirely on general purpose financial

reports. Even for program managers, the emphasis

on net cost in this Statement and its use by

others may contribute to a greater understanding

of the concept and routine use of this

information.

38. Good information on gross and net cost,

determined and analyzed in the manner of this

Statement, is essential to the success of the

Government Performance and Results Act of 1993

(GPRA)

12 in relating costs to accomplishments.

GPRA requires setting performance goals for

program activity and establishing performance

indicators to measure outputs and outcomes of the

program activity. Performance measurement under

GPRA is to begin in FY 1999, and pilot projects

started in FY 1994. Under OMB's plan to carry out

GPRA, performance reports will show the results of

what was actually accomplished (outputs and

outcomes) with the resources used. The net cost of

programs (as well as gross cost) should be a

fundamental measure of these resources.

 

12Public Law 103-62.
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39. Preparers should decide the exact

classification of suborganizations and programs

based on the nature of the entity, the missions

and outputs for the entity's GPRA strategic and

annual performance plans, the concepts in Entity

and Display, Federal accounting standards, and

OMB's bulletin prescribing the form and content of

agency financial statements. OMB's guidance on the

form and content of agency financial statements

may require that the gross cost and net cost of

operations be calculated by suborganization,

program, and output, and reported separately in

the Statement of Net Cost (or, if appropriate to

reduce the complexity of the display, in footnotes

to that Statement). Suborganizations are generally

equivalent to responsibility segments as defined

by the standards on managerial cost accounting.13

Under the cost accounting standards, a responsibility segment must be able to assign full costs

to the measurable outputs of its programs.14 If

reported on that basis, users of general purpose

federal financial reports will be provided with

the gross cost of the reporting entity's outputs

(and outcomes).

40. When unit costs of outputs (and outcomes) are

provided as performance indicators elsewhere in

the report containing the financial statements, it

may be useful to provide a reference to that

information in the financial statements. A crossreference in the financial statements does not

change the level of audit otherwise specified for

the performance information.

41. The information provided in the Statement of

Net Cost generally will not be as detailed as the

information needed by those who are responsible

for budgeting and managing the costs of the

Government, and by those who for other reasons

have a special interest in the performance of a

given program. The detailed information should be

available through the managerial cost accounting

system, cost analyses, and other studies used to

provide the information reported in the Statement

of Net Cost. However, the Statement of Net Cost

 

13SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the

Federal Government, pp. 31-35. Also see SFFAC No. 2, Entity and Display, pp.

25-26, para. 75 and footnote 14.

14SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the

Federal Government, pp. 36-42 and 51-59.
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provides important summary information to top

management, the central agencies, Congress, and

the public. The Statement of Net Cost also

provides a link to the more detailed information

that may be used by managers of the reporting

entity to explain the results shown in the

Statement of Net Cost.

Attributing revenue to the costs of earning

it

42. A reporting entity may have several missions

carried out by different suborganizations, all of

them having component programs and outputs. For

each of these, both gross cost and net cost are

important in evaluating performance and managing

cost. Furthermore, either an entity as a whole or

its suborganizations and programs may have

significant costs that are not incurred to earn

revenue, as well as significant costs that are

incurred for that purpose. Therefore, the revenueearning and nonrevenue-earning components need

to be separately evaluated in order to assess the

net cost of particular activities. Additionally,

various components may earn revenue but cover

costs to different degrees.

43. In all these cases, the net cost of the

reporting entity as a whole does not show the

extent to which earned revenue covers the cost of

providing particular outputs. This can only be

calculated for the entity=s components.

Determining the net cost for components is

therefore essential to achieve the goals of SFFAS

No. 7: to match exchange revenue with the gross

cost of outputs and to offset exchange revenue

against that related gross cost.

44. Exchange revenue should be attributed to the

costs of outputs unless it is not reasonably

possible to do so. If that cannot be done,

exchange revenue should be attributed to the costs

of programs, or, if that also is not reasonably

possible, to the costs of suborganizations.

Attributing exchange revenue to the components of

an entity in this way is more effective for

performance evaluation, price setting, and other

purposes than attributing it to the reporting

entity as a whole.

45. The following principles help determine the

degree to which exchange revenue can reasonably be
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attributed to a component of a reporting entity, a

suborganization, or a program. Application of

these principles requires the exercise of

managerial judgment to meet the goal of measuring

net cost for the many Government reporting

entities with their varied characteristics.

45.1. Exchange revenue may be earned by an

entity or program that sells all its goods or

services in exchange for revenue. Examples include

the Postal Service and the Defense Business

Operations Fund. If the entity's gross costs are

divided among programs or suborganizations that

all sell goods or services, the exchange revenue

attributable to these programs or suborganizations

should be offset against the respective gross

costs. If the entity is not so divided, its

exchange revenue should be offset against the

gross cost of the entity as a whole.

45.2. Exchange revenue may be attributable to

an organization (or a program) as a whole in

carrying out a function that is inherently

governmental. For example, SEC registration fees

may be deemed attributable to the SEC as a whole

rather than to a division or line of activity

within the SEC that manages the registration

process. Such exchange revenue should be offset

against the gross cost of the organization as a

whole rather than the costs of the line of

activity.

45.3. Exchange revenue may be earned by the

operations of the entity as a whole in selling

goods or services. For example, the National Park

Service charges admission fees to parks and incurs

expenses for such activities as preserving

wildlife, maintaining roads, and providing visitor

facilities. The fees are not related to the costs

of the visitors as opposed to the costs of

maintaining the land as a national heritage. They

should be offset against the gross cost of the

National Park Service.

45.4. Exchange revenue may be earned by a

particular component of a reporting entity, such

as a program within a suborganization. Except in

the cases specified above, such exchange revenue

should be offset against the gross cost of that

component to calculate its net cost. The net cost

of that component should be added to the net costs

of other components to calculate the net cost of
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the reporting entity as a whole.

45.5. Exchange revenue may be earned as a

byproduct by some activities within a program or

suborganization that are secondary to the main

purpose of the program or suborganization. For

example, the Geological Survey sells maps to the

public as a byproduct of its surveys and other

research. Such exchange revenue should be offset

against the incremental costs incurred to produce

that revenue, based on the assignment of costs

according to the managerial cost accounting

standards.15 The other costs of the Geological

Survey should be classified in other components of

the organization.

45.6. Exchange revenue that is insignificant or

cannot be associated with particular outputs may

be deducted separately against the cost of the

program, suborganization, or reporting entity as a

whole.

46. Whether a particular revenue is offset against

the cost of the reporting entity as a whole or

against the cost of a component also depends on

the level of aggregation of the reporting entity.

As explained above, the admission fees of the

National Park Service can reasonably be attributed

to the National Park Service but not to its

components. Therefore, in financial statements of

the National Park Service, such revenue would most

likely be offset against the gross cost of the

reporting entity (the National Park Service) as a

whole. However, the financial statements of the

Department of the Interior might be divided by

suborganization and include the National Park

Service as one separate component. Because the

admission fees would be reasonably attributed to

the National Park Service, they would offset the

gross cost of the component (the National Park

Service) on the Department's Statement of Net Cost

rather than the gross cost of the reporting entity

(the Department) as a whole.

47. The effect of the level of aggregation could

be even more pronounced where the exchange revenue

is deducted from the gross costs of a program

within a suborganization in the financial

statements of the suborganization. In the

 

15For the standard on cost assignment, see ibid., pp. 51-59.
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financial statements of the full organization, the

programs of the suborganization might be

consolidated and the exchange revenue deducted

from the gross cost of the suborganization as a

whole.

Implications for the display of special cases

48. Exchange revenue collected for others. Many

entities that collect exchange revenue keep that

revenue for their own use. Revolving funds keep

the revenue they earn. By their nature, they are

expected to finance at least a significant part of

their cost by selling goods and services in a

continuing cycle of business-type activity. Other

collecting entities may also keep the revenue they

earn. Sometimes, however, the exchange revenue is

transferred to the General Fund or to other

entities in whole or in part. For example, the

Southeastern and Southwestern Power

Administrations transfer the revenue they collect

from the public to the General Fund of the

Treasury. Similarly, the Western Area Power

Administration, while retaining some of the

revenue that it collects, transfers the rest to

the General Fund and various special funds

designated by law.

49. As a general rule, exchange revenue

transferred to others must be offset against the

collecting entity's gross cost to determine its

net cost of operations. Exchange revenue reduces

the net cost of operations incurred by the entity

in producing outputs, regardless of whether the

entity keeps the exchange revenue for its own use

or transfers it to another operating entity or the

General Fund. Likewise, exchange revenue reduces

the net cost of the entity=s operations to the

taxpayer regardless of its disposition. Therefore,

all exchange revenue related to the cost of

operations must be deducted from gross cost in the

Statement of Net Cost to determine the net cost of

operations for the entity. The display in that

Statement has no need to distinguish between

exchange revenue retained or transferred to

others.

50. Exchange revenue that is transferred to others

does not, however, affect the collecting entity's

operating results and net position. Therefore, as

required by the standards in SFFAS No. 7 for other

financing sources, such exchange revenue is
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recognized as a transfer-out in calculating the

entity's operating results in its Statement of

Changes in Net Position.

51. The only exception to the general rule occurs

when the entity recognizes virtually no cost in

earning the exchange revenue, as explained in the

following section.

52. Exchange revenue unrelated to recognized cost.

In exceptional cases, an entity may recognize

virtually no costs in connection with earning

exchange revenue that it collects. A major example

for many years has been the Minerals Management

Service (MMS) of the Department of the Interior.

It manages energy and other mineral resources on

the Outer Continental Shelf (OCS) and collects

rents, royalties, and bonuses due the Government

and Indian tribes from minerals produced on the

OCS and other Federal and Indian lands. The rents,

royalties, and bonuses are exchange revenues,

earned by sales in the market. If the value of

natural resources were recognized as an asset by

MMS, then depletion could be recognized as a cost

according to the units of production method as

minerals were extracted.16 The revenue from rents,

royalties, and bonuses could then be matched

against MMS=s gross cost, including depletion and

minor other costs, to determine its net cost of

operations.

53. MMS does not recognize a depletion cost for

various reasons, including the fact that under

present accounting standards the value of natural

resources is not recognized as an asset. As a

result, this exchange revenue cannot be matched

against the economic cost of operations and bears

little relationship to the recognized cost of MMS.

Therefore, it should not be subtracted from MMS's

gross cost in determining its net cost of

operations in its Statement of Net Cost. If it

were subtracted, the relationship between MMS=s

net cost of operations and its measures of

performance would be distorted. The net cost of

operations of the Department of the Interior would

likewise be distorted.

 

16Methods of calculating depletion based on the economic cost of

extraction, such as represented here, should be distinguished from depletion

methods allowed under the Internal Revenue Code.
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54. MMS collects this revenue acting as an agent

for the recipients designated by law: the

Treasury, certain entities within the Government

to which amounts are earmarked, the states, and

Indian tribes and allottees. Therefore, MMS should

account for the exchange revenue as a custodial

activity, which is an amount collected for others,

in the same way as the Internal Revenue Service

accounts for the nonexchange revenue that it

collects. Because the revenue collected by MMS is

exchange revenue, it should be recognized and

measured under the exchange revenue standards when

the rents, royalties, and bonuses are due pursuant

to the contractual agreements. Custodial activity

is reported in the entity=s Statement of Custodial

Activity.

55. The rents, royalties, and bonuses transferred

to Treasury for the General Fund or to other

Government reporting entities should be recognized

similarly by these recipient entities. The revenue

is exchange revenue and should be recognized and

measured under the exchange revenue standards.

However, although the revenue comes from exchange

transactions, neither the Government as a whole

nor the other recipient entities recognize the

natural resources as an asset and depletion as a

cost. Therefore, the revenue should not offset the

cost of operations for the U.S. Government as a

whole or for these entities and should not be

included in their Statements of Net Cost. As in

the case of MMS, offsetting cost by this revenue

would distort the relationship between the net

cost of operations and the measures of the

performance of these entities. The exchange

revenue should instead be a financing source in

determining the operating results and changes in

net position in their Statements of Changes in Net

Position.

56. The Board is addressing the accounting for

natural resources in a separate project. If it

concludes that the value of mineral rights should

be recognized as an asset and depletion as a cost,

it would be appropriate to recognize the exchange

revenue from rents, royalties, and bonuses in

determining the net cost of operations.

57. Although MMS is the most prominent case of an

entity collecting exchange revenue for which it

recognizes virtually no cost, there can be other

instances. The Federal Communications Commission
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collects exchange revenue from the auction of the

radio spectrum. Such revenue should be accounted

for in the same way as the revenue collected by

MMS.

STATEMENT OF CUSTODIAL ACTIVITY

Rationale

58. Entities that collect nonexchange revenue for

the General Fund and other recipient entities do

not recognize revenue as a result of collecting

these resources. These entities are designated as

"collecting entities" by SFFAS No. 7, which

requires that the collection and disposition of

nonexchange revenue be accounted for as custodial

activity. The collection of exchange revenue is

not a custodial activity, as a general rule,

because exchange revenue should be deducted from

gross cost in the Statement of Net Cost for the

purpose of determining the net cost of operations.

SFFAS No. 7 requires this accounting for exchange

revenue regardless of whether the entity retains

the exchange revenue for its own use or transfers

it to others, except under exceptional

circumstances stipulated in the standard and

discussed in the previous section.

59. Collecting entities need to report their

custodial activities in a way that highlights

these important activities but does not obscure

the entities' own operating costs. Therefore, 

significant transactions related to collecting

revenue for others will be reported separately 

from the entity's reports on its own net cost and

changes in net position. A statement designed to

do that follows: 
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Illustrative Statement of Custodial Activity

Sources of Revenue:

 Cash Collections: (by type of tax or duty) $XX

 Refunds and Other Payments ( X)

 Net Collections XX

 Accrual Adjustment X

 Total Revenue XX

Disposition of Revenue:

 Transferred to others:

 (by recipient) XX

 Increase (decrease) in amounts to

 be transferred X

 Retained by the Entity X

Total Disposition of Revenue XX

Net Custodial Activity $-0-



60. Collecting entities are to report both cash

and accrual information for taxes and duties they

collect. Most of the Government's nonexchange

revenues are derived from taxes and duties.

Components of cash collections, by type of tax or

duty, transfers to recipient entities, and the

related accrual adjustments should normally be

reported as illustrated above. Collections of

nonexchange revenue other than taxes and duties

may also be reported on a cash basis and adjusted

to an accrual basis, but only the accrual basis

information is required. The sources and

disposition of revenue should net to zero.

61. The increases (or decreases) in the amounts of

revenue to be transferred to other entities affect

the inter-entity balances between the collecting

entities and the entities that receive and

recognize the revenue. Amounts may be retained by

the collecting entities if they are entitled to

the revenue. The collecting entities report such

amounts in their Statement of Net Cost as an
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exchange revenue if it is retained as a

reimbursement of the costs of collection.

62. Based on the revenue standards in SFFAS No. 7,

the net change in revenue-related assets and

liabilities of the collecting entities is a

component of revenue. The net change is referred

to as the accrual adjustment. The accrual

adjustment consists of accounts receivable, the

allowance for uncollectible amounts, and accounts

payable for refunds. Revenue recognized by the

recipient entities is composed of the cash

transferred to them and the increase or decrease

in the amount to be transferred to them as

measured by applicable cash collections and the

accrual adjustment.

STATEMENT OF CHANGES IN NET POSITION

63. The Statement of Changes in Net Position is

designed to show results of operations for the

period and other adjustments to net position. The

term "net results of operations" describes the

excess (or the deficit) of the "net cost of

operations" over "financing sources." These terms

designate the first three sections in the

Statement, as illustrated below. The net result of

operations is also the current period's change in

the cumulative results of the entity's operations

since its inception, except to the extent that

there are prior period adjustments. Prior period

adjustments include corrections of errors and all

changes in accounting principles.17

64. The Statement also shows budgetary resources

from two accounting perspectives. First is the

amount of appropriations used during the period.

Together with other financing sources,

"appropriations used" is deducted from net cost to

show the net result of the entity's operations for

the period. From the budgetary standpoint,

appropriations include dedicated tax receipts,

such as Social Security taxes and Highway Trust

Fund excise taxes. From a proprietary standpoint,

on the other hand, unexpended appropriations do

not include dedicated tax receipts because these

 

17In the private sector, prior period adjustments are limited to

corrections of errors and a few types of accounting principle changes. In

addition, if comparative statements are presented, statements of prior periods

are restated to reflect the retroactive application of the adjustment.
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receipts are accounted for as nonexchange revenue.

Therefore, appropriations used would not include

dedicated tax receipts, thus avoiding double

counting of these amounts as financing sources.18

65. The second perspective on budgetary resources

is the change in unexpended appropriations during

the period. The Balance Sheet reports "unexpended

appropriations" at the end of the current period

as a separate element of net position. A simple

illustration of the Statement of Changes in Net

Position appears below. As was illustrated for the

Statement of Net Cost, the Statement of Changes in

Net Position might also be subdivided by

suborganization.

Illustrative Statement of Changes in Net Position

Net Cost of Operations $(XXX)

Financing Sources

(other than exchange revenue):

 Appropriations used XXX

 Taxes (nonexchange revenue) X

 Donations (nonexchange revenue) X

 Imputed financing X

 Transfers-in X

 Transfers-out (X)

Net Results of Operations X

Prior Period Adjustments X

Net Change in Cumulative Results

 of Operations X

Increase (Decrease) in Unexpended

 Appropriations X

Change in Net Position X

Net Position-Beginning of Period XX

Net Position-End of Period $ XX

 

18For trust funds financed entirely by dedicated revenue and other

dedicated financing sources, there are no "appropriations used."
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Implications of the term "net results of

operations"

66. Some of those who commented on FASAB's

exposure draft Accounting for Revenue and Other

Financing Sources expressed concern that some

readers might infer the amount of "net results of

operations" was a significant performance measure,

even though this will not be the case for most

Federal reporting entities. Some users might draw

such an inference because, in the private sector,

the term "net results of operations" is synonymous

with net income and net income is the "bottom

line" performance measure. The Statement of

Operations used by Federal reporting entities

prior to implementation of SFFAS No. 7 focused on

a similar bottom line, net results of operations.

This was the effect of showing the flow of all

operating activities on a single statement. For

most Federal entities, however, no single bottom

line can accurately measure performance, and "net

results of operations" normally provides little

information on either the costs or the benefits of

an entity's operations. Therefore, the Statement

of Changes in Net Position is not a performancerelated Statement, and using the term "net results

of operations" in this context does not imply that

it is a measure of performance.

67. The Board notes that, when OMB revises its

form and content guidance, OMB may wish to

consider whether any change is needed in the

captions for lines on the Statement of Changes in

Net Position that are now labelled "Net Results of

Operations" and "Net Change in Cumulative Results

of Operations."
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STATEMENT OF BUDGETARY RESOURCES

Rationale

68. The Statement of Budgetary Resources and the

related disclosures provide information about how

budgetary resources were made available as well as

their status at the end of the period. This

information is based on budgetary accounting

rules. Because it is a basic financial statement,

it also makes budget execution subject to audit at

the level of the reporting entity. Some people are

concerned about the accuracy of budget execution

data at the budget account level. SFFAS No. 7

calls for that information to be presented for

major budget accounts as RSI, which normally is

subject only to limited review by auditors. When

appropriate, this information could be made

subject to more extensive agreed-upon audit

procedures or attestation by OMB (through its

bulletin on audits of Federal financial

statements) or by Inspectors General or others who

arrange for audits. Finally, the Statement of

Budgetary Resources reports the "obligations

incurred," which is also reported in the Statement

of Financing and is the reference point for the

reconciliation to the accrual-basis financial

statements. An illustration of this statement

follows: 
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Illustrative Statement of Budgetary Resources

Budgetary resources:

 Budget authority (line 1) $XXX

 Unobligated balances-beginning of period (line 2A) X

 Spending authority from offsetting

 collections (line 3) X

 Adjustments (lines 4-6) X

Total, budgetary resources $XXX

Status of budgetary resources:

 Obligations incurred (line 8)) $XXX

 Unobligated balances-end of period (line 9) X

 Unobligated balances-not available (line 10) X

Total, status of budgetary resources (line 11) $XXX

Outlays:

 Obligations incurred(line 8) $XXX

 Less: spending authority from offsetting

 collections and adjustments (lines 3A,B,D,&4A) X

 Obligated balance, net-begin. of period (line 12) X

 Obligated balance transferred, net (line 13) X

 Less: obligated balance, net-

 end of period (line 14) X

Total, outlays (line 15) $XXX

69. The terminology and definitions used in the

Statement of Budgetary Resources are taken from

the budget. OMB Circular A-34, Instructions on

Budget Execution, dated December 26, 1995, defines

the terms shown in this Statement. The above

budgetary resources illustration differs from

SFFAC No. 2, Entity and Display, to conform to the

December 1995 revision of A-34. The revised SF-133

line item numbers are shown on the above

illustration. If OMB concepts and definitions are

revised in the future, the classification and

recognition of the appropriate amounts should

change accordingly. The U.S. Government Standard

General Ledger (SGL) provides a crosswalk from the

SGL accounts to reports on budget execution

prepared for OMB. Those budget execution reports

contain the information needed to prepare this

Statement.

70. Disclosures are required if the information

shown differs from that which is included in the

"actual" column of the President's Budget. For
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example, this disclosure would be needed in cases

where the reporting entity in the financial

statements is different than the reporting entity

in the Budget.

71. Some users may be confused by budgetary terms

being used in general purpose financial reports.

As with all financial statements, footnotes are

needed to make them understandable, especially

when the financial statements use terms specific

to a field of knowledge not necessarily known to a

general user of the statements.

STATEMENT OF FINANCING

Rationale

72. A primary objective of the Board is that

readers of the financial statements be able to

understand the difference between obligations, as

reported in the Federal budget and on the

Statement of Budgetary Resources, and the net cost

of operations reported in the Statement of Net

Cost. Guidance prior to SFFAS No. 7 only reconciled expended authority with expenses. SFFAS

No. 7 requires the more comprehensive reconciliation between obligations and net cost of

operations.

73. "Net cost of operations" is the focal point of

the Statement of Financing. The Board perceives

information about gross and net cost to be the

principal advantage that the financial statements

offer both to those concerned with the budget and

to those concerned with making performance

measurement (as required under GPRA) successful.

Therefore, budgetary obligations should be

reconciled with net cost. By this comparison,

financial reports can help those who make program

authorization, modification, and discontinuation

decisions.

74. Besides its value in reconciling budgetary and

financial accounting, the Statement of Financing

supplies information not shown elsewhere in the

financial statements. It reports the net change in

the amount of obligations for undelivered orders

from the beginning to the end of the period, under

the caption "Change in Amount of Goods, Services,

and Benefits Ordered, but Not Yet Received or

Provided." Under the caption "Financing Sources

Yet to Be Provided," the Statement reports the
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future budgetary funding requirements for

transactions reflected in the net cost of

operations for the period. Those amounts can be

large, where substantial amounts of unfunded

liabilities are recognized.

75. In addition to the information it provides,

the Statement of Financing will provide additional

assurance about the reliability of the system that

produces the accounting and budgetary information.

SFFAC No. 2, Entity and Display, does not

illustrate the Statement of Financing but it is

explained and illustrated in an amendment to SFFAC

No. 2 published as part of SFFAS No. 7. An

illustration follows: 

Illustrative Statement of Financing

Obligations and Nonbudgetary Resources:

 Obligations incurred $XXX

 Less: Spending authority from offsetting

 collections and adjustments X

 Donations not in the budget X

 Financing imputed for cost subsidies X

 Transfers-in (out) X

 Exchange revenue not in the budget (X)

 Other X

 Obligations, as adjusted,

and Nonbudgetary Resources $XXX

Resources That Do Not Fund Net Cost

of Operations:

 Change in amount of goods, services, and benefits

 ordered but not yet received or provided (X)

 Costs capitalized on the Balance Sheet (X)

 Financing sources that fund costs

 of prior periods (X)

 Other (X)

Costs That Do Not Require Resources:

 Depreciation and amortization X

 Revaluations of assets and liabilities X

 Other X

Financing Sources Yet to be Provided X

 Net Cost of Operations $XXX
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Preparing the Statement of Financing

76. This comprehensive reconciliation can be

accomplished by presenting the following

information:

Net resources: obligations, as adjusted, and

nonbudgetary resources

Resources not used to fund net cost of

operations

Costs that do not require resources

Financing sources yet to be provided

These sets of information can be combined to yield

the net cost of operations and, thereby, explain

the differences between obligations and net cost

of operations as shown above. The information is

discussed in more detail below and is illustrated

for specific transactions in chapters 4 and 5.

Obligations and nonbudgetary resources

77. The obligations and nonbudgetary resources

section reports the computation of "Obligations

Incurred" and its related budgetary adjustments.

It also shows the items that provide financing but

that are not recognized in the entity's budget.

78. Obligations include orders for goods and

services which have not yet been filled (referred

to as "undelivered orders,") and the value of

goods and services received from orders which have

been filled (referred to as "expended authority").

 Budgetary adjustments to obligations are required

(1) to subtract spending authority from offsetting

collections (i.e., earned reimbursements,

increases (decreases) in unfilled customer orders

for work to be performed by the Federal reporting

entity, and transfers from trust funds) and (2) to

subtract recoveries of prior year obligations.

79. The sum of obligations and the adjustments to

it represents the value of net budgetary resources

obligated which could finance the net cost of

operations. Additional financing sources could

also finance net cost of operations. These would

include such items as assets transferred in or out

without reimbursement, most donations other than

cash, and financing sources imputed for cost
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subsidies. They must be added to the amount of

obligations because they are nonbudgetary

resources and, therefore, are not included in

obligations.

80. Also, there may be exchange revenues which are

nonbudgetary, e.g., an increase in accounts

receivable from the public. (Intra-governmental

accounts receivable are normally considered a

budgetary resource, whereas accounts receivable

from the public are not.) Any non-budgetary

exchange revenues must be subtracted from

obligations. This is because they were subtracted

in the computation for net cost of operations, but

were not included in the computation for

obligations, as adjusted. Thus, an increase in

accounts receivable from the public would be

subtracted in the computation for net resources; a

decrease would be added. Note that the amount of

collections from the public is budgetary

resources; hence the adjustment required is only

for the change in revenues accrued as a receivable

from the public.

81. The result of the above paragraphs 0-0 would

be the net resources available to fund net cost of

operations. This would be arrayed as shown below:

Obligations Incurred

Less Adjustments

Plus Nonbudgetary Resources Other than Exchange 

 Revenue

Less Nonbudgetary Exchange Revenues

Equals Obligations, as Adjusted, and Nonbudgetary

 Resources

Resources that do not fund net cost of

operations

82. Resources that do not fund net cost of

operations for a reporting period commonly arise

from three sources. One source is the change in

goods, services, and benefits ordered but not yet

received or provided. Another source is any good

or service capitalized on the Balance Sheet. The

third source is any item treated as a financing

source yet to be provided in a prior period that

is being recognized as a budgetary resource in the

current period.
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83. The change in goods, services, and benefits

ordered but not yet received or provided is the

net change in undelivered orders from the

beginning of the period to the end. The entity had

to incur an obligation to place an order for goods

or services, but accrual accounting does not

recognize the transaction until the ordered goods,

services, and benefits are actually received or

provided. To reconcile obligations with the net

cost of operations, net increases in undelivered

orders should be subtracted from the net

obligations and nonbudgetary resources; net

decreases should be added. The entity's obligation

to incur future costs is important information in

and of itself, and therefore the total amount

outstanding at the end of the reporting period is

to be disclosed.

84. Goods and services received and capitalized as

assets on the Balance Sheet should be subtracted

from obligations and nonbudgetary resources. They

require obligations but do not affect net cost.

General property, plant, and equipment (PP&E) is

the most obvious example. Other examples include

loans made by liquidating funds under the Federal

Credit Reform Act of 1990 (P.L. 101-508) and

purchases of inventory.

85. An entity may receive budgetary resources in

the current period that were previously reported

as "financing sources yet to be provided," such as

appropriations for credit subsidy reestimates

recognized as expenses of the previous period, or

for decreases in the liability for annual leave.

Such amounts must be subtracted from obligations

and nonbudgetary resources, because the current

period budgetary financing funds costs (either

expenses or capitalized items) that were

recognized in previous periods.

Costs that do not require resources

86. Although there may be many expenses of this

type, two of the most common are: (1) allocation

of assets to expense, and (2) expenses related to

revaluation of assets.

87. Cost is recognized in the Statement of Net

Cost when cost of assets is allocated to expense.

Depreciation of capitalized PP&E is an example of

such allocation. Often the budgetary financing

sources for the assets will have been recognized
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during a prior period, when the capitalized items

were acquired. Because the Statement of Financing

is to report net cost of operations, the cost of

assets allocated to expense must be added to

obligations and nonbudgetary resources.

88. Changes during the accounting period in the

valuation of assets (initially acquired by 

budgetary resources) may be made through

accounting provisions or revaluations. When made,

they are included in net cost of operations.

Examples include:

o revaluation of PP&E due to obsolescence or

damage, and

o revaluation of inventory for expected losses

due to excess or unserviceable quantities,

realization value lower than carrying value,

etc.

89. It may not always be feasible to report

separately the acquisition of certain assets,

adjustments to them, and sales of them. For

example, as a practical matter, a net decrease in

inventory because of a combination of revaluations

and sales that exceeded purchases may need to be

aggregated in one amount under the caption, "Costs

That Do Not Require Resources." This type of

netting, though sometimes necessary, reduces the

informative quality of the Statement of Financing.

Financing sources yet to be provided

90. The section of the Statement of Financing

labeled "financing sources yet to be provided"

reports the amount of obligations that will be

made in future periods for costs recognized in the

reporting period. It includes financing for all

costs for which the Congress has not yet

authorized the financing, or for which the

Congress has authorized the financing but the

amount has not yet been made available. This

amount is added to the obligations and

nonbudgetary resources of the reporting period

because it represents a cost recognized in the

Statement of Net Cost for the reporting period for

which the financing sources will have to be

provided in future periods. When financing is

later made available, it is reported in the

Statement of Financing as a subtraction from

obligations and nonbudgetary resources in the
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section entitled "resources that do not fund net

cost of operations." It is also recognized as

"appropriations used" and reported in the

Statement of Changes in Net Position.

91. For agencies funded by appropriations, the

most common example is the cost of increases in

unused annual leave. Cost for this leave is

incurred in the reporting period, but it is

normally funded through salary and expense

appropriations in subsequent years. The amount

related to this increase in unused annual leave is

reported as a financing source yet to be provided.

92. A further prominent example is the cost of

subsidy reestimates for program funds under the

Credit Reform Act. For financial reporting,

subsidy reestimates are usually made as of the end

of a fiscal year, and any increase in subsidy cost

is recognized as an expense of that year. However,

the reestimate cannot be calculated until after

the end of the year, so the funding of that

expense is not available until the following year.

Thus, although the Congress has provided a

permanent indefinite appropriation, it cannot be

used until after the end of the fiscal year to

which the reestimate applies.

93. In some instances, such as annual leave,

funding for previously recognized costs may not be

separately identifiable. Therefore, only the

period change can be accounted for in the

Statement of Financing. An increase in the

unfunded liability would be shown as a financing

source yet to be provided and a decrease would be

shown as resources that do not fund net cost.

REPORTING REVENUE

94. The previous sections explained the different

ways in which revenues are reported, depending on

whether the revenue is exchange or nonexchange and

on whether the collecting entity keeps the revenue

or transfers it to others. The revenue may be

reported on the Statement of Net Cost, the

Statement of Custodial Activity, or the Statement

of Changes in Net Position.

95. The following chart summarizes which

statements to use. Note that exchange revenue,

except for a few cases as noted earlier (see

paragraphs 0-0), is always reported on the
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Statement of Net Cost and deducted from gross cost

in calculating the entity's net cost of

operations. If such revenue is transferred to

others, it is also reported as a transfer-out in

the Statement of Changes in Net Position.
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 REVENUE REPORTING SUMMARY

DISPOSITION OF

REVENUE

EXCHANGE REVENUE19 NONEXCHANGE REVENUE

Collecting entity

keeps all

Statement of Net

Cost

Statement of Changes

in Net Position

Collecting entity

transfers all to

others

Full amount reported

on Statement of Net

Cost and also

reported as a

transfer-out on the

Statement of Changes

in Net Position

Full amounts

collected and

accrued, and their

disposition,

reported on

Statement of

Custodial Activity

Collecting entity

keeps some and

transfers some to

others

Full amount reported

on Statement of Net

Cost and the amount

transferred out

reported on the

Statement of Changes

in Net Position

Full amounts

collected and

accrued, and their

disposition

(including amounts

retained), reported

on the Statement of

Custodial Activity.

Amounts retained

also reported on

Statement of Changes

in Net Position

unless they

reimburse the

collection function;

then they are

reported on the

Statement of Net

Cost as exchange

revenue.

 

19See para. 0 - 0 for discussion of exceptional cases where exchange

revenue is unrelated to recognized cost.
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46

CHAPTER 3: COMPARISON BETWEEN

ACCOUNTING AND BUDGETARY

CLASSIFICATIONS OF TRANSACTIONS

INTRODUCTION

96. This chapter compares the classification of

transactions for financial accounting in SFFAS No.

7 with the classification of transactions used in

the budget. The classification systems are very

similar for transactions with the public, though

significantly different in some respects for

intragovernmental transactions. This chapter also

compares the merits of having separate and common

classification systems.

TRANSACTIONS WITH THE PUBLIC

97. General comparison. The distinction between

nonexchange and exchange revenue is similar but

not identical to the distinction in the budget

between governmental receipts and offsetting

collections from the public.20 Governmental

receipts are shown as the "receipts" in the

budget and compared with outlays to calculate

the deficit; whereas offsetting collections are

subtracted from gross disbursements to

determine the "outlays."21 Nonexchange revenue

generally corresponds to governmental receipts,

and exchange revenue generally corresponds to

offsetting collections. As a result, the

 

20The foundation of budget concepts for the distinction between

governmental receipts and offsetting collections is the Report of the

President's Commission on Budget Concepts (Washington, D.C.: U.S. Government

Printing Office, October 1967), pp. 64-72.

21Offsetting collections are divided between two major categories:

"offsetting collections credited to expenditure accounts," which are deducted

in calculating the net outlays of the expenditure accounts in the budget to

which they are credited; and "offsetting receipts," which are deposited in

receipt accounts and in most cases are deducted in calculating net outlays at

the agency level. (In a few cases, they are deducted in calculating

government-wide net outlays.) In either case, they are an offset to total

budget outlays. The difference between them, which is determined by law, is

not germane to the issues in this chapter.
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budgetary classification and the accounting

classification in SFFAS No. 7 are compatible

with a few exceptions: gains and losses,

budgetary inflows not recognized as revenue

(such as exchanges of assets at book value),

and inflows of resources recognized in

financial accounting but not in the budget

(such as non-cash donations). Also, there are a

few instances where a particular inflow that is

classified as a governmental receipt in the

budget is classified as an exchange revenue in

the financial accounting and hence subtracted

from gross cost in the Statement of Net Cost.

98. The distinction in budgetary concepts

between governmental receipts and offsetting

collections is based on the difference in the

method of allocating resources: collective

decision making for governmental receipts and

the market for offsetting collections.

Governmental receipts are those collections

derived from the exercise of the Government's

sovereign powers, particularly its sovereign

power to compel payment through taxation;

whereas offsetting collections from the public

are derived from business-type activities. The

purpose of this system of classification is to

measure the size of the Government, its

agencies, and its functions in terms of the

amount of resources allocated through

collective political choice rather than through

the principle that the provision of service

requires the payment of a price. Under this

classification system, the budget totals--total

outlays and total receipts--measure what the

U.S. Government does collectively in its role

as a government, which is its predominant role,

rather than what it does in its secondary role

as a business.

99. Since nonexchange transactions, such as

income tax receipts, would rarely occur except

as a result of the Government's sovereign

power, they are all governmental receipts in

the budget. Exchange transactions are more

varied. Exchange transactions with the public,

such as the sale of maps and electricity,

generally do not depend on sovereign power, so

most are offsetting collections in the budget.

However, there are three types of exceptions.

o Federal employee contributions to
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retirement plans are exchange transactions

because they are part of a broader

exchange transaction--selling labor

services in return for compensation--in

which each party receives and sacrifices

something of value. They are governmental

receipts in the budget, however, because

the budget classification deems them to be

akin to compulsory social insurance taxes.

o Some transactions with the public that

arise from the Government's sovereign

power to regulate, such as passport fees

and the SEC registration fee, are

classified as exchange transactions for

financial reporting. The entity's

operations produce the revenue in

conjunction with the expense; identifiable

beneficiaries pay fees for the special

services provided, or identifiable nonFederal entities pay fees to compensate

the Government for the costs that were

incurred in regulating them for the

benefit of the general public; and the

fees in general are closely related to the

cost of providing service or regulation.

Nevertheless, since the collections depend

on the Government's sovereign power rather

than being the result of voluntary

transactions, these regulatory user fees

are governmental receipts under budget

concepts.

o Exchange transactions may produce a cash

inflow all of which is included in the

offsetting collections of the budget but

only part of which is recognized in the

financial accounting statements as an

inflow of resources. Some exchange

transactions produce gains or losses for

the difference between cash inflow and

book value instead of producing revenue

for the whole amount of the cash inflow

(such as the sale of property, plant, and

equipment that has been capitalized). The

entire amount of the cash collected is an

offsetting collection in the budget, but

only the gain or loss is recognized in the

Statement of Net Cost. Other exchange

transactions, such as the repayment of

pre-1992 direct loans and other

receivables at book value, are not

included in revenue or other financing
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sources at all, although (except for post1991 direct loans) the entire amount of

cash collected is an offsetting collection

in the budget.22

100. User charges.

23 The term "user charge" 

designates payments that are based to a degree

on related benefits or damages. Many are

exchange transactions in the accounting

classification of SFFAS No. 7 and are

offsetting collections in the budget. Some, the

regulatory user charges discussed above, are

exchange transactions in the classification of

SFFAS No. 7 but in concept are governmental

receipts in the budget.

101. Still other user charges are benefit taxes

or taxes related to the cause of some damage.

Benefit taxes are levied on bases that are

related to the use of publicly provided goods

and services or the public provision of other

benefits, such as the gasoline excise tax,

which is largely dedicated to the highway trust

fund. Taxes may also be levied on bases related

to the cause of some damage and dedicated to

pay for that damage, such as the tax on

domestically mined coal, which is dedicated to

the black lung disability trust fund. Because

these are taxes, which depend on the

Government's sovereign power to compel payment,

they are governmental receipts in the budget.

Because the relationship between the tax and

the benefit received by an identifiable

recipient is so indirect and disproportionate,

these taxes are nonexchange transactions in the

financial accounting.

102. The budget classification of user charges

and other transactions is not clear-cut in

every case. The nature of transactions may be

mixed and contain elements of both voluntary

exchange and sovereign power. For example,

 

22These repayments, however, may lead to an increase or decrease in

expense if they are the occasion for reestimating the subsidy cost of post1991 direct loans or for adjusting the allowance for uncollectible amounts of

other receivables.

23User charges are discussed in a CBO study that has a broader scope than

indicated by its title. See The Growth of Federal User Charges (August 1993).

The data in that study have been updated in CBO Memorandum, The Growth of

Federal User Charges: An Update (October 1995).
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individuals under Medicare may choose to pay

premiums for Supplemental Medical Insurance

(SMI). At the same time, however, the

Government, through its sovereign powers, pays

for about three-quarters of the cost of SMI,

which is such a strong incentive that almost

all eligible persons participate. As a result,

the premiums might reasonably be classified as

either governmental receipts or offsetting

collections. They were classified as

governmental receipts when the program began

but for some years have been classified as

offsetting collections.

103. Furthermore, the budget classification of

various user charges does not follow the

conceptual principles in every instance.

Statutory requirements and other public

policies have increasingly classified

regulatory user charges as offsetting

collections in recent years even though they

arise from the exercise of the Government's

sovereign power.24 The budget classification of

receipts now has a formal category of

"offsetting governmental receipts" that

includes a number of transactions that are

deemed to arise from sovereign power but are

classified as offsetting receipts; and the

budget identifies as "governmental" those

offsetting collections credited to expenditure

accounts that arise from sovereign power.25

 

24CBO, The Growth of Federal User Charges (August 1993), pp. 35-36.

25Governmental offsetting collections credited to an expenditure account

are identified as such and shown on a separate line in the account's program

and financing schedule.
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INTRAGOVERNMENTAL TRANSACTIONS

104. The relationship between budgetary and

financial accounting transactions is not nearly

as close for intragovernmental transactions as

it is for transactions with the public. All

intragovernmental collections recorded in the

budget are offsetting collections. This is

necessary in order that the receipt and outlay

totals of the budget reflect only transactions

with the public. However, as explained in

Appendix B of SFFAS No. 7, some of these

offsetting collections are exchange revenues in

the new financial accounting, a few are

nonexchange revenues, while a number of others

are classified as other financing sources.

Furthermore, the financial accounting

recognizes some inflows of resources that are

not transactions in the budget.

105. Intragovernmental exchange transactions

consist of all payments for goods and services

provided, such as the sale of services by DBOF

(Defense Business Operations Fund) to another

entity within the Department of Defense.

Intragovernmental nonexchange transactions are

those transactions where the inflow of

resources is akin to a corresponding

nonexchange transaction with the public (such

as an employer entity's contributions to Social

Security and Medicare for its employees) or

derives directly from past nonexchange

transactions with the public (such as interest

paid to trust funds on their investments in

Treasury securities that they purchased from

previous tax receipts).

106. Other intragovernmental financing sources

are more varied. They include many inflows of

resources that are not recorded as transactions

in the budget. The most important of these is

appropriations, which are recognized as an

other financing source to the entity when used

but are not recorded in the calculation of

budget outlays and receipts. The budget records

appropriations, of course, but appropriations

provide the authority to enter into obligations

that will result in outlays rather than being

offsets in calculating the amount of outlays.

Recording appropriations as offsetting

collections would make outlays approximately

zero when appropriations were subtracted from
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Implementation Guide

the outlays for which they provided the

authority. Further examples of other financing

sources are the transfer of capitalized assets

without reimbursement, and imputed financing

when the full cost of goods or services is

recognized but is not charged to the entity

that receives them. The other intragovernmental

financing sources all have the same basic

characteristic: they are not produced by the

operations of the entity that receives the

inflow and therefore should not be deducted

from its gross cost in determining its net cost

of operations.

CHOICE OF CLASSIFICATION SYSTEM

107. Because financial and budgetary accounting

are related, it may be asked whether financial

accounting should follow the budgetary

classification of transactions. For intragovernmental transactions, the differences are

so large and fundamental between budgetary

accounting and the principles in SFFAS No. 7

that the two classifications could not

reasonably be made the same.

o The accounting principles of SFFAS No. 7

require that exchange revenue be

recognized separately from nonexchange

revenue and other financing sources and

offset against gross cost in order to

calculate net cost. Nonexchange revenue

and other financing sources do not affect

net cost but do contribute to net

position. The budget classification of

intragovernmental offsetting collections

does not make this distinction and must

offset all intragovernmental transactions

against gross outlays in order for the

budget totals to measure transactions with

the public.

 o The inflows of resources classified by

financial accounting as other financing

sources--such as appropriations--could not

be classified as offsetting collections in

the budget without making the related

budget outlays approximately zero as a

matter of definition. However, they are

necessary in financial accounting to

determine the change in net position.
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108. For transactions with the public, on the

other hand, the differences between the

principles of SFFAS No. 7 and the budgetary

classification are relatively small. There are

about $5 billion of employee contributions to

Federal retirement systems that are classified

as exchange transactions for financial

accounting but are governmental receipts in the

budget, and there are around $2 billion of

regulatory user fees that are classified in the

same way. There are also sales of property,

plant, and equipment, which are recognized in

financial accounting only to the extent of a

gain or loss but are measured by cash inflow in

the budget. These and similar transactions are

relatively small compared to the $1,570 billion

of governmental receipts plus offsetting

collections (from the public) recorded in the

budget for 1995.

109. Financial accounting could follow the

budget in classifying the type of transaction

with the public by matching exchange revenue

with offsetting collections and nonexchange

revenue with governmental receipts. The

arguments are fourfold. First, one classification system is simpler to use and

understand than two systems and would avoid

confusion. Second, the two classifications

generally overlap, as discussed above, so the

aggregate loss from misclassification in terms

of the financial reporting criteria could not

be large. Third, in some cases the transactions

for which the two classifications differ are

borderline decisions under both classifications, especially in the area of regulatory

user charges. And fourth, a separate classification system would need its own method of

ensuring compliance.

110. The underlying argument in favor of

separate classifications is that different

classification systems are needed for different

purposes. The primary purpose of the

classification system for revenue and other

financing sources is to help measure the net

cost of an entity's operations. To achieve this

result, it is necessary to offset the entity's

costs by the revenue that it earns from the

provision of goods and services.
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111. The net cost of operations is important

information. For all entities, the net cost

(and the gross cost) should be compared with

outputs and outcomes in assessing the

effectiveness with which resources are used to

achieve results. For an entity that provides

goods and services to the taxpayer, net cost is

needed in order to calculate the extent to

which the cost of the activity is borne by the

taxpayer rather than by identifiable recipients

of special benefits or by identifiable parties

that are being regulated. This information can

help decision makers evaluate the extent to

which the entity's exchange activities were

justified in terms of the public's willingness

to pay. Both the comparison of costs with

outputs and outcomes, and the information about

the public's willingness to pay, can be used by

management, the President, and the Congress in

making decisions about the allocation of

resources. And for all entities that provide

goods and services, whether to the public or to

other Federal entities, the net cost of

operations is needed in evaluating and

establishing the entity's pricing policy. The

extent to which expense is covered by user

charges can be a critical factor in setting

user changes that are efficient and fair.
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112. Although a separate classification system

for transactions with the public would make

little difference to the aggregate amounts in

the consolidated financial statements of the

U.S. Government, it would enable these

particular goals to be much better met for a

number of specific entities and activities:

instances where the budget does not offset

program outlays by the collections earned by

the program's provision of goods and services,

or where the budget records an offsetting

collection that exceeds the gain/loss or

adjustment to expense. Furthermore, as long as

the financial accounting standards measure some

transactions in terms of the difference between

the cash inflow and the book value of the

assets that are given up, the dollar amounts of

a few types of transactions cannot be the same.

The financial accounting standards, moreover,

recognize a few transactions with the public

that are not recorded in the budget. Nor can

the financial accounting classification be

compatible in all cases with both budget

concepts and budget practice. Finally, the

classification of intragovernmental

transactions would remain very different, so

the two systems would still not be identical.

113. Because the purposes of financial

accounting and the budget are different,

although related, it is reasonable to expect

that the classification systems appropriate for

each purpose would also be related but not

identical. This would be similar to the

relationship between the Federal budget and the

Federal sector in the national income and

product accounts. Their principal purposes

differ, and as a result their classifications

have important differences even while being

similar in many respects.26 Accordingly, the

 

26The difference between the classifications in the budget and the

national income and product accounts prior to the comprehensive revision of

these accounts in January 1996 is discussed in "National Income and Product

Accounts," chapter 19 of Analytical Perspectives, Budget of the United States

Government, Fiscal Year 1996, pp. 267-70. For a more detailed reconciliation

table, see Bureau of Economic Analysis, National Income and Product Accounts

of the United States, vol. 2, 1959-88 (Washington: Government Printing Office,

1992), table 3.18B.
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Board decided to recommend that financial

accounting use a separate classification system

from the budget.
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Implementation Guide

57

CHAPTER 4: CASE STUDY AND

ILLUSTRATIONS

114. This is a case study to illustrate the

application of the new standard on accounting for

revenue and other financing sources. The case

provides a set of budgetary and proprietary

journal entries and related proprietary financial

statements for three Federal entities that have

transactions with each other and with the public.

The entities are:

a. a collecting entity, which receives an annual

appropriation and collects tax revenues

earmarked for a trust fund;

b. a credit program entity, which makes loans,

provides reimbursable services to the trust

fund, and procures services from the public;

 

c. a trust fund, which consolidates the cash and

investing activities of Treasury's Financial

Management Service with the activities of the

program agency administering the trust fund's

operations.

115. The case illustrates the following

transactions in the appropriate entities:

a. collection, accrual, and transfer of taxes;

b. ordering goods or services to be received or

provided;

c. issuance and receipt of appropriations and

borrowings from Treasury;

d. interagency borrowing from Treasury;

e. receipt or provision of goods, services, and

benefits, including making loans to the

public;

f. collection of loan principal and interest;

g. interagency purchase, issuance, and

redemption of Treasury securities;
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h. accrual, payment, and receipt of interest on

the Treasury securities;

i. imputation of revenue and expense for

services provided at less than cost;

j. depreciation of equipment and accrual of

annual leave;

k. temporary accrual of financing sources for

expenses to be funded from future financing

sources;

l. closing entries.

116. Both pre- and post-closing trial balances are

shown for the budgetary and proprietary accounts

for each entity. From these, the following

financial statements are illustrated based on the

requirements of the new standard:

a. Statement of Custodial Activity;

b. Statement of Net Cost;

c. Statement of Changes in Net Position;

d. Balance Sheet;

e. Statement of Budgetary Resources; and

f. Statement of Financing.

117. Only the line items necessary to complete the

statements are shown. Crosswalks to account

balances from which the figures are obtained are

presented on the face of the statement for

illustrative purposes.

118. There are a number of caveats in using the

case.

a. The case entities do not reflect any

particular Federal agencies or programs.

Although there are counterparts to the

illustrated transactions in real Federal

agencies and programs, the case entities and

their transactions are fictitious. Dollar

amounts used in transactions are assumed for

purposes of illustration. Particularly,

regarding the credit agency, in an actual
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Implementation Guide

situation the amounts relating to the subsidy

and its amortization would be computed using

present value methodologies, which are beyond

the scope of this implementation guide.

Information on present value computations for

direct loan and loan guarantee programs is

provided in the reference set forth in

paragraph 119(h). Additional information is

also found in Appendix B, "Technical

Explanations and Illustrations," of SFFAS No.

2, Accounting for Direct Loans and Loan

Guarantees (August 23, 1993).

b. The transactions are illustrative, but not

comprehensive. Federal agencies engage in

many transactions in addition to those shown,

such as the use and recognition of contract

authority and sales of assets, decreases in

the liability for annual leave, accrual of

exchange revenue from the public, etc. A

comprehensive case would mask the benefit of

the illustrations by requiring voluminous

technical and explanatory information about

specific programs and transactions.

Similarly, the reports and crosswalks

illustrated are condensed and simplified to

highlight application of key concepts and

requirements of the revenue standard.

Authoritative guidance for agency financial

statements that are prepared pursuant to the

Chief Financial Officers Act (as amended) is

contained in OMB's bulletin on form and

content. Guidance for budgetary reports is

contained in OMB Circulars A-11 and A-34.

Agencies may sometimes develop alternative

crosswalks which provide the same

information.

c. The journal entries and trial balances for

the collecting agency and trust fund utilize

accounts provided in the U. S. Government

Standard General Ledger, and the illustrated

reports include crosswalks to those accounts.

Account names are often abbreviated to fit

within available space. At this writing, the

SGL Board is revising the illustrative

transactions in the SGL, and journal entries

are subject to change.

d. Accounts which would be subaccounts of an SGL

account are shown with the master account

number. For example, account number 6100,
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Implementation Guide

AOperating/Program Expenses,@ is used for the

subaccount ADepreciation Expense -

Equipment.@ Subaccount titles and numbers

are the purview of agencies.

e. Line items which would be reported based on

data elements being captured with accounts

are indicated with a AD.@ For example,

account 6100, AOperating Expenses,@ would

require data elements for each expense to

indicate whether the expense was exchange- or

nonexchange-related.

f. Accounts not presently in the SGL are marked

AXXXX@ in place of a number, and the issues

involved have been referred to the SGL Board

for resolution.

g. Crosswalks are those for SGL accounts used in

the case only. They do not include the entire

SGL chart of accounts.

h. Beginning account balances are assumed to be

zero for purposes of illustration.

i. For simplicity, all appropriations are

classified as "other," SGL account 4119,

rather than as specific types of

appropriations. In an actual situation,

specific types of appropriations, with

different SGL account numbers, would be

designated as applicable. Budgetary authority

for the collecting and credit agencies is

assumed to expire at year-end; authority for

the trust fund is assumed to be available for

obligation in the succeeding year.

Additionally, apportionment of resources is

assumed and not illustrated. The status of

resources is shown beginning with their

allotment by agencies for commitment and

obligation. Commitment accounting, which does

not add to the value of the case, is not

illustrated.

j. In most cases, revenues and expenses are not

broken out beyond the designation Aexchange@

and Anonexchange.@ This is for illustrative

purposes only and is designed to avoid

cluttering the statements with specific items
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which do not add to the value of the concepts

presented. Note, however, that in an actual

situation, revenues and expenses must be

broken out by source of revenue and nature of

expense as prescribed by OMB's form and

content guidance.

k. The trust fund transactions provide for

transfers of collections to it in the amount

collected. In practice, transfers are made

during the year based on estimates, and any

amount collected but not yet transferred at

year-end is accrued as a receivable and a

revenue by the trust fund.

l. In addition to activities for the entities

illustrated, the Department of the Treasury

would maintain records on the Government's

cash position and debt. Related information

would be reported in the Consolidated

Financial Statements of the U. S. Government.

m. The illustrative Balance Sheets are designed

solely to highlight the new, simplified

capital structure which would result from

application of the revenue standard. Assets

and liabilities are not segregated by entity

and non-entity to avoid complicating the

example with items not related to the revenue

standard. Agency Balance Sheets would be

prepared in accordance with SFFAS No. 1 and

the form and content guidance published by

OMB, which prescribes the entity and nonentity designations.

119. More detailed information on Federal

accounting can be found in such references as:

a. Accounting for Basic Operating Appropriations

and Reimbursables, U. S. General Accounting

Office (AFMD-PPM-2.1, September 1990)

b. Accounting for Expired Appropriation

Authority Under the Requirements of P.L. 101-

110, U. S. Standard General Ledger Board

(October 1991)

c. Illustrative Cases in Accounting Under the

Credit Reform Act of 1990, U. S. Financial

Management Service (cases 2b, 3b, 4, and 5b,

with various dates through 1994)
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d. Budgetary Accounting in the Federal

Government, U. S. Financial Management

Service (September 30, 1994)

e. Treasury Financial Manual, issued by the U.S.

Financial Management Service. (See esp. I TFM

2-4200 and supplements and transmittal

letters setting forth and updating the U. S.

Government Standard General Ledger.)

f. OMB Circulars A-11 (Budget Preparation), A-34

(Budget Execution), and A-127 (Financial

Management Systems)

g. OMB Bulletin 94-01, Form and Content of

Agency Financial Statements (November 1993,

or as subsequently amended)

h. Accounting for the Present Value of Direct

Loan and Loan Guarantee Programs Under the

Federal Credit Reform Act of 1990 (P.L. 101-

508), U.S. Financial Management Service

(September 16, 1993).

120. The transactions and journal entries for the

case begin on the next page.
63

ILLUSTRATIVE CASE TRANSACTIONS, JOURNAL ENTRIES, AND TRIAL BALANCES

(In the following illustrations, "N/A" means "not applicable.")

Transactions Collecting

Agency

Credit

Agency Trust Fund

1. The collecting and credit agencies

received appropriations, which were

fully apportioned and allotted.

Warrants were issued.

Budgetary entry

4119 Other Appropriations

 Realized 1000

 4610 Allotments - Realized

 Resources 1000

Proprietary entry

1010 Fund Balance with 

 Treasury 1000

 3100 Appropriated Capital 1000

 

Budgetary entry

4119 Other Appropriations

 Realized 1500

 4610 Allotments - Realized

 Resources 1500

Proprietary entry

1010 Fund Balance with

 Treasury 1500

 3100 Appropriated Capital 1500

 

Budgetary entry

None

Proprietary entry

None

2. The collecting agency collected

taxes for the trust fund and deposited

them to the Treasury.

Budgetary entry

None

Proprietary entries

1010 Fund Balance with

 Treasury 5000

 5800 Tax Revenue 5000

 - & -

5990 Contra Revenue -

 Collected for Others 5000

 2990 Custodial Liability (D) 5000

N/A N/A

3. Treasury transferred collections to

the Trust Fund.

A warrant was issued and the funds

were allotted. (The trust fund

recognizes this as an appropriation.

It is not subject to the apportionment

process.)

Budgetary entry

None

Proprietary entry

2990 Custodial Liability (D) 5000

 1010 Fund Balance with

 Treasury 5000

N/A Budgetary entry

4119 Other Appropriations

 Realized 5000

 4620 Other Funds Available

 for Commit/Oblig 5000

Proprietary entry

1010 Fund Balance with

 Treasury 5000

 5800 Tax Revenues 5000

4. Goods, services, and benefits

ordered to be received or provided

were recorded. Borrowing authority was

recorded for loans to be made and was

apportioned and allotted.

Budgetary entry

4610 Allotments - Realized

 Resources 750

 4800 Undel Orders 750

Proprietary entry

None

Budgetary entry

4142 CY Borr Auth Realized 200

4610 Allotments - Rlzd Resour 700

 4800 Undel Orders 900

Proprietary entry

None

Budgetary entry

4620 Other Funds Available 4500

 for Commit/Oblig

 4800 Undel Orders 4500

Proprietary entry

None

5. The entities received goods and

services for use in operations and

Budgetary entry

4800 Undel Orders 750

Budgetary entries

4148 Resour Realzd from BA 200

Budgetary entry

4800 Undel Orders 4200
CHAPTER 4: ILLUSTRATIVE CASE STUDY 64



Transactions Collecting

Agency

Credit

Agency Trust Fund

provided benefits to participants in

programs they operate. These included

items accounted for as operating

expenses in all three entities;

capitalized equipment in the credit

agency and trust fund; and loans the

credit agency made to credit program

participants. To make the loans, the

credit agency borrowed money from the

Treasury and used funds appropriated

for loan subsidies, as provided under

the Credit Reform Act of 1990 (P.L.

101-508). The entities paid for some

items during the year; the remainder

were still payable at year-end.

 4900 Expended Authority 750

Proprietary entries

6100 Operating/Program

 Expense - Nonexch (D) 750

 1010 Fund Balance with

 Treasury 750

 - & -

3100 Appropriated Capital 750

 5700 Appr Capital Used 750

 4145 BA Converted to Cash 200

 - & -

4800 Undel Orders 500

 4900 Expended Authority 500

Proprietary entries

1010 Fund Balance with

 Treasury 200

 2510 Prin Pay to Treasury 200

 - & -

1350 Loans Receivable 250

1750 Equipment 100

6100 Operating/Program

 Expense - Exch (D) 150

6100 Subsidy Expense-

 other than re-est. (D) 50 

 1010 Fund Balance with

 Treasury 375

 1399 Allowance for Subsidy 50

 2110 Accounts payable 125

 - & -

3100 Appropriated Capital 300

 5700 Appr Capital Used 300

 4900 Expended Authority 4200

Proprietary entry

1750 Equipment 1000

6100 Operating/Program

 Expense - Nonexch (D) 3200

 1010 Fund Balance with

 Treasury 3000

 2110 Accounts Payable 1200

6. Trust fund monies were invested in

Treasury securities.

N/A N/A Budgetary entry

None

Proprietary entry

1610 Securities at Par 800

 1010 Fund Balance with

 Treasury 800

7. Interest on the Treasury securities

was collected.

N/A N/A Budgetary entry

4119 Other Appro. Realized 10

 4620 Other Funds Avail

 for Commit/Oblig 10

Proprietary entry

1010 Fund Balance with

 Treasury 10

 5300 Interest Revenue 10

8. Collections for loan principal and

interest made in transaction #5 were

received. The monies were used to pay

interest and reduce principal on the

borrowing from Treasury.

N/A Budgetary entries

4262 Act Coll - Loan

 Principal Collected 40

4263 Act Coll - Loan

 Interest Collected 10

 4147 Payments to Treasury 35*

 4900 Expended Authority 15*

*

The $35 is principal and the $15 is interest

on the loan from Treasury

Proprietary entries

1010 Fund Balance with

 Treasury 50

 1350 Loans Receivable 40

 5300 Interest Inc. -

 Borrowers (D) 10

 - & -

2510 Prin Payable to Treasury 35

6310 Interest Expense-Treasury 15

 1010 Fund Balance with

N/A
CHAPTER 4: ILLUSTRATIVE CASE STUDY 65



Transactions Collecting

Agency

Credit

Agency Trust Fund

 Treasury 50

 - & -

3100 Appropriated Capital 15

 5700 Appropriated Capital Used 15

9. The credit agency provided services

for, and collected a fee from, the

trust fund. (see related transaction

12)

N/A Budgetary entry

4250 Reimbursements & Other

 Income Earned 100

 4610 Allotments - Rlzd Resour 100

Proprietary entry

1010 Fund Balance with

 Treasury 100

 5200 Service Revenue 100

Budgetary entries

4620 Other Funds Available

 for Commit/Oblig 100

 4900 Expended Authority 100

Proprietary entries

6100 Operating/Program

 Expenses - Nonexchange (D)100

 1010 Fund Balance with

 Treasury 100

10. Treasury redeemed a portion of

trust fund investments at par plus

accrued interest.

N/A N/A Budgetary entry

4119 Other Appropriations

 Realized 11

 4620 Other Funds Avail.

 for Commit/Oblig 11

Proprietary entry

1010 Fund Balance with

 Treasury 261

 1610 Securities 250

 5300 Interest Revenue 11

11. The trust fund accrued interest on

the remaining Treasury investments.

N/A N/A Budgetary entry

None

Proprietary entry

1340 Interest Receivable 25

 5300 Interest Revenue 25

12. The trust fund was informed that

the amount charged for services

provided by the credit agency was less

than the credit agency's cost (see

transaction 9). The applicable

standard for that cost required the

trust fund to recognize an imputed

cost for the difference. An imputed

financing source was also recognized

to offset the imputed cost.

N/A N/A Budgetary entry

None

Proprietary entry

XXXX Imputed Expenses 15

 5900 Imputed Financing Sources (D) 15

13. Depreciation on equipment was

recorded.

N/A Budgetary entry

None

Proprietary entry

6100 Depr Exp - Equip (D) 20

 1759 Accum Depr - Equip 20

Budgetary entry

None

Proprietary entry

6100 Depr Exp - Equip (D) 200

 1759 Accum Depr - Equip 200

14. The annual leave liability was

accrued. Entries to indicate that

financing sources are needed are made

as a convenience to automated systems

Budgetary entry

None

Proprietary entries

Budgetary entry

None

Proprietary entries

Budgetary entry

None

Proprietary entry
CHAPTER 4: ILLUSTRATIVE CASE STUDY 66



Transactions Collecting

Agency

Credit

Agency Trust Fund

preparing the Statement of Financing,

which requires that figure.

6100 Annual Leave Expense (D) 25

 2220 Annual Leave Liab 25

 - & -

3501 Future Funding Requir 25

 XXXX Fin Sources - Unfunded 25

6100 Annual Leave Expense (D) 30

 2220 Annual Leave Liab 30

 - & -

3501 Future Funding Requir 30

 XXXX Fin Sources - Unfunded 30

6100 Annual Leave Expense (D) 20

 2220 Annual Leave Liab 20

[Note: Assumes annual leave is a funded

expense for the trust fund. If not, an

unfunded Financing Source would have to be

recorded, as was done for the Collecting and

Credit Agencies.]

15. Tax revenues to be collected were

accrued.

Budgetary entry

None

Proprietary entries

1310 Taxes Receivable (D) 400

 5800 Tax Revenues 400

 - & -

5990 Contra Revenue for Others 400

 2190 Liab for Tax Accrual (D) 400

N/A N/A

16. A reestimate of the subsidy at

year end indicated that $8 additional

subsidy and $1 interest on the

reestimate should be recorded. After

the reestimate the subsidy was

amortized and the future financing

source for the unfunded subsidy

reestimate (which will be received in

the following year) was recorded. The

entry to indicate that a financing

source is needed is made as a

convenience to automated systems

preparing the Statement of Financing,

which requires that figure.

N/A Budgetary entry

None

Proprietary entries

6100 Subsidy Exp. Re-est (D) 8

6330 Int Expense - Re-est. (D) 1

 1399 Allowance for Subsidy 8

 5300 Interest Income

 - Re-est (D) 1

 - & -

1399 Allowance for Subsidy 5

 5300 Interest Inc - Subs. (D) 5

 - & -

3501 Future Funding Requir 9

 XXXX Fin Source - Unfunded 9

N/A

Preclosing Trial Balance Budgetary

4119 Other Appro Realized 1000

4610 Allotments Rlzd Resour 250

4900 Expended Authority 750

 1000 1000

Proprietary

XXXX Fin Sources - Unfunded 25

1010 Fund Balance with

 Treasury 250

1310 Taxes Receivable (D) 400

2190 Liability for Tax

 Accrual (D) 400

2220 Annual Leave Liab 25

3100 Appropriated Capital 250

3501 Future Funding Requir 25

5700 Appr Capital Used 750

5800 Tax Revenues 5400

5990 Contra Revenue

 Collected for Others 5400

6100 Annual Leave Expense (D) 25

Budgetary

4119 Other Appr Realized 1500

4142 CY Budget Auth Rlzd 200

4145 BA Converted to Cash 200

4148 Resour Realzd from BA 200

4610 Allotments - Rlzd Resour 900

4250 Reimbursements & Other

 Income Earned 100

4262 Act Coll - Loan Principal 40

4263 Act Coll - Loan Interest 10

4147 Actual Pmts to Treasury 35

4800 Undelivered Orders 400

4900 Expended Authority 515

 2050 2050

Proprietary

XXXX Fin Sources - Unfunded 39

1010 Fund Balance with

 Treasury 1425

1350 Loans Receivable 210

1399 Allowance for Subsidy 53

Budgetary

4119 Other Appro Realized 5021

4620 Other Funds Available

 for Commit/Oblig 421

4800 Undelivered Orders 300

4900 Expended Authority 4300

 5021 5021

Proprietary

1010 Fund Balance with

 Treasury 1371

1340 Interest Receivable 25

1610 Securities 550

1750 Equipment 1000

1759 Accum Depr - Equip 200

2110 Accounts Payable 1200

2220 Annual Leave Liab 20

5300 Interest Revenue 46

5800 Tax Revenue 5000
CHAPTER 4: ILLUSTRATIVE CASE STUDY 67



Transactions Collecting

Agency

Credit

Agency Trust Fund

6100 Operating/Program

 Expense - NonExch (D) 750 

 6850 6850

1750 Equipment 100

1759 Accum Depr - Equip 20

2110 Accounts Payable 125

2220 Annual Leave Liab 30

2510 Prin Payable to Treasury 165

3100 Appropriated Capital 1185

3501 Future Funding Requir 39

5200 Service Revenue 100

5300 Interest Revenue 16

5700 Appr Capital Used 315

6100 Annual Leave Expense (D) 30

6100 Subsidy Expense

 other than re-est. (D) 50

6100 Subsidy Exp.-re-est. 8

6100 Depreciation Expense -

 Equip (D) 20

6100 Operating/Program

 Expense - Exchange (D) 150

6310 Interest Expense-Treasury 15 

6330 Interest Expense--Re-est. 1 

 2048 2048

5900 Imputed Financing Sources (D) 15

6100 Depreciation Expense -

 Equip (D) 200

6100 Annual Leave Expense (D) 20

XXXX Imputed Expenses 15

6100 Operating/Program

 Expense - Nonexch (D) 3300 

 6481 6481

Closing Entries:

(Note that the closing entry for

unfunded financing sources reverses

the entry which created the accounts

in transaction #14.)

Budgetary entries

4201 Total Actual Resources 1000

 4119 Other Appro Realized 1000

 - & -

4610 Allotments Rlzd Resour 250

 4650 Allotments - Expired

 Authority 250

 - & -

4900 Expended Authority 750

 4201 Total Actual Resources 750 

Proprietary entries

3310 Cum Result of Oper. 25

5700 Appr Capital Used 750

5800 Tax Revenues 5400

 5990 Contra Revenue

 Collected for Others 5400

 6100 Annual Leave

 Expense (D) 25

 6100 Operating/Program

 Expense - NonExch (D) 750

 - & - 

XXXX Fin Sources - Unfunded 25

 3501 Future Funding Requir 25

Budgetary entries

4145 BA Converted to Cash 200

4147 Actual Pmts to Treasury 35

4201 Total Actual Resources 1815

 4119 Other Appro Realized 1500

 4142 CY Borrow. Auth. Rlzd. 200

 4148 Resour Realzd from BA 200

 4250 Reimbursement & Other

 Income Earned 100

 4262 Act Coll - Loan Principal 40

 4263 Act Coll - Loan Interest 10

 - & -

4610 Allotments - Realized

 Resources 900

 4650 Allotments - Expired

 Authority 900

 - & -

4900 Expended Authority 515

 4201 Total Actual Resources 515

 

Proprietary entries

5200 Service Revenue 100

5300 Interest Revenue 16

5700 Appr Capital Used 315

 3310 Cumulative Results of 157

 Operations

 6100 Subsidy Expense (D) 58

 6100 Annual Leave Expense (D) 30

 6100 Depreciation Expense -

 Equip (D) 20

 6100 Operating/Program

 Expense - Exchange (D) 150

Budgetary entries

4201 Total Actual Resources 5021

 4119 Other Appro Realized 5021

 - & -

4900 Expended Authority 4300

 4201 Total Actual Resources 4300

Proprietary entries

5300 Interest Revenue 46

5800 Tax Revenue 5000

5900 Imputed Financing

 Sources (D) 15

 3310 Cumulative Results

 of Operations 1526

 6100 Depreciation Expense -

 Equip (D) 200

 XXXX Imputed Expenses 15

 6100 Annual Leave Expense (D) 20

 6100 Operating/Program

 Expense - Nonexch (D) 3300
CHAPTER 4: ILLUSTRATIVE CASE STUDY 68



Transactions Collecting

Agency

Credit

Agency Trust Fund

 6310 Int Expense--Treasury 15

 6330 Int Expense--Re-est 1

 - & -

XXXX Financing Sources -

 Unfunded 39

 3501 Future Funding Requir 39

Post Closing Trial Balance Budgetary

4201 Total Actual Resources 250

4650 Allotments - Expired

 Authority 250

 250 250

Proprietary

1010 Fund Balance with

 Treasury 250

1310 Taxes Receivable (D) 400

2220 Annual Leave Liability 25

2990 Custodial Liab. (D) 400

3100 Appropriated Capital 250

3310 Cum Results of Oper. 25 

 675 675

Budgetary

4201 Total Actual Resources 1300

 4650 Allotments - Expired

 Authority 900

 4800 Undelivered Orders 400

 1300 1300

Proprietary

1010 Fund Balance with

 Treasury 1425

1350 Loans Receivable 210

1399 Allowance for Subsidy 53

1750 Equipment 100

1759 Accum Depr - Equip 20

2110 Accounts Payable 125

2220 Annual Leave Liab 30

2510 Prin Payable to Treasury 165

3100 Appropriated Capital 1185

3310 Cumulative Results of

 Operations 157

 1735 1735

Budgetary

4201 Total Actual Resources 721

4620 Other Funds Avail.

 for Commit/Oblig 421

4800 Undelivered Orders 300

 721 721

Proprietary

1010 Fund Balance with

 Treasury 1371

1340 Interest Receivable 25

1610 Securities 550

1750 Equipment 1000

1759 Accum Depr - Equip 200

2110 Accounts Payable 1200

2220 Annual Leave Liab 20

3310 Cumulative Results

 of Operations 1526 

 2946 2946
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Implementation Guide

121. a. The following pages present financial statements for the three entities

involved. The matrix below identifies the statements prepared for each

entity.

ILLUSTRATIVE FINANCIAL STATEMENTS PREPARED FOR CASE STUDY ENTITIES

Collecting Credit 

Statement Agency Agency Trust Fund 

 

Custodial Activity Figure 1 N/A N/A

Net Cost Figure 2 Figure 7 Figure 12

Changes in Net Position Figure 3 Figure 8 Figure 13

Balance Sheet Figure 4 Figure 9 Figure 14

Budgetary Resources Figure 5 Figure 10 Figure 15

Financing Figure 6 Figure 11 Figure 16

b. The legend for the various statements is as follows:

1. [ ] designates accounts and arithmetic

2. XXXX designates an account not in the SGL

3. B = beginning account balance

4. E = ending account balance

5. No B or E = adjusted (preclosing) account balance

6. Pub = public (outside the Government)

7. Fed = Federal (within the Government)
70CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 1

Illustrative Collecting Agency

Statement of Custodial Activity

For Year Ended September 30, 

Sources of Revenue

Collected [5800 Tax Revenue + 1310 Tax Rec(B)-(E)] $5,000

Increase in Net Receivables

[1310 Tax Rec(E) - (B)] 400

 Total Revenues $5,400 

 

Disposition of Revenue

Transferred to Others [5990 Rev. Collected for Others-

 2190 Liab. for Tax Accrual (E-B)] $5,000

Increase in Amounts to be Transferred

[2190 Liab. for Tax Accrual (E)-(B)] 400

 Total Disposition of Revenues ($5,400) 

NET CUSTODIAL ACTIVITY -0- 

Figure 2

Illustrative Collecting Agency

Statement of Net Cost

For Year Ended September 30, 

Costs (not related to earned revenue)

Annual Leave Expense [6100] $ 25

Other Expenses [6100] 750

NET COST OF OPERATIONS $775
CASE STUDY 71



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 3

Illustrative Collecting Agency

Statement of Changes in Net Position

For Year Ended September 30, 

Net Cost of Operations $775 

Financing Sources (Other than Earned Revenues)

that Affect Net Position:

Appropriations Used to acquire goods, services,

and benefits [5700] 750

Net Results of Operations $(25)

Increase in Unexpended Appropriations [3100 (E-B)] 250

Increase in Net Position $225

Net Position, October 1 0

NET POSITION, SEPTEMBER 30 [MUST = 3100(E) + 3310(E)] $225
72CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 4

Illustrative Collecting Agency

Balance Sheet

For Year Ended September 30, 

Assets

Fund Balance with Treasury [1010] $ 250

Taxes Receivable [1310] 400

TOTAL ASSETS $ 650

Liabilities and Net Position

Liabilities

Custodial Liability [2990] $ 400 

Annual Leave Liability [2220] 25

Total Liabilities $ 425 

Net Position

Unexpended Appropriations [3100] $ 250

Cumulative Results of Operations [3310] (25)

Total Net Position $ 225 

TOTAL LIABILITIES AND NET POSITION $ 650 
CASE STUDY 73



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 5

Illustrative Collecting Agency

Statement of Budgetary Resources

For Year Ended September 30, 

Budgetary Resources

Current Appropriations [4119(B)] $1,000

Status of Budgetary Resources

Obligations incurred 

[4800 (E-B) + 4900] $ 750

Unobligated balance not available [4650 (E)] 250

 Total, status of budgetary resources $1,000

Outlays

Obligations incurred 

[4800 (E-B) + 4900] $ 750

Add obligated fund balance, net October 1

 0

Deduct obligated fund balance, net September 30

 0

 Total, outlays $ 750
74CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 6

Illustrative Collecting Agency

Statement of Financing

For Year Ended September 30, 

Obligations and Nonbudgetary Resources

Obligations incurred [4800 (E-B) + 4900] $750

Other 0

 Obligations and Nonbudgetary Resources 750

Financing Sources Yet to be Provided

 [XXXX Future Fin Source or 2220 (E-B)] 25 

NET COST OF OPERATIONS $775
CASE STUDY 75



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 7

Illustrative Credit Agency

Statement of Net Cost

For Year Ended September 30, 

Costs to Produce Exchange Revenue

Interest Expense [6310 + 6330] $16

Depreciation Expense [6100] 20

Annual Leave Expense [6100] 30

Subsidy Expense [6100] 58

Other Expense [6100 + XXXX imputed expenses] 150 

$274 

Less Earned Revenue

Intragovernmental [5200 Fed.] $100 

Interest Income [5300] 16 

$(116) 

NET COST OF OPERATIONS $158 

Figure 8

Illustrative Credit Agency

Statement of Changes in Net Position

For Year Ended September 30, 

Net Cost of Operations $158

Financing Sources (Other than Earned Revenues)

that Affect Net Position:

Appropriations Used [5700] 315

Net Results of Operations $157

Net Position, October 1, 0

NET POSITION, SEPTEMBER 30, ____[must = 3100 (E) + 3310 (E)] $157
76CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 9

Illustrative Credit Agency

Balance Sheet

For Year Ended September 30, 

Assets

Fund Balance with Treasury [1010] $1,425

Loans Receivable [1350] $210

Less Allowance for Subsidy [1399] (53) 157

Equipment [1750] $100

Less: Accumulated Depreciation [1759] (20) 80

TOTAL ASSETS $1,662

Liabilities and Net Position

 Liabilities

Accounts Payable [2110] $125 

Annual Leave Liability [2220] 30 

Prin. Pay. to Treasury [2510] 165 

Total Liabilities $320 

 Net Position

Unexpended Appropriations [3100] $1,185 

Cumulative Results of Operations [3310] 157 

Total Net Position $1,342 

TOTAL LIABILITIES AND NET POSITION $1,662 
CASE STUDY 77



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 10

Illustrative Credit Agency

Statement of Budgetary Resources

For Year Ended September 30, 

Budgetary Resources

Current Appropriations [4119] $1,500

Borrowing Authority [4142] 200

Collection of Loan Principal and Int. [4262 + 4263] 50

Reimbursements for Services [4250] 100

Less Principal Repaid to Treasury [4147] (35)

 Total, budgetary resources $1,815

Status of Budgetary Resources

Obligations incurred [4800 (E-B) + 4900] 915

Unobligated balance not available [4650 (E)] 900

 Total, status of budgetary resources $1,815

Outlays

Obligations incurred[4800 (E-B) + 4900] $915 

Spending authority from offsetting

collections and adjustment [4250 + 4262 + 4263] (150)

Add obligated fund balance, net October 1 0

Deduct obligated fund balance, net September 30

[4800(E) + 2110(E)] (525)

 Total, outlays $ 240
78CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 11

Illustrative Credit Agency

Statement of Financing

For Year Ended September 30, 

Obligations and Nonbudgetary Resources

Obligations incurred [4800 (E-B) + 4900] $915

Less spending authority from offsetting collections

 [4250 + 4262 + 4263] (150) 

Less exchange revenue not in the budget:

 Interest Income--Subsidy [5300 Int. Inc.--Subsidy (D)] (5) 

 Interest Income--Reestimate [5300 Int. Inc.--Re-est. (D)] (1) 

Obligations and Nonbudgetary resources $759

Resources That Do Not Fund Net Cost of Operations

Changes in Goods, Services, and Benefits Ordered But Not

Yet Received or Provided [4800 (E-B)] (400)

Costs Capitalized on the Balance Sheet

[1750 Equipment (E-B) + 4800 Obligations for Loans Made (D)

- 4262 Collections of Loan Principal - 6100 Subsidy Expense

other than for reestimates (D)] (260)

Costs That Do Not Require Resources

Depreciation [6100 Depr] 20 

Financing Sources Yet to be Provided

[XXXX Future Fin Sources or 2220 (E-B) + 6100 Subsidy Reestimates] 39

NET COST OF OPERATIONS $158
CASE STUDY 79



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 12

Illustrative Trust Fund

Statement of Net Cost

For Year Ended September 30, 

Costs Not Related to Producing Exchange Revenue

Depreciation [6100] $ 200

Annual Leave [6100] 20

Imputed [XXXX] 15

Other [6100] 3,300

NET COST OF OPERATIONS $3,535

Figure 13

Illustrative Trust Fund

Statement of Changes in Net Position

For Year Ended September 30, 

Net Cost of Operations $3,535

Financing Sources (Other than Earned Revenues)

that Affect Net Position

Tax Revenues [5800] $5,000

Interest Revenue from Treasury [5300 (D)] 46

Imputed Financing Sources [5900 (D)] 15

5,061 

Net Results of Operations $1,526

Net Position, October 1, 0

NET POSITION, SEPTEMBER 30, $1,526
80CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 14

Illustrative Trust Fund

Balance Sheet

For Year Ended September 30, 

Assets

Fund Balance with Treasury [1010] $1,371

Interest Receivable [1340] 25

Securities [1610] $800

Less Unamortized Discount [1611] (250) 550

Equipment [1750] $1,000

Less: Accumulated Depreciation [1759] (200) 800

TOTAL ASSETS $2,746

Liabilities and Net Position

 Liabilities

Accounts Payable [2110] $1,200 

Annual Leave Liability [2220] 20 

Total Liabilities $1,220

 Net Position

Cumulative Results of Operations [3310] 1,526

TOTAL LIABILITIES AND NET POSITION $2,746
CASE STUDY 81



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 15

Illustrative Trust Fund

Statement of Budgetary Resources

For Year Ended September 30, 

Budgetary Resources

Appropriations of Tax Collections [5800] $5,000

Appropriations of Interest Collected [5300 - 1340 (E)] 21

 Total, budgetary resources $5,021

Status of Budgetary Resources

Obligations incurred [4800 (E-B) + 4900] $4,600

Unobligated balance available for obligation [4260] 421

 Total, status of budgetary resources $5,021

Outlays

Obligations incurred [4800 (E-B) + 4900] $4,600 

Add obligated fund balance, net October 1

 [4800 (B) + 2110 (B)] 0

Deduct obligated fund balance, net September 30

[4800 (E) + 2110 (E)] 1,500

 Total, outlays $3,100
82CHAPTER 4 

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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Figure 16

Illustrative Trust Fund

Statement of Financing

For Year Ended September 30, 

Obligations and Nonbudgetary Resources

Obligations incurred[4800 (E-B) + 4900] $4,600

Imputed financing sources [5900 imputed] 15

 Obligations, as Adjusted, and Nonbudgetary Resources $4,615

Resources That Do Not Fund Net Cost of Operations 

Change in Goods, Services, and Benefits Ordered But Not Yet

 Received or Provided [4800 (E-B)] (300)

Costs Capitalized on the Balance Sheet

[1750 Equipment (E-B)] (1,000)

Costs That Do Not Require Resources

Depreciation [6100 Depr] 200 

Annual Leave Expense [6100 Annual lv] 20 

NET COST OF OPERATIONS $3,535 
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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

83

CHAPTER 5: ADDITIONAL GUIDANCE FOR

PREPARING THE STATEMENT OF FINANCING

INTRODUCTION

122. Chapter 4 illustrated the results of numerous

typical transactions for the financial statements

in SFFAC No. 2, Entity and Display, as amended by

SFFAS No. 7 to include the Statement of Financing.

It was not feasible to include every possible

transaction or to illustrate every possible

circumstance.

123. Most of the financial statements in Entity

and Display are based on concepts for the same

financial statements that existed previously. Even

the Statement of Budgetary Resources was based on

the SF-133, "Report on Budget Execution," required

of agencies by OMB. However, the Statement of

Financing, introduced in SFFAS No. 7, is

relatively new. While reconciliations between

expended authority and expenses have been required

before, there has not been a requirement to

reconcile gross obligations with net cost of

operations.

124. Because of the newness of the Statement, this

chapter provides additional information about the

Statement of Financing by showing how certain

additional transactions should be reported. They

include:

a. a decrease

in the annual leave liability from the

beginning to the end of the year;

b. acquisition

of assets under capital leases;

c. transfer of

assets in and out without reimbursement;

d. sale of

property, plant, and equipment at a gain,

loss, or neither;

e. accrual of

revenue which is not recognized as a

budgetary resource;
84 CHAPTER 5



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Accounting for Revenue and Other Financing Sources

Implementation Guide

f. special

topics related to discretionary direct loan

and loan guarantee programs.

125. Whereas chapter 4 presented journal entries

and trial balances for the results of the

transactions covered, this chapter deals with

individual transactions only. Journal entries and

trial balances leading to the transaction are not

included. The U.S. Government Standard General

Ledger illustrates transactions for agencies and

includes crosswalks to reports, and the Standard

General Ledger Board provides a forum for

discussing issues related to recording and

reporting.

126. For each of the five transaction types, this

chapter describes the transactions and 

illustrates reporting on the Statement of

Financing. The transactions are not intended to be

comprehensive, but rather are particular issues

raised during a pilot test of the Statement of

Financing and in other comments from agencies. As

with chapter 4, small dollar amounts are used for

simplicity. Also, as with chapter 4, this chapter

presents condensed, simplified financial

statements designed to illustrate only the basic

concepts and information presented. The

illustrations are non-authoritative and shall not

be viewed as criteria against which to audit.

Authoritative guidance for display of financial

statements prepared pursuant to the CFO Act (as

amended) is provided by OMB in its bulletin on

form and content.

DECREASE IN THE ANNUAL LEAVE LIABILITY

127. Chapter 4 illustrated reporting an increase

in the unfunded liability for annual leave. This

has been the situation most agencies have

encountered as their staffs or budgets have grown.

However, as the Government has recently begun

downsizing, agencies are beginning to encounter

situations in which the annual leave liability

decreases rather than increases.
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128. For appropriated entities, when the annual

leave liability increases, it is shown on the

Statement of Financing as a reconciling item under

the caption Afinancing sources yet to be

provided.@ This is because the budget does not

recognize an increase in annual leave as an

obligation, but financial accounting recognizes it

as an expense. Obligations are recorded in the

year the leave is paid. Hence, as shown in chapter

4, any increase in an unfunded annual leave

liability creates a situation in which obligations

are less than net cost of operations, and the

difference is reconciled by adding the increase in

annual leave as financing sources yet to be

provided.

129. When the annual leave liability decreases,

the expense for annual leave decreases

accordingly, and the net cost of operations is

less as a result. Reporting is not symmetrical to

that for increases in the annual leave liability.

Assume, for example, the following situation:

Annual Leave Liability, October 1 $ 40

Annual Leave Accrued for the Year 600

Annual Leave Paid During the Year (605)

Annual Leave Liability, September 30 $ 35

130. In this instance, obligations of $605 would

have been recorded for the leave paid. However,

net cost of operations would be increased by only

$600 for annual leave, the expense of leave

accrued. The $5 decrease in the annual leave

liability is a reconciling item which must be

subtracted from obligations to yield net cost of

operations. Because that $5 of the $605 in

obligations did not fund the net cost of

operations, which was only $600, it is subtracted

under the caption "resources that do not fund net

cost of operations."

131. An abbreviated Statement of Financing for the

situation is shown below. Note that, based solely

on the transaction described above, obligations

are $605 and net cost of operations is $600.
86 CHAPTER 5



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

Obligations Incurred $605

Resources That Do Not Fund Net Cost

of Operations

 Decrease in Annual Leave Liability (5)

Net Cost of Operations $600

ASSETS ACQUIRED BY CAPITAL LEASE

132. The Government may enter into an agreement to

lease the use of assets in such a way that the

benefits and risks of ownership are substantially

transferred from the lessor to the Government. In

such cases, the economic substance of the

transactions is that the assets are effectively

purchased. These agreements are called "capital

leases" in financial accounting. The standards for

accounting for leases are prescribed in SFFAS No.

5, Accounting for Liabilities of the Federal

Government, pp. 14-15, and SFFAS No. 6, Accounting

for Property, Plant, and Equipment, pp. 5, 6 and

10.

133. Such leases have been treated distinctively

in the budget for new leases since FY 1991, when

guidance relating to the leases was phased in over

a two-year period. The budgetary rules have many

similarities in substance with the financial

accounting standards, though there are differences

in terminology. The budget classifies these leases

as "lease-purchases without substantial private

risk," "lease purchases with substantial private

risk," and "capital leases." These categories

cover approximately the same leases that financial

accounting terms "capital leases." The budgetary

rules and terminology are prescribed in OMB's

Circular A-11, Preparation and Submission of

Budget Estimates (1995), Appendix B.

134. The budgetary requirements for obligating

what the budget calls capital leases and lease

purchases are the same. They are discussed

together here. There are differences in how the

outlays related to these lease types are

determined for purposes of budgetary reporting,

but this does not affect the Statement of

Financing. Because OMB's guidance grandfathers

budgetary accounting practice for leases entered

into prior to the current guidance, this section
GUIDANCE FOR THE STATEMENT OF FINANCING 87



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Implementation Guide

discusses preparing the Statement of Financing

under both the current guidance and prior

practice. The more generic financial accounting

term, "capital leases," is used in the discussion

and illustrations that follow.

135. Current Guidance. When an asset is purchased

under a capital lease arrangement, the budget is

obligated in the amount of the present value of

the lease payments. The difference between the

present value of the lease and the total of the

lease payments represents interest expense and is

amortized over the term of the lease using present

value techniques. The interest expense determined

for each year is recognized as an obligation in

the budget for that year. Depreciation expense is

not recognized in the budget. Financial accounting

treats the present value of the lease payments as

an asset when acquired, recognizes interest

expense over the term of the lease, and reports

depreciation expense over the useful life of the

asset. Accordingly, the difference between

obligations incurred and net cost of operations is

the amount of the present value of the lease in

the year of acquisition and the amounts of

depreciation expense over the life of the asset.

136. Assume, for example, that a 3-year lease is

entered into that calls for payments of $100 in

each year. The present value of the lease payments

is $250; interest expense amortized is $25, $15,

and $10 for years 1, 2, and 3 respectively; and

depreciation expense is $30, $30, and $30 for

years 1, 2, and 3, respectively. (Note that

depreciation is charged over the life of the

asset, which may be different from the term of the

lease.) Thus, obligations incurred are $275 (the

$250 present value of the lease payments plus the

first year interest of $25) in Year 1, and $15 and

$10 for years 2 and 3, respectively--the amount of

the interest expense for those years. The net cost

of operations for each year is the sum of the

interest and depreciation expenses. The resulting

Statements of Financing for the three years are

shown below.
88 CHAPTER 5



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Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

 Year 1 Year 2

Year 3

Obligations Incurred $275 $ 15 $ 10

Resources That Do Not Fund

Net Cost of Operations:

 Capitalized assets acquired (250) 0 

0

Costs That Do Not Require

Resources:

Depreciation expense 30 30 30

Net Cost of Operations $ 55 $ 45 $ 40

137. Note that this presentation has the same

reconciling items as would be the case for an

asset acquired by direct purchase. This is because

the resulting interest expense on the capital

lease, which is the principal difference between

an asset acquired by capital lease and an asset

acquired by direct purchase, is recognized as an

obligation by the budget and as an expense in the

cost of operations.

138. Prior Practice. For capital leases entered

into prior to the current guidance, the budget is

obligated in the amount of the annual lease

payments and the interest expense is not

recognized as an obligation. This is the same as

for operating leases in financial accounting.

Under prior practice, the budget often did not

distinguish between capital and operating leases,

but rather treated them all like operating leases.

Depreciation expense, not recognized in the budget

under current guidance, was also not recognized on

assets acquired through leases reported in the

budget under prior practice. The financial

accounting treatment for capital leases is the

same whether they fall under current budgetary

reporting guidance or prior practice. Thus, the

items required to reconcile obligations incurred

with net cost of operations are the annual lease

payments, interest expense, and depreciation

expense.

139. Assume, for example, that there are three
GUIDANCE FOR THE STATEMENT OF FINANCING 89



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Implementation Guide

$100 payments remaining on a capital lease entered

into prior to FY 1991. Interest expense on the

capital lease for financial accounting purposes is

$25, $15, and $10 and depreciation expense is $30,

$30, and $30, respectively, for the three years.

(Again, note that depreciation is charged over the

life of the asset, which may be different from the

term of the lease.) The net cost of operations is

the sum of the depreciation and interest expense.

The Statement of Financing for those years would

appear as shown below.

 Year 1 Year 2 Year 3

Obligations Incurred $100 $100 $100

Resources That Do Not Fund

Net Cost of Operations:

Payments on capital leases (100) (100)

(100)

 

Costs That Do Not Require

Resources:

Depreciation expense 30 30 30

Interest expense 25 15

10

Net Cost of Operations $ 55 $ 45 $ 40

TRANSFERS OF ASSETS IN AND OUT WITHOUT

REIMBURSEMENT

140. Assets are sometimes transferred from one

agency to another without reimbursement. In such

cases, the donating agency reports the transaction

as a transfer-out (a negative financing source) in

its Statement of Changes in Net Position, which

reduces its cumulative results of operations and

total net position. The receiving agency reports

the transaction as a transfer-in (a positive

financing source that increases its cumulative

results of operations and total net position) on

its Statement of Changes in Net Position.

Treatment on the Statement of Financing is

described below:

(a) Obligations are not

affected for either agency, but the donating
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agency reports a decrease in its

nonbudgetary resources and a decrease in its

costs capitalized on the Balance Sheet in

the amount of the book value of the asset

transferred on its Statement of Financing.

The transaction has no effect on net cost of

operations of the donating agency. The

receiving agency reports an increase in its

nonbudgetary resources in the amount of the

book value of the asset, if known, or for

the fair market value of the asset, if not.

Whether adjustments to obligations, as

adjusted, and nonbudgetary resources are

required on the receiving agency's Statement

of Financing depends on whether the

receiving agency capitalizes the asset or

expenses it on receipt.

(b) If the receiving

agency capitalizes the asset on receipt, the

amount capitalized is subtracted from

obligations, as adjusted, and nonbudgetary

resources under the caption "resources that

do not fund net cost of operations." The

transaction does not affect net cost of

operations.

(c) If the asset is

expensed on receipt, no adjustment to

obligations, as adjusted, and nonbudgetary

resources is required, since the amount of

the expense would be part of net cost of

operations. In this case, the net cost of

operations would be financed by the

transfer-in of the assets without

reimbursement.

141. Assume, for example, that a donating agency

gives an asset with a book value of $5,000 to a

receiving agency, which knows the book value. The

transaction would be reported on the Statements of

Financing for the agencies as shown below under

the following scenarios: (a) the receiving agency

capitalizes the asset, and (b) the receiving

agency expenses the asset. Note that the reporting

is the same under both scenarios for the donating

agency, but it differs for the receiving agency.

a. If the receiving agency capitalizes the asset on receipt, the

Statements of Financing would be prepared in this manner:

Receiving Agency Donating Agency
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Obligations Incurred $ 0 $ 0

Nonbudgetary Resources:

 Transfers of Assets from (to)

 Others without Reimbursement 5,000 (5,000)

Obligations, as adjusted, and

 Nonbudgetary Resources 5,000 (5,000)

Resources That Do Not Fund

Net Cost of Operations

 Costs capitalized

on the Balance Sheet (5,000) N/A

 Capitalized costs

 removed from the Balance Sheet N/A 5,000

Net Cost of Operations $ 0 $ 0

b. If the receiving agency expenses the asset on receipt, the

Statements of Financing would be prepared in this manner:

Receiving Agency Donating Agency

Obligations Incurred $ 0 $ 0

Nonbudgetary Resources:

 Transfers of assets from (to)

 others without reimbursement 5,000 (5,000)

Obligations, as adjusted, and

 Nonbudgetary Resources 5,000 (5,000)

Resources That Do Not Fund

Net Cost of Operations

 Costs capitalized

on the Balance Sheet 0 N/A

 Capitalized costs removed

 from the Balance Sheet N/A 5,000

Net Cost of Operations $5,000 $ 0
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SALE OF CAPITALIZED ASSETS

142. An agency may sell its capitalized assets at

a gain, a loss, or for book value (which would

result in no gain or loss). The budget would

recognize the amounts collected from the sale,

regardless of whether they resulted in gains and

losses, and would subtract those amounts as

adjustments to yield obligations, as adjusted.

Thus, the reconciling factor for each instance

would be the book value of the capitalized assets

sold.

143. Assume, for example, three scenarios in which

an agency has a piece of equipment with a book

value of $25 and sells it for (a) $30, (b) $15,

and (c) $25. Obligations would be -$30, -$15, and

-$25, and net cost of operations would be -$5,

+$10, and $0 for each of the scenarios,

respectively. The Statements of Financing are 

illustrated as follows.

Scenarios: (A) (B) (C)

Obligations Incurred $ 0 $ 0 $ 0

Spending authority from offsetting

collections (30) (15) (25)

Obligations, as adjusted,

 and Nonbudgetary Resources ($30) ($15) ($25)

Resources That Do Not

Fund Net Cost of Operations

 Capitalized costs removed

 from the Balance Sheet 25 25 25

Net Cost of Operations ($5) $10 $ 0

144. Note in this example that the capitalized

costs removed from the Balance Sheet were added to

obligations. Costs capitalized on the Balance

Sheet are subtracted from obligations, because

those obligations do not fund costs (see the

illustrations in chapter 4). When capitalized

costs are removed, they must be treated in the

opposite manner and added back in the reconciliation between obligations and net cost of
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operations.

145. The present illustration provides a line item

for Acapitalized costs removed from the Balance

Sheet.@ An alternative display might net those

costs removed against the costs of assets acquired

and capitalized on the Balance Sheet. If the costs

removed are not material, it might present the net

as a single line item entitled "net costs

capitalized on the Balance Sheet."

EXCHANGE REVENUE FROM THE PUBLIC

146. OMB Circular A-34 provides that when an

agency performs reimbursable services for others,

receivables from work performed are normally

considered budgetary resources if the work is

performed for another Government agency. If the

work is performed for the public, however,

budgetary resources are recognized only to the

extent receivables are collected. Financial

accounting recognizes revenue accrued from both

intragovernmental and public receivables. Thus,

the change in accrued receivables relating to

exchange revenue from the public is a reconciling

item between obligations and net cost of

operations.

147. Assume, for example, that at the beginning of

Year 1, receivables were zero. During Year 1, $100

was collected from the public for services

performed and $15 additional was billed but not

yet collected at year-end. In Year 2, $125 was

collected, including the $15 owed at the beginning

of the year, and an additional $10 was accrued.

148. The collections of $100 and $125 are

subtracted from obligations incurred on the

Statement of Financing for Years 1 and 2,

respectively. However, the amounts subtracted from

expenses on the Statement of Net Cost are $115 for

Year 1 and $120 for Year 2. This is because

financial accounting, on which the Statement of

Net Cost is based, essentially recognizes revenue

when it is earned by providing goods or services

regardless of when collections are made.
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149. The $15 of receivables from the public at the

end of Year 1 is part of the revenue recognized

for financial accounting purposes. Thus, the Year

1 revenue reported on the Statement of Net Cost is

the sum of the collections, $100, and the $15

receivable from the public at year-end: $115. In

Year 2, only $110 of the $125 in collections is

recognized as revenue for financial accounting

purposes, because the $15 collected for

receivables from the public as of the end of Year

1 was already counted as revenue in Year 1. The

$10 of receivables from the public accrued at the

end of Year 2 is also recognized as revenue for

financial accounting purposes. The $110 and $10

together equal $120: the Year 2 revenue reported

on the Statement of Net Cost.

150. The Statements of Financing reconciling the

differences between obligations and net cost of

operations are illustrated and explained below:

 Year 1 Year 2

Obligations Incurred $ 0 $ 0

Spending Authority from

Offsetting Collections (100) (125)

(Increase) Decrease in Exchange Revenue 

 Receivable From the Public (15) 5

Obligations, as adjusted, and

 Nonbudgetary Resources ($115) ($120)

Net Cost of Operations ($115) $(120)

151. Note that in Year 1, collections were $100,

which was recognized as spending authority from

offsetting collections in the budget. This is

subtracted from obligations incurred. However, the

net cost of operations is -$115 (indicating an

excess of exchange revenue over expenses). The $15

difference is explained by the $15 increase in

accounts receivable from the public. This is not

considered to be spending authority for budgetary

purposes, but is recognized and accrued as revenue

on the Statement of Net Cost. It was not included

in spending authority from offsetting collections,

but it was subtracted from expenses to yield net

cost of operations. Hence, to reconcile
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obligations incurred with net cost of operations,

it must be subtracted in the reconciliation on the

line for exchange revenue accrued from the public.

152. In Year 2, collections were $125 and were

recognized as spending authority from offsetting

collections in the budget. However, the net cost

of operations is -$120, indicating an excess of

revenue over expenses. In this case the difference

is explained by two factors. First, for the same

reasons as explained for Year 1, the ending $10 in

accounts receivable from the public must be

subtracted in the reconciliation. Second, the

collections would have included the $15 of

receivables accrued at the end of Year 1. This is

considered spending authority from offsetting

collections, but it is not recognized as revenue

on the Statement of Net Cost in Year 2 because it

was already recognized there in Year 1. Because it

was subtracted in the line for spending authority

from offsetting collections but was not subtracted

from expenses to yield net cost, it must be added

back in the reconciliation. The difference between

the $10 subtraction and $15 addition is reflected

in the $5 addition on the line for exchange

revenue accrued from the public.

SPECIAL TOPICS RELATED TO

DISCRETIONARY DIRECT LOAN AND LOAN

GUARANTEE PROGRAMS

Introduction

153. Reporting loans made subsequent to the

Credit Reform Act of 1990 on the Statement of

Financing is illustrated in chapter 4. The

following paragraphs set forth some important

observations about the illustrations and

information regarding these and additional

transactions related to credit reform and precredit reform loans. The transactions are

applicable to direct loans and loan guarantees

in programs operated under both credit reform

and pre-credit reform authority unless

otherwise specified. They include:

o making direct loans;

o collecting loan principal for direct loans

and for defaulted guaranteed loans assumed

by the Government for direct collection;
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o making upward and downward subsidy reestimates for direct loan and loan

guarantee programs (credit reform only)

o writing off defaulted loans; and

o accruing bad debts expense (pre-credit

reform only).

154. The transactions discussed in the

following sections are only for normal

situations applicable to the program,

financing, and liquidating funds of

discretionary credit programs under the Credit

Reform Act, which constitute most credit

programs. Mandatory credit programs have

different accounting requirements for some

transactions, which would be reported

differently on the Statement of Financing. In

addition, some credit programs may operate in

part under separate legislation which also has

different accounting and reporting

requirements. Authoritative information on

credit program terminology and related

accounting and reporting is found in SFFAS No.

2, Accounting for Direct Loans and Loan

Guarantees, in Section 12 of OMB Circular A-34,

Instructions on Budget Execution (December

1995), in Section 33 of OMB Circular A-11,

Preparation and Submission of Budget Estimates,

and in OMB Bulletin 94-01, Form and Content of

Agency Financial Statements (or its successor).

Reconciliations and the chapter 4 case

155. The results of budgetary and proprietary

accounting for direct loans require several

factors on the Statement of Financing to

reconcile between obligations and net cost of

operations. Three reconciling factors are (1)

loans made, (2) subsidy expense other than for

reestimates, and (3) collections of loan

principal. The reason for these reconciling

factors is that, for budgetary purposes, loans

made are obligations, and collections of loan

principal are offsetting collections which are

subtracted from obligations to obtain

obligations, as adjusted. On the other hand,

for financial (proprietary) accounting

purposes, loans made are considered increases

in assets (specifically, loans receivable),
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collections of loan principal are considered

decreases in assets, and a subsidy expense is

recognized for the amount of the loans financed

by the subsidy (not including reestimates,

which are discussed later). 

156. Thus, the reconciliation requires that the

loans made, less the subsidy expense (other

than for reestimates), be subtracted from

obligations, since this is the amount of loans

made that has not been recognized as an expense

and, therefore, does not affect net cost of

operations. The reconciliation also requires

that collections of loan principal must be

added back in reconciling net cost of

operations to obligations. This is because

these collections are subtracted from

obligations in calculating "obligations, as

adjusted," as explained above, but do not enter

into the computation of the net cost of

operations for financial accounting purposes

(although they reduce the asset "loans

receivable"). The same reconciliation is also

needed for collections of the loan principal of

guaranteed loans assumed for direct collection

by the Government when the lender declares them

in default. These three reconciling factors are

types of "resources that do not fund net cost

of operations" in the Statement of Financing.

They explain the crosswalk regarding loans

provided in figure 11 of the chapter 4 case

illustration: "4800 Obligations for Loans Made

(D) minus 4262 Collections of Loan Principal

minus 6100 Subsidy Expense other than for

reestimates (D)."
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157. The fourth reconciling factor between

obligations incurred and net cost of operations

for direct loans is interest income from

amortization of the allowance for subsidy. The

reconciliation is required because the interest

is recognized as an exchange revenue for

financial accounting purposes and reduces net

cost of operations, but it is not included in

obligations for purposes of the budget. The

interest is reported on the Statement of

Financing as a subtraction under "exchange

revenue not in the budget" in the section on

obligations and nonbudgetary resources. The

reporting is illustrated in figure 11 of

chapter 4 (the $5 of "Interest Income--Subsidy

Amortization"). The same reconciliation is

needed for the amortization of subsidy related

to loans under loan guarantee programs assumed

for direct collection by the Government when

the lender declares them in default.

158. The chapter 4 case also illustrated

proprietary accounting for an upward reestimate

of the subsidy as of the end of the year and an

accompanying accrual of interest expense and

interest income on the reestimate amount. The

budget did not recognize these transactions in

the year of accrual, and other reconciling

factors between obligations and net cost of

operations arose as a result. Of course,

downward reestimates can also occur, with

similar need for reconciliation. Reporting

upward and downward subsidy reestimates and

related interest on the Statement of Financing

for the year of accrual and the succeeding year

is discussed in the next sub-section, which

deals with subsidy reestimates (see page 99).

159. The chapter 4 case covered loans made

under the Credit Reform Act. However, agencies

still operate liquidating funds for programs

authorized under legislation prior to that Act.

Because the proprietary rules for recognizing

expenses are different for loans made under

pre-credit reform authority, the reconciliation

between obligations incurred and net cost of

operations is different. This is discussed in

more detail in the subsection on pre-credit

reform loans (see page 104).

160. The chapter 4 case did not illustrate

writeoffs of defaulted loan principal. Such
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writeoffs--under both the Credit Reform Act and

authority prior to the Act--do not enter into

the reconciliation between obligations incurred

and net cost of operations. This is because

they do not affect obligations, nor are they

recognized in the Statement of Net Cost. For

financial accounting purposes, they reduce both

loans receivable and (for Credit Reform Act

loans) the related allowance for subsidy

account, which are offset in the assets section

of the Balance Sheet, as shown in figure 9 of

chapter 4. For loans made prior to the Credit

Reform Act, the related allowance account is

termed "allowance for uncollectible accounts"

(or an equivalent title) rather than "allowance

for subsidy." Although an allowance for

uncollectible accounts is computed differently

than an allowance for subsidy, the nature of

the reporting display is the same--it is offset

against loans receivable. The same reconciliation is needed for the writeoff of

guaranteed loans assumed for direct collection

by the Government when the lender declares them

in default.

Subsidy reestimates

161. When an upward subsidy reestimate for

credit reform loans is made as of the end of

the year, it is accrued in the program fund as

additional subsidy expense payable to the

financing fund, along with interest expense on

the subsidy, which is also payable to the

financing fund. The financing fund accrues a

related receivable for the total of the

reestimate and interest, recognizes an increase

in the allowance for subsidy in the amount of

the re-estimate, and recognizes an exchange

revenue for the interest on the subsidy. The

payable in the program fund is eliminated

against the receivable in the financing fund

before proprietary financial statements are

prepared. Although monies will come from a

permanent indefinite appropriation in the

following year, the amount is not apportioned

in the year of accrual, and, accordingly, no

receivable from the appropriation may be

accrued. For budgetary purposes, the obligation

for the subsidy reestimate and interest is

recognized in the succeeding year. The table

below summarizes this information:
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Current Year Succeeding Year

Budgetary Accounting

Recognition of obligations No Yes

Proprietary Accounting

Recognition of expenses Yes No

Recognition of exchange revenue Yes No

162. Because of this difference in timing, the

reconciliation between obligations incurred and

net cost of operations for an upward revision of

subsidy is different both for the year of accrual,

in which the subsidy and interest expense and

related interest revenue are recognized for

financial accounting purposes, and for the

subsequent year, in which the related obligations

are recognized for budgetary purposes. Using the

information in chapter 4, assume, for example,

that in Year 1, an upward subsidy reestimate of

$8, with interest of $1, is recorded as of the end

of the year. Because the budget does not recognize

this until the following year, obligations are

zero in Year 1 and $9 in Year 2. Net Cost of

Operations will be $8 in Year 1 ($9 in expenses

less $1 of interest income) and zero in Year 2.

The Statement of Financing reconciliation for this

is shown below. Note that the additional interest

income to offset interest expense on the subsidy

reestimate is recognized in the financing fund,

which is nonbudgetary. Accordingly, it is shown

under the caption "exchange revenue not in the

budget."
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 Year 1 Year 2

Obligations and Nonbudgetary Resources

Obligations Incurred $ 0 $ 9

Less Exchange Revenue Not in the Budget:

 Interest Income on Subsidy Reestimate (1) N/A

Obligations, as adjusted, and

 Nonbudgetary Resources (1) 9

Resources That Do Not Fund

Net Cost of Operations

Financing Sources That Fund Costs of

 Prior Periods N/A (9)

Financing Sources Yet to Be Provided 9 N/A

Net Cost of Operations $ 8 $ 0

163. When a recomputation of the subsidy as of the

end of the year results in a smaller amount than

previously recognized, the reestimate is downward.

For proprietary accounting purposes, three

adjustments are required for this. They are

recognized in the year for which the reestimate is

made. First, the excess subsidy and interest on

that excess must be paid to a special receipt

account of the Treasury. Second, more allowance

for subsidy must be amortized to interest income.

Amortization is based on the amount of interest

expense from all sources less interest expense

other than the reestimate. Had the subsidy

initially been calculated correctly, it would have

been less, and correspondingly more would have

been borrowed from Treasury. This would have

caused interest expense on the borrowing to be

greater, and more would have been amortized from

the subsidy as a result. However, because the

subsidy was greater than it should have been, less

was borrowed from Treasury, and less was amortized

from the allowance for subsidy account. Hence, the

allowance for subsidy is overstated and must be

further amortized to interest income in the amount

of interest expense from the reestimate--just as

it would have been had more been borrowed from

Treasury in the first place and more interest

expense had been incurred. Third, both subsidy
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expense and the related financing source

"appropriations used" must be reduced by the

amount of the excess subsidy received.

164. The result of the adjustments discussed above

which affect the Statement of Financing is that

net cost of operations is reduced by the amount of

the excess subsidy. This is because of the

following effects of the adjustments. First,

interest expense is recognized in the amount of

the actual interest incurred on the borrowing from

Treasury plus the amount of the interest on the

reestimate. This provides for the same amount of

interest expense as would be the case if the

subsidy had initially been estimated correctly,

the borrowing from Treasury greater, and the

interest on that borrowing greater. The interest

is divided into two parts--interest expense on the

borrowing from Treasury and interest expense on

the downward reestimate. Second, the adjustments

provide for the same amount of interest income

that would have been amortized from the allowance

for subsidy if the interest expense had been based

on a greater borrowing from Treasury. That

interest income is also divided into two parts--

interest income from the basic amortization and

interest income from the reestimate. The total

interest expense and total interest income (which

would also include interest income from

borrowers), both of which appear on the Statement

of Net Cost, will be the same. Hence, the net cost

of operations is unaffected by interest.

165. Third, the allowance for subsidy is reduced

by the amount to be paid to the special receipt

account, and that amount is shown as a liability.

Neither the allowance for subsidy nor the

liability to Treasury appears on the Statement of

Net Cost, and, again, the net cost of operations

is unaffected. Finally, both subsidy expense and

appropriations used are reduced in the amount of

the excess subsidy. The reduction in subsidy

expense appears on the Statement of Net Cost.

However, the reduction in appropriations used,

which is not an expense or an exchange revenue,

does not. Thus, the net cost of operations is

reduced by the amount of the excess subsidy

received. (Net results of operations, which

includes appropriations used and additional

financing sources other than exchange revenue, is

unchanged by the transactions, as is net position.

This is appropriate, because the adverse effects
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on cash flows from returning the excess subsidy

and interest should be offset by increased cash

inflows from other sources over the life of the

loans. These sources might include a lower default

rate on loans than originally estimated or other

items which were factors in reestimating the

subsidy.)

166. Under budgetary accounting rules, an

obligation for the excess subsidy and interest

would be recorded in the year following the

reestimate rather than in the year the reestimate

was made. In the year following the reestimate,

the amount of the obligation, which is paid to a

special receipt account of the Treasury, is also

reported in the budget as an offsetting receipt 

(which does not adjust obligations) rather than as

an offsetting collection credited to an

expenditure account (which does). Hence, the

factors necessary to reconcile obligations with

net cost of operations involve (1) the timing of

the recognition of obligations for budgetary

purposes and of expenses and revenues for

proprietary purposes, (2) the additional interest

income to offset interest expense on the

reestimate, and (3) the decrease in subsidy

expense from the reestimate. Assuming the same

facts as in paragraph 0, except that the

reestimate is downward rather than upward, net

cost of operations would be -$8 in Year 1 (the $1

of interest expense less the $8 reduction in

subsidy expense and less the $1 of interest

income) and zero in Year 2. Obligations would be

zero in Year 1 and $9 Year 2. The credit agency's

Statement of Financing for the two years would be

as shown below. Note that the interest income

appears under the caption "exchange revenue not in

the budget."27

 

27For purposes of the Statement of Financing, exchange revenues

categorized in the budget as offsetting receipts, which do not provide

spending authority from offsetting collections credited to an expenditure

account, are treated as nonbudgetary exchange revenues.
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 Year 1 Year 2

Obligations and Nonbudgetary Resources

Obligations Incurred $ 0 $ 9

Less Exchange Revenue Not in the Budget:

 Interest Income on Subsidy Reestimate (1) N/A

Other Nonbudgetary Resources:

 Reduction in Subsidy Expense from

 Downward Reestimate (8) N/A

Obligations, as adjusted, and

 Nonbudgetary Resources (9) 9

Resources That Do Not Fund

Net Cost of Operations

Obligations for payment of

 excess subsidy and interest N/A (9)

Costs That Do Not Require Resources

Interest Expense-Downward Reestimate 1 N/A

Net Cost of Operations $ (8) $ 0

167. The observations and illustrations in

paragraphs 0-0 would also be applicable to subsidy

reestimates for loan guarantee programs, except

that the loan guarantee liability rather than the

allowance for subsidy would be involved in the

journal entries and computations, and direct loans

would not be made. If the Government assumes

defaulted guaranteed loans for direct collection,

both the loan guarantee liability and the

allowance for subsidy would be involved.

Pre-credit reform loans

168. There are many similarities in accounting

for loans under credit reform and pre-credit

reform rules. For budgetary accounting

purposes, the making of pre-credit reform loans

also results in an obligation, albeit the

obligation is against different budget

authority. Collection of loan principal is also

recorded as an offsetting collection. There is

no subsidy appropriation connected with precredit reform loans, however, and no obligation

is recognized for defaults when they occur. For
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financial accounting purposes, loans issued

under pre-credit reform authority are accounted

for as assets, and collections of loan

principal are recorded as decreases in those

assets. However, instead of a subsidy expense,

a bad debts expense for defaults is recognized.

169. Accordingly, for pre-credit reform loans,

the reconciliation between obligations and net

cost of operations requires that bad debts

expense be added to obligations, as adjusted.

Assume, for example, that during a year $500 of

pre-credit reform loans are made; $30 of

principal is collected; and $100 of bad debts

expense is recognized. In this case,

obligations, as adjusted, are $470 ($500 in

loans made less $30 in principal collections),

and the net cost of operations is $100 (the

amount of the bad debts expense). The resulting

reconciliation on the Statement of Financing is

shown in the pre-credit reform column below.

Loans made, less collections of principal, are

subtracted from obligations, as adjusted, under

the caption "resources that do not fund net

cost of operations"--the same reconciliation

adjustment as for credit reform loans; and bad

debt expenses are added under "costs that do

not require resources." The next column

contrasts that with the reconciliation for

credit reform loans (assuming for sake of

illustration a subsidy expense of $100 rather

than a bad debts expense of $100).
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 Pre-Credit Credit

 Reform Reform

Obligations Incurred $500 $500

Spending Authority

 from Offsetting Collections (30) (30)

Obligations, as adjusted,

 and Nonbudgetary Resources $470 $470

Resources That Do Not Fund

 Net Cost of Operations

Loans Made (500) (500)

Less: Subsidy Expense N/A 100

 Collections of Loan Principal 30 30

Costs That Do Not Require 

 Resources

Bad Debts Expense 100 N/A

Net Cost of Operations $100 $100

170. The lines for spending authority from

offsetting collections and for collections of loan

principal in the illustration above would also be

applicable to both credit reform and pre-credit

reform guaranteed loans assumed for direct

collection by the Government when the lender

declares them in default. Note that the negative

$30 and the positive $30 for those two lines would

cancel and result in zero net cost of operations

under both credit reform and pre-credit reform

programs. Net cost of operations from this

transaction is zero because, as explained above,

the collection of loans does not affect net cost

of operations.

171. The line for bad debts expense would also

apply to the recognition of the expense related to

pre-credit reform defaulted guaranteed loans that

have been assumed. Considering only the bad debts

expense in the illustration above, net cost of

operations would be $100, but, because the budget

does not recognize bad debts expense as an

obligation, obligations would be zero. The

reconciling factor would be the $100 of bad debts

expense, as shown in the pre-credit reform column

of the illustration.
GUIDANCE FOR THE STATEMENT OF FINANCING 107



___________________________________________

Federal Accounting Standards Advisory Board

Accounting for Revenue and Other Financing Sources

Implementation Guide

172. Bad debts expense is not applicable to

programs operating under authority of the Credit

Reform Act.

Subsidy expense for defaulted guaranteed

loans: credit reform

173. Subsidy expense related to defaulted

guaranteed loans assumed for direct collection

by the Government would not be a reconciling

item between obligations and net cost of

operations, as it is for loans made in a direct

loan program under the Act. This is because the

only accounting requirement for subsidy

relating to the assumed loans in the guarantee

program is that a portion of the loan guarantee

liability be reclassified as "allowance for

subsidy," which is subtracted from the asset

"loans receivable" on the Balance Sheet. Such a

reclassification does not involve expenses or

exchange revenue and, accordingly, would not

affect net cost of operations. The

reclassification is also not recognized as an

obligation under budgetary accounting rules.

Since neither net cost of operations nor

obligations is affected, no reconciliation is

required.
108

APPENDIX: CIRCULAR A-134
FASAB TASKFORCE ON REVENUE AND OTHER FINANCING SOURCES

Donald H. Chapin, Taskforce Chair--FASAB Member/GAO*

Peter BenEzra--Agriculture

Christine Bonham--GAO

Debra Carey--Interior

Christine Chang--Treasury

Robert Dacey--GAO

*

Lowell Dworin--Treasury

Robert Hamilton--Customs Service

Gregory Holloway--GAO

Linda Hoogeveen--OMB

Martin Ives--FASAB Member/New York University

Robert Kilpatrick--OMB*

Allan Lund--Treasury

Thomas Luter--Treasury*

JoEllen McCormack--GAO*

Dennis Mitchell--Treasury

Richard Nieman--Energy Department

Marvin Phaup--CBO

Joel Platt--Treasury

Darlene Schongalla--Interior

Charles Sims--Interior

Deborah Taylor--GAO

Dana Thiebeau--Treasury

William Truitt--Justice

Ellen Waterhouse--IRS

*

working group member

Individual members of the task force do not necessarily agree with all

aspects of the Board's recommendations.
THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD

Elmer B. Staats, Chairman

 James L. Blum Gerald Murphy 

 Donald H. Chapin James E. Reid 

 Martin Ives Cornelius E. Tierney 

 Norwood Jackson Alvin Tucker 

The Secretary of the Treasury, the Director of the Office of

Management and Budget, and the Comptroller General established the

Federal Accounting Standards Advisory Board (the FASAB or "the

Board") in October 1990 to consider and recommend accounting

principles for the United States Government.

The Board communicates its recommendations by publishing recommended

accounting standards after considering the financial and budgetary

information needs of Congress, executive branch agencies, and other

users of Federal financial information. The Board also considers

comments from the public on its proposed recommendations, which are

published for comment as "exposure drafts." The Board's sponsors,

i.e., the officials who established the Board, then decide whether to

adopt the recommendations. If they do, the standard is published by

OMB and the GAO and then becomes effective.

Additional background information is available from the FASAB,

including: (1) the "Memorandum of Understanding among the General

Accounting Office, the Department of the Treasury, and the Office of

Management and Budget, on Federal Government Accounting Standards and

a Federal Accounting Standards Advisory Board" and (2) the "Mission

Statement of the Federal Accounting Standards Advisory Board."

Federal Accounting Standards Advisory Board

Ronald S. Young, Executive Director

750 First Street, NE, Room 1001

Washington, DC 20002

Telephone (202) 512-7350

Fax (202) 512-7366