U.S. Department of Education

Institute of Education Sciences

NCES 2004-318

Financial Accounting

for Local and State

School Systems

2003 Edition

U.S. Department of Education 

Institute of Education Sciences 

NCES 2004–318 

Financial 

Accounting for 

Local and State 

School Systems 

2003 Edition 

November 2003 

Core Finance Data Task Force 

The National Forum 

on Education Statistics 

Frank Johnson 

Project Officer 

National Center for 

Education Statistics 
U.S. Department of Education 

Rod Paige 

Secretary 

Institute of Education Sciences 

Grover J. Whitehurst 

Director 

National Center for Education Statistics 

Val Plisko 

Associate Commissioner 

The National Center for Education Statistics (NCES) is the primary federal entity for collecting, analyzing, and reporting 

data related to education in the United States and other nations. It fulfills a congressional mandate to collect, collate, 

analyze, and report full and complete statistics on the condition of education in the United States; conduct and publish 

reports and specialized analyses of the meaning and significance of such statistics; assist state and local education 

agencies in improving their statistical systems; and review and report on education activities in foreign countries. 

NCES activities are designed to address high priority education data needs; provide consistent, reliable, complete, and 

accurate indicators of education status and trends; and report timely, useful, and high quality data to the U.S. 

Department of Education, the Congress, the states, other education policymakers, practitioners, data users, and the 

general public. 

We strive to make our products available in a variety of formats and in language that is appropriate to a variety of 

audiences. You, as our customer, are the best judge of our success in communicating information effectively. If you 

have any comments or suggestions about this or any other NCES product or report, we would like to hear from you. 

Please direct your comments to: 

National Center for Education Statistics 

Institute of Education Sciences 

U.S. Department of Education 

1990 K Street NW 

Washington, DC 20006–5651 

November 2003 

The NCES World Wide Web Home Page address is http://nces.ed.gov

The NCES World Wide Web Electronic Catalog is http://nces.ed.gov/pubsearch

Suggested Citation 

U.S. Department of Education, National Center for Education Statistics. Financial Accounting for Local and State School 

Systems: 2003 Edition (NCES 2004–318), by the Core Finance Data Task Force, The National Forum on Education Statistics. 

Project Officer: Frank Johnson. Washington, DC: 2003. 

For ordering information on this report write: 

U.S. Department of Education 

 ED Pubs 

P.O. Box 1398 

 Jessup, MD 20794–1398 

Call toll free 1–877–4ED–Pubs or order online at www.edpubs.org 

Content Contact 

Frank Johnson 

202–502–7362 

Frank.Johnson@ed.gov 
iii 

PREFACE

This handbook is one in a series published by the National Center for Education Statistics 

(NCES). It continues a half-century’s tradition of sharing the best practices in data collection and 

reporting with the schools, school districts, and state agencies that are our partners in providing 

good information to manage, assess, and guide elementary and secondary education. 

In addition to this volume, the data handbooks include the Student Data Handbook: Elementary, 

Secondary and Early Childhood Education and the Staff Data Handbook: Elementary, 

Secondary and Early Childhood Education. The NCES data handbooks are updated annually; 

current versions are available online at http://nces.ed.gov/pubsearch/index/asp. 

The data handbooks do not include every possible data element. They are intended, rather, as a 

comprehensive set of data element definitions and suggestions for structuring a paper or an 

electronic record system. Every attempt has been made to include all data elements routinely 

required for federal education reporting. The rationale for this inclusion is that if these items are 

part of a comprehensive information system used for the daily management of schools and 

districts, they can be reported with minimal additional burden on teachers and principals. 

References can be found on page 167 and additional resources are identified on page 179. 

The NCES and representatives of state and local education agencies, as well as members of the 

research and statistical communities, have worked together through the National Cooperative 

Education Statistics System to improve the quality and comparability of data used for education 

policy decisions at all levels of government. This handbook, like other data handbooks published 

by the NCES, was written through the efforts of education professionals from a range of 

backgrounds. Their input ensures that such products are useful for managing the daily business 

of schools and districts as well as for identifying the information needed for program monitoring 

and statistical purposes. 
iv 
v 

ACKNOWLEDGMENTS

This document is the result of many individuals from around the country who generously 

contributed their knowledge, time and commitment. 

A special thanks goes to the NCES National Forum on Education Statistics, Core Finance Data 

Task Force. Under the leadership of Linda Champion, this Task Force embraced the task of reconceptualizing the structure and content of this handbook and systematically rewriting nearly 

the entire text, incorporating new chapters and reviewing and revising the account code structure 

and account code definitions. Through tremendous perseverance, a sizeable and diverse 

knowledge base, and intense discussions spanning over 2 years, this handbook has been 

transformed into a document that is not only updated, but is also user friendly for a variety of 

potential readers. A list of the members of this Task Force appears on the next page. 

Special thanks are given to David Thompson from Kansas State University for his expertise and 

insight into writing the Activity Fund Guidelines chapter and for his review and comments on the 

entire handbook. Special thanks are also given to David Morris from the Florida Department of 

Education for his experience, insight and knowledge in writing the Cost Accounting and 

Reporting for Educational Programs chapter. 

Thanks are extended to Greg Higgins and George Scott from Deloitte & Touche whose work as 

subcontractors for American Institutes for Research was the foundation for much of the writing 

of chapters 3 through 5, including assistance in the revision of account codes in this handbook. 

Kenneth Lee Carter, Vice President and Partner of Capital Management of the Carolinas, and 

Gregory Allison of the Institute of Government, University of North Carolina, acted as thirdparty technical reviewers to ensure that the entire document met the latest accounting standard 

changes. 

A sincere thanks is extended to the members of the Information Committee and the Extended 

Reviewing Committee for providing the initial input and guidance for what was then to be only a 

set of addendums to the 1990 version of this handbook. Their insight and suggestions were the 

major, first step forward in revising this handbook after a decade. A list of the members of these 

committees appears on the next page. 

Steven Honegger, Senior Analyst from the American Institutes for Research coordinated the 

work of the various authors and directed work of subcontractors for this handbook. He provided 

guidance to resolve potentially problematic issues and provided recommended changes and 

additions for this handbook. 

Beginning with the work of William Fowler, Jr., and the establishment of the Finance Handbook 

Information Committee and the Finance Handbook Extended Reviewing Committee, and ending 

with the NCES Common Core Data Task Force, this process has been a collegial and 

collaborative effort involving representatives from federal, state, and local education agencies, 

public and private educational institutions, and national professional associates, as well as 

education practitioners and researchers. 
vi 

National Forum on Education Statistics, Core Finance Data Task Force Members 

Linda Champion, Task Force Chair, Administrator, Office of Funding and Financial Reporting, 

Florida Department of Education 

James (Chris) Christman, Pittsburg State University 

Matthew Cohen, Director, Policy Research and Analysis, Ohio Department of Education 

Garnet Lavan Dukes, Bureau Chief, Education Information and Accountability Services, Florida 

Department of Education 

Dori Nielson, Education Consultant, Missoula, Montana 

Catherine Sielke, Associate Professor, University of Georgia, School of Leadership and Lifelong 

Learning 

Steven D. Honegger, Task Force Support, Senior Research Analyst, American Institutes for 

Research 

Frank Johnson, NCES Project Leader, Statistician, National Center for Education Statistics, U.S. 

Department of Education 

Information Committee Members 

William Fowler, Jr., National Center for Education Statistics, U.S. Department of Education 

Nancy Heiligman, Oregon Department of Education 

Denny G. Bolton, Business Administrator, Association of School Business Officials 

Randy Finden, Project Manager, Governmental Accounting Standards Board 

Lawrence R. MacDonald, Chief Elementary and Secondary Education Statistician, U.S. Bureau 

of the Census 

Steve Gauthier, Director, Technical Services Center, Government Finance Officers Association 

Glenn McClain, Business Services Director, CFDTF Choice 

Lynnisse Roehrich-Partrick, Assistant Commissioner, Tennessee State Department of Education 

Catherine C. Sielke, University of Georgia, American Educational Finance Association 

Linda Champion, Task Force Chair, Administrator, Office of Funding and Financial Reporting, 

Florida Department of Education 

James (Chris) Christman, Pittsburg State University 

Garnet Lavan Dukes, Bureau Chief, Education Information and Accountability Services, Florida 

Department of Education 

Frank Johnson, Statistician, National Center for Education Statistics, U.S. Department of 

Education 
vii 

Extended Reviewing Committee Members 

Nicholas C.A. Alito, CPA, Executive Director for Business Services, Eau Claire Area School 

District, Wisconsin (representing Association of School Business Officials) 

Bruce Hunter, American Association of School Administrators 

Anthony Roelle, National Education Association 

Howard Nelson, American Federation of Teachers 

Jack Reagan, American Institute of Certified Public Accountants 

Other organizations that were part of the Extended Reviewing Committee but which did not 

designate a specific representative include: 

National School Board Association 

Council of Chief State School Officers 
viii 
ix 

CONTENTS 

Preface.......................................................................................................................................................................iii

Acknowledgments......................................................................................................................................................v

Chapter 1: Introduction...........................................................................................................................................1

Major Changes and Chapter Highlights ........................................................................................................2

Chapter 2: Uses of Information...............................................................................................................................5

Financial Reporting and a System of Education Information........................................................................5

Useful Information ........................................................................................................................................8

Users of School Finance Information............................................................................................................9

Summary .....................................................................................................................................................11

Chapter 3: Budgeting.............................................................................................................................................13

Objectives of Budgeting..............................................................................................................................14

Budgetary Approaches ................................................................................................................................15

Operating Budget Responsibilities and Guidelines ..................................................................................... 19

Financial Forecasting and Planning...............................................................................................................21 

Planning for Annual and Multiyear Construction and Grant Programs.......................................................23

Budgets for Multiyear Construction Projects ..............................................................................................24

Preparation of Construction Project Budgets and Related Financing..........................................................24

Chapter 4: Governmental Accounting..................................................................................................................27

Governmental GAAP Hierarchy .................................................................................................................28

Measurement Focus and Basis of Accounting.............................................................................................29

Fund Structure.............................................................................................................................................30

Internal Control Structure............................................................................................................................32

Other Issues Affecting Educational Entities................................................................................................38

Chapter 5: Financial Reporting ............................................................................................................................41

Financial Statement Elements .....................................................................................................................42

Liabilities ....................................................................................................................................................56

Fund Balance/Net Assets.............................................................................................................................62

Revenues .....................................................................................................................................................65

Fund Financial Statements—Reporting of Expenditures/Expenses.............................................................69

Governmentwide Statements—Reporting of Expenses...............................................................................72

Financial Statements....................................................................................................................................73

Conclusion ..................................................................................................................................................89

Chapter 6: Account Classification Descriptions ..................................................................................................91

Fund Classifications ....................................................................................................................................93

Program.......................................................................................................................................................95

Balance Sheets/Statement of Net Assets ..................................................................................................103

Classifications of Revenue and Other Financing Sources .........................................................................111

Classifications of Expenditures .................................................................................................................121

Function................................................................................................................................................121

Object ...................................................................................................................................................133

Project/Reporting ......................................................................................................................................146

Level of Instruction ...................................................................................................................................146

Operational Unit........................................................................................................................................148

Subject Matter...........................................................................................................................................148

Job Classification ......................................................................................................................................148
x 

Chapter 7: Cost Accounting and Reporting for Educational Programs .........................................................149

The Expanding Need for Greater Detail in Financial Reporting ...............................................................149

Concepts of Program Cost Reporting by School.......................................................................................149

Analysis of Reported Costs .......................................................................................................................151

The Program Cost Structure......................................................................................................................151

Elements of Program Costs .......................................................................................................................152

Use of Existing Data Systems by Cost Reporting Software ......................................................................154

Direct Costs...............................................................................................................................................154

Indirect Costs ............................................................................................................................................154

Summary of the Annual Process................................................................................................................155

Analysis of Cost Reports...........................................................................................................................156

Conclusion ................................................................................................................................................156

Chapter 8: Activity Fund Guidelines..................................................................................................................157

Types of Activity Funds and Proper Classification...................................................................................157

Controls for Establishing and Maintaining Activity Funds .......................................................................159

Summary ...................................................................................................................................................165

References ..............................................................................................................................................................167

Appendix A: Summary of Account Code Changes............................................................................................ 169

Appendix B: Other Resources............................................................................................................................. 179

Appendix C: Glossary of Acronyms.................................................................................................................... 185

Appendix D: Illustrative Financial Statements for an Independent School District ...................................... 189

Appendix E: Criteria for Distinguishing Equipment From Supply Items...................................................... 205
xi 

LIST OF TABLES 

Table 1. Measurement Focus and Basis of Accounting for Financial Statements ....................................................30

Table 2. Financial Statement Components and User Groups ...................................................................................41

Table 3. Net Asset Classification..............................................................................................................................65

Table 4. Classification of Revenues .........................................................................................................................69

Table 5. GASB Statement 34—Contents of a Comprehensive Annual Financial Report.........................................74

Table 6. Statement of Net Assets vs. Combined Balance Sheet ...............................................................................80

Table 7. Distinguishing Between Governmental Activities and Business-Type Activities.......................................80

Table 8. Determining Liquidity of Assets and Liabilities.........................................................................................81

Table 9. Measurement Focus and Basis of Accounting for Financial Statements ....................................................82

Table 10. Important Distinctions Between MD&A and Letter of Transmittal .........................................................87

Table 11. Program Cost Report Format..................................................................................................................153

Table 12. Cost Analysis Example...........................................................................................................................156

Table 13. Examples of Authorized Student Activity Funds....................................................................................158

Table 14. Examples of Authorized District Activity Funds....................................................................................158

LIST OF FIGURES 

Figure 1. Lines of Authority for Student Activity Funds .......................................................................................... 160 

Figure 2. Criteria for Distinguishing Equipment From Supply Items....................................................................... 210 
xii 
1 

CHAPTER 1: INTRODUCTION

This 2003 revision of the National Center for Education Statistics (NCES) handbook, Financial 

Accounting for State and Local School Systems, reflects the many changes that have taken place 

since its initial publication in 1980 and modest update in 1990. It is anticipated that this 

handbook will receive periodic updates to ensure that contemporary issues are regularly 

incorporated into the accounting guidance for schools. The online version of this handbook will 

be updated as revisions are approved. 

This handbook represents a national set of standards and guidance for school system accounting 

through January 2003, incorporating guidance from Governmental Accounting Standards Board 

(GASB) statements through 39. Its purpose is to help ensure that education fiscal data are 

reported comprehensively and uniformly. To be accountable for public funds and to assist 

educational decisionmakers, all school financial reports need to contain the same types of 

financial statements for the same categories and types of funds and account groups. This revised 

and restructured guidance focuses on 

• defining account classifications that provide meaningful financial management 

information for its users; 

• complying with generally accepted accounting principles (GAAP), established by the 

GASB; 

• recognizing the changes that have taken place in technology, safety, and security; and 

• supporting federal reporting requirements. 

This revision was prepared with guidance from a national panel of experts representing national 

accounting firms, accounting board officials, and practitioners. A working Task Force of the 

National Forum on Education Statistics (NFES) included national, state, and local education 

accounting practitioners. The members of the review panel and the Task Force are listed on the 

opening pages of this handbook. 

The statutes and regulations regarding school accounting differ from state to state. Those 

differences may require states, school districts, and schools to adapt the guidance that appears in 

this handbook. However, consistent practices and terminology are critical to accountability for 

government funds. The accounting methods must be capable of producing financial reports that 

conform with GAAP and with the legal requirements of each state, if the two differ. 
2 

MAJOR CHANGES AND CHAPTER HIGHLIGHTS

The updates to this handbook incorporate many changes in content and structure. The remainder 

of the introduction highlights the chapters and the major changes in each chapter. 

Chapter 2 Uses of Information 

This discussion of the role of the fiscal data system in education management and policymaking 

includes the advantages of alignment with a comprehensive information system and an overview 

of the users of education information. 

Chapter 3 Budgeting 

Formerly, this topic was covered briefly in the “Uses of Account Classification System” chapter. 

This new chapter expands the discussions of budgeting methods and budget preparation, 

including capital budgeting. It addresses budgetary approaches and responsibilities, financial 

forecasting, and special budgeting practices such as multiyear construction projects. 

Chapter 4 Governmental Accounting

Formerly, this topic was also covered briefly in the “Uses of Account Classification System” 

chapter. This new chapter expands the topic of accounting systems and requirements for 

governmental accounting to provide information on internal control practices as well as new 

information on fund-level reporting and governmentwide reporting required by GASB Statement 

34. 

Chapter 5 Financial Reporting 

This new chapter in this handbook outlines the major financial statement elements and reporting 

requirements for governments. It significantly expands the guidance provided in the former 

“Account Classifications” chapter and describes each major balance sheet element. Where 

detailed guidance is provided by a particular GASB requirement, this chapter offers additional 

guidance. Financial statements for governments are highlighted, particularly in regard to changes 

owing to GASB Statement 34. 

Chapter 6 Account Classification Descriptions 

This new chapter consolidates the former “Account Classifications” and “Account Classification 

Description” chapters into a single account code chapter. Several changes and additions have 

been made, including revising obsolete language and expanding the codes for technology, safety, 

and security. A detailed list of account code changes is presented in appendix A. 

Chapter 7 Cost Accounting and Reporting for Educational Programs 

Equity and accountability issues have expanded the need for cost information at school and 

program levels. This chapter presents cost accounting methods and examples of the use of 

existing data systems to provide this information. 
3 

Chapter 8 Activity Fund Guidelines 

This new chapter addresses the complex issues surrounding student activity funds. It defines and 

distinguishes activity funds and provides proper classification. The chapter gives initial guidance 

for improving controls and for accounting for and reporting these funds. The requirements of the 

most recent GASB standards are also addressed. 
4 
5 

CHAPTER 2: USES OF INFORMATION

This chapter defines the need for and advantages of a fiscal data system that is appropriately 

aligned with a comprehensive education information system. In addition, it describes useful 

applications of education information, in particular, information that can influence education 

management and policy decisionmaking. Finally, the chapter identifies frequent users of 

education information who can benefit from the kinds of data envisioned by this handbook. 

FINANCIAL REPORTING AND A SYSTEM OF EDUCATION INFORMATION

Successful management of any large organization requires extensive and effective use of 

information. Information about education ranges from staff and student information to extensive 

financial information, which may also encompass school facility and program-level information. 

A comprehensive education information system can provide many benefits for education 

management: 

• Using data to influence decisionmaking. Good decisions are based on inquiry and 

analysis. Information technologies are available to make good decisionmaking 

possible for school-based administrators, as well as for external users of education 

information, such as legislators and patrons. 

• Using data to target specific areas for improvement. Timely and accurate data can 

help decisionmakers at all levels focus on improvement strategies. 

• Using disaggregated data to examine wide-ranging goals. Disaggregating data for 

analysis helps identify programmatic and fiscal inequities and determine what the 

baselines for improvement should be. 

• Using data in rapid program evaluation. To have an impact, program evaluation 

must be timely as well as complete. When program and other data are compiled and 

linked in an accurate and well-designed retrieval system, the goals of schooling can be 

more effectively and efficiently met. 

• Using data for budgetary control. Greater control and more informed 

decisionmaking are possible when all costs of school operations are available. 

• Using data to examine relationships between cost and effectiveness. Information 

technologies allow graphic representations of these data. 

• Using data to improve administrative time management and mandated reporting.

When core databases are built around the NCES Common Core of Data Elements, 

improvements in administrative efficiency and time management can be significant. 

The benefits of an extensive data system are especially apparent in the relationship between 

programs and costs. For appropriate, cost-effective, and timely decisions about students and 

schools and programs to be made, accurate and complete information must be widely available to 
6 

the many users of education data, such as the research community, school administrators, school 

boards, policymakers, school improvement teams, creditors and potential creditors, and the 

general public. The advantage of a comprehensive education information system to school 

finance is that it allows a complete, accurate, and timely display of the distribution and use of 

resources, with direct educational program implications. At a time when significant questions are 

being raised about spending on schools, a more comprehensive data system has real value in its 

potential to uncover the answers to these questions. Because education finance has such an 

important impact on society, it is a central focus of policy debate and decisionmaking at all levels 

of government—processes that are greatly hampered without a uniform data system. 

The value of a comprehensive data system is further evident in examining the distribution of 

resources (fiscal equity) and the use of those resources (productivity)—two of the major foci of 

school financial accounting information. Since 1971 (Serrano v. Priest 487 P.2d 1241 [1971]), 

legal challenges to state school finance systems have required states to revise funding formulas to 

better ensure equitable funding among school districts, and those same challenges have forced 

states to attempt to define what constitutes an adequate education. The assumption that a more 

equal distribution of resources will lead to increased equity in the uses of finite resources 

continues to be debated—in the courts, in the media, and among the general public.1

School financial accounting systems are an important source of information for measuring the 

costs of an equitable and adequate education in each school district. Recently, the emphasis on 

accountability has turned the spotlight on achievement in schools, with adequacy and equity 

(expressed only in terms of resource inputs) no longer sufficient to satisfy legislators, taxpayers, 

parents, or members of the general public. The focus of much school financial information today 

is how much it costs to achieve a minimum acceptable level of educational performance for all 

students. The clear trend is to understand fiscal and programmatic data in terms of the particular 

need of specific groups, such as students with disabilities or limited proficiency in English or 

those who come from economically disadvantaged families (Reschovsky and Imazeki 1997, 

144). 

Although conceptually it is convenient to maintain a separate financial system with well-defined 

elements, most of the operational and policy questions that need to be answered in the modern 

era rely heavily on data that cross into other areas as well. To be useful, definitions of school 

financial data must align with other aspects of the education information system. An aligned and 

comprehensive education information system should provide the data necessary to answer 

questions about key areas of school finance: 

 

1

For an overview of court cases regarding education reforms, see Overview and Inventory of State Education Reforms: 1990 to 

2000 (NCES 2003–020). 
7 

• How much is spent on education? 

• Who pays for education? 

• How are funds allocated? 

• How are educational resources linked to student achievement? 

The ability to answer these questions demands a system of education information that comprises 

much more than just the finance component; in essence, an education information system should

also include at least the student records system, the staff records system, the property system, the 

curriculum or program component, and the community services component. Instructional 

management systems can be (and frequently are) linked to student records systems to provide 

policymakers with greater analytical capability so that they can make the appropriate, costeffective, and timely decisions expected in today’s complex and competitive policy arena. 

The data system needed to support these complex conditions argues for the need to benchmark 

data across time and argues for “best practices.” These strenuous conditions place a premium on 

the standardization of information systems. Standardization is critical if the operations of one 

school district or state department of education are to be compared over time or with those of 

another, or if data from the operations of many school districts or state departments of education 

are to be consolidated for comparison. 

One emerging policy issue that poses a major challenge for education information is the 

escalating debate on how to increase school productivity. Inadequate data have made it difficult 

to assess and evaluate educational productivity. Detailed financial information is necessary 

before an understanding of educational productivity can begin. But financial data that are not 

presented in the context of other important information will paint a very incomplete picture. An 

education information system with school finance data linked to student outcome indicators is 

essential to an understanding of how resources are being used and how they can be used more 

effectively. 

At the federal level, for example, the National Center for Education Statistics (NCES) collects 

public education finance data through the National Public Education Financial Survey (NPEFS) 

and the School District Financial Survey (F-33). The NCES is the primary federal entity for 

collecting, analyzing, and reporting data related to education in the United States and other 

nations. The NCES is a branch of the Institute of Education Sciences in the U.S. Department of 

Education and is authorized to collect data by Congress through the Education Sciences Reform 

Act of 2002 (P.L. 107-279), 20 U.S.C. 9543. 

The Common Core of Data (CCD) Survey started collecting data beginning with the school year 

1981–82 survey collection. The NPEFS survey is part of the CCD. The F-33 survey is a U.S. 

Bureau of the Census survey, part of the Annual Survey of Local Governments. The NCES 

supports this collection effort to ensure that all districts are included in each year’s collection. 

The data items on both surveys are based on the account codes presented in this handbook, and 
8 

each item on the survey forms is defined through reference to the account codes presented here in 

chapter 6.2

The data collected from the NPEFS collection are used in the formula for allocating Title I and 

other federal grants to school districts, as specified under the authority of section 153(a)(1)(I) of 

the Education Sciences Reform Act of 2002 (P.L. 107-279), 20 U.S.C. 9543, which authorizes 

the NCES to gather data on the financing of education. The NCES collects data annually from 

state education agencies through NPEFS. In addition to finance data, the NPEFS survey also 

collects average daily attendance data. Average daily attendance is the denominator in the 

average state per pupil expenditure figures required by the Title I legislation. Because these data 

are used in the allocation formula, established deadlines, definitions, and editing procedures are 

rigidly enforced. Survey deadlines are announced in the Federal Register, and the definitions are 

based on the account codes and definitions presented in this handbook. 

USEFUL INFORMATION

The potential value of both extensive and useful data about education is enormous due to the 

magnitude of expenditures for education at the state and local levels. As measured in total 

funding or in number of people employed, education is the largest policy arena for state and local 

governments with growing interest at the federal level. 

The demand of policymakers at the local, state and federal levels for quality and useful data and 

outcome measures to evaluate fiscal and programmatic policy changes drives the need for data 

systems to become more and more comprehensive. Data are constantly used to make decisions 

with immediate impacts and long-term implications. For example, financial reports of state and 

local education agencies are used to compare actual financial results with legally adopted 

budgets; assess financial conditions and results of operations; assist in determining compliance 

with finance-related laws, rules, and regulations; assist in evaluating efficiency and effectiveness 

of processes; and plan for the future. The GASB defines financial reporting as the means of 

communicating financial information to users (GASB Concepts Statement 1, Objectives of 

Financial Reporting, paragraph 32). For this communication to be effective, financial information 

must have the following basic characteristics (Governmental Accounting Standards Concepts 

Statement 1, Objectives of Financial Reporting, paragraphs 63 through 68): 

• Understandability. Information should be simple but not oversimplified. 

Explanations and interpretations should be included where necessary. 

• Reliability. Information should be verifiable and free from bias. It should be 

comprehensive; nothing should be omitted that is necessary to represent events and 

conditions, nor should anything be included that would cause the information to be 

misleading. 

 

2

Additional information regarding these surveys including instructions for completing them can be found on the 

Internet sites listed in appendix B. 
9 

• Relevance. There must be a close logical relationship between the information 

provided and the purpose for which it is needed. 

• Timeliness. Information should be available soon enough after the reported events to 

affect decisions. 

• Consistency. Once a principle or a method is adopted, it should be used for all similar 

events and conditions. If a principle or a method has changed, the nature and reason 

for the change as well as the effect of the change should be explained. 

• Comparability. Procedures and practices should remain the same across time and 

reports. If differences occur, they should be due to substantive differences in the 

events and conditions reported rather than arbitrarily implemented practices or 

procedures for data collection. 

These standards imply wide uses of data and require carefully designed policies to help guide 

decisions about who uses a system of information (and how, why, and when they do so). Some 

policies are codified in law or regulations; others are official statements, executive orders, or 

agency directives. Government information policies are guided by two complementary, but 

sometimes conflicting, purposes: stewardship and usefulness. Stewardship encourages policies 

that regard government information as a public good, such as personal privacy and records 

management, whereas usefulness promotes policies that encourage the dissemination of 

information to improve the quality and lower the cost of government services, such as public 

access and interagency information sharing. Stewardship policies address confidentiality, 

information security, data quality and integrity, and long-term preservation of information. 

Usefulness policies address interagency and intergovernmental sharing, public access, publicprivate information partnerships, and reuse of information. 

These issues are made more complex by the rapid technological advancements that further 

challenge traditional policies and generate new questions. The Internet, in particular, has fueled 

policy debates that were unimagined a decade ago, raising questions of appropriateness, privacy, 

and ethics. Local, state, and federal laws require that certain types of information (e.g., individual 

student and staff records) be protected from unauthorized release. Education information systems 

continually struggle to achieve balance so that under the best circumstances, the struggle results 

in higher quality data that are more useful for the general public and policymakers. 

USERS OF SCHOOL FINANCE INFORMATION

For data collection to be purposeful and useful, it must fit the needs of its users. Users of school 

finance information may be divided into three major groups: those to whom the school districts 

and state departments of education are primarily accountable (the general public); those who 

directly represent the general public (legislative and oversight bodies); and those who lend or 

participate in the lending process (investors and creditors) (GASB Statement #1, paragraphs 35 

through 37). These groups have different needs for these data, although all are concerned with 

the design and implementation of an entire educational system that is both programmatically and 

fiscally effective and efficient. 
10 

The General Public 

One of government’s primary goals is to promote the general welfare of all its citizens. Public 

education, although not mandated by the U.S. Constitution, is a response to the need for an 

educated public to participate in a representative democracy. One objective of the general public 

is therefore to purchase the maximum amount of service with a minimum amount of taxes. 

Therefore, to help fulfill a government’s duty to be accountable, school financial reporting 

should help the general public determine whether its objective is being met. 

As noted previously, defining and measuring school productivity and student achievement are

exceedingly difficult. Mathematics and reading scores have long borne the burden of determining 

“productivity,” but the reauthorization of the Elementary and Secondary Education Act of 2002 

reflected a much broader range of concerns, including school readiness, graduation rates, and 

increased participation in higher education by minorities, as well as a host of social concerns, 

such as the cessation of drug use and violence. Although these aims cannot be perfectly 

quantified, a comprehensive education information system can help respond to the need of the 

general public to know what is actually going on in schools and how their tax dollars are being 

spent. 

Although few in the general public will reflect at great length beyond the superficial aspects of 

the relationship between dollars spent and results produced, one subset of the general public 

consists of individuals whose scope and depth of interest in education data go far beyond that of 

the typical citizen. Education researchers (whether in government, universities, or schools) are at 

the “high demand” end of the information-use spectrum. Their collective need for data is great 

and accordingly must be weighed against the cost of providing the data. At the same time, it is 

difficult to know ahead of time where the real payoffs will emerge. Fortunately, a well-designed 

and comprehensive information system that is populated by data that are valid, reliable, and 

timely and that provides reasonable access in a format that researchers can use will serve the 

specialized constituency and the broader public as research is translated into public policy. 

Legislative and Oversight Bodies 

At the local level, school administrators rely on financial information to evaluate past 

performance, to aid in day-to-day decisionmaking, and to inform the general public of the 

schools’ resourcefulness and stewardship. Employees, particularly program coordinators but also 

classroom teachers and noninstructional employees, use financial information to plan budgets 

and to request additional funding or to redirect existing funds. Additionally, financial information 

embedded in a comprehensive education information system allows administrators to assess the

areas of greatest need and plan how best to allocate education resources in the future. 

In addition, school boards and other local governing units have both a responsibility for and an 

intense interest in the operation of the school system. The local school board is responsible for 

establishing policies and for overseeing and appraising the administrator as he or she carries out 

these policies. The school board thus needs timely warning of situations that may need corrective 

action. The board also needs information as a basis for judging both the efficiency of the 

administration and its effectiveness in complying with policies and restrictions. Some of this 
11 

information can be provided by general purpose financial reports, but comparable information 

about other school districts is needed as a basis for informed comparison. 

Other units of government also rely on information for policy directions. On average the U.S. 

Congress and state legislatures provide about half of the resources for the operation of school 

districts in the nation today, with the percentage even higher in some states. Accordingly, they 

need information on the schools’ operation as a basis for deciding whether to commit additional 

resources, and how much. Additionally, governance units need cumulative information (in 

comparable format) about the operations of groups of school districts in order to formulate 

funding policies. To this end, legislators are interested in such data-based matters as 

• the ways in which local, state, and federal programs interact within specific 

operational areas; 

• profiles of school finance structures as they relate to tax resources; and 

• the impact (and cost) of programs resulting from specific legislative initiatives. 

From this overview, it is clear that the defining characteristics of a useful accounting and data 

reporting system of interest to state and federal legislators are comparability of data, ability to 

achieve a variety of classifications, and timeliness in reporting. 

Investors and Creditors 

Finally, in governmental accounting, investors and creditors are considered to include 

bondholders and prospective bondholders, commercial banks, vendors, and others who have 

extended credit, or who are considering extending credit, to the school district. Typically, these 

data users are interested in the financial position of the school organization, its operating 

performance, and its likely sources and uses of funds as indications of the probability that the 

bonds or loans will be repaid in full and on time. 

Investors and creditors need information about available and possible future financial resources, 

actual and contingent liabilities, and the overall debt position of an institution to evaluate the 

institution’s ability to continue to provide resources for long-term debt service. They review 

operating results and cash flow data (both currently and over time) to look for trends that may 

indicate strengths and weaknesses in the ability of the government to repay debt. Trend analysis 

helps investors and creditors project future revenues and predict possible allocation of those 

revenues. 

SUMMARY

All three user summary groups are interested in comparing original or modified budgets with 

actual results. For example, to assess accountability, citizens and legislative and oversight bodies 

want to ensure that resources were used in accordance with appropriations. Spending in excess of 

budgeted amounts may indicate poor financial management, weak budgetary practices, or 

uncontrollable and unforeseen circumstances. Underspending may indicate effective financial 
12 

management by providing the necessary quality and quantity of services within the available 

appropriations. Situations in which actual expenditures are less than budgeted may also represent 

a decision by management to accumulate a surplus of resources for future use. A comprehensive 

education information system gives a broad view of budgetary concerns, rather than simply a 

“bottom line.” As a result, this revision of the Financial Accounting for State and Local School 

Systems Handbook is intended to assist in the creation and improvement of a comprehensive data 

system that results in better academic and fiscal performance in America’s schools. 
13 

CHAPTER 3: BUDGETING

A major element of financial data activity rests in the act of budgeting. Budgeting is the process 

of allocating finite resources to the prioritized needs of an organization. In most cases, for a 

governmental entity, the budget represents the legal authority to spend money. Adoption of a 

budget in the public sector implies that a set of decisions has been made by the governing board 

and administrators that culminates in matching a government’s resources with the entity’s needs. 

As such, the budget is a product of the planning process. 

The budget also provides an important tool for the control and evaluation of sources and the uses 

of resources. Using the accounting system to enact the will of the governing body, administrators 

are able to execute and control activities that have been authorized by the budget and to evaluate 

financial performance on the basis of comparisons between budgeted and actual operations. 

Thus, the budget is implicitly linked to financial accountability and relates directly to the 

financial reporting objectives established by the GASB. 

The planning and control functions inherent to any organization, including schools, underscore 

the importance of sound budgeting practices for the following reasons: 

• The type, quantity, and quality of goods and services provided by governments often 

are not subject to the market forces of supply and demand. Thus, enacting and 

adhering to the budget establishes restrictions in the absence of a competitive market. 

• These goods and services provided by governments are generally considered critical 

to the public interest and welfare. 

• The scope and diversity of operations in an organization make comprehensive 

financial planning essential for good decisionmaking. 

• The financial planning process is critical to the expression of citizen preferences and 

is the avenue for reaching consensus among citizens, members of the governing 

board, and staff on the future direction of the governmental unit’s operations. 

The link between financial planning and budget preparation gives the budget document a unique 

role in governmental organizations. Budgets in the public arena are often considered the 

definitive policy document because an adopted budget represents the financial plan used by a 

government to achieve its goals and objectives. When a unit of government legally adopts a 

financial plan, the budget has secured the approval of the majority of the governing board and 

reflects 

• public choices about which goods and services the unit of government will or will not 

provide, 

• the prioritization of activities in which the unit of government will be involved, 
14 

• the relative influence of various participants and interest groups in the budget 

development process, and 

• the governmental unit’s plan for acquiring and using its resources. 

In an educational environment, budgeting is an invaluable tool for both planning and evaluation. 

Budgeting provides a vehicle for translating educational goals and programs into financial 

resource plans—that is, developing an instructional plan to meet student performance goals 

should be directly linked to determining budgetary allocations. The link between instructional 

goals and financial planning is critical to effective budgeting and enhances the evaluation of 

budgetary and educational accountability. 

OBJECTIVES OF BUDGETING

Performance evaluation allows citizens and taxpayers to hold policymakers and administrators in 

governmental organizations accountable for their actions. Because accountability to citizens 

often is stated explicitly in state laws and state constitutions, it is a cornerstone of budgeting and 

financial reporting. GASB recognizes the importance of accountability with the following 

objectives in GASB Concepts Statement 1, Objectives of Financial Reporting, paragraph 77. 

• Financial reporting should provide information to determine whether current-year 

revenues were sufficient to pay for current-year services. 

• Financial reporting should demonstrate whether resources were obtained and used in 

accordance with the entity’s legally adopted budget. It should also demonstrate 

compliance with other finance-related legal or contractual requirements. 

• Financial reporting should provide information to assist users in assessing the service 

efforts, costs, and accomplishments of the governmental entity. 

Meeting these objectives requires budget preparation that is based on several concepts 

recognizing accountability. Accountability is often established by incorporating these objectives 

into legal mandates that require state and local public sector budgets to 

• be balanced so that current revenues are sufficient to pay for current services; 

• be prepared in accordance with all applicable federal, state, and local laws; and 

• provide a basis for the evaluation of a government’s service efforts, costs, and 

accomplishments. 

Although some form of a balanced budget requirement is generally necessary to ensure long-term 

fiscal health in any organization, variations such as the use of fund balance reserves to pay for 

current services may be appropriate over a short period. Generally, however, all departures from 
15 

this fundamental objective must be in accordance with applicable state and local laws and 

policies. 

Given the importance of demonstrating compliance with the approved budget, the financial 

reporting system must control the use of financial resources and ensure that budgetary 

appropriations and allocations are not exceeded. To demonstrate compliance, accounting systems 

are usually operated on the same basis of accounting used to prepare the approved budget. Thus, 

the actual financial information captured by the accounting system is in a form comparable to the 

approved budget. Through budgetary integration, the financial accounting system becomes the 

primary tool to prove financial accountability. 

Finally, the budget is evaluated for its effectiveness in attaining the organization’s stated goals 

and objectives. Evaluation typically involves an examination of how funds were expended, the 

outcomes that resulted from the expenditure of funds, and the degree to which these outcomes 

achieved the stated objectives. This phase is fundamental in developing the subsequent year’s 

budgetary allocations. In effect, budget preparation not only is an annual exercise to determine 

the allocation of funds, but also is part of a continuous cycle of planning and evaluation to 

achieve the stated goals and objectives of the organization. 

BUDGETARY APPROACHES

Over the past 30 years, governmental entities in the United States have used a variety of budget 

approaches and formats. The development of more advanced budget philosophies reflects growth 

in both the scope and the complexity of governmental operations and the simultaneous need for 

systems that are capable of translating the variety of policy decisions into financial plans. For 

more information on budgetary approaches, The National Advisory Council on State and Local 

Budgeting provides additional guidelines. Various budgeting models continue to be commonly 

used and fall predominantly into categories of (1) line-item, or “traditional,” budgeting; (2) 

performance budgeting; (3) program and planning (“programming”) budgeting (PPB); (4) zerobased budgeting (ZBB); and (5) site-based budgeting. In addition, many governments use a 

variety of hybridized versions to address the specific needs of the organization. Although these 

approaches are considered distinct in terms of the underlying preparation process, actual formats 

of the prepared budgets may be quite similar; for example, the format of a site-based budget may 

be quite similar to the format of a line-item budget. Each of the five basic approaches has relative 

advantages and limitations. 

Line-Item Budgeting 

Line-item budgeting is still the most widely used approach in many organizations, including 

schools, because of its simplicity and its control orientation. It is referred to as the “historical” 

approach because administrators and chief executives often base their expenditure requests on 

historical expenditure and revenue data. One important aspect of line-item budgeting is that it 

offers flexibility in the amount of control established over the use of resources, depending on the 

level of expenditure detail (e.g., fund, function, object) incorporated into the document. 
16 

The line-item budget approach has several advantages that account for its wide use. It offers 

simplicity and ease of preparation. It is a familiar approach to those involved in the budget 

development process. This method budgets by organizational unit and object and is consistent 

with the lines of authority and responsibility in organizational units. As a result, this approach 

enhances organizational control and allows the accumulation of expenditure data at each 

functional level. Finally, line-item budgeting allows the accumulation of expenditure data by 

organizational unit for use in trend or historical analysis. 

Although this approach offers substantial advantages, critics have identified several shortcomings 

that may make it inappropriate for certain organizational environments. The most severe 

criticism is that it presents little useful information to decisionmakers on the functions and 

activities of organizational units. Since this budget presents proposed expenditure amounts only 

by category, the justifications for such expenditures are not explicit and are often unintuitive. In 

addition, it may invite micro-management by administrators and governing boards as they 

attempt to manage operations with little or no performance information. However, to overcome 

its limitations, the line-item budget can be augmented with supplemental program and 

performance information. 

Performance Budgeting 

A different focus is seen in performance budgeting models. In a strict performance budgeting 

environment, budgeted expenditures are based on a standard cost of inputs multiplied by the 

number of units of an activity to be provided in that time period. The total budget for an 

organization is the sum of all the standard unit costs multiplied by the units expected to be 

provided. Although this strict approach may be useful for certain types of operations, many 

organizations require a more flexible performance approach. For example, expenditures may be 

based simply on the activities or levels of service to be provided and a comparison of budgeted 

and historical expenditure levels. 

The performance approach is generally considered superior to the line-item approach because it 

provides more useful information for legislative consideration and for evaluation by 

administrators. Further, performance budgeting includes narrative descriptions of each program 

or activity—that is, it organizes the budget into quantitative estimates of costs and 

accomplishments and focuses on measuring and evaluating outcomes. Finally, the performance 

approach eases legislative budget revisions because program activities and levels of service may 

be budgeted on the basis of standard cost inputs. 

However, performance budgeting has limitations owing to the lack of reliable standard cost 

information inherent in governmental organizations. Further, the performance approach does not 

necessarily evaluate the appropriateness of program activities in relation to reaching an 

organization’s goals or the quality of services or outputs produced. Consequently, the 

performance approach has become most useful for activities that are routine in nature and 

discretely measurable (such as vehicle maintenance and accounts payable processing)—activities 

that make up only a relatively modest part of the total educational enterprise. But in sum, 

performance budgeting may offer considerable enhancement to the line-item budget when 

appropriately applied. 
17 

Program and Planning (Programming) Budgeting (PPB) 

Program budgeting refers to a variety of different budgeting systems that base expenditures 

primarily on programs of work and secondarily on objects. It is considered a transitional form 

between traditional line-item and performance approaches, and it may be called modified 

program budgeting. In contrast to other approaches, a full program budget bases expenditures 

solely on programs of work regardless of objects or organizational units. As these two variations 

attest, program budgeting is flexible enough to be applied in a variety of ways, depending on 

organizational needs and administrative capabilities. 

Program budgeting differs from approaches previously discussed because it is much less controland evaluation-oriented. Budget requests and reports are summarized in terms of a few broad 

programs rather than in the great detail of line-item expenditures or organizational units. PPB 

systems place a great deal of emphasis on identifying the fundamental objectives of a 

governmental entity and on relating all program expenditures to these activities. This conceptual 

framework includes the practices of explicitly projecting long-term costs of programs and the 

evaluation of different program alternatives that may be used to reach long-term goals and 

objectives. The focus on long-range planning is the major advantage of this approach, and 

advocates believe that organizations are more likely to reach their stated goals and objectives if 

this approach is used. 

However, several limitations exist in the actual implementation of this approach, including 

changes in long-term goals, lack of consensus regarding the fundamental objectives of the 

organization, lack of adequate program and cost data, and the difficulty of administering 

programs that involve several organizational units. Yet despite its limitations, program budgeting 

is often used as a planning device while budget allocations continue to be made in terms of 

objects and organizational units—a process that has been adopted in many schools throughout 

the nation. As with performance budgeting, PPB information may be used to supplement and 

support traditional budgets in order to increase their informational value. 

Zero-Based Budgeting 

The basic tenet of zero-based budgeting (ZBB) is that program activities and services must be 

justified annually during the budget development process. The budget is prepared by dividing all 

of a government’s operations into decision units at relatively low levels of the organization. 

Individual decision units are then aggregated into decision packages on the basis of program 

activities, program goals, organizational units, and so forth. Costs of goods or services are 

attached to each decision package on the basis of the level of production or service to be 

provided to produce defined outputs or outcomes. Decision units are then ranked by their 

importance in reaching organizational goals and objectives. Therefore, when the proposed budget 

is presented, it contains a series of budget decisions that are tied to the attainment of the entity’s 

goals and objectives. 

The central thrust of ZBB is the elimination of outdated efforts and expenditures and the 

concentration of resources where they are most effective. This is achieved through an annual 

review of all program activities and expenditures, which results in improved information for 
18 

allocation decisions. However, proper development requires a great deal of staff time, planning, 

and paperwork. 

Experience with the implementation of this approach indicates that a comprehensive review of 

ZBB decision packages for some program activities may be necessary only periodically. 

Additionally, a minimum level of service for certain programs may be legislated regardless of the 

results of the review process. As a result, ZBB has had only modest application in schools, 

although the review of program activities makes ZBB particularly useful when overall spending 

must be reduced. 

Site-Based Budgeting 

Site-based budgeting is widely considered the most practical for budgeting within the school 

district environment, by providing greater control and reporting of school-level data. This 

budgetary approach (which may be used in combination with any of the four discussed above) 

emphasizes the decentralization of budgetary decisionmaking. Site-based budgeting places local 

managers and other staff at the center of the budget preparation process, making them 

responsible for both the preparation and the maintenance of the budget. 

Site-based budgeting is popular in many school settings. Within a school system, site-based 

budgeting generally involves granting increased budgetary authority to the school. Resources are 

allocated to the site, with budget authority for programs and services granted to the school’s 

principal and staff. Campuses are normally allocated a certain level of resources that they have 

the authority to allocate to educational and support services. These budgetary allocations are 

meant to cover those areas over which campus decisionmakers have control. For example, 

schools that have authority over staffing decisions may be allocated funds for staff costs using the 

site-based budgeting approach. In contrast, school districts that make staffing decisions centrally 

may not allocate funds to the individual school site for staff costs. 

The main advantage of site-based budgeting is that those who best understand the needs of a 

particular organization are empowered to make resource allocation decisions. This 

decentralization of budgetary authority may also increase local accountability. Another potential 

advantage of site-based budgeting is the increased level of participation of the public and staff in 

budget development. Many site-based budgeting systems create committees composed of staff 

and community members to determine budgetary allocations. These committees give members a 

voice from the inception of the budget process, rather than merely when the budget is presented 

for public review and approval. 

Although site-based budgeting may provide substantial benefits, it also has limitations. First, 

organizations with limited resources may not be capable of granting a meaningful level of sitebased budgetary authority. Even if an organization does have discretionary resources, it may be 

difficult to determine the areas of the budget for which local decisionmakers should be held 

accountable. Finally, site-based budgeting may be burdensome to some local managers, may 

increase conflict between staff or departments, or may limit the organization’s ability to ensure 

quality and sufficiency in the services it provides. These problems can be avoided somewhat 
19 

through the careful design of site-based budgeting guidelines and through training for new budget 

stakeholders. 

Outcome-Focused Budgeting 

Consistent with the evaluation objective, government budgeting is becoming increasingly 

outcome-focused. Fiscal austerity, coupled with intense competition for governmental resources, 

has precipitated an effort to ensure more effective use of resources at all levels of government. 

Outcome-focused budgeting is the practice of linking the allocation of resources to the 

production of outcomes. The objective is to allocate government’s resources to those service 

providers or programs that use them most effectively. 

Outcome-focused budgeting is closely linked to the planning process in governments. For a 

government entity to focus on outcomes, goals and objectives must be identified and tied to 

budget allocations for the achievement of those objectives. This premise argues that missiondriven (synonymous with outcome-focused) governments are superior to those that are ruledriven because they are more efficient, are more effective in producing desired results, are more 

innovative, are more flexible, and have higher employee morale (Osborne and Gaebler 1993). In 

the context of increased governmental scrutiny of governmental costs, including schools, this 

model may receive more emphasis in the future. 

OPERATING BUDGET RESPONSIBILITIES AND GUIDELINES

The development of annual budgets is part of a continuing planning process. The advent of sitebased decisionmaking in some states has increased the integration of planning and budgeting at 

the school level; however, state laws generally allow considerable district autonomy in budget 

preparation. The organizational structure of a district, including the size and complexity of its 

administration and the degree of centralization, will affect the budgetary approach, the budget 

development process, and the final budget document. Beyond the requirements for federal and 

state programs, the budget preparation process and related responsibilities will largely be 

determined by the local school board and superintendent. 

The following chapter contains information related to the significant aspects, phases, and outputs 

of the school district budgeting process. Although it is not meant to establish standards or 

requirements for districts, the chapter may be useful in the development of sound budgeting 

procedures. Given the diversity of budgetary and financial reporting found in the individual 

states, the process described here may be customized to conform to particular local and state 

requirements. Additionally, the following discussion is typical of districts that use a site-based 

budgeting approach. 

Roles and Responsibilities 

The local school board and the superintendent should establish a meticulous budget preparation 

process and guidelines. Thus, the delegation of budget responsibilities among administrators 

(districtwide) and schools (site-based) should be deliberately designed to require consensus at the 

highest levels of management. Because individuals may serve in a variety of roles in the budget 

development process, the division of duties may differ among districts. It is important, however, 
20 

to clearly define the staff assignments and parameters if the budget development process is to 

operate efficiently. With the advent of site-based decisionmaking, individuals lacking previous 

budget experience need clear direction in order to provide effective input. 

Preparation of Budget Guidelines 

Budget preparation guidelines typically are prepared by the assistant superintendent for business 

and finance or by an employee with similar responsibilities, such as a chief business official or a 

budget administrator, with direction from the school board, the superintendent, and other district 

and school administrators. A presentation with subsequent board approval of the budget process, 

guidelines, and calendar may be legally required or may be a locally imposed procedure. 

However, as a minimum the guidelines should contain the following elements: 

• A budget transmittal letter from the superintendent, which provides the overall 

context for budget development at the school level 

• A budget overview, which explains the budgeting philosophy and approach, outlines 

the budget development process, and refers to major assumptions and changes in the 

budgetary process from the previous year 

• Fiscal limitations to be observed, such as maintenance of service levels, specific 

percentage increases or decreases in resource allocations, and personnel hiring 

guidance 

• A budget calendar of critical dates for budget completion, submission, and review 

• Instructions concerning expenditure items to be budgeted at the school level and the 

detail required for submission 

• A copy of standard budget preparation worksheets, submission forms, and diskettes 

• A list of the account codes necessary for preparing the budget 

Many of these elements may be combined into a budgetary overview included in the budgeting 

guidelines. In addition to these elements, the preparation guidelines may also contain the 

following: 

• Guidelines for estimating standard school resource allocations, which are determined 

by the budgetary approach used by the district and the availability of resources 

• Guidelines for estimating the costs of specific expenditure categories, such as salaries 

and benefits, supplies, or fixed charges 

• Instructions for submitting school budgets to the district office, including the number 

of copies, due dates, and personnel to contact for assistance 
21 

Preparation of the Budget Calendar 

The budget calendar provides critical dates for the preparation, submission and review of school 

budgets. It is prepared during the planning process by the district budget office. A variety of 

simple techniques may be used to build the calendar, beginning with the previous year’s calendar 

and modifying it for the current year. Problems that occurred in the prior year’s budget cycle 

should be identified for changes to the current year’s calendar. Additionally, changes in the 

budget development process should be incorporated into the current year’s calendar. If the 

process has been substantially altered, creating an entirely new calendar may be necessary. The 

following steps may be used to prepare a new budget calendar: 

• Determine the necessary level of detail. If several calendars are used with varying 

levels of detail, they should be summarized in a master calendar to ensure that all 

activities and dates are consistent and compatible. 

• Identify all activities that must be included in the calendar and arrange them 

chronologically. 

• Assign completion dates to each activity. Although some districts may assign only 

completion dates, others may also assign suggested or mandatory start dates for 

certain activities to ensure their timely completion. 

FINANCIAL FORECASTING AND PLANNING

Financial forecasting is the practice of projecting the quantitative impact of trends and changes in 

an operating environment on future operations. Therefore, it is an integral part of all ongoing 

planning efforts. Financial forecasting is important for several reasons: 

• Forecasting facilitates planning efforts by quantifying the future costs/benefits of 

strategic decisions. Thus, budgetary priorities may be evaluated on the basis of their 

long-term impacts. 

• Forecasting clarifies trends, needs, and issues that must be addressed and evaluated in 

the preparation of budgets. For example, enrollment forecasting may reveal growing 

student populations and focus attention on the need for increased resource allocations 

for staff, facilities, or both. 

• Forecasting enhances decisionmaking at all levels of administration. Forecasts 

provide valuable insight into future issues, which allows administrators to be 

proactive. It creates the framework for anticipatory management. 

Although financial forecasting should be a continuing process, it is most important as a 

component of budget development. Forecasts of projected enrollments, property tax base and 

revenues, costs associated with salary adjustments, and so on, are important elements in setting 

baseline budgetary guidelines and creating the basis for the assumptions used to prepare budgets. 

Additionally, forecasting provides fiscal impact analysis that may be integrated into the budget 
22 

development process. Thus, current budgetary decisions may be evaluated for their long-term 

results. 

When used before forecasts are prepared, several action steps may increase the reliability of the 

forecasts: 

• Clarify the intended purpose of the forecast. The prospective audience may require a 

certain set of data and related assumptions. 

• Match the time frame with the purpose of the forecast. Time frames for forecasts 

will vary according to the purpose (i.e., type) of forecast being prepared. 

• Ensure the accuracy of basic data. Original source data should be used rather than 

extrapolated or summarized versions. Sources should be documented and verified if 

questions concerning data validity arise. 

• Specify the underlying assumptions. Assumptions should be explicit in the forecasts 

with proper documentation based on actual data. 

• Be consistent in calculations. Spreadsheet programs are recommended for preparing 

forecasts to ensure the accuracy and consistency of calculations. 

• Examine data critically. A scan of the data may reveal anomalies or errors that may 

adversely affect forecasts. Further, a comparison of initial values and forecasted 

values should be completed to ensure the reasonableness of forecasted values. 

• Recognize that forecasting requires insight and intuition. Some variables or 

forecasting assumptions will always be a best guess. However, experience provides a 

basis for this type of estimation (Miller and McClure). 

A variety of financial and related forecasts are necessary to the preparation of a comprehensive 

budget. These include, but are not limited to, 

• student enrollment projections, 

• revenue and expenditure projections, 

• cash flow projections, 

• assessed property value projections, and 

• debt service cost projections. 

Cash Forecasts 

The cash forecast is critical to ensuring that a fiscal crisis, such as failure to meet financial 

obligations, will not result from a cash shortage. An accurate forecast indicates potential cash 
23 

shortages and thereby provides an opportunity for preemptive corrective actions. It also benefits 

the investment program by allowing the extension of maturities of investments. Longer 

investment maturities typically result in higher interest earnings. Projections of operating cash 

needs should be developed for the fiscal year on a monthly or biweekly basis, depending on the 

payroll cycle, and should consider the timing of federal and state aid payments, local property tax 

levies and collections, lunchroom sales, sales taxes, and interest earnings and disbursements. 

This type of cash flow analysis will reveal the short-term borrowing necessary to address 

anticipated shortages. The associated cost of short-term borrowing should be included as a 

budgeted expenditure in the fiscal period in which the interest is scheduled for payment. 

Cash forecasting is also necessary for activities or programs that extend to multiple operating 

periods, such as major facilities construction and acquisition. Capital projects are typically 

financed from proceeds of bonds, loans, certificates of participation, or other long-term debt 

instruments. Cash projections for the period of activity should incorporate funding proceeds and 

related capital expenditures based on contractual arrangements with regard for the timing of cash 

flows. 

Fund Balance Forecasts 

Fund balance forecasting for governmental funds results from the budget development process. 

Periodic monitoring of balances is provided through budgetary integration with the accounting 

system and is necessary to ensure compliance with statutory and contractual fund balance 

requirements. 

PLANNING FOR ANNUAL AND MULTIYEAR CONSTRUCTION AND GRANT PROGRAMS

The following steps are basic to the planning process for both annual and multiyear construction 

and grant programs. 

• Review the stated goals and objectives to determine that they are the basis for the 

entity’s activities and operations. Although normally developed during the strategic 

planning process, the goals and objectives should be periodically reviewed for 

appropriateness. 

• Conduct formal or informal needs assessments or both. Most strategic plans include 

one or more needs assessments. The criteria used are normally developed locally; 

however, some granting agencies may require the use of certain criteria. A 

methodology that provides objective measurement of the needs of the unit under 

review is necessary and should include financial and other forecasts in order to 

properly identify those needs. 

• Design programs to attain the goals and objectives on the basis of the results of the 

needs assessment(s). The assessment process should identify and prioritize needs. 

From the results of this process, program plans should be developed that meet the 

organization’s needs. Program planning should use an integrated approach to prevent 
24 

the duplication of efforts, ensure the efficient use of resources, and ensure that all 

identified needs are addressed. 

• Prepare program budgets to support the implementation plans. With a program plan in 

place, a budget can be developed. The traditional budgetary approach has been to 

appropriate only those monies necessary for the costs of the program or project in its 

first fiscal year. At year-end, the appropriation expires and monies must be reallocated 

for each subsequent year of the program or project. This approach is unnecessarily 

complex and may distract administrative and board focus from important budgetary 

issues. To avoid these problems, the development of multiyear program budgets, 

whether for capital or special programs, is recommended if state and local statutes 

permit multiyear budgeting. 

BUDGETS FOR MULTIYEAR CONSTRUCTION PROJECTS

The development of multiyear construction budgets has two fundamental stages. The first stage 

involves extensive planning to identify facilities needs. This may be accomplished through the 

process outlined in the previous chapter on financial forecasting and planning. A committee may 

be created specifically for capital planning or as part of a strategic planning effort. Identification 

of capital needs may also come from maintenance staff or from a contracted evaluation. The 

evaluations should identify the costs for a particular program, and from these inputs, a 

determination can be made regarding whether to pursue a construction project. Once this 

decision is made, the second stage involving budget development can begin. This process does 

not necessarily need to be incorporated into the annual budget process. 

PREPARATION OF CONSTRUCTION PROJECT BUDGETS AND RELATED FINANCING

Following the decision to initiate a capital acquisition program, funding mechanisms should be 

explored. This often involves some form of bonded indebtedness; however, building programs 

may be funded with accumulated operating funds. Alternatively, capital leases and installment 

payments may be used. In situations in which bond financing is used, the bond initiative must be 

reviewed and approved by the governing board before it is placed on the ballot. The size of the 

bond initiative for a particular program may be determined by estimates of aggregate costs 

generated during the planning process and may not include detailed project budgets until funding 

has been secured. However, depending on the local political environment, bond initiatives may 

require detailed cost estimates that specifically identify the projects to be funded from the 

proceeds before the bond issue can be placed on the ballot. 

Financial advisers and bond attorneys may be consulted on the size, applicable tax regulations, 

marketing, and selling of bond issues. Other considerations include tax rate limitations or debt 

ceilings that may affect the amount of bonded debt that can be undertaken. 

When funding has been secured, detailed project budgets should be developed. Individual 

budgets covering the life of each project are necessary for the proper monitoring of the related 

activity. Although cost estimates developed during the planning process may be used to 

determine the size of the bond initiative, actual project budgets must contain more detailed 
25 

information. Architects, contractors, and staff should be involved in budget preparation, and it 

will be necessary to identify factors such as shifts in student populations, additional facility or 

site requirements, and so on, which may cause significant differences between the actual project 

budget and the cost estimates developed during the planning process. Construction project 

budgets using a multiyear format should be reviewed periodically by administrators with regular 

reports provided to the board on the progress of each project. Bond attorneys and financial 

advisers also need to be informed periodically of the progress of projects using debt funds. 

In summary, the budgeting process is an integral part of the sound financial management of any 

organization. Adequately planning and managing the entity’s resources play important roles as 

the movement for greater accountability expands in importance. Sound budgeting techniques, 

such as site-based budgeting, are being emphasized as school district administrators and funding 

agencies require a heightened level of justification for annual expenditures and decentralized 

decisionmaking. Site-based budgeting gains its popularity among administrators for its unique 

ability to effectively target funding because campus management largely makes the resource 

allocation decisions. However, regardless of which budgeting technique is adopted, some 

benefits of preparing and managing a budget remain the same: greater control and accountability 

over financial resources as well as the demonstration that administrators are actively planning for 

future needs. 
26 
27 

CHAPTER 4: GOVERNMENTAL ACCOUNTING

Unlike most private sector organizations, governmental entities must be responsive to a number 

of different groups and organizations, including elected officials, other units of governments, 

investors, creditors, and citizens that are focused on monitoring their activities. All forms of 

monitoring include collecting and interpreting data, and this oversight function is often 

performed through information provided in governmental reports. Among the most important 

types of communication is the annual financial report, which presents the financial position, 

operating results, and cash flows for a particular accounting period. All governments, including 

school districts, develop their annual financial reports in accordance with principles established 

by standard-setting authorities to provide consistency and comparability for users. 

For governments to achieve the objective of accountability, financial information must be both 

relevant and reliable for reasonably informed users. Financial reports must satisfy numerous and 

diverse needs or objectives, including short-term financial position and liquidity, budgetary and 

legal compliance, and issues having a long-term focus such as capital budgeting and 

maintenance. Additionally, differences exist in the amount of detail that various users need. 

Following a decade of research and analysis, the GASB recently concluded that to meet the 

varied needs of a wide range of users, governmental reports must provide information regarding 

the public entity as a whole in addition to the traditional fund financial statements. Accordingly, 

in June 1999 GASB introduced a new financial reporting model in Statement 34, Basic Financial 

Statements—and Management’s Discussion and Analysis—for State and Local Governments. 

The new model integrates the traditional focus of governmental fund financial statements relating 

to fiscal accountability (and the modified accrual basis of accounting) with new forms of 

reporting (e.g., governmentwide financial statements). The two levels of financial reporting are 

intended to 

• provide more relevant information that will result in greater accountability by state 

and local governments and 

• enhance the understandability and usefulness of the annual financial reports to users 

of these reports to enable them to make more informed economic, social, and political 

decisions. 

This chapter provides an overview of governmental accounting and financial reporting, including 

the new requirements, as well as a discussion of current approaches used in compiling financial 

reports. In particular, the following elements are included: 

• Governmental GAAP Hierarchy 

• Measurement Focus and Basis of Accounting 

• Fund Structure 
28 

• Internal Control Structure 

• Other Issues Affecting Educational Entities 

It is important for governments to provide effective financial information to constituencies in a 

consistent and clear format. Specifically, the information provided by governments should 

contribute to accountability in the following areas: 

• Financial position and results of operations 

• Actual financial results compared with adopted budgets 

• Compliance with finance-related laws, rules and regulations 

• Efficiency and effectiveness of operations 

• Maintenance of governmental assets 

Consistency in financial reporting by governments is provided through accounting standards. 

GASB is the standard-setting authority of generally accepted accounting principles (GAAP) for 

state and local governments, including school districts. In cases for which no GASB 

pronouncement is applicable, other authoritative sources of guidance exist. The following chapter 

presents a hierarchy of GAAP in descending order of authoritative literature for governments. 

The hierarchy was established in Statement of Auditing Standards (SAS) 69, The Meaning of 

Presents Fairly in Conformity with Generally Accepted Accounting Principles in the Independent 

Auditor’s Report, effective March 15, 1992, and issued by the American Institute of Certified 

Public Accountants (AICPA). 

GOVERNMENTAL GAAP HIERARCHY

• Category (a) consists of GASB Statements and Interpretations and AICPA and 

Financial Accounting Standards Board (FASB) pronouncements that have been 

specifically made applicable to state and local governmental entities by GASB 

Statements or Interpretations (periodically incorporated in the Codification of 

Governmental Accounting and Financial Reporting Standards). 

• Category (b) consists of GASB Technical Bulletins and AICPA Industry Audit and 

Accounting Guides and Statements of Position that have been specifically made 

applicable to state and local governments by the AICPA and approved by the GASB. 

• Category (c) consists of AICPA Accounting Standards Executive Committee 

(AcSEC) Practice Bulletins that have been specifically made applicable to state and 

local governments by the AICPA and approved by the GASB. Also included are 

consensus positions of groups of accountants organized by the GASB that attempt to 

reach consensus on accounting issues applicable to statement and local governmental 
29 

entities. (GASB has not organized such a group as of the date this handbook was 

released.) 

• Category (d) includes GASB Implementation Guides published by GASB staff. 

Additionally, practices that are widely recognized and prevalent in state and local 

government are included in this category. 

• In the absence of a pronouncement covered by Rule 203 or another source of 

established accounting principles, other accounting literature, such as the following, 

may be considered, depending on its relevance to the circumstances: 

• GASB Concepts Statements 

• Pronouncements referred to in categories (a) through (d), SAS 69, paragraph 10, 

of the hierarchy for nongovernmental entities when not specifically made 

applicable to state and local governments: 

o FASB Concepts Statements 

o AICPA Issues Papers 

o Statements of the International Accounting Standards Committee 

o Pronouncements of other professional associations or regulatory agencies 

o Technical Information Service Inquiries and Replies included in AICPA 

Technical Practice Aids 

o Accounting textbooks, handbooks, and articles 

The appropriateness of other accounting literature depends on its relevance to particular 

circumstances, the specificity of the guidance, and the general recognition of the issuer or author 

as an authority. 

MEASUREMENT FOCUS AND BASIS OF ACCOUNTING

Traditionally, the majority of governmental financial information has been maintained and 

reported in the fund financial statements on the modified accrual basis of accounting or the 

accrual basis for business-type activities. The recently enacted GASB Statement 34 establishes 

additional reporting (the governmentwide statements) that represents a major shift in the focus 

and content of governmental financial statements. Collecting and reporting additional financial 

information required by the governmentwide statements add to the complexity of financial 

reporting activities and have significant implications for the traditional focus and basis of 

accounting used in governmental financial statements. 

The new governmentwide financial statements consist of a Statement of Net Assets and a 

Statement of Activities and are prepared using the economic resources measurement focus and 

the accrual basis of accounting. Thus, revenues are recognized in the accounting period in which 

they are earned and become measurable without regard to availability, and expenses are 

recognized in the period incurred, if measurable. 
30 

Governmental fund financial statements continue to be prepared using the current financial 

resources measurement focus and the modified accrual basis of accounting. Revenues are 

recognized in the accounting period in which they become available and measurable, and 

expenditures are recognized in the period in which the fund liability is incurred, if measurable, 

except for unmatured interest on general long-term debt, which should be recognized when due.3

Proprietary fund financial statements continue to be prepared using the economic resources 

measurement focus and the accrual basis of accounting. 

Like proprietary fund financial statements, fiduciary fund financial statements are prepared using 

the economic resources measurement focus and the accrual basis of accounting. Table 1 

summarizes the measurement focus and basis of accounting for each reporting element and type 

of fund. 

Table 1. Measurement Focus and Basis of Accounting for Financial Statements 

Financial Statements Measurement Focus Basis of Accounting 

Governmentwide Financial Statements Economic Resources Accrual 

Governmental Funds Financial Statements Current Financial Resources Modified Accrual 

Proprietary Funds Financial Statements Economic Resources Accrual 

Fiduciary Funds Financial Statements Economic Resources Accrual 

GASB Statement 20, as amended by Statement 34, allows a government the option of applying 

FASB Statements and Interpretations issued after November 30, 1989, except for those that 

conflict with or contradict GASB pronouncements, to enterprise funds and governmentwide 

financial statements. The election is made on a fund-by-fund basis; however, consistency in the 

application within a particular entity fund is encouraged. 

FUND STRUCTURE

For governmental entities to ensure the proper segregation of resources and to maintain proper 

accountability, an entity’s accounting system should be organized and operated on a fund basis. 

Each fund is a separate fiscal entity and is established to conduct specific activities and 

objectives in accordance with statutes, laws, regulations, and restrictions or for specific purposes. 

A fund is defined in GASB Codification Section 1300 as a fiscal and accounting entity with a 

self-balancing set of accounts recording cash and other financial resources, together with all 

related liabilities and residual equities or balances, and changes therein, which are segregated for 

the purpose of carrying on specific activities or attaining certain objectives in accordance with 

special regulations, restrictions, or limitations. 

Statement 34 modified the structure of two categories of funds used by local governmental 

entities. Specifically, the new reporting model introduces two new types of funds: 

• Permanent funds (in the governmental fund category). Permanent funds are required 

to be used to report resources that are legally restricted to the extent that only earnings 

 

3

Codification of Governmental Accounting and Financial Reporting Standards, section 1100.110. 
31 

(and not principal) may be used for purposes that support the reporting government 

programs. 

• Private-purpose trust funds (in the fiduciary fund category). Private-purpose trust 

funds should be used to report all other trust arrangements under which principal and 

income benefit individuals, private organizations, or other governments. 

The new model eliminates expendable and nonexpendable trust funds to focus fiduciary 

reporting on resources held for parties external to the reporting government: individuals, private 

organizations, and other governments. Fiduciary funds, therefore, cannot be used to support the 

government’s own programs. 

With the incorporation of these changes, three categories of funds remain: 

• Governmental funds are those through which most governmental functions are 

accounted for. The acquisition, use, and balances of the government’s expendable 

financial resources and the related current liabilities—except those accounted for in 

proprietary funds—are accounted for through governmental funds (general, special 

revenue, capital projects, debt service, and permanent funds). 

• Proprietary funds are used to account for a government’s ongoing organizations and 

activities that are similar to those often found in the private sector. All assets, 

liabilities, net assets, revenues, expenses, and transfers relating to the government’s 

business and quasi-business activities—in which changes in net assets or cost 

recovery are measured—are accounted for through proprietary funds (enterprise and 

internal service funds). Generally accepted accounting principles for proprietary funds 

are similar to those applicable to businesses in the private sector; the measurement 

focus is on determining operating income, financial position, and cash flows. 

• Fiduciary funds are used to account for assets held by a government in a trustee 

capacity or as an agent for individuals, private organizations, or other governmental 

units. The fiduciary fund category includes pension (and other employee benefit) trust 

funds, investment trust funds, private-purpose trust funds, and agency funds. 

Additional information on the governmental fund structure may be found in chapter 5. 

Major Funds 

The concept of major fund reporting is introduced and defined by GASB Statement 34 to 

simplify the presentation of fund information and to focus attention on the major activities of the 

entity. Rather than require each type of fund to be individually presented, Statement 34 requires 

the individual presentation of only major funds, with all other funds combined into a single 

column. This reduces the number of funds presented on the face of the financial statements and 

directs the focus on the significant funds of the reporting entity. Major fund reporting is applied 

only to governmental (i.e., general, special revenue, debt service, capital projects, and permanent 

funds) and enterprise funds. Internal service funds are excluded from the major fund reporting 

requirements. Fiduciary fund information is presented by type of fund rather than by major funds. 
32 

GASB defines major funds as those meeting the following criteria: 

• Total assets, liabilities, revenues, or expenditures/expenses of the individual 

governmental or enterprise fund are at least 10 percent of the corresponding total 

(assets, liabilities, and so forth) for all funds of that category (governmental funds) or 

type (enterprise funds). 

• Total assets, liabilities, revenues, or expenditures/expenses of the individual 

governmental fund or enterprise fund are at least 5 percent of the corresponding total 

for all governmental and enterprise funds combined. 

Both criteria must be met in the same element (assets, liabilities, etc.) for both the 10 percent and 

5 percent tests for a fund to be defined as major. However, Statement 34 permits a government to 

designate a particular fund that is of interest to users as a major fund and to individually present 

its information in the basic financial statements, even if it does not meet the criteria. However, a 

government does not have the option to NOT report a fund as major if it meets the criteria above. 

It should be noted that in applying the major fund criteria to enterprise funds, the reporting entity 

should consider both operating and nonoperating revenues and expenses, as well as gains, losses, 

capital contributions, additions to permanent endowments, and special items. When the major 

fund criteria are applied to governmental funds, revenues do not include other financing sources 

and expenditures do not include other financing uses. However, special items would be included. 

INTERNAL CONTROL STRUCTURE

An integral part of proper accounting procedures rests in issues of controls and begins with 

internal accountability structures. The AICPA’s Statement on Auditing Standards No. 78, 

Consideration of Internal Control in a Financial Statement Audit: An Amendment to Statement 

on Auditing Standards No. 55, (which incorporates the Committee of Sponsoring Organizations 

Report, Internal Control Framework) indicates that the elaborateness of the system of internal 

controls established within an organization is a matter of judgment on the part of management, 

with careful consideration for circumstances, such as the size of the organization and the number 

of personnel available, and the relationship between the costs and benefits of designing and 

implementing controls. In addition, the nature of internal control is such that even appropriate 

methods and systems will not guarantee that an entity’s objectives will be achieved. 

Internal control is a process—affected by an entity’s board of trustees, management, and other 

personnel—designed to provide reasonable assurance regarding the achievement of objectives in 

the following categories: 

• Reliability of financial reporting 

• Effectiveness and efficiency of operations 

• Compliance with applicable laws and regulations 
33 

As a result, internal control consists of five interrelated components: 

• Control Environment 

• Risk Assessment 

• Control Activities 

• Information and Communication 

• Monitoring 

Control Environment 

The control environment is established on the basis of the attitude of management toward 

internal control. It is the basis for all other elements of the system of internal control. AICPA 

Statement on Auditing Standards No. 78 states that the control environment “sets the tone of an 

organization, influencing the control consciousness of its people. It is the foundation for all other 

components of internal control, providing discipline and structure.” As such, a management 

philosophy that is dedicated to establishing a sound business process and operating controls 

would tend to create a stronger internal control environment than a philosophy that is unaware of 

or unconcerned with internal controls. 

The collective effort of various factors affects the control environment, including the following: 

• Integrity and ethical values 

• Commitment to competence 

• Governing board or audit committee participation 

• Management’s philosophy and operating style 

• Organizational structure 

• Assignment of authority and responsibility 

• Human resource policies and practices 

The substance of internal controls is more important than the form because of the risk that 

controls may not be effectively implemented or maintained. 

Risk Assessment 

Risk assessment is the entity’s identification and analysis of risks relevant to the achievement of 

its objectives and forms a basis for determining how the risks should be managed. Risks can arise 

or change as a result of the following factors: 
34 

• Changes in operating environment 

• New personnel 

• New or revamped information systems 

• Rapid growth 

• New technology 

• New grant programs, building projects, or other activities 

• Organizational restructuring 

• Accounting pronouncements 

• Federal regulations 

• Finance-related statutes 

Given the dynamic nature of governmental operating environments, the ability to anticipate and 

mitigate risks from these changes is a key factor in measuring the strength of internal controls. 

To the extent that the design of controls for new operations is an important aspect of planning 

efforts, an entity’s level of internal control may be enhanced. 

Control Activities 

Control activities are the policies and procedures that help ensure that management directives are 

carried out. Control activities can be divided into four categories: 

• Performance reviews 

• Information processing 

• Physical controls 

• Segregation of duties 

The application of controls, such as the segregation of duties, is affected to some degree by the 

size of the organization. In small entities, procedures will be less formal than in large entities. 

Additionally, certain types of control activities may not be relevant in small entities. 

Information and Communication 

Information and communication represent the identification, capture, and exchange of 

information in a form and time frame that enable people to carry out their responsibilities. 

Information systems encompass procedures and documents that do the following: 

• Identify and record all valid transactions 
35 

• Describe, on a timely basis, transactions in sufficient detail to permit proper 

classification for financial reporting 

• Measure the value of transactions in a manner that permits their proper recording in 

the financial statements 

• Permit the recording of transactions in the proper accounting period 

• Present properly the transactions and related disclosures in the financial statements 

Senior management should deliver a clear message to employees about their responsibilities and 

role in the internal control system. Employees should also have a means for communicating the 

effectiveness and efficiency of these systems to upper levels of management. 

Monitoring 

Monitoring is a process that assesses the quality of internal control performance over time. 

Ongoing monitoring activities include regular management and supervisory activities and other 

actions taken during the normal performance of management’s responsibilities. Further, periodic 

reviews of internal controls and related activities, performed with internal personnel or external 

resources, may be undertaken. The nature and timing of these evaluations depend on the 

effectiveness of ongoing activities and the risk that internal controls are not performing as 

intended by management. Deficiencies in the system of internal controls should be reported to 

the appropriate level of management. 

Management should clearly assign responsibility and delegate authority with sufficient care to 

ensure that 

• persons who perform control procedures are held accountable for their performance 

by those who monitor these activities, and 

• persons who monitor the performance of control procedures are held accountable by 

senior management, the governing board, or the audit committee. 

If accounting information is routinely used in making operating decisions, management is likely 

to establish effective controls and hold lower-level managers and employees accountable for 

performance. In addition, if management routinely uses accounting information in measuring 

progress and operating results, significant variances between planned and actual results are likely 

to be investigated. This review may detect the causes of the variances and affect the steps 

necessary to correct procedures that failed to prevent misstatements. 

Common Types of Control Procedures 

Numerous control procedures and monitoring activities are performed by individuals in 

governmental entities to accomplish particular objectives. All these controls, however, can be 

classified within one of the basic categories of controls described below. Detailed control 

procedures or monitoring activities may be included in each of these categories, depending on the 

size of the entity and the sophistication of the particular control environment. 
36 

Access Controls 

Certain controls prevent access to assets by unauthorized persons. Often these controls are 

physical in nature. For example, an organization might store inventories of supplies and 

commodities in locked storage areas, store currency in a vault or a locked drawer, and use alarm 

systems to restrict access by unauthorized individuals. If controls to prevent unauthorized access 

to assets are not effective, assets may be lost or stolen. If detective control procedures such as 

physical inventory counts are appropriately performed, shortages should be discovered in a 

timely manner. 

In some cases, unauthorized access to assets may be gained through vulnerable accounting 

records—especially records maintained on computer systems. For example, if warehouse 

requisitions can be issued through a computer terminal, access to inventory may be gained 

through the system. Controls over unauthorized access to assets through computer records may 

be physical (e.g., terminals are kept in a locked room) or logical (e.g., access to the computer 

program or data files may be obtained only with the proper password or other user-identification 

method). Monitoring the control procedures that address unauthorized access includes observing 

physical control procedures, reviewing established access privileges with the manager of 

information systems, or reviewing reports of attempted computer access violations. Internal 

auditors often perform such activities. 

Access controls, however, do not prevent individuals who have authorized access to assets from 

misappropriating them. Individuals who have authorized access to both assets and related 

accounting records may be in a position to conceal shortages of assets in the records. However, if 

duties are properly segregated, persons with access to assets will not have access to related 

accounting records, which may be altered to conceal shortages. 

Controls over authorized access to assets are important to an organization, not only to prevent 

thefts, but also to ensure that assets are committed only after proper consideration by individuals 

who are knowledgeable and experienced. Authorization and approval are types of controls 

designed to prevent invalid or inappropriate transactions from occurring. An example is a 

procedure designed to ensure that disbursements are made only when authorized orders for goods 

and services have been received. In many systems, access to computerized records (e.g., shipping 

requests) can result in improper access to assets; therefore, procedures must be designed to limit 

access to computerized records. 

Reconciliation and Comparison of Assets with Records 

Reconciling and comparing assets with accounting records establish a system of independent 

verification, either through preparing an independent control document used to reconcile 

accounting records and assets or by directly comparing accounting records with related assets. 

Examples of these procedures include the reconciliation of physical inventory to accounting 

records and the preparation of a bank reconciliation. 
37 

Analytical Reviews 

The purpose of analytical reviews is to evaluate summarized information by comparing it with 

expected results. Management personnel often perform analytical reviews to determine whether 

the entity is performing as planned. For example, a common analytical review procedure is the 

comparison of budgeted to actual performance, with investigation of any significant or material 

variances as determined by the analyst. Often, analytical reviews may be used to monitor other 

underlying control procedures. 

Authorization and Approval 

Authorization and approval procedures prevent invalid transactions from occurring. Thus, this 

type of control typically involves authorization or approval of transactions at specific dollar 

thresholds and manual (e.g., requiring signatures of authorized individuals) or automated (e.g., 

password protected) authorizations for computer transactions. The effectiveness of these 

procedures often depends on general computer controls over information security. 

Reviews of Output 

Reviews of output should be performed by district personnel who have the knowledge and 

experience to identify errors. Such reviews could be performed in both computer and manual 

systems. These reviews check the validity and accuracy of output by comparing it in detail with 

expected results. For example, a purchasing manager may compare recorded amounts or 

quantities purchased with separate records of purchase orders. 

Transactional Reviews 

Transactional reviews check the validity and accuracy of transaction processing by comparing it 

in detail with expected results. Reviews often use exception reports (usually computergenerated), which list items that failed to be processed because they did not meet specified 

criteria. For example, a computer-generated check may be rejected if it exceeds some dollar 

amount and requires a manual signature. Monitoring these types of control procedures involves 

reviews of results performed by management. 

General Computer Controls 

Computer systems frequently have common areas of control and related control procedures 

referred to as general computer controls. These controls directly or indirectly affect all systems 

that operate within a computer-processing environment. General computer controls include the 

usual elements of effective internal control, that is, an individual or group responsible for control 

procedures and monitoring activities. Managers of the information systems function usually 

monitor the performance of general computer controls. Monitoring activities include observation, 

exception reporting, reviews of work performed, reviews of program changes, oversight by 

information system steering committees, and the monitoring of user complaints. For example, the 

effectiveness of programmed control procedures such as edit checks and approvals depends on 

general computer controls that ensure that program changes are not made improperly. General 

computer controls include controls over computer operations; systems acquisition, development, 

and maintenance; information security; and information systems support, as detailed below: 
38 

• Computer operations. The computer operations staff is responsible for the day-to-day 

processing activities of the entity’s system. It ensures that jobs are scheduled and 

processed as planned, data are properly stored on the system or tapes, and reports are 

distributed in a timely and accurate fashion. 

• Systems acquisition, development, and maintenance. The systems acquisition, 

development, and maintenance staff is responsible for planning, acquiring or 

developing, testing, and implementing new application systems and changes to 

existing application systems. Such controls are usually important in larger processing 

environments where there is more development and maintenance activity. The 

systems are more complex and there is less reliance on purchased software. 

• Information security. The information security function is responsible for 

administering and maintaining an entity’s information security program, including 

both physical and logical security. The primary goal of such a program is to ensure 

that access to program data, online transactions, and other computing resources is 

restricted to authorized users. 

• Information systems support. Information systems support includes such functions as 

system software maintenance, database administration, communications and network 

management, end-user computing, and other groups with technical and administrative 

support responsibilities. 

Certain governmental entities may use external service organizations for executing and recording 

certain transactions, such as payroll processing. In such situations, the entity needs to ensure that 

the service organization has adequate controls over processing the transactions. 

In the final analysis, maintaining the internal control environment and related control procedures 

is an integral part of management’s responsibilities. In the context of governmental accounting 

and reporting, the control environment has a direct impact on an entity’s ability to collect and 

present accurate financial information. Thus, the internal control environment and related 

procedures are key areas of concern to an entity’s external auditor. 

OTHER ISSUES AFFECTING EDUCATIONAL ENTITIES

School districts are the most common special governmental units. In some states, school districts 

operate as a fiscally dependent part of another local governmental entity such as a city or county; 

in other states, school districts are legislatively independent with authority to levy taxes and set 

budgets. School districts may or may not have common boundaries with another political 

subdivision. Regardless of whether districts are component units of another financial reporting 

entity, are joint ventures of several reporting entities (such as consolidated educational agencies), 

or meet the definition in GASB Codification, Section 2100 as separate reporting entities, many 

school districts prepare separate financial statements to accomplish one or more of the following: 

• Support state or federal aid applications 
39 

• Report financial activities to parent, taxpayer, and citizen groups 

• Prepare a financial report for use in an official statement for bond issuance purposes 

Although school districts are a common type of government, they face a number of unique issues 

that make them distinct from states, cities, counties, or other local governmental entities. These 

issues often result in internal control and operational challenges that district management must 

address. The following chapter outlines a number of unique educational issues; however, this list 

is not exhaustive. 

• Attendance reporting. Most school districts receive state aid on the basis of average 

daily membership (ADM), average daily attendance (ADA), or a similar pupil count 

method. ADM and ADA data typically are determined at individual school sites and 

then reported to a central attendance unit. That unit prepares reports for state aid and, 

in many cases, for federal aid, such as impact aid. Incorrect attendance reporting can 

lead to the allocation of too much or too little aid. 

• Student activity funds. Most school districts have cash funds or bank accounts at 

individual schools under the control of school principals or club advisors. These funds 

may be excluded from the district’s normal accounting controls. These funds present a 

unique control challenge to school districts given their decentralized nature and the 

production of financial records and reports by non-accounting personnel. Additional 

guidance on these issues is given in chapter 8. 

• U.S. Department of Education requirements. Federal reporting requirements and 

others mandated by state-level education agencies are typically more detailed than the 

account code structures of cities and other local governments. Thus, district 

accounting systems must have the ability to account for transactions at a level of 

detail beyond that required by other governments. This issue is particularly complex 

for school district payroll systems, given the plurality of funding sources for district 

personnel and reporting requirements for personnel costs. 

• School lunch programs. Most school districts participate in the U.S. Department of 

Agriculture (USDA) free or reduced-price food programs. These programs require 

school districts to segregate food service programs from other programs. School 

districts that receive federal commodities during the year should recognize the fair 

value as revenue in the period when all eligibility requirements are met (typically, 

when the commodities are received). (Guide to Implementation of GASB Statement 

34 and Related Pronouncements Q&A, Q152) Because the federal agricultural 

commodity program involves purpose restrictions in the use of the resources, the 

value of inventory remaining on hand at fiscal year-end should be reflected as a 

reservation of fund balance/restriction of net assets. (Statement 33, paragraph 14) 

USDA-donated commodities may also pose accounting and reporting problems 

because of restrictive federal rules regulating the use of these commodities. 
40 

• Site-based management initiatives. Over the past decade, many states and school 

districts have implemented site-based management initiatives. These initiatives have 

been designed to delegate to individual schools greater levels of authority to 

determine the use of financial resources. As a result, local administrators may control 

and report on the use of financial resources, even though they may lack financial 

management skills. This issue creates a challenge to district management in 

controlling financial resources and ensuring that reported results are correct. 

• Educational accountability. Educational accountability has become a key policy 

issue at both state and national levels and has resulted in a number of recent reforms. 

Several educational accountability reforms have required school districts to collect 

and present school-level financial information. In addition, school-level financial 

information is often related to non-financial information (e.g., student achievement) 

in published reports and is used for comparison purposes. As a result, school districts 

must increasingly focus on ensuring that financial information reported by schools is 

accurate and consistent across the district. 

In conclusion, school districts, like other governmental entities, must annually compile financial 

data and report on their financial position. Accounting and reporting standards for this 

information are set forth by a number of oversight agencies, including GASB, FASB, and 

AICPA. A major change in reporting requirements for governments was recently established by 

GASB Statement 34. This accounting standard requires governmental agencies, including school 

districts, to increase their financial reporting to include governmentwide financial statements as 

well as the traditional fund reporting. Although this new reporting model does not change the 

basic internal control expectations for governments, GASB Statement 34 presents new financial 

reporting challenges for school districts. 
41 

CHAPTER 5: FINANCIAL REPORTING

All uses of data are based on accurate, timely, and relevant information. Financial reporting is the 

communication of information regarding a governmental unit’s accounting activities. Financial 

reporting encompasses a broad range of reporting activities including, but not limited to, 

presentation of the government’s annual financial statements, grant applications and related 

reports, financial information submitted to state and federal regulatory and granting agencies, 

budget to actual comparison reports, management reporting, and other financial reports for 

internal and external use. The variety of these financial reports is evidence of the wide demand 

for financial information from both internal and external users. As a result, the financial reporting 

systems and activities of governments must be capable of producing financial information in a 

variety of formats and levels of detail. 

Although the financial reporting activities of governmental entities, including schools, must 

fulfill a range of user needs, this chapter outlines the financial reporting requirements under 

Generally Accepted Accounting Principles (GAAP). Therefore, this chapter deals primarily with 

the preparation and presentation of the governmental annual financial statements and related 

GASB reporting standards. As discussed in the previous chapter, GASB Statement 34 has 

significantly modified the basic reporting requirements for governmental entities. The new 

reporting model requires the following financial statements and related information: 

• Management’s Discussion & Analysis (MD&A) as Required Supplementary 

Information (RSI) 

• Basic Financial Statements: 

o Governmentwide Financial Statements 

o Fund Financial Statements 

o Notes to Financial Statements 

• Required Supplementary Information Other Than MD&A 

The basic financial statements and the required supplementary information constitute the 

minimum requirements for external financial statements. GASB Statement 34 requires new types 

of financial reporting in response to the various needs of financial statement users. The financial 

statement components and targeted users are shown in table 2. 

Table 2. Financial Statement Components and User Groups 

Financial Statement Components Primary User Group 

Required Supplementary Information (including MD&A) Citizenry, Legislators and Oversight Bodies, Financial 

Community 

Governmentwide Financial Statements Citizenry and Legislators 

Fund Financial Statements Oversight Bodies, Legislators and Financial Community 
42 

The following sub-section outlines the major financial statement elements and identifies the 

major requirements for presenting a government’s annual financial statements. 

FINANCIAL STATEMENT ELEMENTS

Although the content, presentation, and basis of accounting may vary according to the reporting 

requirements of Statement 34, the basic elements of the financial statements remain the same. 

The major elements of the financial statements (i.e., assets, liabilities, fund balance/net assets, 

revenues, expenditures, and expenses) are discussed below, including the proper accounting 

treatments and disclosure requirements. However, the narrative does not exhaustively discuss all 

reporting requirements that school districts may face. School district personnel, therefore, should 

refer to the actual GASB statements or other definitive sources for detailed disclosure 

requirements and reporting formats. 

Assets 

Assets are defined as a probable future economic benefits obtained or controlled by a particular 

entity as a result of past transactions or events. The following typically represent the major asset 

categories: 

• Cash and Investments 

• Receivables 

• Prepaid Items 

• Inventory 

• Capital Assets 

Cash and Investments 

Cash and investments often represent a large portion of the assets on a government’s balance 

sheet. Because of the importance of these assets, proper management based on sound investment 

policies and strategies is vital. The investment of excess funds is often governed by statute. Many 

state governments have adopted legal frameworks that restrict the investment activities of local 

governments, including school districts. These restrictions often place limitations on the types of 

investments allowed, regulate procedures used to manage investments, and require governing 

bodies to institute certain review procedures. 

The following discussion about cash and investments does not illustrate all the possible 

investment scenarios that a local government might use. However, the following five general 

rules may protect a school district from problems related to investment decisions. 

• For public funds, the investment objectives have traditionally been safety of principal 

first, then liquidity, followed by yield. 
43 

• All investments should be made with consideration of the district’s cash requirements 

and cash flows. 

• The district must understand the investment instrument, the investment mechanics, 

and the associated risk of the investment. Knowing the factors and variables that 

affect the market value of each investment will help the district determine investment 

policies and strategies. 

• School district personnel should know with whom they are dealing before purchasing 

an investment. This means researching any financial institutions or brokers/dealers 

that the district uses. 

• Proper protection of investments includes acquiring legal ownership or custody of 

securities. It also includes ensuring that deposits have been properly insured and 

collateralized. 

Certain words in common usage have more limited definitions when they are used for accounting 

and financial reporting. Within the context of governmental accounting, the following definitions 

describe the specific content of accounts used by governmental entities: 

• Cash is considered to be the most liquid (readily available) asset owned by an entity 

and represents readily available cash held by the organization. 

• Cash equivalents are short-term, highly liquid investments (readily convertible to 

known amounts of cash) that are so near to maturity that they present an insignificant 

risk of changes in value resulting from changes in interest rates. Generally only 

investments with original maturities of three months or less qualify under this 

definition. Items commonly considered cash equivalents are treasury bills, 

commercial paper, short-term deposits in financial institutions, and money market 

funds. However, investments that qualify as cash equivalents are not all required to be 

treated as cash equivalents. Therefore, an entity should establish a policy concerning 

the classification of qualified investments as cash equivalents, which may be no more 

liberal than the authoritative definition except as discussed below under pooling of 

cash and investments. The policy must be disclosed in the notes to the financial 

statements. 

• Investments are defined as securities and similar assets acquired primarily to earn 

income or profit. A security is a transferable financial instrument that evidences 

ownership or creditor status. Securities that are often held by or pledged to school 

districts generally include U.S. Treasury bills, notes, and bonds; federal agency and 

instrumentality obligations; direct obligations of a state or its agencies; commercial 

paper; negotiable and non-negotiable certificates of deposit; fully collateralized 

repurchase agreements; and prime domestic bankers’ acceptances. 

The pooling of cash and investments provides several advantages, including better physical 

custody and control, enhanced investment opportunities, and ease of operations. It may also 
44 

simplify custody, collection, and disbursements. In certain instances, the pooling of cash and 

investments may be prohibited in contractual clauses such as bond indentures or through legal 

restrictions. If the school district pools cash for investment purposes, the resulting pooled cash 

and investments may qualify as a cash equivalent for participating funds, even though some of 

the pooled investments would not individually meet that definition. 

Financial Statement Presentation and Disclosure. The complexity and range of investment 

potential and the large amounts of cash and other assets present in most governmental units 

emphasize the need to carefully capture and present these data in usable form. Cash and 

investment balances are segregated into individual funds and, depending on contractual 

requirements, may be classified as restricted assets. If a fund overdraws its share of a pooled cash 

account, the overdraft should be reported as a liability of that fund. Fund overdrafts of this type 

should be reported as interfund payables and receivables. 

Disclosures for cash and investments normally include, in addition to the GASB Statement 3 

disclosures (see following chapter), the valuation basis of investments (e.g., investments are 

stated at fair value that approximates market). Changes in fair value are included as a component 

of investment income. 

The detailed disclosure requirements for cash and investments have been established in GASB 

Statement 3, Deposits with Financial Institutions, Investments (including Repurchase 

Agreements), and Reverse Repurchase Agreements (issued in April 1986); GASB Statement 28, 

Accounting and Financial Reporting for Securities Lending Transactions (issued in May 1995); 

and GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for 

External Investment Pools (issued March 1997). These GASB statements and the entity’s 

external auditor should both be consulted regarding disclosure requirements for cash and 

investments. 

Receivables 

Receivables usually arise as a result of revenue transactions. The following are the main sources 

of revenues for school districts that would result in outstanding receivables: 

• Property taxes 

• State and federal grants 

• Intergovernmental revenues (due from other governmental entities) 

• Interest income 

The accounting for revenues and related accounts receivable in governmental entities depends on 

the type of fund in which the revenue is recorded. 

Because governmental funds use the modified accrual basis of accounting, governmental fund 

revenues should be recognized in the accounting period in which they become susceptible to 

accrual, that is, when they become both measurable and available to finance expenditures of the 
45 

fiscal period. “Available” refers to the collectibility of the receivable within the current period or 

soon enough thereafter to be used to pay for liabilities of the current period. A general criterion 

for availability is 60 days, although a longer or shorter period may be used, except for property 

taxes in which the maximum period may not be more than 60 days. The availability period will 

be disclosed in the notes. Each entity should adopt a revenue accrual policy that implements the 

susceptibility to accrual criterion and applies it consistently. This policy should also be disclosed 

in the notes to the financial statements. 

Proprietary funds use the accrual basis of accounting to determine when revenues and related 

receivables should be recorded. Revenues are recognized when they are earned, that is, when the 

earnings process is complete and an exchange has taken place. 

GASB Statements 33, Accounting and Financial Reporting for Nonexchange Transactions, and 

36, Recipient Reporting for Certain Shared Nonexchange Revenues, may have an impact on a 

governmental entity’s reporting of revenues related to certain non-exchange transactions. Entities 

should consult the statements and their external auditors to determine the impact. 

Property Taxes Receivable. Property taxes are generally assessed to finance expenditures of a 

specific fiscal year. On the assessment date or levy date, the property taxes become a lien against 

the assessed property. Property taxes should be recorded in the governmental funds by using the 

modified accrual basis of accounting (recorded when they are both measurable and available). 

The amount of the property taxes receivable is based on the assessed value of the property, the 

current property tax rate, and an estimate of the uncollectible portion. When taxes are levied, the 

revenue and related receivable should be recognized, net of estimated uncollectible amounts. A 

receivable is usually recognized at the time an enforceable legal claim arises. The revenue is 

usually recognized in the first period in which the use of the revenues is permitted or required. 

If taxes that are levied to finance a subsequent fiscal period are collected in the current period, 

the amount collected should be recorded as deferred revenue. In the next fiscal year, a journal 

entry will be recorded to recognize the revenue amount that was collected in advance. 

In the fund financial statements, when property taxes are delinquent but expected to be collected, 

they should be reported as deferred revenues if it is estimated that the taxes will not be available 

to pay current obligations of the governmental fund. This situation indicates that the delinquent 

property taxes are not expected to be collected within 60 days of the close of the fiscal year, 

although a shorter availability period may be used. 

Due From State. This receivable represents amounts from state resources that exceed the 

amounts received during the fiscal year for which the school district has met all eligibility 

requirements. A district should also use the measurable and available criteria that are consistent 

with the modified accrual basis of accounting in the governmental funds to record revenues due 

from the state. Revenue due from the state for which all eligibility requirements were met during 

the fiscal year, and which is expected to be received within the availability period (e.g., 60 days) 

from the financial statement date, should be recorded as a receivable using this account. 
46 

Due From Federal Agencies. This account represents amounts for which all eligibility 

requirements have been met by a district under a federal financial assistance program that are 

expected to be available to finance current liabilities. Such revenues are usually accounted for in 

special revenue funds using the measurable and available criteria, as appropriate for a modified 

accrual-based fund. If this is an expenditure-driven grant, revenues may be recognized only to the 

extent that expenditures have been incurred. 

Due From Other Governments or Agencies. In some instances, districts become eligible for 

revenue from other local governments or agencies through grant programs or by providing 

services. The receivable earned from such revenue should be recorded only if it also meets the 

measurable and available criteria. Thus, when the revenue has been earned under the grant 

program or the services have been provided, the district should recognize the revenues and 

receivables for the amount earned. In addition, if the amount of an outstanding receivable at the 

end of a fiscal year is not expected to be collected within the availability period (e.g., 60 days) 

from the financial statement date, the district should record a deferred revenue for the 

outstanding amount. 

Accrued Interest Receivable. Accrued interest represents the amount of interest at the end of an 

accounting period on all cash accounts and investments held at that date. Accrued interest should 

be computed for all investments and cash accounts held by the government that generate interest 

earnings regardless of the expected payment date. 

Inventory 

Governmental accounting generally requires that amounts spent to purchase goods be recorded as 

an expenditure at the time of the purchase. An exception to this general rule is made for 

inventory. If the amount of inventory on hand at year-end is significant, the value of such 

inventory should be recorded as an asset. This is considered the “Purchase Method” whereupon 

fund balance is reserved for the amount of inventory. Inventory may also be recorded as an 

expenditure when it is consumed rather than when it is purchased. Under the “Consumption 

Method,” purchase transactions are first recorded in the inventory account. As inventory is 

actually used, an entry to recognize the expenditure is posted to the appropriate accounts. This 

method is required for the proprietary funds. 

It is not uncommon for school districts to have a relatively high level of inventory at the end of 

the fiscal year, since this often coincides with the start of a new school year. In addition to the 

balance sheet presentation, note disclosure regarding the method of accounting for inventory 

should be made. Districts often distribute inventoried supplies to schools prior to fiscal year-end 

to accommodate the beginning of the new academic school year. Such inventories may either be 

included in inventory at year-end or be expensed in the year of distribution. 

For the entity-wide statements, the consumption method must be used. If the purchase method is 

used in the governmental funds and the consumption method produces a different result, the 

difference should be included in the reconciliations of governmental funds to governmental 

activities. (Second Statement 34 Q & A, Q23) 
47 

Inventories in school districts generally represent goods that are insignificant individually, but are 

significant as a whole. These items may be described as follows: 

• Consumable goods that have a relatively short shelf life. Common examples are office 

supplies, paper, computer supplies, building and maintenance supplies, and science 

lab supplies. 

• Items that are expected to be used within a short time, including cafeteria foods such 

as commodities received from the United States Department of Agriculture (USDA). 

• Tangible personal property that is durable but does not meet the entity’s criteria for 

capitalization as an asset. Examples are textbooks, calculators, and physical education 

equipment. 

The accounting for inventory can be broken down into two general areas: 

• Monitoring and valuation of inventory 

• Accounting for transactions related to inventory 

For internal control purposes, these two functions should be performed by individuals (or 

departments, if the district is of sufficient size) that are organizationally independent. The results 

of the two processes should then be reconciled by personnel external to these functions. This 

segregation of duties will improve the internal controls over inventory and may mitigate the risks 

of theft or defalcation. 

Accounting for and Control of Inventory. Governmental entities have several options for 

physical counts of inventory. Independent auditors are required by generally accepted auditing 

procedures to conduct physical observations of inventories at least annually when such 

inventories are material to the district’s operations. The physical observations should be 

conducted as of the balance sheet date or as of a single date that is within a reasonable time 

before or after the balance sheet date. The independent auditor is usually present at the time of 

the inventory to assess the effectiveness of the inventory-taking procedures and to determine the 

reliance that the independent auditor can place on the entity’s representations relating to the 

physical condition and quantities of the inventory. The most common physical inventory count 

methods are 

• cycle counts, 

• full counts taken at fiscal year-end, and 

• full counts taken at times other than fiscal year-end. 

Accounting for Commodities. School districts that receive federal commodities during the year 

should recognize the fair value as revenue in the period when all eligibility requirements are met 

(typically, when the commodities are received). (Guide to Implementation of GASB Statement 
48 

34 and Related Pronouncements Q&A, Q152). Because the federal agricultural commodity 

program involves purpose restrictions in the use of the resources, the value of inventory 

remaining on hand at fiscal year-end should be reflected as a reservation of fund 

balance/restriction of net assets. (Statement 33, paragraph 14). 

However, there may be instances in which resources are transmitted before the eligibility 

requirements are met. These resources would be reflected by the recipient as deferred revenues. 

(Statement 33, paragraph 21). 

Pension Assets 

The advanced funding of pension plans is an intangible asset, which is recognized by an 

employer for contributions to a pension plan, which were greater than pension expense. This 

asset will be amortized against the pension costs of the employer when due. 

Capital Assets 

Governmental entities are responsible for accounting for, controlling, and reporting both current 

and capital assets. Capital assets have certain properties that distinguish them from other types of 

assets: 

• Tangible or intangible in nature 

• Long-lived (have a life longer than one year) 

• Of a significant value at the time of purchase or acquisition 

• Reasonably identified and controlled through a physical inventory system 

Capital assets may include the following: 

• Land and land improvements 

• Easements 

• Buildings and building improvements 

• Vehicles 

• Machinery and equipment 

• Technological assets such as computers and network equipment 

• Works of art and historical treasures (discussed separately below) 

• Infrastructure (discussed separately below) 

• Software 
49 

The emphasis in governmental accounting for capital assets is on control and accountability. 

Accordingly, a variety of data relating to an entity’s capital assets must be maintained to ensure 

control and accountability over them: 

• Quantity and types of assets 

• Location of assets 

• Life expectancy of assets 

Capital asset records are necessary to demonstrate accountability for the custody and 

maintenance of individual items and to assist in projecting future requirements. All capital 

transactions for the acquisition of capital assets should be controlled through a well-defined 

authorization procedure. If the budget does not authorize the purchase of specific items, approval 

power, subject to specific monetary limits, should be assigned to the chief administrator or to a 

person designated by the chief administrator. The entity should adopt policies to govern this 

situation even if it has not been an issue in the past. 

Basis of Capital Assets. Capital assets are included in the financial records at cost. In some 

situations, the purchase or acquisition documents may not be available for capital assets already 

on hand. If reliable historical records are not available, an estimate or appraisal of the original 

cost based on other information, such as price index levels at time of acquisition, may be used. 

The intent of such valuation is to record a fair value at the date of acquisition and not expend 

excessive resources in ascertaining exact costs. If capital assets are acquired by gift, then the fair 

value on the date received is the appropriate amount to include in the capital asset records. 

Capital assets may be acquired by several methods: 

• Purchase 

• Lease-purchase 

• Construction 

• Tax foreclosures 

• Gifts and contributions 

All capital assets acquired in some manner other than gift are recorded at the cost necessary to 

place the asset in service. Capital assets arising from gifts or donations are recorded at their 

estimated fair value at the time of receipt. 

Capital Asset Reporting. GASB Statement 34 establishes reporting requirements for general 

government capital assets. Previously, financial statement presentation for capital assets of the 

general government was limited to the general fixed asset account group in the combined balance 
50 

sheet. No depreciation was recognized on these assets. However, Statement 34 establishes the 

following new reporting requirements for capital assets: 

• Depreciable capital assets should be reported in the Statement of Net Assets (a 

governmentwide statement) at historical cost, net of accumulated depreciation. 

• The historical cost should include the ancillary charges necessary to place the asset 

into its intended location and condition for use, including freight and transportation 

charges, site preparation costs, and professional fees that directly relate to the 

acquisition of the asset. 

• Depreciable capital assets may be reported on the face of the Statement of Net Assets 

as a single item or by major class. Detailed information will be reported in the notes. 

• Significant nondepreciable capital assets that are inexhaustible, such as land, certain 

nondepreciable site improvements, and infrastructure assets reported using the 

modified approach should be reported separately from depreciable capital assets on 

the statement of net assets. GASB has defined an inexhaustible capital asset as one 

whose economic benefit or service is used up so slowly that its estimated useful life is 

extraordinarily long. Construction-in-progress should be included with 

nondepreciable capital assets in the Statement of Net Assets. 

• Accumulated depreciation may be reported on the face of the Statement of Net Assets, 

parenthetically or as a separate line item reducing capital assets. However, regardless 

of the statement presentation in the Statement of Net Assets, the notes to the financial 

statements should disclose balances and changes in accumulated depreciation for the 

period by major asset class, as well as information regarding depreciation methods 

used. 

Capitalization Thresholds, Estimated Useful Lives, and Depreciation Methods for Capital 

Assets 

Given the new requirements in Statement 34 to depreciate general capital assets, governments 

must establish a range of policies regarding capitalization thresholds for capital assets, estimates 

for useful lives, and depreciation methods. Statement 34 does not prescribe policies for any of 

these areas; however, note disclosure is required. Management is granted discretion to determine 

appropriate policies for control purposes in accordance with the laws and regulations under 

which the entity operates. Some states have established specific regulations surrounding capital 

assets; therefore, school districts should consult state sources in establishing new policies. 

Capitalization Thresholds. Capitalization threshold refers to the dollar value threshold at which 

purchases of assets will be capitalized in the financial records of the governmental entity rather 

than be recorded as an expenditure/expense at the time of purchase. Many assets having useful 

lives greater than one year do not have values that are material to the entity’s financial 

statements. Additionally, the costs of tagging, tracking, and accounting for numbers of 

immaterial items may be considered excessive by the entity. As a result, many local governments 

establish capitalization thresholds that exclude reporting these items as capital assets and instead 
51 

rely on systems other than the financial management system for tracking and control purposes 

(e.g., PC inventories, building equipment lists, maintenance systems). 

In determining an appropriate capitalization threshold, entities should consider the following 

factors: 

• Total value of all capital assets 

• Impact of the new/revised capitalization threshold on values reported in the statement 

of net assets 

• Value of any related debt (financial statement presentations may be misleading if 

significant assets acquired through debt are excluded by the capitalization threshold) 

• Costs associated with tracking and reporting assets 

• Applicable state or federal requirements (typically for grant funds) 

Several resources exist to guide governmental entities in making informed decisions related to 

asset capitalization thresholds, including industry guidelines for specific assets, state auditors’ 

and comptrollers’ guidelines for state agencies, and the implementation guide produced by the 

Association of School Business Officials International (ASBO). These resources are typically 

available via state web sites. 

Finally, local governmental entities should review applicable state and federal requirements 

related to asset capitalization in determining appropriate policies. For example, the federal 

government uses a dollar threshold of $5,000 for federal grant management purposes. This 

threshold may have an impact on an entity’s policies, particularly as it relates to capital assets 

that are acquired with federal grant funds. 

Estimated Useful Lives. The estimated useful life of an asset is the period (of months or years) 

that the asset will be used for the purpose for which it was purchased. In determining the 

estimated useful life of an asset, consideration must be given to the asset’s present condition and 

intended use, maintenance policy, and how long the asset is expected to meet service and 

technology standards. School districts may use general guidelines obtained from professional or 

industry organizations, information on comparable assets of other school districts/governments, 

and internal historical data. The determination of appropriate estimated useful lives is a 

management decision that is affected by a number of factors: 

• Experience with asset management 

• Plans for asset use 

• Property management practices 

• Asset maintenance practices 
52 

• Applicable federal or state regulations

Many sources of information on estimated useful lives are available to assist in establishing 

appropriate policies in this area. These sources include, but are not limited to, the following: 

• GASB Statement 34 implementation guides issued by state education agencies and 

other key state agencies, including state auditors and comptrollers. Many of these 

agencies have web sites that contain information about the useful lives of various 

asset classes in the state. Further, many of these web sites may be accessed through 

the GASB web site at http://www.GASB.org/. 

• Statement 34 Implementation Guide for schools issued by ASBO, International. This 

guide discusses capitalization policies and depreciation methods at length. 

A periodic reassessment of the estimated useful lives of capital assets may be appropriate. Any 

change in the useful life of a capital asset should be applied prospectively in accordance with 

Accounting Principles Board Opinion 20. 

Depreciation Methods. GASB Codification Section 1400.113 states that “depreciation expense 

should be measured by allocating the net cost of depreciable assets (historical cost less estimated 

salvage value) over their estimated useful lives in a systematic and rational manner.” Although 

GASB requires governmental entities to depreciate capital assets (other than nonexhaustible 

assets), the Statement does not prescribe the method. As a result, depreciation methods are a 

management decision that should be based on the resources necessary to determine the various 

calculations and the capabilities of asset management systems. In addition to composite or group 

methods, any established depreciation method may be used (e.g., straight-line, sum-of the-years’ 

digits, or double-declining balance). 

Depreciation may be calculated for individual assets or it may be determined for a 

• class of assets, 

• network of assets, or 

• subsystem of a network. 

The depreciation method can vary for different categories of assets. 

To simplify the calculations involved, the composite method may be used to calculate 

depreciation expense. It is applied to a group of similar assets or dissimilar assets in the same 

class, using the same depreciation rate, but not across classes of assets. The estimated life for the 

group may be based on the individual weighted average, the simple average of the useful lives of 

the assets in the group, or the weighted average or assessment of the life of the group as a whole. 

This method assumes no salvage value for assets; therefore, it simplifies the calculations and the 

recording of asset dispositions. 
53 

Works of Art and Historical Treasures. Works of art, historical treasures, and similar assets are 

a special class of capital assets that may require developing a specific capitalization and 

depreciation policy. These assets are defined as items held singly or in collections that meet all of 

the following conditions (Statement 34, paragraph 27): 

• Held for public exhibition, education, or research in furtherance of public service, 

rather than financial gain. 

• Protected, kept unencumbered, cared for, and preserved. 

• Subject to an organization policy that requires the proceeds from sales of collection 

items to be used to acquire other items for collections. 

Historical buildings, monuments, and fountains are capital assets that may qualify as works of 

art, historical treasures, or similar assets if they meet the requirements above. School districts that 

have collections meeting the criteria above may choose not to capitalize these collections of 

works of art or historical treasures. 

Depreciation is not required for those capitalized collections or individual items that are 

considered to be inexhaustible. Inexhaustible collections of individual works of art or historical 

treasures are those with extraordinarily long useful lives. Because of their cultural, aesthetic, or 

historical value, the holder of the asset applies efforts to protect and preserve the asset in a 

manner greater than that for similar assets without such cultural, aesthetic, or historical value. 

Technology Assets. Technology-related assets are a class of capital assets that may require 

special treatment and reporting by school districts based on local or state reporting and 

accountability requirements or policies. Although technology assets are not dissimilar from other 

capital assets such as vehicles or furniture and fixtures, the resources dedicated to the installation 

and ongoing support and use of technology by school districts have resulted in an increased level 

of interest by policymakers and citizens related to the use of resources dedicated to these 

purposes. Thus, many school districts have instituted special accounting and reporting practices 

associated with expenditures for technology-related assets. 

To facilitate the proper accounting and reporting of technology expenditures by school districts, 

chapter 6 (Account Classification Descriptions) of this handbook establishes a number of 

expenditure and asset reporting codes. As chapter 6 outlines, school districts should account for 

technology-related expenditures according to the following principles: 

• Expenditures related to the technology and media-related activities that support 

instruction (function code 2230) should be segregated from those associated with 

administrative technology (function code 2580). 

• Expenditures associated with purchased services to support technology should be 

distinguished from other types of purchased and professional services. Expenditure 

object codes 351 and 352 have been established for this purpose. 
54 

• Expenditures associated with the rental of computer and other technology equipment 

should be distinguished from other types of rentals. Expenditure object code 443 has 

been established for this purpose. 

• Communications expenditures should include all costs associated with voice, data, 

and video communications charges regardless of the media used (expenditure object 

code 530). 

• Technology supplies should be segregated from other types of supplies. Expenditure 

object code 650 has been established for this purpose. 

• Purchases of technology capital equipment should be specifically tracked for analysis 

purposes. Expenditure object codes 734 and 735 have been established for this 

purpose. 

Using these codes to account for and report on technology-related costs will allow school 

districts to 

• capture information on both instructional and administrative technology costs and 

• accumulate the total expenditures associated with technology for operating purposes 

(expenditure object codes 351, 352, 443, 530, and 650) and capital purchases 

(expenditure object codes 734 and 735). 

Although chapter 6 addresses many of the key issues related to tracking and reporting on 

technology-related costs, school districts will still need to establish capitalization and 

depreciation policies for technology assets. School districts should capitalize only those 

technology assets that meet their local policies in this area. Non-capital technology purchases 

should be treated as supplies for reporting purposes (use expenditure object code 650). 

Infrastructure Assets. Infrastructure assets are long-lived capital assets that are normally 

stationary in nature and that can be maintained for a significantly greater number of years than 

most capital assets. Infrastructure assets include 

• roads, 

• bridges, 

• drainage systems, 

• water and sewer systems, and 

• lighting systems. 
55 

Parking lots and related lighting systems may be defined by the entity as part of the associated 

building, rather than as infrastructure. Most school districts have no or an immaterial amount of 

infrastructure assets. 

Reporting Requirements. Infrastructure assets have several reporting requirements: 

• Governmental entities are required to capitalize and report major general 

infrastructure assets that were acquired in fiscal years ending after June 30, 1980, or 

that received major renovations, restorations, or improvements during that period. 

Governments with revenues of less than $10 million (annually) are not required to 

report their infrastructure assets retroactively. 

• Prospective reporting of general infrastructure assets is required for all entities at the 

date of implementation of Statement 34. 

• Statement 34 defines major general infrastructure at the network or subsystem level 

on the basis of the following criteria: 

o The cost or estimated cost of the subsystem is expected to be at least 5 

percent of the total cost of all general capital assets reported in the first fiscal 

year ending after June 15, 1999. 

or 

o The cost or estimated cost of the network is expected to be at least 10 percent 

of the total cost of all general capital assets reported in the first fiscal year 

ending after June 15, 1999. 

• The reporting of nonmajor networks is encouraged, but not required. 

In determining when to implement the retroactive infrastructure asset reporting requirements, 

governmental entities should consider the value of any related debt that will be reflected in the 

Statement of Net Assets. 

Valuation of Infrastructure Assets. Infrastructure assets are reported at historical cost or 

estimated historical cost. If a determination of the historical cost is not viable because of 

incomplete records, an estimated historical cost may be determined in the following ways: 

• Using standard costing, which relies on available records from the period of 

acquisition to estimate asset cost. These records may include historical documents 

such as invoices for similar assets and vendor catalogs from the acquisition period. 

• Calculating the current replacement cost of a similar asset and deflating this cost back 

by using price-level indexes to the year or average year of acquisition. Refer to the 

web site http://www.fhwa.dot.gov/programadmin/publicat.htm for the Price Trends 

for Federal-Aid Highway Construction, published by the U.S. Department of 

Transportation, Federal Highway Administration, Office of Program Administration, 

Office of Infrastructure. 
56 

Depreciation of Infrastructure Assets. GASB Statement 34 allows two distinct approaches to 

reporting infrastructure assets in the Statement of Net Assets. The standard approach requires 

governmental entities to capitalize all major infrastructure assets and depreciate them over their 

useful lives. This approach does not differ from the accounting and reporting treatment of other 

types of capital assets. Alternatively, entities may elect to use a modified approach to 

infrastructure asset reporting under a specific set of conditions. The modified approach allows 

governmental entities to capitalize assets yet avoid the depreciation of their eligible infrastructure 

assets if they meet two criteria: 

• The entity has a qualifying asset management system that 

o has an up-to-date inventory of infrastructure; 

o performs consistent and complete condition assessments every three years, the 

results of which are summarized using a measurement scale; and 

o can estimate, on an annual basis, the cost to maintain and preserve the 

infrastructure assets at the disclosed condition level. 

• The entity documents that the eligible infrastructure assets are being preserved 

approximately at or above a condition level established and disclosed by the 

government. 

The modified approach is not limited to general infrastructure assets, that is, infrastructure assets 

associated with governmental activities. Eligible infrastructure assets of enterprise funds that 

were previously depreciated may also be reported using the modified approach. 

If entities choose the modified approach for reporting general infrastructure assets, they are 

required to present information on condition and on estimated versus actual maintenance as 

required supplementary information (RSI). 

If the governmental entities report eligible infrastructure assets using the modified approach, 

additional schedules and disclosures are required as RSI. 

Entities should consult their external auditors and the detailed disclosure requirements outlined 

in Statement 34 to determine policy decisions concerning the modified approach of infrastructure 

asset reporting. 

LIABILITIES

Liabilities represent financial obligations of an entity to transfer assets or provide services to 

other entities in the future as a result of past transactions or events. Although governments are 

required to record liabilities in the period in which they are incurred, it is necessary to distinguish 

between obligations that represent fund liabilities, which are amounts that are due and payable, 

from unmatured long-term indebtedness, which represents a general long-term liability. GASB 

Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in 

Governmental Fund Financial Statements, provides that governmental fund liabilities include 
57 

those that are due and payable in full when incurred. Additionally, the matured portion of longterm indebtedness to the extent that it is expected to be liquidated with expendable available 

financial resources should also be recorded as a fund liability. This applies to the matured 

portions of formal debt issues as well as to other forms of general long-term indebtedness, such 

as compensated absences, capital leases, and claims and judgments. The unmatured portion of 

the long-term indebtedness represents a general long-term liability. 

Interpretation No. 6 clarifies financial reporting guidance relative to governmental funds. 

Because proprietary funds use an accrual basis of accounting for liability recognition, all 

obligations of the fund should be reflected as fund liabilities. 

The following sub-section identifies the primary obligations typical of most governments. 

Accounts Payable 

Accounts payable are those liabilities incurred in the normal course of business for which goods 

or services have been received but payment has not been made as of the end of the fiscal year. 

Salaries and Related Benefits Payable 

Expenditures should be recorded and reported in the period in which the liability has been 

incurred. Therefore, unpaid salaries and related benefits that have not yet been paid at the close 

of the accounting period should be accrued. 

Due to/From Other Funds 

Each fund is a separate self-balancing set of accounts. Therefore, amounts due to/from other 

funds generally arise from interfund loans or interfund services used/interfund services provided 

between funds. For instance, one fund may make an advance to another fund, or one fund may 

provide services to another without payment at the time the services are provided. Although 

interfund receivables and liabilities may be classified as current or noncurrent depending on the 

terms for repayment, all such transactions must be reflected as fund receivables and liabilities. 

The advancing fund should reserve fund balance for the noncurrent portion of amounts due from 

another fund. 

Compensated Absences 

Paragraphs 31 and 119 of Statement 34 provide guidance for the accounting and financial 

reporting of compensated absences on both a short-term and a long-term basis. Compensated 

absences include future vacations, sick leave, sabbatical leave, and other leave benefits. 

The need for a governmental entity to accrue a liability for vacation leave or other similar 

compensated absences is based on the following criteria: 

• The government’s obligation relating to employees’ rights to receive compensations 

for future absences is attributable to employees’ services already rendered. 

• It is probable that the entity will compensate employees for the benefits through paid 

time off or some other means (e.g., cash payments at termination or retirement). 
58 

Requirements for accruing a liability for sick leave or similar compensated absences is attributed 

to services already rendered and it is probable that payment will be made at termination. 

Therefore, sick leave benefits that have been earned but will only be used as sick leave should 

not be accrued. Liabilities for compensated absences should be calculated at the end of each 

fiscal year and adjusted (and recorded) to current salary rates, unless payment will be made at 

rates other than the current salary rate. This liability also includes the employer’s share of social 

security and Medicare taxes as well as others. A fund liability for the governmental funds may be 

recorded only when amounts are due and payable. Any liability not due and payable is recorded 

as a governmentwide liability. For proprietary funds, all of the liability is a fund liability. 

Deferred Compensation and Pension Plans 

A deferred compensation plan allows employees to defer the receipt of a portion of their salary 

and, therefore, the associated tax liability on that salary. Authorization for deferred compensation 

plans is established by the Internal Revenue Service (IRS) and is listed in Internal Revenue Code 

Chapter 457. 

Employees of many school districts participate in statewide retirement systems. However, 

districts may establish deferred compensation plans and other pension plans at their discretion, 

some of which are locally funded. School districts may also provide pension benefits to 

employees through locally funded pension plans. Locally funded pension plans should be 

accounted for in a Pension and Other Employee Benefits Trust Fund. If the school district has 

significant administrative or fiduciary responsibility for a deferred compensation plan, such as 

managing the plan’s investments, a pension and other employee benefits trust fund should be 

used. This is not the case for most school districts. If a governmental entity does not have 

significant administrative or fiduciary responsibility, the plan should not be reported in the 

entity’s funds. 

Debt 

Governmental entities borrow money on a short-term basis either to meet operating cash needs or 

in anticipation of long-term borrowing at later dates. School districts usually borrow money on a 

long-term basis to finance capital acquisitions or construction or infrastructure improvements. 

Borrowings may also occur for the initial funding of a risk-retention program, the payment of a 

claim or judgment, or the financing of an accumulated operating deficit. 

Short-term debt obligations and long-term debt obligations are defined (based on the initial 

maturity of the obligation) as follows: 

• Short-term obligations are loans, negotiable notes, time-bearing warrants, or leases 

with a duration of 12 months or less, regardless of whether they extend beyond the 

fiscal year. Using the current financial resources measurement focus, short-term debt 

should be reflected in the balance sheet of the governmental fund that must repay the 

debt. The presentation of the liability on the balance sheet of a governmental fund 

implies that the debt is current and will require the use of current financial resources. 

Bond anticipation notes may be classified as long-term debt if the criteria of FASB 
59 

Statement No. 6, Classification of Short-Term Obligations Expected to be 

Refinanced, are met. 

• Long-term obligations are loans, negotiable notes, time-bearing warrants, bonds, or 

leases with a duration of more than 12 months. Noncurrent obligations that will be 

repaid from revenues generated by proprietary funds should be recorded in the related 

proprietary fund, whereas noncurrent obligations to be repaid from governmental 

funds should be reported only on the governmentwide statement of net assets. 

The following sub-section concentrates on long-term debt presentation in different types of funds 

and the related accounting requirements and disclosures. It is organized as follows: 

• Recording of long-term liabilities in different types of funds 

• Types of debt instruments 

• Extinguishment of debt 

Recording of Long-Term Debt in Different Types of Funds 

The accounting for debt-related transactions differs depending on whether the debt is related to 

proprietary and fiduciary funds or a governmental fund. 

Long-Term Liabilities in Proprietary and Fiduciary Funds. GASB Codification Section 

1500.102 states: 

Bonds, notes and other long-term liabilities directly related to and expected to be repaid 

from proprietary funds and fiduciary funds should be included in the accounts of such 

funds. These are specific fund liabilities, even though the full faith and credit of the 

governmental unit may be pledged as further assurance that the liabilities will be paid. 

Too, such liabilities may constitute a mortgage or lien on specific fund properties or 

receivables. 

The proceeds of the debt will thus be recorded as an increase in cash and long-term debt 

accounts; there will be no effect on operations. If the debt was issued at a discount, the discount 

should be recorded as a reduction from the face value of the debt and amortized over the term of 

the debt. All debt issue costs should also be recorded as a deferred charge and amortized over the 

term of the debt. Currently, the only specific accounting guidance on debt transactions in 

proprietary funds is Statement 23, Accounting and Reporting for Refundings of Debt Reported by 

Proprietary Activities, discussed later in this chapter. Therefore, generally accepted accounting 

principles for commercial enterprises should be followed for debt transactions in proprietary and 

fiduciary funds. 

Long-Term Liabilities in Governmental Funds. A clear distinction should be made between 

long-term fund liabilities and general long-term liabilities. Long-term liabilities of proprietary 

funds and fiduciary funds should be accounted for in those funds and presented in the fund 

financial statements. Long-term liabilities for the proprietary funds, but not the fiduciary funds, 
60 

should also be reported in the governmentwide statements. However, general long-term liabilities 

of the entity should be accounted for and reported only in the governmentwide statement of net 

assets. 

Types of Debt Instruments 

Debt instruments have different characteristics, terms, legal authority, and so forth. A summary 

description of the types of debt follows. 

Bonds 

• General obligation bonds are issued for the construction or acquisition of major 

capital assets. The security pledged for the bonds is the general taxing power of the 

government. General obligation bonds are usually either term bonds, which are due in 

total on a single date, or serial bonds, which are repaid in periodic installments over 

the life of the issue. 

• Revenue bonds are issued to acquire, purchase, construct, or improve major capital 

facilities. The revenue generated by the facility or the activity supporting the facility is 

pledged as security for the repayment of the debt. 

Other Types of Debt 

• Tax anticipation notes and other revenue anticipation notes are often issued to pay 

current operating expenditures prior to the receipt of the revenues. The proceeds from 

the revenue sources are pledged as security for the notes. 

• Installment financing may be used for either constructing or acquiring property. The 

security for the financing is the property being acquired or constructed. 

• Leases are agreements between two parties that convey the use of property for a 

specified period of time. A lease must be classified as capital if it meets the criteria of 

FASB Statement 13, Accounting for Leases, or as operating if it does not qualify as a 

capital lease. Capital leases are considered to be debt financing; operating leases are 

not. Capital leases are in substance an acquisition of an asset. This determination is 

made using the following criteria:

o The ownership of the property transfers to the lessee at the end of the lease term, 

or 

o The lease contains a bargain purchase option, or 

o The lease term is equal to 75 percent or more of the estimated useful life of the 

leased property, or 

o At the inception of the lease, the present value of the minimum lease payments 

is equal to 90 percent or more of the fair value of the leased property. 

When a lease satisfies one of the criteria above, an asset and a liability should be 

recorded. If the lease obligation is incurred by a governmental fund, the asset and the 

liability will be reported in the governmentwide statement of net assets. The initial 
61 

value of the asset should be recorded as the lesser of the fair value of the leased 

property or the present value of the net minimum lease payments. 

Generally accepted accounting principles require governmental entities to disclose a 

range of information related to both capital and operating leases in the annual 

financial statements. The GASB Codification should be consulted for detailed 

disclosure requirements. 

Extinguishment of Debt 

GASB has established a range of accounting and reporting requirements for debt refundings. 

These requirements are presented primarily in GASB Codification Section D20 and GASB 

Statement 23, Accounting and Financial Reporting for Refundings of Debt Reported by 

Proprietary Activities. 

The extinguishment of debt is the reacquisition or calling of the debt or the removal of the debt 

prior to or at the maturity of the debt. When debt is extinguished, the entity either has no further 

legal responsibilities under the original debt agreement or continues to be legally responsible for 

the debt but the extinguishment is considered an in-substance defeasance (retirement). GASB 

Statement 23 concludes that debt is considered to be extinguished when one of the following 

criteria is met: 

• The debtor pays the creditor and is relieved of all its obligations with respect to the 

debt, or 

• The debtor is legally released as the primary obligor under the debt either judicially or 

by the creditor, and it is probable that the debtor will not be required to make future 

payments with respect to the debt under the guarantees, or 

• The debtor irrevocably places cash or other assets with an escrow agent in a trust to be 

used solely for satisfying scheduled payments of both interest and principal of the 

defeased debt, and the possibility that the debtor will be required to make future 

payments on that debt is remote. In this circumstance, usually referred to as “insubstance defeasance,” debt is extinguished even though the debtor is not legally 

released as the primary obligor under the debt obligation. 

The most common method of debt extinguishment is an advance refunding. 

Advance Refunding. In an advance refunding transaction, new debt is issued to provide funds to 

pay principal and interest on old, outstanding debt as it becomes due, or at an earlier call date. An 

advance refunding occurs before the maturity or call date of the old debt, and the proceeds of the 

new debt are invested until the maturity or call date. Debt may be advance refunded for a variety 

of reasons, including to 

• take advantage of lower interest rates, 

• extend maturity dates, 
62 

• revise payment schedules, or 

• remove or modify restrictions contained in the old debt agreements. 

Some advance refundings are intended to achieve short-term budgetary savings by extending debt 

service requirements further into the future. In these cases, total debt service requirements over 

the life of the new debt may be more or less than total service requirements over the life of the 

existing debt. Advance refundings undertaken for other reasons, such as to remove undesirable 

covenants of the old debt, may also result in higher or lower total debt service requirements. It 

may be necessary in an advance refunding to issue new debt in an amount greater than the old 

debt. In these cases, savings may still result if the total new debt service requirements (interest 

and principal payment) are less than the old debt service requirements. Most advance refundings 

result in defeasance of debt. 

Debt Defeasance. Defeasance of debt can be either legal or in-substance. A legal defeasance 

occurs when debt is legally satisfied on the basis of certain provisions in the debt instrument even 

though the debt is not actually paid. An in-substance defeasance occurs when debt is considered 

defeased for accounting and financial reporting purposes, as discussed below, even though a 

legal defeasance has not occurred. When debt is defeased, it is no longer reported as a liability on 

the face of the balance sheet; only the new debt, if any, is presented in the financial statements. 

Debt is considered defeased in-substance for accounting and financial reporting purposes if the 

school district irrevocably places cash or other assets with an escrow agent in a trust to be used 

solely for satisfying scheduled payments of both interest and principal of the defeased debt and 

when the possibility that the debtor will be required to make future payments on that debt is 

considered remote. The trust that is created should be restricted to monetary assets that are 

essentially risk-free as to the amount, timing, and collection of interest and principal. 

Certain disclosures are required on defeasance of debt. GASB Codification Section D20.111 

requires that a general description of the transaction should be provided in the notes to the 

financial statements in the year of refunding and that the disclosure should include at a minimum 

the following: 

• The difference between the cash flows required to service the old debt and the cash 

flows required to service the new debt and complete the refunding. 

• The economic gain or loss resulting from the transaction. 

FUND BALANCE/NET ASSETS

Fund Financial Statements 

Within governmental funds, equity is reported as fund balance; proprietary and fiduciary fund 

equity is reported as net assets. Fund balance and net assets are the difference between fund 

assets and liabilities reflected on the balance sheet or statement of net assets. Because of the 

current financial resources measurement focus of governmental funds, fund balance is often 

considered a measure of available expendable financial resources. This is a particularly important 
63 

measure in the general fund because it reflects the primary functions of the government and 

includes both state aid and local tax revenues. The relative amount of unreserved fund balance 

reflected in the general fund is used by rating agencies as a measure of financial strength of the 

government. Declines in the amount of unreserved fund balance may signal deterioration in the 

financial condition of the entity. 

Governmental fund balances are categorized as follows: 

• Reserved 

• Unreserved 

o Designated 

o Undesignated 

Reserved Fund Balances 

Reservations of fund balance should be used in governmental financial reporting to identify the 

portion that is 

• not available for appropriation or expenditure (e.g., reserve for inventories, reserve for 

long-term receivables) and/or 

• legally earmarked by external parties or entities for a specific future use, that is, a 

legal restriction on the use of assets (e.g., reserve for encumbrances). 

The amount and nature of the reservation of fund balance should be disclosed on the face of the 

financial statements. The description may need to be supplemented by disclosure in the notes to 

the financial statements. 

Examples of reservations of fund balance follow: 

• Inventories 

• Debt service 

• Endowments 

• Prepaid items 

• Outstanding encumbrances 

• Construction 

• Federal and state programs 

The aggregate fund balance in the debt service fund is legally reserved for the payment of bonded 

indebtedness and is not available for other purposes until all bonded indebtedness is liquidated. 
64 

The fund balance of the capital projects fund reflects an amount designated for construction and 

major renovation projects, and it usually represents unexpended proceeds from the sale of bonds 

that have restricted uses. However, in all instances in which the name of the fund communicates 

the legal segregation, the fund balance should be reported as unreserved. 

Unreserved Fund Balances 

Unreserved fund balance is the difference between the total and reserved fund balance. It has two 

components: designated and undesignated. The unreserved fund balance of the general fund 

represents the balance available for legal appropriation and expenditure for general operating 

expenditures. 

Prudent financial management requires accumulating a sufficient undesignated, unreserved fund 

balance in the general fund representing available expendable financial resources to meet the net 

cash outflows during the fiscal year. 

Designated, Unreserved Fund Balances. Portions of fund balance may be designated by 

management to reflect tentative plans or commitments of governmental resources. Designations 

generally reflect board action to earmark the balance for purposes that will be fulfilled at a later 

time, but specific board action is not required. Designations represent planned actions, rather 

than actual commitments. Because they typically arise from internal actions (management 

decisions) rather than actions external to the entity (encumbrances), designations are reported as 

part of unreserved fund balance. 

The amount and nature of the designation should be explained in a 

• separate line of the balance sheet, 

• parenthetical comment, or 

• note to the financial statements. 

Designations may be related to 

• construction or other capital expenditures, 

• claims and judgments, or 

• self-insurance contingencies. 

Undesignated, Unreserved Fund Balances. Undesignated, unreserved fund balance is the 

difference between total fund balance and the portion that is reserved and designated. This is the 

balance available for legal appropriation and expenditure if a government budgets on a GAAP 

basis for its governmental funds. 

Within proprietary and fiduciary fund statements of net assets, net asset balances are classified 

into three components: 
65 

• Invested in capital assets, net of related debt represents the net amount invested in 

capital assets (original cost, net of accumulated depreciation, and capital-related debt). 

• Restricted represents the amount of net assets for which limitations have been placed 

by creditors, grantors, contributors, laws, and regulations. For example, school 

districts that account for food services within an enterprise fund may have restrictions 

related to certain proceeds or commodities imposed by the USDA. Internal actions 

through enabling legislation and constitutional provisions may also lead to restricted 

net assets. 

• Unrestricted is the amount of net assets that is not restricted or invested in capital 

assets, net of related debt. 

Governmentwide Financial Statements: Statement of Net Assets 

The difference between an entity’s assets and liabilities in the Statement of Net Assets represents 

its net assets. Net assets have three components: 

• Invested in capital assets, net of related debt 

• Restricted net assets 

• Unrestricted net assets 

Table 3 defines each component. 

Table 3. Net Asset Classification 

Invested in Capital Assets, Net of 

Related Debt Restricted Net Assets Unrestricted Net Assets 

All capital assets (including restricted 

capital assets) net of accumulated 

depreciation and reduced by outstanding 

balances of debt relating to the acquisition, 

construction, or improvement of these 

assets 

If the entity has capital assets but no 

related debt, the account should be titled 

“invested in capital assets” so that readers 

are not misled. 

Net assets on which limitations 

have been placed by creditors, 

grantors, contributors, laws, 

and regulations of other 

governments. 

Also, internal actions may lead 

to restricted net assets in some 

cases such as constitutional 

provisions or enabling 

legislation. 

All other net assets not included in 

the “Invested in capital assets, net of 

related debt” category or the 

“Restricted net asset” category. 

Internal designations may not be 

shown in this statement. 

REVENUES

The accounting and financial reporting for revenues within a governmental entity is determined 

by the economic substance of the underlying transactions. Generally accepted accounting 

principles have established criteria for recognition based on the classification and characteristics 

of the transaction. 
66 

Within governmental entities, transactions may be classified as either exchange (or exchangelike) transactions or nonexchange transactions. Exchange transactions are those in which the 

parties involved give up and receive essentially equal values. Within a commercial enterprise, 

transactions between businesses and their customers meet this definition. Within a proprietary 

fund of a governmental entity, fees or charges made for goods or services represent exchange 

transactions. 

Although similar to exchange transactions, exchange-like transactions represent situations in 

which the values exchanged may not be equal or the direct benefits may not be exclusively for 

the parties involved in the transaction. Examples include permits and professional or regulatory 

licensing fees. 

To clarify and expand existing guidance in the accounting and financial reporting of 

nonexchange transactions within governments, GASB issued Statement 33, Accounting and 

Financial Reporting for Nonexchange Transactions, and Statement 36, Recipient Reporting for 

Certain Shared Nonexchange Revenues (an amendment of Statement 33). These standards 

establish recognition criteria for nonexchange transactions reported on the accrual basis or the 

modified accrual basis of accounting. 

Statement 33 describes four classifications of nonexchange transactions: 

• Derived tax revenues result from assessments imposed on exchange transactions, such 

as income taxes and sales taxes. Derived tax revenues and the related receivables 

normally should be recognized when the underlying transaction occurs with the 

criteria extended to include the availability criteria for revenues accounted for on the 

modified accrual basis. 

• Imposed nonexchange revenues result from assessments imposed on 

nongovernmental entities, other than assessments on exchange transactions. Property 

taxes, ad valorem taxes on personal property, and fines are common examples. A 

receivable is usually recognized at the time an enforceable legal claim arises. Imposed 

nonexchange revenues should be recognized in the first period in which the use of the 

revenues is permitted or required. For imposed nonexchange revenues accounted for 

on a modified accrual basis, recognition also depends on the availability of the 

resources. 

• Government-mandated nonexchange transactions occur when a government at one 

level provides resources to a government at another level and requires the recipient to 

use them for a specific purpose in accordance with the provider’s enabling legislation. 

An example is the federal funds provided for food and nutrition programs in school 

districts. 

• Voluntary nonexchange transactions result from legislative or contractual agreements, 

other than exchanges, entered into willingly by two or more parties. Certain grants 

and entitlements and most donations are examples of this type of transaction. 
67 

Frequently, purpose restrictions and eligibility requirements are established by the 

provider. 

For both government-mandated nonexchange transactions and voluntary nonexchange 

transactions, revenues and receivables should be recognized when all eligibility requirements 

have been met. For revenues accounted for on a modified accrual basis, the criteria are extended 

to include the availability of the resources. 

GASB Codification Section 1600.106 states that revenues in governmental funds and other 

governmental fund financial resource increments are recognized using the modified accrual basis 

of accounting when they are susceptible to accrual, which means they must be both measurable 

and available. Revenues are measurable when the amount of the revenue is subject to reasonable 

estimation. To be available, revenues must be subject to collection within the current period, or 

after the end of the period, but in time to pay liabilities outstanding at the end of the current 

period. 

Revenues in the proprietary funds are recognized using the accrual basis of accounting, (i.e., in 

the period in which they are earned). They are classified either as operating or nonoperating 

revenues. Operating revenues are generated by the primary activity of the fund. Conversely, 

nonoperating revenues are not generated by the primary activity of the fund, but by other means, 

such as through grants or interest earnings. 

Governmental entities account for a variety of revenues that generally may be presented in the 

financial statements of governmental funds in three broad categories. 

• Local and intermediate sources are those revenues that are collected from the 

citizens of the district’s service area and governmental and nongovernmental entities 

both within and outside the school district. Such revenues include property taxes, 

tuition, and interest income. 

• State revenues are those revenues received from the state, excluding funds passed 

through the state from the federal government. Such revenues include state grants and 

state education foundation funding. 

• Federal revenues are those revenues received from the federal government or its 

agencies either directly or through the state. Such revenues are primarily from federal 

programs. 

Proprietary fund revenues include charges for services, charges to other funds for services 

rendered, and grant revenues.

Governmentwide Reporting 

GASB Statement 34 introduces a number of new reporting concepts for revenues in the 

governmentwide statements. Essentially, revenues must be classified as either program or general 

revenues on the Statement of Activities. The following sub-section outlines the basic reporting 

criteria established for revenues. 
68 

Program Revenues 

Program revenues are revenues that are directly attributable to a specific functional activity. 

GAAP requires these revenues to be presented separately in the appropriate functional areas, 

providing a calculation of net expense for each activity. This net expense often represents the 

level of support required from the government’s own resources. Program revenues include fees 

collected from those who benefit from the program, grants, and other contributions required by 

the resource provider to support a specific activity. 

Program revenues are reported on the Statement of Activities in the following three categories, if 

applicable: 

• Charges for services are revenues that arise from charges to customers or applicants 

who purchase, use, or directly benefit from the goods, services, or privileges 

provided. Examples are rental fees for school buses or facilities, athletic participant or 

spectator fees, summer school tuition, or library fines. 

• Program-specific operating grants and contributions are revenues that occur from 

mandatory and voluntary nonexchange transactions with other governments, 

organizations, or individuals that are restricted for use in a particular program. An 

example is a business grant to provide a scholarship for staff training. 

• Program-specific capital grants and contributions are grants and contributions that 

consist of capital assets or resources that are restricted for capital purposes, such as 

purchasing, constructing, or renovating capital assets associated with a specific 

program. These revenues should be reported separately from grants and contributions 

that may be used either for operating or capital expenses at the judgment of the 

reporting government. An example is a grant to purchase a school bus.

Program revenues are reported at gross amounts. The Statement of Activities also reports 

program expenses net of applicable program revenues. GASB Statement 37 clarified that 

difference captions and additional categories for program revenues may be used. 

General Revenues 

All revenues are general revenues unless they are required to be reported as program revenues. 

General revenues are reported in the governmentwide statement of activities after program 

revenues have been subtracted from functional expenses. 

Classification of Revenues

Programs are financed from essentially four sources (see table 4): 

• Type A. Those who purchase, use, or directly benefit from the goods or services of the 

program 

• Type B. Parties outside the reporting government’s citizenry 

• Type C. Taxpayers (regardless of whether they benefit from a particular program) 
69 

• Type D. The governmental institution itself (primarily investment income) 

Table 4. Classification of Revenues 

Source Type Program Revenue General Revenue 

Type A Yes No 

Type B Yes, if restricted Yes, if unrestricted 

Type C No Yes 

Type D No Yes (usually) 

FUND FINANCIAL STATEMENTS—REPORTING OF EXPENDITURES/EXPENSES

Expenditures 

GASB Codification Chapter 1600.116 defines expenditures as decreases in net financial 

resources. In governmental funds, the recognition of expenditures occurs in accordance with the 

modified accrual basis of accounting. Expenses incurred in proprietary funds are recognized 

using the accrual basis of accounting. Therefore, significant differences exist between the 

recognition of expenditures in governmental funds and the recognition of expenses by proprietary 

funds. 

In governmental funds, expenditures are usually recognized in the accounting period in which the 

goods or services are received and the liability for payment is incurred. However, in instances 

when current financial resources are not reduced as a result of the incurrence of a liability, an 

expenditure is not recorded. A common example is the liability for compensated absences (e.g., 

employee sick and vacation pay). Such liabilities result from current services received from 

employees; however, the payment of the liabilities usually does not occur until a future date. As a 

result, compensated absences relating to employees whose salaries are accounted for in 

governmental funds are not recorded as expenditures and liabilities of the fund until the due date 

for payment of the compensated absences. GASB Interpretation No. 6 clarifies the guidance for 

recognizing certain liabilities and expenditures in governmental funds, including general longterm indebtedness such as compensated absences. The matured portion of long-term 

indebtedness, to the extent it is expected to be liquidated with expendable available financial 

resources, should be recorded as a fund liability and expenditure. The unmatured portion of the 

long-term indebtedness represents a general long-term liability to be presented in the 

governmentwide financial statements. 

Types of Expenditures and Accounting Treatments 

The major types of expenditures are operating, capital, debt service, and intergovernmental 

charges. Operating expenditures for governmental agencies include a wide range of 

expenditures. Often the largest portion relates to payroll and related employee benefits. The 

modified accrual basis of accounting requires that proper accruals are made for the amount of 

unpaid salaries and related benefits earned by employees at year-end because these liabilities will 

be paid early in the next reporting period. 
70 

The other types of operating expenditures should be accounted for in the same manner, with the 

recording of a liability when the goods or services are received and necessary accruals made at 

year-end. 

• Capital expenditures relate to the acquisition of capital assets. Such expenditures 

may be recorded in the General Fund, Special Revenue Funds, or Capital Projects 

Funds, depending on the source of funding. Purchases of personal property, such as 

furniture and equipment, are usually recorded as expenditures in the General Fund if 

they are financed from operating budgets or in special revenue funds if they are 

financed from grants. Major projects, such as the construction of a school building 

financed by the proceeds of debt, should be accounted for in a Capital Projects Fund. 

Costs associated with acquiring capital assets in governmental funds are recorded as 

capital outlay expenditures when the liability is incurred, usually on receipt of the 

related asset. 

• Debt service expenditures represent the payment of principal and interest needed to 

service debt. Such payments are usually recorded as expenditures in the Debt Service 

Fund on the due date. The General Fund may also be used if a Debt Service Fund is 

not required. The modified accrual basis of accounting provides that accruals for 

interest are not usually allowed. When funds have been transferred to the Debt 

Service Fund in anticipation of making debt service payments shortly after the end of 

the period (no more than 30 days), it is acceptable to accrue interest and maturing debt 

in the Debt Service Fund in the year the transfer is made. This option is available only 

if monies are legally required to be set aside in a Debt Service Fund and if used on a 

consistent basis. 

• Intergovernmental charges relate to the transfer of resources from one school district 

to another, to or from other local governments, or to or from the state. Examples of 

such charges include contracted instructional services between public schools, other 

local governments, or state-operated schools and certain transfers of resources 

associated with state and local funding (e.g., incremental costs associated with wealth 

redistribution). Such expenditures are accounted for in the General Fund using the 

modified accrual basis of accounting. In addition, payments between school districts 

and fiscal agents of cooperative services arrangements (e.g., joint instructional or 

servicing agreements) are also considered intergovernmental charges. 

In addition, transfers result in the reduction of a fund’s expendable resources, but they are not 

classified as expenditures. A transfer is a legally authorized movement of monies between funds 

in which one fund is responsible for the receipt of funds and another fund is responsible for the 

actual disbursement. In a transfer, the disbursing fund records the transaction as “Other 

Financing Uses” of resources and not as an operating expenditure, whereas the fund receiving the 

transfer does not record the receipts as revenue but rather as “Other Financing Sources” of funds. 
71 

Expenses 

Expenses are defined as the outflows or expiration of assets or the incurrence of liabilities during 

a period from providing or producing goods, rendering services, or carrying out other activities 

that constitute the entity’s primary operations. 

Proprietary funds recognize expenses using the accrual basis of accounting (i.e., when the related 

liability is incurred) without regard for the timing of the payment. This recognition criterion is 

consistent with the following guidelines discussed in Financial Accounting Standards Board 

(FASB) Concepts Statement No. 5. Although FASB Concepts Statements do not represent 

authoritative guidance for governments, the discussion is useful in classifying expense 

transactions within proprietary funds. 

• Associating cause and effect. Some expenses (such as the cost of goods sold) are 

recognized on recognition of revenues that result directly and jointly from the same 

transactions or other events as the expenses. 

• Systematic and rational allocation. Some expenses (such as depreciation and 

insurance) are allocated by systematic and rational procedures to the periods during 

which the related assets are expected to provide benefits. 

• Immediate recognition. Many expenses (such as selling and administrative salaries) 

are recognized during the period in which cash is spent or liabilities are incurred for 

goods or services that are used up either simultaneously with acquisition or soon after. 

As examples, the major types of governmental expenditures are accounted for differently in 

proprietary fund expenses as follows: 

• Capital. Capital asset acquisition in proprietary funds is accounted for using the flow 

of economic resources method. Amounts disbursed for the acquisition of capital 

assets are not recorded as an expense. Instead, the appropriate property, plant, or 

equipment asset account is debited on the purchase. Depreciation expense is recorded 

to reflect the allocation of the cost of the assets to operations over the service life of 

the asset. 

• Debt service. Principal payments on debt do not represent expenses for proprietary 

funds, but rather are recorded as a reduction of the obligation. Payments of interest 

represent expenses to be accounted for on the accrual basis of accounting. Accrual of 

interest at year-end is usually necessary to reflect the proper amount of expense for 

the period. 
72 

GOVERNMENTWIDE STATEMENTS—REPORTING OF EXPENSES

Governmental entities are required to present the governmentwide financial statements on the 

accrual basis of accounting. Thus, the Statement of Activities reflects the expenses of the entity 

for the reporting period. Entities are required to report all expenses by activities and programs 

(by function), except certain indirect expenses, as explained below. GASB has defined direct 

expenses as those that are specifically associated with a service, program or department and thus 

are clearly identifiable to a particular function. Direct expenses include both operating and 

nonoperating expenses, including depreciation and amortization of assets. 

Functions, such as general administration or data processing services, may include indirect 

expenses of other functions. Governmental entities are not required to allocate indirect expenses 

to other functions, but may choose to do so. If indirect expenses are allocated, direct and indirect 

expenses should be presented in separate columns. A column totaling direct and indirect 

expenses may be presented, but is not required. Indirect expenses may be allocated to any of the 

primary government’s functions. Although there are no standards for determining an allocation 

methodology, there should be a reasonable basis for expense allocations. 

Depreciation expense should be included in the statement of activities as follows: 

• Capital assets that can specifically be identified with a function. Depreciation 

should be included in the direct expenses of that function. 

• “Shared” capital assets. Depreciation should be prorated as direct expenses of the 

appropriate functions on some reasonable allocation basis. 

• Capital assets that essentially serve all functions. Depreciation is not required to be 

included in the direct expenses of the various functions but may be reflected as a 

separate line captioned “unallocated depreciation” in the Statement of Activities or as 

part of the general government function. If an entity chooses to use a separate line in 

the Statement of Activities to report unallocated depreciation expense, it should 

clearly indicate in the footnotes to the financial statements that this line item does not 

include direct depreciation expenses of the other functions. Because school buildings 

often serve multiple functions, many school districts are reporting the depreciation as 

“unallocated depreciation” for these assets. 

• General infrastructure assets. Depreciation should not be allocated to the various 

functions, but should be reported as a direct expense of the function that the reporting 

government normally associates with capital outlays or as a separate line in the 

Statement of Activities. 

• Interest expense. Interest on general long-term liabilities, including interest on capital 

leases or other vendor financing arrangements, should be considered an indirect 

expense. Interest on long-term debt should be included in direct expenses only when 

borrowing is essential to the creation or continuing existence of a program. 
73 

The difference between a “shared” capital asset and one that “essentially serves all functions” is 

the number of functions involved. As the number of functions increases, the ease, practicality, 

and usefulness of assigning depreciation to those functions decreases. Therefore, the depreciation 

of assets that serve many, or essentially all, functions is not required to be included in the direct 

expenses of those functions. A shared capital asset is generally used by only a few functions, and 

its use can be specifically identified to those functions. 

FINANCIAL STATEMENTS

GASB Statement 34 does not mandate that governments prepare and publish an annual financial 

report. However, the Statement establishes new financial reporting requirements for 

governmental entities by restructuring much of the information that entities have presented in the 

past. The impact of this Statement on the presentation of the annual financial statements is 

depicted in table 5. The table identifies the differences between the Statement 34 presentation 

and that of the previous governmental reporting model used to prepare a Comprehensive Annual 

Financial Report (CAFR). Many of the CAFR schedules and presentations provide information 

beyond that required by Statement 34. 

Table 5 (GASB Statement 34) compares the contents of the CAFR under the new reporting 

model per GASB Statement 34 with the contents of the CAFR under the previous model. 

Comparisons identify key components of each chapter for an overall comparison of the chapter 

between models. The table is not intended to be an item-by-item comparison of the models. 
74 

Table 5. GASB Statement 34—Contents of a Comprehensive Annual Financial Report 

Contents of the CAFR Under the New Reporting Model 

per Statement 34 

Contents of the CAFR Under the Previous Reporting 

Model 

INTRODUCTORY CHAPTER 

Table of Contents 

Letter of Transmittal 

GFOA Certificate of Achievement 

Organization Chart 

Principal Officials 

Other Material Deemed Appropriate by Management (if 

applicable) 

FINANCIAL CHAPTER 

Auditor’s Report 

Management’s Discussion & Analysis 

Basic Financial Statements 

Governmentwide Financial Statements 

Statement of Net Assets 

Statement of Activities 

Fund Financial Statements 

Governmental Funds 

Balance Sheet 

Statement of Revenues, Expenditures, and Changes in 

Fund Balances 

Reconciliation to Governmentwide Statements 

Proprietary Funds 

Statement of Net Assets 

Statement of Revenues, Expenses, and Changes in Net 

Assets 

Reconciliation to Governmentwide Statements (if 

applicable) 

Statement of Cash Flows (using the direct method) 

Fiduciary Funds (and similar Component Units) 

Statement of Fiduciary Net Assets 

Statement of Changes in Fiduciary Net Assets 

Discretely Presented Component Units 

Fund Financial Statements as RSI if component unit does 

not issue separate financial statements 

INTRODUCTORY CHAPTER 

Table of Contents 

Other Material Deemed Appropriate by Management (if 

applicable) 

Letter of Transmittal 

GFOA Certificate of Achievement 

Organization Chart 

Principal Officials 

FINANCIAL CHAPTER 

Auditor’s Report 

General Purpose Financial Statements (GPFS): 

Combined Balance Sheet–All Fund Types, Account Groups, 

and Discretely Presented Component Units 

Combined Statement of Revenues, Expenditures, and 

Changes in Fund Balances—All Governmental Fund 

Types and Discretely Presented Component Units 

Combined Statement of Revenues, Expenditures, and 

Changes in Fund Balances—Budget and Actual—

Governmental fund types of the primary government for 

which an annual budget has been legally adopted 

Combined Statement of Revenues, Expenses, and Changes in 

Retained Earnings (or Equity)—All Proprietary Fund 

Types and Discretely Presented Component Units 

Combined Statement of Cash Flows—All Proprietary Fund 

Types and Discretely Presented Component Units 

Trust Funds may be reported as above as appropriate or may 

be reported separately 
75 

Contents of the CAFR Under the New Reporting Model 

per Statement 34 

Contents of the CAFR Under the Previous Reporting 

Model 

Notes to Financial Statements 

General Disclosure Requirements (Similar to Notes to 

Financial Statements per the old reporting model as 

applicable) 

Additional Disclosures in Summary of Significant 

Accounting Policies 

(Paragraph 115 of GASB Statement 34) 

Definition of operating and nonoperating revenues 

Description of governmentwide financial statements 

including measurement focus & basis of accounting 

used 

Government’s policy for applying restricted and 

unrestricted resources 

Description of types of transactions included in program 

revenues, policies for allocating indirect expenses to 

functions and elimination of internal activity in the 

statement of activities 

Description of modified approach, if applicable 

Policy for asset capitalization and estimation of useful lives 

GASB 20 policy for proprietary funds and governmentwide 

activities 

Additional Disclosures in Summary of Significant 

Accounting Policies Required by GASB Statement 38

Activities accounted for in major funds, internal service, 

and fiduciary fund types columns 

Length of time used to define “available” for revenue 

recognition 

Required Disclosures about Capital Assets 

(Paragraphs 116–120 of the Statement) 

Separately disclosed for governmental and business-type 

activities: Beginning and ending balances and 

acquisitions and dispositions for the year for each 

major class of capital asset and the related 

accumulated depreciation reported 

Required Disclosures on Non-capitalized Assets 

(Paragraph 118) 

Notes to Financial Statements

Two types of disclosure are necessary in the CAFR 

Notes to the financial statements that are essential for fair 

presentation of the GPFS (Combined Statements—

Overview) level 

Narrative explanations 

Notes Essential to the Fair Presentation of GPFS include 

Summary of Significant Accounting Policies 

Description of the component units of the financial reporting 

entity and their relationships to the primary government 

Revenue recognition policies 

Encumbrance accounting and reporting methods 

Policies for reporting infrastructure 

Policies for capitalization of interest on fixed assets 

Definition of cash and cash equivalents 

Policy regarding use of FASB pronouncements for proprietary 

activities 

Cashing deposits with Financial Institutions 

Investments 

Significant contingent liabilities 

Encumbrances outstanding 

Significant effects of subsequent events 

Pension plan obligations 

Accumulated unpaid employees benefits, such as vacation 

and sick leave 

Material violations of finance-related legal and contractual 

provisions 

Schedule of debt service requirements to maturity 

Commitments under noncapitalized leases 

Construction and other significant commitments 

Changes in general fixed assets 

Changes in general long-term debt 

Any excess of expenditures over appropriations in individual 

funds 

Changes in general long-term debt 
76 

Contents of the CAFR Under the New Reporting Model 

per Statement 34 

Contents of the CAFR Under the Previous Reporting 

Model 

Historical collections that are not capitalized should be 

described and reasons for not capitalizing should be 

provided 

Required Disclosures on Long-term Liabilities 

(Paragraphs 116-120 of the Statement) 

Beginning and ending balances and increases and 

decreases for the year for each major long-term 

liability 

Additional disclosure is required for portion of items due 

within one year 

Information on governmental funds that have liquidated 

the long-term operating liabilities in the past 

Any excess of expenditures over appropriation in individual 

funds 

Deficit fund balance or retained earnings of individual funds 

Interfund receivable and payables 

Disclosures for Donor-Restricted Endowments 

(Paragraph 121 of the Statement) 

Amounts of net appreciation on investment available for 

authorization for expenditure 

How the amounts are reported in net assets 

State Law relating to ability to spend net appreciation 

Policy for authorizing and spending investment income 

Segment Reporting 

(Paragraph 122 of the Statement) 

Provision of Condensed Financial Statements in the 

Notes: 

Types of goods or services provided by the segment 

Condensed statement of net assets 

Condensed statement of revenues, expenses, and 

changes in net assets 

Condensed statement of cash flows 

GASB Statement 38—Violations and actions taken 

regarding finance-related legal or contractual 

provisions 

Variable-rate debt service on debt and lease obligations 

Short-term debt activity 

Disaggregation of receivable/payable balances 

Interfund Balances and transfers 

Narrative Explanations 

Narrative explanations of combining, individual fund, account 

group, and component unit statements and schedules 

should provide information not included in the financial 

statements, notes to the financial statements, and 

schedules that is necessary to 

• ensure an understanding of the combining and individual 

statements and schedules, and 

• demonstrate compliance with finance-related legal and 

contractual provisions. 

Segment Information for Enterprise Funds 

Enterprise fund segment disclosures are required if 

• material long-term liabilities are outstanding, 

• the disclosures are essential to ensure the GPFS are not 

misleading, or 

• they are necessary to ensure interperiod comparability. 
77 

Contents of the CAFR Under the New Reporting Model 

per Statement 34 

Contents of the CAFR Under the Previous Reporting 

Model 

Required Supplementary Information (RSI) Other Than 

MD&A 

BUDGETARY COMPARISON SCHEDULES 

(Paragraphs 130 and 131 of Statement 34; see comment 

below) 

Original and final appropriated budget 

Actual amounts (Budgetary basis) 

Column to report the variance between the final budget 

and actual amounts is encouraged, a column to 

report the variance between the original and final 

budgets is allowed 

Required Supplementary Information (RSI)

Required supplementary information consists of statements, 

schedules, statistical data, or other information that 

GASB has determined is necessary to supplement, 

although not required to be a part of, the general purpose 

financial statements of a governmental entity. 

COMBINING AND INDIVIDUAL FUND STATEMENTS 

Combining statements are limited to nonmajor funds and 

are not required under GASB Statement 34 

COMBINING AND INDIVIDUAL FUND AND ACCOUNT 

GROUP STATEMENTS AND SCHEDULES 

Combining Statements 

By Fund Type when a governmental unit has more than one 

fund of a given fund type 

For Discretely Presented Component Units when the reporting 

entity has more than one component unit 

Individual Fund and Account Group Statements 

When a governmental unit (including blended component 

units) has only one fund type & for account groups or 

when necessary to present prior year and budgetary 

comparisons 

Schedules 

To demonstrate finance-related legal and contractual 

compliance 

To present information spread throughout the statements that 

can be brought together and shown in greater detail 

To present in greater detail information reported in the 

statements 

STATISTICAL CHAPTER 

The following statistical tables should be included in the 

CAFR unless clearly inapplicable in the 

circumstances: 

Governmentwide Revenues and Expenses 

General Governmental Expenditures by Function 

General Revenues by Source 

Property Tax Levies and Collections 

Assessed and Estimated Actual Value of Taxable Property 

STATISTICAL CHAPTER 

The following statistical tables should be included CAFR 

unless clearly inapplicable in the circumstances: 

General Governmental Expenditures by Function 

General Revenues by Source 

Property Tax Levies and Collections 

Assessed and Estimated Actual Value of Taxable Property 

Property Tax Rates—All Overlapping Governments 
78 

Contents of the CAFR Under the New Reporting Model 

per Statement 34 

Contents of the CAFR Under the Previous Reporting 

Model 

Property Tax Rates—All Overlapping Governments 

Special Assessment Billings and Collections 

Ratio of Net General Bonded Debt to Assessed Value and 

Net Bonded Debt per Capita 

Computation of Legal Debt Margin 

Computation of Overlapping Debt 

Ratio of Annual Debt Service for General Bonded Debt to 

Total General Expenditures 

Revenue Bond Coverage 

Demographic Statistics 

Property Value, Construction, and Bank Deposits 

Principal Taxpayers 

Miscellaneous Statistics 

Special Assessment Billings and Collections 

Ratio of Net General Bonded Debt to Assessed Value and Net 

Bonded Debt per Capita 

Computation of Legal Debt Margin, if not presented in the 

General Purpose Financial Statements 

Computation of Overlapping Debt 

Ratio of Annual Debt Service for General Bonded Debt to 

Total General Expenditures 

Revenue Bond Coverage 

Demographic Statistics 

Property Value, Construction, and Bank Deposits 

Principal Taxpayers 

Miscellaneous Statistics 

As table 5 shows, the new reporting model involves significant changes to the financial 

statements prepared and presented by governmental entities. The next sub-section outlines the 

major elements of the financial statements and related disclosures as required by Statement 34: 

• Basic Financial Statements 

• Management’s Discussion and Analyses (MD&A) and Other RSI 

• Component Units 

Basic Financial Statements 

Under the new financial reporting model, the basic financial statements are 

• governmentwide financial statements, 

• fund financial statements, and 

• note disclosures. 

The basic financial statements replace the combined general-purpose financial statements 

(GPFS) required by the former reporting model. 
79 

Governmentwide Financial Statements 

The purpose of governmentwide financial statements is to present the financial position and the 

operating results of the governmental entity as a whole. The statements are expected to provide 

users with operational accountability information and to enable them to do the following: 

• Understand the true financial position of the governmental entity, including capital 

and financial assets and long-term as well as short-term liabilities. 

• Determine whether the entity is able to continue to provide current service levels and 

meet its obligations as they become due. 

• Determine the operating results of the entity, including the economic cost and the net 

cost of services, and assess the economy, efficiency, and effectiveness of operations. 

GASB Statement 34 allows governments to elect to present budgetary comparison information as 

part of the basic financial statements, rather than as required supplemental information (RSI) 

(Statement 34, paragraphs 130 and 131).

The governmentwide financial statements are 

• Statement of Net Assets and 

• Statement of Activities. 

Statement of Net Assets. The Statement of Net Assets presents the financial position of the 

governmental entity and its discretely presented component units. This statement is required to 

present all financial and capital resources on the accrual basis of accounting. Statement 34 

encourages the use of a net assets format, which subtracts liabilities from assets to reflect the net 

assets, rather than the standard balance sheet format, which presents a total for assets equal to a 

total of liabilities and net assets. However, either presentation is acceptable. 

The Statement of Net Assets presents a columnar presentation of the assets, liabilities, and net 

assets of the reporting entity in two categories: governmental activities and business-type 

activities. Discretely presented component units are reflected in a separate column or columns on 

the face of the statement. Statement 34 does not alter the requirements for presenting component 

units as established by Statement 14, The Financial Reporting Entity (issued in June 1991). 

Table 6 highlights the major differences between the Statement 34 presentation for the statement 

of net assets and the balance sheet presentation under the previous reporting model. 
80 

Table 6. Statement of Net Assets vs. Combined Balance Sheet 

Statement of Net Assets Under the New Reporting 

Model 

Combined Balance Sheet Required by the Previous 

Reporting Model 

Focus is on governmental and business-type activities. Focus was on fund-type and account group reporting. 

Reporting is on economic resources measurement focus 

and accrual basis of accounting for all assets and 

liabilities. 

Reporting was on current financial resources 

measurement focus and modified accrual basis of 

accounting for governmental and similar trust funds and 

economic resources measurement focus and accrual 

basis of accounting for proprietary and similar trust funds. 

The statement includes general capital assets and 

general long-term liabilities. 

General fixed assets and general long-term liabilities were 

reported only in account groups. 

Infrastructure assets must be reported. The reporting of infrastructure assets was optional. 

As mentioned above, Statement 34 requires separate columns for governmental activities and 

business-type activities of the reporting entity in the statement of net assets. Table 7 outlines 

definitions within the Statement for these types of activities. 

Table 7. Distinguishing Between Governmental Activities and Business-Type Activities 

Governmental Activities Business-Type Activities 

Activities financed by taxes and intergovernmental revenues 

and other nonexchange revenues 

Activities for which fees are charged to external 

parties for goods or services 

Activities reported in governmental funds and internal service 

funds as applicable 

Activities reported in Enterprise funds and internal 

service funds (as applicable) 

Internal clearing account funds (e.g., payroll-clearing 

accounts) should be reported in the governmental activities 

column. Funds used to account for tax collections on behalf 

of other entities should be accounted for in agency funds 

(fiduciary funds) and, therefore, be excluded from the 

governmentwide financial statements. 

Statement 34 states that although internal service funds are reported as proprietary funds of the 

reporting entity, the activities accounted for in internal service funds are usually more 

governmental than business-type in nature. If enterprise funds are the predominant or only 

participants in an internal service fund, however, the entity should report the internal service 

fund’s residual assets and liabilities within the business-type activities column in the Statement 

of Net Assets. 

Other presentation requirements relative to the Statement of Net Assets follow: 

• A total column is required for the primary government. A total column for the entity 

as a whole, including the discretely presented component units, may be presented but 

is not required. 
81 

• Comparative financial statements are not required but may be presented at the option 

of the governmental entity. If comparative financial statements are presented, all 

columns must be included for both years. 

• Fiduciary funds and fiduciary component units are specifically excluded from the 

governmentwide statements because fiduciary resources cannot be used to support the 

entity’s programs or other services. 

• Statement 34 encourages the presentation of assets and liabilities that is based on their 

relative liquidity. A classified presentation, which distinguishes between current and 

long-term assets and liabilities, is also acceptable. Table 8 outlines the definitions of 

liquidity of assets and liabilities. 

Table 8. Determining Liquidity of Assets and Liabilities 

Assets Liabilities 

Determined by how readily the asset is expected to be 

converted into cash and whether restrictions limit use 

of resources 

Based on maturity, or when cash is expected to be 

used for liquidation 

 Liabilities whose average maturities are greater than 

one year should be reported in two components—the 

amount due within one year and the amount due in 

more than one year. 

Statement of Activities. The operations of the governmental unit should be presented in a net 

(expense) revenues format in the Statement of Activities. General revenues, contributions to term 

and permanent endowments, contributions to permanent fund principal, special and extraordinary 

items, and transfers should be reported separately after the total net expenses of the entity’s 

functions to arrive at the “change in net assets” for the period. The purpose of using this format is 

twofold: 

• To report the relative financial burden of each of the government’s functions or 

programs on its taxpayers 

• To identify the extent to which each function (program) draws from the general 

revenues of the organization or is self-supporting through fees and intergovernmental 

aid 

As outlined in the previous discussion, revenues must be categorized according to their purpose 

as either general or program revenues in the statement of activities. 

Fund Financial Statements

Fund Financial Statements are categorized into three fund types described as follows. 

Governmental Fund Financial Statements. Governmental fund financial statements (including 

financial statements for the general, special revenue, capital projects, debt service, and permanent 
82 

funds) should be prepared using the current financial resources measurement focus and the 

modified accrual basis of accounting. Under this measurement focus and basis of accounting, 

revenues should be recognized in the accounting period in which they become available and 

measurable and expenditures should be recognized in the accounting period in which the fund 

liability is incurred, if measurable, except for unmatured interest on general long-term debt, 

which should be recognized when due. 

Proprietary Fund Financial Statements. Proprietary fund financial statements (including 

financial data for enterprise and internal service funds) should be prepared using the economic 

resources measurement focus and the accrual basis of accounting. Accordingly, revenues should 

be recognized in the accounting period in which they are earned and become measurable, and 

expenses should be recognized in the period incurred, if measurable. 

Fiduciary Fund Financial Statements. Fiduciary fund financial statements (including financial 

data for fiduciary funds and similar component units) should be prepared using the economic 

resources measurement focus and the accrual basis of accounting. Revenues should be 

recognized in the accounting period in which they are earned and become measurable, and 

expenses should be recognized in the period incurred, if measurable. 

Table 9 compares the financial statement types by focus and basis of accounting. 

Table 9. Measurement Focus and Basis of Accounting for Financial Statements 

Financial Statements Measurement Focus Basis of 

Accounting 

Governmentwide Financial Statements Economic Resources Accrual 

Governmental Funds Financial Statements Current Financial Resources Modified Accrual 

Proprietary Funds Financial Statements Economic Resources Accrual 

Fiduciary Funds Financial Statements Economic Resources Accrual 

Note Disclosures 

Section 2200 of GASB Codification, Comprehensive Annual Financial Report, requires notes to 

the financial statements that are essential to present fairly the financial position and results of 

operations (and cash flows of those types of funds and discretely presented component units that 

use proprietary fund accounting). The notes to the financial statements should focus on the 

primary government and its discretely presented component units. 

GASB Statement 34 does not amend the existing general note disclosure requirements but 

requires additional disclosures as follows. 

Summary of Significant Accounting Policies (Additional Disclosure Requirements). 

• A description of the new governmentwide financial statements indicating the 

elements of the statement of net assets and the statement of activities, noting the 
83 

exclusion of fiduciary funds and component units that are fiduciary in nature, and the 

measurement focus and basis of accounting used. 

• The policy for eliminating internal activity in the statement of activities. 

• The policy for applying FASB pronouncements issued after November 30, 1989, to 

proprietary funds and governmentwide financial statements. 

• The policy for capitalizing assets and for estimating useful lives (for calculating 

depreciation expense). 

• A description of the types of transactions included in program revenues and the policy 

for allocating indirect expenses to functions in the statement of activities. 

• The policy for defining operating and nonoperating revenues of proprietary funds. 

• The policy regarding whether the government first applies restricted or unrestricted 

resources when an expense is incurred for purposes for which both restricted and 

unrestricted net assets are available. In other words, governments are required to state 

whether they spend restricted funds only when unrestricted amounts are insufficient 

or unavailable or whether they spend restricted funds first and use unrestricted 

resources when the restricted funds are depleted. Disclosure of this policy is essential 

to help readers understand the significance of restricted and unrestricted net assets 

relative to total net assets. 

The requirement for additional significant accounting policy disclosure relates only to the 

governmentwide statements and essentially calls for descriptive comments about the elements, 

purposes, and scope of the statements of net assets and activities. The MD&A, in contrast, relates 

to both governmentwide and fund financial statements and is oriented more toward the 

relationship between the two. 

Required Disclosures for Capital Assets. Statement 34 requires disclosure of each major class of 

capital assets, including capitalized collections of works of art, historical treasures, and similar 

assets. Capital assets associated with governmental activities should be reported separately from 

those associated with business-type activities, capital assets being depreciated separately from 

those that are not being depreciated, and the valuation basis separately from accumulated 

depreciation. For each class, the following information should be presented, if applicable: 

• Beginning- and end-of-year balances, with accumulated depreciation by asset class 

shown separately from the valuation basis 

• Capital acquisitions 
84 

• Sales or other dispositions 

• Current-period depreciation expense including the amounts charged to each function 

in the statement of activities 

The disclosure should also contain a description of the noncapitalized collections of works of art 

and the reasons for noncapitalization of these assets. 

Required Disclosures for Long-Term Liabilities. The note disclosures should contain 

information about long-term liabilities, including long-term debt instruments such as bonds, 

notes, loans, and leases payable, as well as other long-term liabilities such as compensated 

absences, claims, and judgments, as follows: 

• Beginning- and end-of-year balances 

• Increases 

• Decreases 

• The portions of each item that are due within one year of the statement date 

• Information on the governmental funds typically used to liquidate long-term liabilities 

in prior years. The disclosure should also indicate whether the government has 

decided to depart from the historical trend and use other funds to liquidate liabilities. 

The purpose of this disclosure is to give readers additional information about future 

claims against financial resources to help them assess the fund balances of specific 

funds 

Information about net pension obligations is required to be disclosed in a separate pension note 

using the requirements of GASB Statement 27, Accounting for Pensions by State and Local 

Governmental Employers. 

Disclosures Relating to Donor-Restricted Endowments. The following information is required 

relating to donor-restricted endowments in the notes: 

• Amounts of net appreciation on investments available for authorization for 

expenditure by the governing board and a description on how amounts are reported in 

net assets 

• State laws relating to the ability to spend net appreciation 

• Policy for authorizing and spending investment income 

Segment Disclosures. Section 2200 of GASB Codification, Comprehensive Annual Financial 

Report, requires presenting segment information for certain individual enterprise funds of the 

governmental entity, including its blended component units. The term segment in Section 2200 
85 

refers to an individual enterprise fund of a state or local government. GASB Statement 34 

redefines the term segment, in relation to the needs of users for additional financial information, 

as an identifiable activity reported as or within an enterprise fund or other stand-alone entity for 

which one or more revenue bonds or other revenue-backed debt instruments are outstanding. 

The definition of a segment requires that a specific identifiable revenue stream be pledged in 

support of revenue bonds or other revenue-backed debt. It is not a requirement that the debt be 

backed solely by pledged revenues. The identifiable activity is typically the source of the pledged 

revenues. In addition, there must be an externally imposed requirement to separately account for 

the activity’s revenues, expenses, gains and losses, assets, and liabilities. (GASB Statement 37, p. 

17). 

Segment disclosures are not required for an activity in which the only outstanding debt is conduit 

debt for which the entity has no obligation beyond the resources provided by related leases or 

loans. In addition, segment reporting is not required when an individual fund both is a segment 

and is reported as a major fund. 

GASB Statement 34 requires the following segment disclosures: 

 

• Type of goods and services provided by the segment 

• Condensed statement of net assets 

• Condensed statement of revenues, expenses, and changes in net assets. 

• Condensed statement of cash flows 

• Statement of activities (encouraged but not required for governments that want to 

present disaggregated information for multiple function enterprise funds in addition to 

the information above) 

• Externally imposed requirements to track each element needed for condensed 

financial statements 

Additionally, GASB Statement 38, Certain Financial Statement Note Disclosures, expanded note 

disclosures within the summary of significant accounting policies to include (1) the activities 

accounted for in major funds, internal service funds, and fiduciary fund type columns and (2) 

disclosure of the period used to define “available” for revenue recognition purposes. Other 

disclosure requirements addressed by this statement include (1) violations of finance-related legal 

or contractual provisions; (2) debt service for debt and lease obligations; (3) short-term debt 

obligations; (4) disaggregation of receivable and payable balances; and (5) details of interfund 

balances and transfers. 
86 

Management’s Discussion & Analysis and Other RSI 

The management’s discussion and analysis (MD&A) is part of the required supplementary 

information (RSI); however, it precedes the financial statements. It should be based on currently 

known facts as of the date of the audit report and should 

• provide a concise, unbiased, and easily readable description of the government’s 

financial activities and 

• help users understand the relationship of the results reported in the governmental 

activities in the governmentwide financial statements and the results reported in the 

governmental funds financial statements (usually focused on the major funds). 

The focus of the MD&A should be on the primary government. However, information on any 

discretely presented component units may be presented as well. GASB has stated that both the 

positive and negative aspects of the government’s operations should be presented to inform the 

reader about whether the government is in better or worse financial condition than in the prior 

year. The focus should be on only significant or material items. 

MD&A is restricted to the following topics, although there is no limit to the information that may 

be presented about these topics. 

• Information and discussion on the basic financial statements presented, their 

relationship to one another, and the significant differences in the information they 

provide. The discussion should include the different methods of accounting used in 

the governmentwide and fund financial statements. 

• Condensed financial information comparing the current year and the prior year. 

The analysis should include specific economic factors that contributed to the change. 

Charts and graphs may be used to supplement information in the condensed 

statements but should not be used in place of it. 

• Objective analysis of the governmental entity’s financial condition as a whole. 

Analysis of the government’s overall financial position and results of operations 

should address both governmental and business-type activities separately. 

• An analysis of balances and transactions on a fund basis, addressing the reasons 

for significant changes in fund balances or fund net assets. The analysis should also 

include information on whether restrictions, commitments, or other limitations 

significantly affect the availability of fund resources for future use. 

• A discussion on significant variances among the entity’s original budget, final 

budget, and actual expenditures for the General Fund or its equivalent and the 

impact of these variances on the entity’s future liquidity. 

• A description of activity relating to the government’s capital assets and long-term 

debt activity during the year. This discussion should include commitments made for 
87 

capital expenditures, changes in credit ratings, and debt limitations affecting the 

financing of planned facilities or services. 

• A discussion of information about the modified approach used to report some or all 

of the infrastructure assets, if applicable. 

• A description of currently known facts, decisions, or conditions expected to have an 

impact on financial position and results of operation. The term currently known is 

limited to events or decisions that have occurred, been enacted, adopted, agreed on, or 

contracted as of the date of the auditor’s report. The discussion should address 

expected effects on both governmental and business-type activities. 

Information that does not address the requirements above should not be included in the MD&A 

but instead may be reported as supplementary information or included in the letter of transmittal. 

The entity should ensure that information contained in MD&A is not duplicated in the letter of 

transmittal. Differences between MD&A and the letter of transmittal are outlined in table 10. 

Table 10. Important Distinctions Between MD&A and Letter of Transmittal 

MD&A Letter of Transmittal 

Presented as part of the Financial Chapter in the 

Comprehensive Annual Financial Report (CAFR). 

Presented as part of the Introductory Chapter in 

the Comprehensive Annual Financial Report 

(CAFR) 

Must present only topics required by GASB 

Statement 34 

Not limited to topics described in GASB 

standards 

Provides a summary and analysis of the 

government’s overall financial position and 

operations 

Highly structured and requires information only on 

currently known facts, conditions, or decisions 

Provides an opportunity to discuss future plans 

If the reporting entity provides comparative financial statements by presenting basic financial 

statements and RSI for two years, a separate MD&A for each year is not required, but it must 

address both years presented in the comparative financial statements. MD&A should include 

comparative condensed financial information and related analysis for both years.

Component Units 

It is essential that governmental financial statements provide an overview of the reporting entity 

that is based on financial accountability, yet allow users to distinguish between the primary 

government and its component units. GASB Statement 14, The Financial Reporting Entity, 

issued in June 1991, established criteria for evaluating potential component units and provided 

guidance in the statement presentation of those entities that met the criteria. Component units are 

defined as legally separate organizations for which the primary government is financially 

accountable or for which the nature and significance of the relationship with the primary 
88 

government are such that exclusion would cause the reporting entity’s financial statements to be 

misleading or incomplete. (Statement 14, paragraph 20) 

Financial accountability for a potential component unit is determined by either of the following: 

 

• Appointment of the voting majority of the potential component unit governing board by 

the primary government and either 

− the ability to impose its will on the potential component unit or

− a relationship of financial benefit or burden with the potential component unit. 

• The potential component unit is fiscally dependent upon the primary government. 

If a potential component unit does not meet either of the two tests above for financial 

accountability, an organization may still be included in the financial statements of the primary 

government based on the criterion that exclusion would result in a misleading or incomplete 

presentation of the financial reporting entity. 

In May 2002, GASB issued Statement 39, Determining Whether Certain Organizations Are 

Component Units, which amended Statement 14 to establish the criteria for the inclusion of 

organizations on this basis. A legally separate, tax-exempt organization should be reported as a 

component unit if all of the following criteria are met: 

• The economic resources of the separate organization are received or held for the benefit 

of the primary government, its component units, or its constituents. 

• The primary government, or its component units, may access or is entitled to a majority of 

the economic resources of the separate organization. 

• The economic resources of an individual organization that the primary government, or its 

component units, is entitled to or may access are significant to the primary government. 

(Statement 39, paragraph 5) 

This standard continues the requirement for inclusion of organizations based on the GASB 

Statement 14, paragraph 20 “misleading or incomplete” criterion but emphasizes that “financial 

integration” may also be a component of all of the aforementioned criteria. Additional guidance 

on evidence of financial integration is also provided in Statement 39. 

Component units may be 

• blended, as though they are part of the primary government, or 

• discretely presented. 

GASB Statement 34 does not amend the definition of component units or the general reporting 

requirements. 
89 

Blended Component Units 

Even though it is preferable to distinguish between the primary government and its component 

units, certain component units, despite being legally separate from the reporting entity, are so 

intertwined with the entity that they are, in effect, the same as the primary government. 

Accordingly, GASB has stated that these component units should be reported as part of the 

primary government. Thus, the component unit’s balances and transactions should be reported in 

a manner similar to the way balances and transactions of the reporting government itself are 

reported. This method of inclusion is known as blending. 

A component unit should be blended in either of these circumstances: 

• The component unit’s governing body is substantively the same as the governing 

body of the primary government. 

• The component unit provides services entirely, or almost entirely, to the reporting 

entity or otherwise exclusively, or almost exclusively, benefits the entity even though 

it does not provide services directly to it. 

Some component units account for their activities in a single fund; others use all or several fund 

types. If a component unit is blended, the types of funds of the component unit should be blended 

with those of the primary government by including them in the appropriate combining statements 

of the primary government. However, because the primary government’s general fund is usually 

the main operating fund and often is a focal point for report users, a general fund should be 

presented only for the primary government. The general fund of a blended component unit should 

be reported as a special revenue fund. 

Discretely Presented Component Units 

Discrete presentation of component units refers to the method of reporting financial data of 

component units in a column(s) and row(s) separate from the financial data of the primary 

government. 

When component units are presented in the basic financial statements (i.e., Statement of Net 

Assets and Statement of Activities), each statement should distinguish between the governmental 

and business-type activities of the government and between the total entity and its discretely 

presented component units, by reporting each in separate columns (and rows in the Statement of 

Activities). Component units that are fiduciary in nature, however, should be included only in the 

fund financial statements with the entity’s fiduciary funds. 

Statement 39 provides that a discrete presentation must be used for an organization that meets the 

requirements as a component unit under its new criteria. (Statement 39, paragraph 7) 

CONCLUSION

An entity’s financial statements are an important element in conveying the current state, financial 

health, and future viability of the organization. Financial statements, regardless of the industry, 
90 

report on a number of similar components, including assets, liabilities, and equity (i.e., fund 

balances or net assets). School districts and other governmental agencies are no exception. 

The GASB is the oversight body responsible for establishing the governmental reporting criteria, 

including the level of detail, format, and required contents of external financial statements. 

GASB provides much guidance in the proper interpretation and implementation of these 

requirements. Readers are encouraged to refer to this source for further questions on financial 

reporting issues not covered in this document. 
91 

CHAPTER 6: ACCOUNT CLASSIFICATION DESCRIPTIONS

This chapter establishes the hierarchy of the account code structure. This structure gives an entity 

the ability to accurately and effectively report on its financial activities. The hierarchy for both 

revenues and expenditures gives districts the necessary code structure to segregate and group 

accounts with the greatest amount of flexibility and, therefore, the ability to produce the most 

useful financial statements. 

This chapter provides the basic account structure necessary for uniform financial reporting by 

state education agencies and public schools, including charter schools. Additionally, private 

schools may use this chart of accounts to report financial information that is comparable to that 

of the public education sector. Local and state needs and requirements may call for additional 

levels of account details and reporting requirements to be added to this basic structure. The basic 

structure and codes discussed herein are sufficient to comply with federal reporting requirements 

and those established by GASB Statement 34 for fund reporting. 

The account code structure associated with revenues is relatively straightforward because each 

revenue is identified by source, ranging from general to specific. Expenditures, however, use a 

series of levels in a hierarchy to identify the following: 

• The fund from which funds are being expended 

• The program that is spending the funds 

• The function for which the funds are being spent 

• The object on which the funds are spent 

• The project for which funds are being spent (used mainly for reporting, e.g., grants) 

• The level of instruction associated with the expenditure 

• The operational unit on which the funds are being spent 

• The subject matter on which the funds are being spent 

• The job class associated with the expenditure 

Although the code structure for the accounting of expenditures may initially appear complex, it 

has been established to develop sound guidelines for school district account codes and, therefore, 

to provide for more comparable financial statements among districts. 
92 
93 

FUND CLASSIFICATIONS

A “Permanent Fund” (code 5) was added in the draft 2003 handbook to account for resources 

that are legally restricted to the extent that only earnings, and not principal, may be used by the 

school district. Codes for Enterprise Funds and Internal Service Funds were moved up to make 

room for the new Permanent Fund code. The Trust and Agency Fund in the 1990 handbook was 

broken out into two funds in the 2003 handbook; Trust Funds (code 8) and Agency Funds (code 

9). The General Fixed Assests (in the 1990 handbook) was deleted. The new fund classifications 

are presented below. 

Code Description 

Governmental Fund Types 

1 General Fund. This fund is the chief operating fund of the school district. It is used to 

account for all financial resources of the school district except for those required to be 

accounted for in another fund. A district may have only one general fund. 

2 Special Revenue Funds. This fund is used to account for the proceeds of specific revenue 

sources (other than trusts or major capital projects) that are legally restricted to expenditure 

for specified purposes. Some examples of special revenue funds are 

• restricted state or federal grants-in-aid and 

• restricted tax levies. 

A separate fund may be used for each identified restricted source, or one fund may be used, 

supplemented by the classification Project/Reporting code.

3 Capital Projects Funds. This fund is used to account for financial resources to be used 

to acquire or construct major capital facilities (other than those of Proprietary funds and 

trust funds). The most common source of capital projects funding is the sale of bonds or 

other capital financing instruments. A separate fund may be used for each capital project 

or one fund may be used, supplemented by the classification Project/Reporting code. 

4 Debt Service Funds. This fund is used to account for the accumulation of resources for, 

and the payment of, general long-term debt principal and interest. 

5 Permanent Funds. This fund is used to account for resources that are legally restricted to 

the extent that only earnings, and not principal, may be used for purposes that support the 

school district’s programs. 

Proprietary Fund Types 

6 Enterprise Funds. This fund may be used to account for any activity for which a fee is 

charged to external users for goods or services. Enterprise funds are required to be used to 
94 

account for any activity whose principal revenue sources meet any of the following 

criteria: 

• Debt backed solely by revenues from fees and charges (thus, not debt that is backed 

by the full faith and credit of the school district) 

• Legal requirement to recover costs through fees and charges 

• Policy decision of the governing board of management to recover the costs of 

providing services through fees or charges

Some examples of enterprise funds are activities such as the food service program, the 

bookstore operation, the athletic stadium, or the community swimming pool. 

7 Internal Service Funds. This fund may be used to account for any activity within the school 

district that provides goods or services to other funds, departments, component units, or 

other governments on a cost-reimbursement basis. The use of an internal service fund is 

appropriate only for activities in which the school district is the predominant participant in 

the activity. Otherwise, the activity should be reported as an enterprise fund. Examples of 

internal service funds are such activities as central warehousing and purchasing, central data 

processing, and central printing and duplicating. 

Fiduciary Fund Types 

8 Trust Funds. These funds are used to account for assets held by a school district in a trustee 

capacity for others (e.g., members and beneficiaries of pension plans, external investment 

pools, or private purpose trust arrangements) and therefore cannot be used to support the 

school district’s own programs. Trust funds are generally accounted for on the economic 

resources measurement focus and the accrual basis of accounting (except for the recognition 

of certain liabilities of defined benefit pension plans and certain post-employment healthcare 

plans; refer to GASB 26 and 27 for guidance on the recognition of these liabilities). Trust 

funds include pension trust funds, investment trust funds, and private-purpose trust funds (as 

described below).

• Pension Trust Funds. This fund is used to account for resources that are required to 

be held in trust for members and beneficiaries of defined benefit pension plans, 

defined contribution plans, other post-employment benefit plans, or other benefit 

plans. Typically, these funds are used to account for local pension and other employee 

benefit funds that are provided by a school district in lieu of or in addition to any state 

retirement system. 

• Investment Trust Funds. This fund is used to account for the external portion (i.e., the 

portion that does not belong to the school district) of investment pools operated by the 

school district. 
95 

• Private-Purpose Trust Funds. This fund is used to account for other trust 

arrangements under which the principal and income benefit individuals, private 

organizations, or other governments. 

9 Agency Funds. This account is used for funds that are held in a custodial capacity by a 

school district for individuals, private organizations, or other governments. Agency funds 

may include those used to account for student activities or taxes collected for another 

government. 

PROGRAM

A program is a plan of activities and procedures designed to accomplish a predetermined 

objective or set of objectives. Nine broad program areas are identified in this guide that are 

intended to capture similar instructional services delivered to both public and charter schools: 

regular education, special education, vocational education, other instructional (PK–12), nonpublic school, adult/continuing education, community/junior college education, community 

services, and co-curricular/extra-curricular activities. The program classification provides the 

school district with a framework to classify instructional and other expenditures by program to 

determine cost. For purposes of designating program codes for non-instructional expenditures it 

may be necessary to create a designation for those costs which cannot be attributed to a specific 

program. Many state departments of education use a function/object matrix only, for reporting 

financial information from the school district to the state. Under this system, the function is 

subclassified to gather instructional program information. The results in only direct instructional 

costs being classified to the instruction function. Those support costs, which provide support to 

specific instructional programs, are classified as a general support function. 

Code Description 

100 Regular Elementary/Secondary Education Programs. Activities that provide students 

in prekindergarten∗

 through grade 12 with learning experiences to prepare them for 

further education or training and for responsibilities as citizens, family members, and 

workers. Regular programs should be distinguished from special education programs that 

focus on adapting curriculum or instruction to accommodate a specific disability; from 

vocational/technical programs that focus on career skills; and from alternative education 

programs that focus on the educational needs of students at risk of failing or dropping out 

of school because of academic, behavioral, or situational factors. 

200 Special Programs. Special Programs include activities for elementary and secondary 

students (prekindergarten*

 through grade 12) receiving services outside the realm of 

“regular programs.” These services are related to mental retardation, orthopedic impairment, 

emotional disturbance, developmental delay, specific learning disabilities, multiple 

disabilities, hearing impairment, other health impairments, visual impairments including 

blindness, autism, deaf-blindness, traumatic brain injury, and speech or language 

 

*Prekindergarten refers to all programs and ages preceding kindergarten, including infant and early childhood programs. 
96 

impairments. Special Programs is also inclusive of students receiving services related to 

gifted and talented programs. 

Mental retardation means significantly subaverage general intellectual functioning, 

existing concurrently with deficits in adaptive behavior and manifested during the 

developmental period, that adversely affects a child’s educational performance. 

Orthopedic impairment means a severe orthopedic impairment that adversely 

affects a child’s educational performance. The term includes impairments caused by a 

congenital anomaly (e.g., clubfoot, absence of some member), impairments caused by 

disease (e.g., poliomyelitis, bone tuberculosis), and impairments from other causes 

(e.g., cerebral palsy, amputations, and fractures or burns that cause contractures). 

Emotional disturbance is defined as follows: 

(i) A condition exhibiting one or more of the following characteristics over a long 

period of time and to a marked degree that adversely affects a child’s 

educational performance: 

(A) An inability to learn that cannot be explained by intellectual, sensory, or 

 health factors. 

 (B) An inability to build or maintain satisfactory interpersonal relationships 

 with peers and teachers. 

 (C) Inappropriate types of behavior or feelings under normal circumstances. 

 (D) A general pervasive mood of unhappiness or depression. 

(E) A tendency to develop physical symptoms or fears associated with 

 personal or school problems. 

 

(ii) The term includes schizophrenia. The term does not apply to children who are 

socially maladjusted, unless it is determined that they have an emotional 

disturbance. 

Developmental delay programs are for children aged 3 through 9 who are experiencing 

developmental delays, as defined by the state and as measured by appropriate diagnostic 

instruments and procedures, in one or more of the following areas: physical 

development, cognitive development, communication development, social or emotional 

development, or adaptive development. 
97 

Specific learning disability is defined as follows: 

(i) The term means a disorder in one or more of the basic psychological processes 

involved in understanding or in using language, spoken or written, that may 

manifest itself in an imperfect ability to listen, think, speak, read, write, spell, 

or do mathematical calculations, including conditions such as perceptual 

disabilities, brain injury, minimal brain dysfunction, dyslexia, and 

developmental aphasia. 

(ii) The term does not include learning problems that are primarily the result of 

visual, hearing, or motor disabilities; of mental retardation; of emotional 

disturbance; or of environmental, cultural, or economic disadvantage. 

Multiple disabilities means concomitant impairments (e.g., mental retardationblindness, mental retardation-orthopedic impairment), the combination of which 

causes such severe educational needs that the student cannot be accommodated in 

special education programs solely for one of the impairments. The term does not 

include deaf-blindness. 

Hearing impairment means impairment in hearing, whether permanent or 

fluctuating, that adversely affects a child’s educational performance but that is not 

included under the definition of deafness in this chapter. 

Other health impairment means having limited strength, vitality, or alertness, 

including a heightened alertness to environmental stimuli, that results in limited 

alertness with respect to the educational environment, that— 

(i) is due to chronic or acute health problems such as asthma, attention deficit 

disorder or attention deficit hyperactivity disorder, diabetes, epilepsy, a heart 

condition, hemophilia, lead poisoning, leukemia, nephritis, rheumatic fever, 

and sickle cell anemia; and 

(ii) adversely affects a child’s educational performance. 

Visual impairment, including blindness, means impairment in vision that, even 

with correction, adversely affects a child’s educational performance. The term 

includes both partial sight and blindness. 

Autism means a developmental disability significantly affecting verbal and nonverbal 

communication and social interaction, generally evident before age 3, that adversely 

affects a child’s educational performance. Other characteristics often associated with 

autism are engagement in repetitive activities and stereotyped movements, resistance 

to environmental change or change in daily routines, and unusual responses to sensory 

experiences. The term does not apply if a child’s educational performance is adversely 

affected primarily because the child has an emotional disturbance, as previously 

defined in this chapter. 
98 

Deaf-blindness means concomitant hearing and visual impairments, the combination 

of which causes such severe communication and other developmental and educational 

needs that the child cannot be accommodated in special education programs solely for 

children with deafness or children with blindness. 

Traumatic brain injury means an acquired injury to the brain caused by an external 

physical force, resulting in total or partial functional disability or psychosocial 

impairment, or both, that adversely affects a child’s educational performance. The 

term applies to open or closed head injuries resulting in impairments in one or more 

areas, such as cognition; language; memory; attention; reasoning; abstract thinking; 

judgment; problem-solving; sensory, perceptual, and motor abilities; psychosocial 

behavior; physical functions; information processing; and speech. The term does not 

apply to brain injuries that are congenital or degenerative or to brain injuries induced 

by birth trauma. 

Speech or language impairment means a communication disorder, such as 

stuttering, impaired articulation, language impairment, or voice impairment, that 

adversely affects a child’s educational performance. 

Gifted and talented behavior consists of behaviors that reflect an interaction among 

three basic clusters of human traits: above average general and/or specific abilities, 

high levels of task commitment, and high levels of creativity. Individuals capable of 

developing gifted behavior are those possessing or capable of developing this 

composite set of traits and applying them to any potentially valuable area of human 

performance. Persons who manifest or are capable of developing an interaction 

among the three clusters require a wide variety of educational opportunities and 

services that are not ordinarily provided through regular instructional programs 

(Renzulli and Reis 1997). 

300 Vocational and Technical Programs. Activities delivered through traditional 

comprehensive and vocational-technical high schools or recognized charter schools that 

prepare students to meet challenging academic standards as well as industry skill standards 

while preparing students for broad-based careers and further education beyond high school 

in the following 16 career cluster areas: 

• Agriculture and Natural Resources. Activities that prepare students for a wide 

range of agriculturally related careers from veterinarian to underground mine 

mechanic. 

• Architecture and Construction. Activities that prepare students for careers in the 

construction industry such as plumber, painter, construction manager, and architect. 
99 

• Arts, A/V Technology and Communication. Activities that prepare students for 

careers in arts and communication, including writing, editing, radio and television 

broadcasting, acting, and music. 

• Business and Administration. Activities that prepare students for careers in 

business-related areas, such as administrative support, accounting, management, and 

supervision. 

• Education and Training. Activities that prepare students for careers in education, 

such as teacher, librarian, coach, and counselor. 

• Finance. Activities that prepare students for careers in the financial services industry, 

including insurance services, financial analysis, and banking. 

• Government and Public Administration. Activities that prepare students for public 

service careers, such as legislator, urban planner, city manager, and parks/recreation 

director. 

• Health Science. Activities that prepare students for careers in the health services 

industry, including nursing, medicine, physical therapy, pharmacy, and medical 

support. 

• Hospitality and Tourism. Activities that prepare students for careers in the 

hospitality and tourism industry, such as travel agent, food preparation worker, hotel 

manager, and bartender. 

• Human Services. Activities that prepare students for careers in community services, 

such as social worker, religious worker, recreation worker, and clergy. 

• Information Technology. Activities that prepare students for careers in the 

information technology services area, including working with databases, designing 

software, and programming and repairing computers. 

• Law and Public Safety. Activities that prepare students for careers in legal and 

protective services, such as correction officer, police officer, lawyer, and judge. 

• Manufacturing. Activities that prepare students for careers in traditional industries 

such as steel and textiles or cutting-edge industries such as aerospace and electronics. 

• Retail/Wholesale Sales and Service. Activities that prepare students for careers in 

the sales and service industry, such as marketing/public relations manager, real estate 

agent, hairdresser, retail salesperson, and telemarketer. 

• Scientific Research and Engineering. Activities that prepare students for careers in 

science and engineering, including chemical, civil, and mechanical engineering; 

biological and chemical sciences; surveying; and astronomy. 
100 

• Transportation, Distribution, and Logistics. Activities that prepare students for 

careers in the transportation industry, such as aircraft mechanic, railroad conductor, 

school bus driver, truck driver, and ship pilot. 

400 Other Instructional Programs—Elementary/Secondary. Activities that provide students 

in prekindergarten∗

 through K–12 with learning experiences not included in the Program 

codes 100–300 or 500–900. Examples of such programs follow: 

• Bilingual-English for Speakers of Other Languages (ESOL). Activities for 

students from homes where the English language is not the primary language spoken. 

• Alternative (and At Risk) Education Programs. Activities for students assigned to 

alternative campuses, centers, or classrooms designed to provide improved behavior 

modification and/or an enhanced learning experience. Typically, alternative education 

programs are designed to meet the needs of students that cannot be addressed in a 

traditional classroom setting. 

500 Non-Public School Programs. Activities for students attending a school established by 

an agency other than the state, a subdivision of the state, or the federal government, which 

usually is supported primarily by other than public funds. The services consist of such 

activities as those involved in providing instructional services, attendance and social work 

services, health services, and transportation services for non-public school students. 

600 Adult/Continuing Education Programs. Activities that develop knowledge and skills to 

meet immediate and long-range educational objectives of adults who, having completed or 

interrupted formal schooling, have accepted adult roles and responsibilities. Programs 

include activities to foster the development of fundamental tools of learning; prepare 

students for a postsecondary career; prepare students for postsecondary education programs; 

upgrade occupational competence; prepare students for a new or different career; develop 

skills and appreciation for special interests; or enrich the aesthetic qualities of life. Adult 

basic education programs are included in this category. 

700 Community/Junior College Education Programs. Activities for students attending an 

institution of higher education that usually offers the first two years of college instruction. If 

the school district is responsible for providing this program, all costs of the program should 

be coded here. 

800 Community Services Programs. Activities that are not directly related to the provision of 

educational services in a school district. These include such services as community 

recreation programs, civic activities, public libraries, programs of custody and care of 

children, and community welfare activities provided by the district for the community as a 

whole or for some segment of the community. 

 

*Prekindergarten refers to all programs and ages preceding kindergarten, including infant and early childhood programs.
101 

Community Recreation. Activities concerned with providing recreation for the 

community as a whole or for some segment of the community. Included are such 

staff activities as organizing and supervising playgrounds, swimming pools, and 

similar programs. 

Civic Services. Activities concerned with providing services to civic affairs or 

organizations. This program area includes services to parent-teacher association 

meetings, public forums, lectures, and civil defense planning. 

Public Library Services. Activities pertaining to the operation of public libraries 

by a school district or the provision of library services to the general public through 

the school library. Included are such activities as budgeting, planning, and 

augmenting the library’s collection in relation to the community and informing the 

community of public library resources and services. 

Custody and Child Care Services. Activities pertaining to the provision of 

programs for the custodial care of children in residential day schools or child-care 

centers that are not part of, or directly related to, the instructional program and 

where the attendance of the children is not included in the attendance figures for the 

district. 

Welfare Activities. Activities pertaining to the provision of personal needs of 

individuals who have been designated as needy by an appropriate governmental 

entity. These needs include stipends for school attendance; salaries paid to students 

for work performed (whether for the school district or for an outside concern); and 

funds for clothing, food, or other personal needs. 

Other Community Services. Activities provided to the community that cannot be 

classified under the other program 800 codes. 

900 Co-curricular and Extra-curricular Activities. Activities that add to a student’s 

educational experience but are not related to educational activities. These activities typically 

include events and activities that take place outside the traditional classroom. Some 

examples of such activities are student government, athletics, band, choir, clubs, and honors 

societies. 
102 
103 

BALANCE SHEETS/STATEMENT OF NET ASSETS

Code Description 

Assets

101 Cash in Bank. All funds on deposit with a bank or savings and loan institution, normally in 

non-interest-bearing accounts. Interest-bearing accounts are recorded in investments. 

102 Cash on Hand. Currency, coins, checks, postal and express money orders, and bankers’ 

drafts on hand. 

103 Petty Cash. A sum of money set aside to pay small obligations for which the issuance of a 

formal voucher and check would be too expensive and time-consuming. 

104 Change Cash. A sum of money set aside to provide change. 

105 Cash With Fiscal Agents. Deposits with fiscal agents, such as commercial banks, for 

paying matured bonds and interest. 

111 Investments. Securities and real estate held for producing income in the form of interest, 

dividends, rentals, or lease payments. Investments should be presented at fair value as of 

the reporting date. Gains and losses from changes in the fair value of investments are 

recorded using revenue account 1530. The account does not include capital assets used in 

school district operations. Separate accounts for each category of investments may be 

maintained. 

112 Unamortized Premiums on Investments. The excess of the amount paid for securities 

over the face value that has not yet been amortized. Use of this account is restricted to 

short-term money market investments. 

113 Unamortized Discounts on Investments (Credit). The excess of the face value of 

securities over the amount paid for them that has not yet been written off. Use of this 

account is restricted to short-term investments. 

114 Interest Receivable on Investments. The amount of interest receivable on investments, 

excluding interest purchased. Interest purchased should be shown in a separate account. 

115 Accrued Interest on Investments Purchased. Interest accrued on investments between 

the last interest payment date and the date of purchase. The account is carried as an asset 

until the first interest payment date after the date of purchase. 

121 Taxes Receivable. The uncollected portion of taxes that a school district or government 

unit has levied and that has become due, including any interest or penalties that may be 

accrued. Separate accounts may be maintained on the basis of tax roll year, current and 

delinquent taxes, or both. 
104 

122 Allowance for Uncollectible Taxes (Credit). The portion of taxes receivable estimated 

not to be collected. The account is shown on the balance sheet as a deduction from the 

Taxes Receivable account to arrive at the net taxes receivable. Separate accounts may be 

maintained on the basis of tax roll year, delinquent taxes, or both.

131 Interfund Loans Receivable. An asset account used to record a loan by one fund to 

another fund in the same governmental unit. It is recommended that separate accounts be 

maintained for each interfund receivable loan. 

132 Interfund Accounts Receivable. An asset account used to indicate amounts owed to a 

particular fund by another fund in the same school district for goods sold or services 

rendered. It is recommended that separate accounts be maintained for each interfund 

receivable. 

141 Intergovernmental Accounts Receivable. Amounts due to the reporting governmental 

unit from another governmental unit. These amounts may represent grants-in-aid, shared 

taxes, taxes collected for the reporting unit by another unit, loans, and charges for services 

rendered by the reporting unit for another government. It is recommended that separate 

accounts be maintained for each interagency receivable. 

151 Loans Receivable. Amounts that have been loaned to persons or organizations, including 

notes taken as security for such loans, where permitted by statutory authority. 

152 Allowance for Uncollectible Loans (Credit). The portion of loans receivable estimated 

not to be collected. The account is shown on the balance sheet as a deduction from the 

Other Loans Receivable account. 

153 Other Accounts Receivable. Amounts owing on open account from private persons, 

firms, or corporations for goods and services furnished by a school district (but not 

including amounts due from other funds or from other governmental units). 

154 Allowance for Uncollectible Accounts Receivable (Credit). A provision for that portion 

of accounts receivable that is estimated will not be collected. The account is shown on the 

balance sheet as a deduction from the Other Accounts Receivable account. 

171 Inventories for Consumption. The cost of supplies and equipment on hand not yet 

distributed to requisitioning units. 

172 Inventories for Resale. The value of goods held by a school district for resale rather than 

for use in its own operations. 

181 Prepaid Items. Expenditure/expenses paid for benefits not yet received. Prepaid expenses 

differ from deferred charges in that they are spread over a shorter period of time than 
105 

deferred charges and are regularly recurring costs of operation. Examples of prepaid 

expenses are prepaid rent, prepaid interest, and unexpired insurance premiums. 

191 Deposits. Funds deposited by the school district as prerequisite to receiving services, 

goods, or both.

192 Deferred Expenditures/Expenses. Certain disbursements that are made in one period but 

are more accurately reflected as an expenditure/expense in the next fiscal period. 

193 Capitalized Bond and Other Debt Issuance Costs. Represents certain bond and other 

debt issuance costs, including lease-purchase debt issuance costs, that are capitalized for the 

purpose of accounting for the cost/valuation basis of capital assets. 

194 Premium and Discount on Issuance of Bonds. Represents amounts to be amortized as 

debt premium/discount in connection with the issuance of bonds. 

199 Other Current Assets. Current assets not provided for elsewhere. 

200 Capital Assets. Those assets that the school district intends to hold or continue in use over 

a long period of time. Specifically, capital assets include land, improvements to land, 

easements, buildings and building improvements, vehicles, machinery, equipment, works of 

art and historical treasures, infrastructure, and all other tangible or intangible assets that are 

used in operations and that have initial useful lives that extend beyond a single reporting 

period. 

211 Land and Land Improvements. A capital asset account that reflects the acquisition value 

of land owned by a school district. If land is purchased, this account includes the purchase 

price and costs such as legal fees, filling and excavation costs, and other associated 

improvement costs incurred to put the land in condition for its intended use. If land is 

acquired by gift, the account reflects its fair value at the time of acquisition. Further, 

permanent improvements to land, such as grading and fill, should be accounted for in this 

account. 

 Land and land improvements are considered nonexhaustible assets owing to their 

significantly long expected useful life. Nonexhaustible assets are not to be depreciated. 

Therefore, all assets classified by asset code 211 will not result in a depreciation expense.

221 Site Improvements. A capital asset account that reflects the value of non-permanent 

improvements to building sites, other than buildings, that add value to land. Examples of 

such improvements are fences, retaining walls, sidewalks, pavements, gutters, tunnels, and 

bridges. If the improvements are purchased or constructed, this account contains the 

purchase or contract price. If improvements are obtained by gift, it reflects the fair value at 

the time of acquisition. 
106 

 Site improvements are improvements that have a limited useful life. Because these 

improvements decrease in their value/usefulness over time, it is appropriate to depreciate 

these assets. Therefore, all capitalized site improvements should be depreciated over their 

expected useful life. 

222 Accumulated Depreciation on Site Improvements. Accumulated amounts for the 

depreciation of land improvements. 

231 Buildings and Building Improvements. A capital asset account that reflects the 

acquisition value of permanent structures used to house persons and property owned by the 

school district. If buildings are purchased or constructed, this account includes the purchase 

or contract price of all permanent buildings and the fixtures attached to and forming a 

permanent part of such buildings. This account includes all building improvements, 

including upgrades made to building wiring for technology. If buildings are acquired by 

gift, the account reflects their fair value at the time of acquisition. 

232 Accumulated Depreciation on Buildings and Building Improvements. Accumulated 

amounts for the depreciation of buildings and building improvements. 

241 Machinery and Equipment. Tangible property of a more or less permanent nature, other 

than land, buildings, or improvements thereto, that is useful in carrying on operations. 

Examples are machinery, tools, trucks, cars, buses, computers, purchased software, 

furniture, and furnishings. Appendix E provides criteria to distinguish whether a purchase 

is a supply or a piece of machinery or equipment. 

242 Accumulated Depreciation on Machinery and Equipment. Accumulated amounts for 

the depreciation of machinery and equipment. 

251 Works of Art and Historical Treasures. Individual items or collections of items that are 

of artistic or cultural importance. 

252 Accumulated Depreciation on Works of Art and Historical Collections. Accumulated 

amounts for the depreciation (as applicable) of works of art and historical treasures. 

261 Infrastructure. A capital asset, network, or subsystem that has a useful life that is 

significantly longer than those of other capital assets. These assets may include water/sewer 

systems, roads, bridges, tunnels, and other similar assets. 

262 Accumulated Depreciation on Infrastructure. Accumulated amounts for the 

depreciation of infrastructure assets. 

271 Construction in Progress. The cost of construction work undertaken but not yet 

completed.
107 

Liabilities 

401 Interfund Loans Payable. A liability account used to record a debt owed by one fund to 

another fund in the same governmental unit. It is recommended that separate accounts be 

maintained for each interfund loan. 

402 Interfund Accounts Payable. A liability account used to indicate amounts owed by a 

particular fund and services rendered. It is recommended that separate accounts be 

maintained for each interfund payable. 

411 Intergovernmental Accounts Payable. Amounts owed by the reporting school district to 

another governmental unit. It is recommended that separate accounts be maintained for 

each interagency payable. 

421 Accounts Payable. Liabilities on open account owing to private persons, firms, or 

corporations for goods and services received by a school district (but not including amounts 

due to other funds of the same school district or to other governmental units). 

422 Judgments Payable. Amounts due to be paid by a school district as the result of court 

decisions, including condemnation awards paid for private property taken for public use. 

423 Warrants Payable. Amounts due to designated payees in the form of a written order 

drawn by the school district directing the school district treasurer to pay a specific amount. 

431 Contracts Payable. Amounts due on contracts for assets, goods, and services received by a 

school district. 

432 Construction Contracts Payable—Retainage. Liabilities on account of construction 

contracts for that portion of the work that has been completed but on which part of the 

liability has not been paid pending final inspection, or the lapse of a specified time period, 

or both. The unpaid amount is usually a stated percentage of the contract price. 

433 Construction Contracts Payable. Amounts due by a school district on contracts for 

constructing buildings and other structures and other improvements. 

441 Matured Bonds Payable. Bonds that have reached or passed their maturity date but that 

remain unpaid. 

442 Bonds Payable—Current. Bonds that have not reached or passed their maturity date but 

are due within one year or less. This account is used only in Proprietary or Fiduciary funds. 

443 Unamortized Premiums on Issuance of Bonds. An account that represents that portion of 

the excess of bond proceeds over par value and that remains to be amortized over the 

remaining life of such bonds. 

451 Loans Payable. Short-term obligations representing amounts borrowed for short periods of 

time, usually evidenced by notes payable or warrants payable. 
108 

452 Lease Obligations—Current. Capital lease obligations that are due within one year. 

455 Interest Payable. Interest due within one year. 

461 Accrued Salaries and Benefits. Salary and fringe benefit costs incurred during the current 

accounting period that are not payable until a subsequent accounting period. 

471 Payroll Deductions and Withholdings. Amounts deducted from employees’ salaries for 

withholding taxes and other purposes. District-paid benefits amounts payable also are 

included. A separate liability account may be used for each type of benefit. 

472 Compensated Absences—Current. Compensated absences that will be paid within one 

year. 

473 Accrued Annual Requirement Contribution Liability. A liability arising from payments 

not made to pension funds. This amount represents any difference between the actuarially 

determined annual required contribution and actual payments made to the pension fund. 

481 Deferred Revenues. A liability account that represents revenues collected before they 

become due. 

491 Deposits Payable. Liability for deposits received as a prerequisite to providing or receiving 

services, goods, or both. 

499 Other Current Liabilities. Other current liabilities not provided for elsewhere. 

Long-Term Liabilities. Obligations with a maturity of more than one year. These 

accounts should be used only with Proprietary and Fiduciary funds. 

511 Bonds Payable. Bonds that have not reached or passed their maturity date and that are not 

due within one year. 

512 Accreted Interest. An account that represents interest that is accrued on deep discount 

bonds. This account should be used by school districts that issue capital appreciation 

bonds. Such bonds are usually issued at a deep discount from the face value, and no 

interest payment is made until maturity. Under full accrual accounting, the district is 

required to accrete the interest on the bonds over the life of the bonds. Accretion is the 

process of systematically increasing the carrying amount of the bond to its estimated 

value at the maturity date of the bond. To calculate accreted interest, the district should 

impute the effective interest rate, using the present value, the face value (or the future 

value), and the period of the bond, and multiply the effective interest rate by the book 

value of the debt at the end of the period. Accreted interest is usually recorded as an 

addition to the outstanding debt liability. 
109 

513 Unamortized Gains/Losses on Debt Refundings. An account that represents the 

difference between the reacquisition price and the net carrying amount of old debt when a 

current or advance refunding of debt occurs. This account should be used only when 

defeasance of debt occurs for Proprietary funds. The unamortized loss amount should be 

deferred and amortized as a component of interest expense in a systematic and rational 

manner over the remaining life of the old debt or the life of the new debt, whichever is 

shorter. On the balance sheet, this deferred amount should be reported as a deduction 

from or an addition to the new debt liability. 

521 Loans Payable. An unconditional written promise signed by the maker to pay a certain 

sum of money one year or more after the issuance date. 

531 Capital Lease Obligations. Amounts remaining to be paid on capital lease agreements. 

551 Compensated Absences. Amounts remaining beyond the period of one year to be paid on 

compensated absences balances. 

561 Arbitrage Rebate Liability. Liabilities arising from arbitrage rebates to the IRS from 

bond financing. 

590 Other Long-Term Liabilities. Other long-term liabilities not provided for elsewhere. 

This account represents amounts due after more than one year from the balance sheet date 

for advances from other funds and certain miscellaneous liabilities, including workers’ 

compensation, self-funded insurance, and legal claims and judgments. 

Fund Balances/Fund Net Asset 

711 Reserve for Inventories. A reserve representing that portion of a fund balance segregated 

to indicate that assets equal to the amount of the reserve are invested in inventories and are, 

therefore, not available for appropriation. The use of this account is optional unless the 

purchases method of accounting for inventory is used. 

712 Reserve for Prepaid Items. A reserve representing that portion of a fund balance 

segregated to indicate that assets equal to the amount of the reserve are tied up and are, 

therefore, not available for appropriation. The use of this account is optional. 

713 Reserve for Encumbrances. A reserve representing that portion of a fund balance 

segregated to provide for unliquidated encumbrances. Separate accounts may be 

maintained for current encumbrances and prior-year encumbrances. 

714 Other Reserved Fund Balance. A reserve representing that portion of a fund balance 

segregated to indicate that assets equal to the amount of the reserve are obligated and are, 

therefore, not available for appropriation. It is recommended that a separate reserve be 

established for each special purpose. One example of a special purpose are restricted 

Federal programs. 
110 

720 Designated Fund Balance. A designation representing that portion of a fund balance 

segregated to indicate that assets equal to the amount of the designation have been 

earmarked by the governing board or senior management for a bona fide purpose in the 

future. 

730 Unreserved Fund Balance. The excess of the assets of a fund over its liabilities, fund 

reserves, and designations. 

740 Invested in Capital Assets, Net of Related Debt. This account is used to record the net 

asset component invested in capital assets, net of related debt, which represents total capital 

assets less accumulated depreciation less debt directly related to capital assets. This 

account is to be used in Proprietary funds only. 

750 Restricted Net Assets. This account is used to record the net assets component—restricted 

net assets—which represents net assets restricted by sources internal or external to the 

organization. This account is to be used in Proprietary funds only. 

760 Unrestricted Net Assets. This account is used to record the net asset component—

unrestricted net assets—which represents net assets not classified in accounts 740 and 750. 

This account is to be used in Proprietary funds only. 
111 

CLASSIFICATIONS OF REVENUE AND OTHER FINANCING SOURCES

Code Description 

Revenues 

1000 Revenue From Local Sources 

1100 Taxes Levied/Assessed by the School District. Compulsory charges levied by the school 

district to finance services performed for the common benefit. 

1110* Ad Valorem Taxes. Taxes levied by a school district on the assessed value of real and 

personal property located within the school district that, within legal limits, is the final 

authority in determining the amount to be raised for school purposes. Separate accounts 

may be maintained for real property and for personal property. Penalties and interest on ad 

valorem taxes should be included in account 1140. 

1120* Sales and Use Taxes. Taxes assessed by the school district imposed on the sale and 

consumption of goods and services. They can be imposed on the sale and consumption 

either as a general tax on the retail price of all goods and/or services sold within the school 

district jurisdiction, with few or limited exemptions, or as a tax on the sale or consumption 

of selected goods and services. Separate accounts may be maintained for general sales tax 

and for selective sales taxes. Penalties and interest on sales and use taxes should be 

included in account 1140. 

1130* Income Taxes. Taxes assessed by the school district and measured by net income—that is, 

by gross income less certain deductions permitted by law. These taxes can be levied on 

individuals, corporations, or unincorporated businesses where the income is taxed 

distinctively from individual income. Separate accounts may be maintained for individual, 

corporate, and unincorporated business income taxes. Penalties and interest on income 

taxes should be included in account 1140. 

1140*

 Penalties and Interest on Taxes. Revenue from penalties for the payment of taxes after 

the due date and the interest charged on delinquent taxes from the due data of actual 

payment. A separate account for penalties and interest on each type of tax may be 

maintained. 

1190* Other Taxes. Other forms of taxes the school district levies/assesses, such as licenses and 

permits. Separate accounts may be maintained for each specific type of tax. 

1200*

 Revenue From Local Governmental Units Other Than School Districts. Revenue from 

the appropriations of another local governmental unit. The school district is not the final 

authority, within legal limits, in determining the amount of money to be received, and the 

money is raised by taxes or other means that are not earmarked for school purposes. This 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
112 

classification includes revenue from townships, municipalities, and counties. In a city 

school system, the municipality would be considered a local governmental unit. In this 

instance, revenue from the county would be considered revenue from an intermediate 

source and coded in the 2000 revenue series. 

1210* Ad Valorem Taxes. Taxes levied for school purposes by a local governmental unit other 

than the school district. The school district is not the final authority, within legal limits, in 

determining the amount to be raised. For example, after a school district has determined 

that a certain amount of revenue is necessary, another governmental unit may exercise 

discretionary power in reducing or increasing the amount. Separate accounts may be 

maintained for real property and for personal property. Penalties and interest on ad valorem 

taxes should be included in account 1240. 

1220 Sales and Use Tax. Taxes assessed by a local governmental unit other than a school 

district and imposed on the sale and consumption of goods and services. They can be 

imposed either as a general tax on the retail price of all goods and/or services sold within 

the school district jurisdiction, with few or limited exemptions, or as a tax on the sale or 

consumption of selected goods and services. Separate accounts may be maintained for 

general sales tax and for selective sales taxes. Penalties and interest on sales and use taxes 

should be included in account 1240. 

1230 Income Taxes. Taxes assessed by a local governmental unit other than a school district, 

measured by net income—that is, by gross income less certain deductions permitted by law. 

These taxes can be levied on individuals, corporations, or unincorporated businesses where 

there is income. Separate accounts may be maintained for individual, corporate, and 

unincorporated business income taxes. Penalties and interest on income taxes should be 

included in account 1240. 

1240 Penalties and Interest on Taxes. Revenue from penalties for the payment of taxes after 

the due date and the interest charged on delinquent taxes from the due date of actual 

payment. A separate account for penalties and interest on each type of tax may be 

maintained. 

1280 Revenue in Lieu of Taxes. Payments made out of general revenues by a local 

governmental unit to the school district in lieu of taxes it would have had to pay had its 

property or other tax base been subject to taxation by the school district on the same basis as 

privately owned property. Such revenue would include payments made for privately owned 

property that is not subject to taxation on the same basis as other privately owned property 

because of action by the local governmental unit. 

1290 Other Taxes. Other forms of taxes by a local governmental unit other than a school 

district, such as licenses and permits. Separate accounts may be maintained for each 

specific type of tax. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
113 

1300 Tuition. Revenue from individuals, welfare agencies, private sources, and other school 

districts and government sources for education provided by the school district. 

1310* Tuition From Individuals

1320* Tuition From Other Government Sources Within the State

1321* Tuition From Other School Districts Within the State

1330* Tuition From Other Government Sources Outside the State

1331* Tuition From School Districts Outside the State 

1340* Tuition From Other Private Sources (other than individuals) 

1350* Tuition From the State/Other School Districts for Voucher Program Students

1400 Transportation Fees. Revenue from individuals, welfare agencies, private sources, or 

other school districts and government sources for transporting students to and from school 

and school activities. 

1410* Transportation Fees From Individuals

1420* Transportation Fees From Other Government Sources Within the State 

1421* Transportation Fees From Other School Districts Within the State 

1430* Transportation Fees From Other Government Sources Outside the State 

1431* Transportation Fees From Other School Districts Outside the State 

1440* Transportation Fees From Other Private Sources (other than individuals)

1500* Investment Income. Revenue from short-term and long-term investments. 

1510 Interest on Investments. Interest revenue on investments in United States treasury and 

agency obligations, commercial paper, savings accounts, time certificates of deposit, 

mortgages, or other interest-bearing instruments. 

1520 Dividends on Investments. Revenue from dividends on stocks held for investment. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
114 

1530 Net Increase in the Fair Value of Investments. Gains recognized from the sale of 

investments or changes in the fair value of investments. Gains represent the excess of 

sale proceeds (or fair value) over cost or any other basis of the date of sale (or valuation). 

All recognized investment gains may be accounted for by using this account; however, 

interest earnings from short-term investments may be credited to account 1510 (for 

tracking purposes only). For financial reporting purposes, GASB Statement 31 requires 

that all investment income, including the changes in fair value of investments, be reported 

as revenue in the operating statement. 

An additional account (expenditure object code 930) has been established for investment 

losses so that districts may report gains or losses separately as required in certain states 

(or where only credits may be reported for revenue codes and only debits for expenditure 

codes). However, account 1530 may be used to record the net of all investment gains or 

losses (reported as a contra revenue). 

1531 Realized Gains (Losses) on Investments. Gains or losses recognized from the sale of 

investments. Gains represent the excess of sale proceeds over cost or any other basis of 

the date of sale. Losses represent the excess of the cost or any other basis at the date of 

sale over sales value. For financial reporting purposes, the net of all realized and 

unrealized investment gains and losses should be reported as a single line in the financial 

statements; however, this account and the following account may be used for internal 

tracking purposes. 

1532 Unrealized Gains (Losses) on Investments. Gains or losses recognized from changes in 

the value of investments. Gains represent the excess of fair value over cost or any other 

basis of the date of valuation. Losses represent the excess of the cost or any other basis at 

the date of valuation over fair value. For financial reporting purposes, the net of all 

realized and unrealized investment gains and losses should be reported as a single line in 

the financial statements; however, this account and the previous account may be used for 

internal tracking purposes. 

1540 Investment Income from Real Property. Revenue for rental, use charges, and other 

income on real property held for investment purposes. 

1600*

 Food Services. Revenue for dispensing food to students and adults. 

1610 Daily Sales—Reimbursable Programs. Revenue from students for the sale of breakfasts, 

lunches, and milk that are considered reimbursable by the United States Department of 

Agriculture. Federal reimbursements are not entered here. They should be recorded under 

Revenue Source 4500. 

1611 Daily Sales—School Lunch Program. Revenue from students for the sale of reimbursable 

lunches as part of the National School Lunch Program. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
115 

1612 Daily Sales—School Breakfast Program. Revenue from students for the sale of 

reimbursable breakfasts as part of the School Breakfast Program. 

1613 Daily Sales—Special Milk Program. Revenue from students for the sale of reimbursable 

milk as part of the Special Milk Program. 

1614 Daily Sales—After-School Program. Revenue from students from the sale of 

reimbursable costs from after-school programs. 

1620 Daily Sales—Non-Reimbursable Programs. Revenue from students or adults for the sale 

of non-reimbursable breakfasts, lunches, and milk. This category includes all sales to 

adults, the second type A lunch to students, and a la carte sales. 

1630 Special Functions. Revenue from students, adults, or organizations for the sale of food 

products and services considered special functions. Some examples are potlucks, 

PTA/PTO-sponsored functions, and athletic banquets. 

1650 Daily Sales—Summer Food Program. Revenue from students from the sale of 

reimbursable costs from summer programs. 

1700*

 District Activities. Revenue resulting from co-curricular and extra-curricular activities 

controlled and administered by the school district. These revenues are not to be 

commingled with the proceeds from student activities. (See Chapter 8 for further 

clarification.) 

1710 Admissions. Revenue from patrons of a school-sponsored activity such as a concert or a 

football game. 

1720 Bookstore Sales. Revenue from sales by students or student-sponsored bookstores. 

1730 Student Organization Membership Dues and Fees. Revenue from students for 

memberships in school clubs or organizations. 

1740 Fees. Revenue from students for fees such as locker fees, towel fees, and equipment fees. 

Transportation fees are recorded under the appropriate account in the 1400 series. 

1750* Revenue From Enterprise Activities. Revenue (gross) from vending machines, school 

stores, soft drink machines, and so on, not related to the regular food service program. 

These revenues are normally associated with activities at the campus level that generate 

incremental local revenues for campus use. 

1790 Other Activity Income. Other revenue from school or district activities. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
116 

1800* Revenue From Community Services Activities. Revenue from community services 

activities operated by a school district. For example, revenue received from operation of a 

skating facility by a school district as a community service would be recorded here. 

Multiple accounts may be established within the 1800 series to differentiate various 

activities. 

1900 Other Revenue From Local Sources. Other revenue from local sources not classified 

above. 

1910* Rentals. Revenue from the rental of either real or personal property owned by the school 

district. Rental of property held for income purposes is not included here, but is recorded 

under account 1540. 

1920* Contributions and Donations From Private Sources. Revenue associated with 

contributions and donations made by private organizations. These organizations include, 

but are not limited to, educational foundations, PTA/PTO organizations, campus booster 

clubs, and private individuals. This code should be used to record on-behalf payments 

made by private organizations to school district personnel (e.g., stipends paid to teachers 

or other school district staff). 

1930*

 Gains or Losses on the Sale of Capital Assets. The amount of revenue over (under) the 

book value of the capital assets sold. For example, the gain on the sale would be the portion 

of the selling price received in excess of the depreciated value (book value) of the asset. 

This account is used in Proprietary and Fiduciary funds only. Revenue account 5300 is used 

for governmental funds. 

An additional account (expenditure object code 940) has been established for accounting 

for losses from capital asset sales so that districts may report gains or losses separately as 

required in certain states (or where only credits may be reported for revenue codes and 

only debits for expenditure codes). However, account 1930 may be used to record all 

gains or losses on these sales (reported as a contra revenue). 

1940* Textbook Sales and Rentals. Revenue from the rental or sale of textbooks. 

1941 Textbook Sales. Revenue from the sale of textbooks. 

1942 Textbook Rentals. Revenue from the rental of textbooks. 

1950* Miscellaneous Revenues From Other School Districts. Revenue from services provided 

other than for tuition and student transportation services. These services could include data 

processing, purchasing, maintenance, cleaning, consulting, and guidance. 

1951 Miscellaneous Revenue From Other School Districts Within the State. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
117 

1952 Miscellaneous Revenue From Other School Districts Outside the State. 

1960* Miscellaneous Revenues From Other Local Governmental Units. Revenue from 

services provided to other local governmental units. These services could include nonstudent transportation, data processing, purchasing, maintenance, cleaning, cash 

management, and consulting. 

1970* Operating Revenues. Goods and services provided for insurance, printing, or data 

processing. This account should be used only for Proprietary funds. 

1980* Refund of Prior Year’s Expenditures. Expenditures that occurred last year that are 

refunded this year. If the refund and the expenditure occurred in the current year, reduce 

this year’s expenditures, as prescribed by GAAP. 

1990*

 Miscellaneous. Revenue from local sources not provided for elsewhere. 

2000* Revenue From Intermediate Sources

2100* Unrestricted Grants-in-Aid. Revenue recorded as grants by the school district from an 

intermediate unit that can be used for any legal purpose desired by the school district 

without restriction. Separate accounts may be maintained for general source grants-in-aid 

that are not related to specific revenue sources of the intermediate governmental unit and/or 

for those assigned to specific sources of revenue as appropriate. 

2200*

 Restricted Grants-in-Aid. Revenue recorded as grants by the school district from an 

intermediate unit that must be used for a categorical or specific purpose. If such money is 

not completely used by the school district, it must be returned, usually to the intermediate 

governmental unit. Separate accounts may be maintained for general source grants-in-aid 

that are not related to specific revenue sources of the intermediate governmental unit and for 

those assigned to specific sources of revenue as appropriate. 

2800*

 Revenue in Lieu of Taxes. Commitments or payments made out of general revenues by an 

intermediate governmental unit to the school district in lieu of taxes it would have had to 

pay had its property or other tax base been subject to taxation by the school district on the 

same basis as privately owned property or other tax base. It would include payment made 

for privately owned property that is not subject to taxation on the same basis as other 

privately owned property because of action by the intermediate governmental unit. 

2900*

 Revenue for/on Behalf of the School District. Commitments or payments made by an 

intermediate governmental jurisdiction for the benefit of the school district or contributions 

of equipment or supplies. Such revenue includes the payment to a pension fund by the 

intermediate unit on behalf of a school district employee for services rendered to the school 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
118 

district and a contribution of capital assets by an intermediate unit to the school district. 

Separate accounts should be maintained to identify the specific nature of the revenue item. 

3000* Revenue From State Sources

3100 Unrestricted Grants-in-Aid. Revenue recorded as grants by the school district from state 

funds that can be used for any legal purpose desired by the school district without 

restriction. Separate accounts may be maintained for general grants-in-aid that are not 

related to specific revenue sources of the state and for those assigned to specific sources of 

revenue as appropriate. 

3200 Restricted Grants-in-Aid. Revenue recorded as grants by the school district from state 

funds that must be used for a categorical or specific purpose. 

If such money is not completely used by the school district, it must be returned, usually to 

the state. Separate accounts may be maintained for general-source grants-in-aid that are not 

related to specific revenue sources of the state and for those assigned to specific sources of 

revenue as appropriate. 

3800 Revenue in Lieu of Taxes. Commitments or payments made out of general revenues by a 

state to the school district in lieu of taxes it would have had to pay had its property or other 

tax base been subject to taxation by the school district on the same basis as privately owned 

property. It includes payment made for privately owned property that is not subject to 

taxation on the same basis as other privately owned property because of action by the state. 

3900* Revenue for/on Behalf of the School District. Commitments or payments made by a state 

for the benefit of the school district or contributions of equipment or supplies. Such 

revenue includes the payment of a pension fund by the state on behalf of a school district 

employee for services rendered to the school district and a contribution of capital assets by a 

state unit to the school district. Separate accounts may be maintained to identify the specific 

nature of the revenue item. 

4000 Revenue From Federal Sources. 

4100*

 Unrestricted Grants-in-Aid Direct From the Federal Government. Revenues direct 

from the federal government as grants to the school district that can be used for any legal 

purpose desired by the school district without restriction. 

4200*

 Unrestricted Grants-in-Aid From the Federal Government Through the State. 

Revenues from the federal government through the state as grants that can be used for any 

legal purpose desired by the school district without restriction. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
119 

4300* Restricted Grants-in-Aid Direct From the Federal Government. Revenues direct from 

the federal government as grants to the school district that must be used for a categorical or 

specific purpose. If such money is not completely used by the school district, it usually is 

returned to the governmental unit. 

4500* Restricted Grants-in-Aid From the Federal Government Through the State. Revenues 

from the federal government through the state as grants to the school district that must be 

used for a categorical or specific purpose. 

4700* Grants-in-Aid From the Federal Government Through Other Intermediate Agencies. 

Revenues from the federal government through an intermediate agency. 

4800* Revenue in Lieu of Taxes. Commitments or payments made out of general revenues by 

the federal government to the school district in lieu of taxes it would have had to pay had its 

property or other tax base been subject to taxation by the school district on the same basis as 

privately owned property or other tax base. Such revenue includes payment made for 

privately owned property that is not subject to taxation on the same basis as other privately 

owned property because of action by the federal governmental unit. 

4900*

 Revenue for/on Behalf of the School District. Commitments or payments made by the 

federal government for the benefit of the school district, or contributions of equipment or 

supplies. Such revenue includes a contribution of capital assets by a federal governmental 

unit to the school district and foods donated by the federal government to the school district. 

Separate accounts should be maintained to identify the specific nature of the revenue item. 

5000*

 Other Financing Sources 

5100 Issuance of Bonds. Used to record the face amount of the bonds that are issued. Shortterm debt proceeds should not be classified as revenue. When a school district issues 

short-term debt (debt with a duration of less than 12 months) that is to be repaid from 

governmental funds, a liability (notes payable) should be recorded in the balance sheet of 

the fund responsible for repayment of the debt. 

5110* Bond Principal. Used to record the face amount of bonds sold. 

5120 Premium or Discount on the Issuance of Bonds. Proceeds from that portion of the sale 

price of bonds in excess of or below their par value. The premium or discount represents an 

adjustment of the interest rate and will be amortized using expenditure object account 834 

or revenue account 6200. 

5200 Fund Transfers In. Used to classify operating transfers from other funds of the district. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
120 

5300 Proceeds From the Disposal of Real or Personal Property. Proceeds from the disposal 

of school property or compensation for the loss of real or personal property. Any gain or 

loss on the disposal of property for Proprietary or Fiduciary funds is recorded in account 

1930. Account 5300 should be used only for proceeds from the disposal of assets that do 

not have significant value. The reporting of major asset sales should be recorded as Special 

Items using account 6300. 

5400 Loan Proceeds. Proceeds from loans greater than 12 months. 

5500 Capital Lease Proceeds. Proceeds from capital leases. 

5600 Other Long-Term Debt Proceeds. Proceeds from other long-term debt instruments not 

captured in the preceding codes (e.g., certificates of obligation). 

6000 Other Items 

6100 Capital Contributions. Capital assets acquired as the result of a donation or bequest of 

an individual, estate, other government, a corporation or an affiliate organization. 

6200 Amortization of Premium on Issuance of Bonds. Credit entries associated with the 

amortization of debt premiums in connection with the issuance of debt. This account is 

used in Proprietary and Fiduciary funds only. 

This account has been established for premium amortization so that districts may report 

amortization of debt premiums and discounts separately as required in certain states (or 

where only credits may be reported for revenue codes and only debits for expenditure 

codes). However, expenditure account 834 may be used to record either debt premiums 

(reported as a contra revenue) or discounts. 

6300 Special Items. Used to classify special items in accordance with GASB Statement 34. 

Included are transactions or events within the control of the school district administration 

that are either unusual in nature or infrequent in occurrence. For some districts, these 

include the sale of certain general governmental capital assets; sale or lease of mineral 

rights, including oil and gas; sale of infrastructure assets; or significant forgiveness of debt 

by a financial institution. Special items may also include events that are not within the 

control of the district. In the governmental funds, these items should be separately 

captioned or disclosed. 

6400 Extraordinary Items. Used to classify items in accordance with GASB 34. Included are 

transactions or events that are outside the control of school district administration and are 

both unusual in nature and infrequent in occurrence. For some districts, these include 

insurance proceeds to cover significant costs related to a natural disaster caused by fire, 

flood, tornado, hurricane, or hail storm; insurance proceeds to cover costs related to an 

environmental disaster; or a large bequest to a small government by a private citizen. 
121 

CLASSIFICATIONS OF EXPENDITURES

FUNCTION

The function describes the activity for which a service or material object is acquired. The 

functions of a school district are classified into five broad areas: Instruction, Support Services, 

Operation of Non-Instructional Services, Facilities Acquisition and Construction, and Debt 

Service. Functions are further classified into subfunctions. 

Code Description 

1000* Instruction. Instruction includes the activities dealing directly with the interaction between 

teachers and students. Teaching may be provided for students in a school classroom, in 

another location such as a home or hospital, and in other learning situations such as those 

involving cocurricular activities. It may also be provided through some other approved 

medium, such as television, radio, computer, Internet, multimedia telephone, and 

correspondence, that is delivered inside or outside the classroom or in other teacher-student 

settings. Included here are the activities of aides or classroom assistants of any type (clerks, 

graders, teaching machines, etc.) who assist in the instructional process. If proration of 

expenditures is not possible for department chairpersons who also teach, include department 

chairpersons who also teach in instruction. Full-time department chairpersons expenditures 

should be included only in 2490. (Used with all programs 100–900) 

2000 Support Services. Support services provide administrative, technical (such as guidance 

and health), and logistical support to facilitate and enhance instruction. These services exist 

as adjuncts for fulfilling the objectives of instruction, community services, and enterprise 

programs, rather than as entities within themselves. 

2100*

 Support Services—Students. Activities designed to assess and improve the well-being of 

students and to supplement the teaching process. 

2110 Attendance and Social Work Services. Activities designed to improve student attendance 

at school that attempt to prevent or solve student problems involving the home, the school, 

and the community. Registration activities for adult education programs are included here. 

Some examples of other services to be reported within this function code are supervision 

services, attendance services, and student accounting services. (Used with all programs 

100–900). 

2120 Guidance Services. Activities involving counseling with students and parents; consulting 

with other staff members on learning problems; evaluating the abilities of students; assisting 

students as they make their own educational and career plans and choices; assisting students 

in personal and social development; providing referral assistance; and working with other 

staff members in planning and conducting guidance programs for students. Guidance 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
122 

services may include supervision services, counseling services, appraisal services, student 

record services, and placement services. (Used with all programs 100–900) 

2130 Health Services. Physical and mental health services that are not direct instruction. 

Included are activities that provide students with appropriate medical, dental, and nursing 

services. (Used with all programs 100–900) 

2140 Psychological Services. Activities concerned with administering psychological tests and 

interpreting the results; gathering and interpreting information about student behavior; 

working with other staff members in planning school programs to meet the special needs of 

students as indicated by psychological tests and behavioral evaluation; and planning and 

managing a program of psychological services, including psychological counseling for 

students, staff, and parents. This function includes the supervision of psychological 

services, related testing and counseling services, and psychotherapy services. (Used with all 

programs 100–900) 

2150 Speech Pathology and Audiology Services. Activities that identify, assess, and treat 

children with speech, hearing, and language impairments. (Usually used with program 200) 

2160 Occupational Therapy–Related Services. Activities that assess, diagnose, or treat 

students for all conditions requiring the services of an occupational therapist. (Usually used 

with program 200) 

2190 Other Support Services—Student. Other support services to students not classified 

elsewhere in the 2100 series. 

2200*

 Support Services—Instruction. Activities associated with assisting the instructional staff 

with the content and process of providing learning experiences for students. 

2210 Improvement of Instruction. Activities primarily for assisting instructional staff in 

planning, developing, and evaluating the process of providing learning experiences for 

students. These activities include curriculum development, techniques of instruction, child 

development and understanding, and staff training. (Used with all programs 100–900) 

2212 Instruction and Curriculum Development. Activities that aid teachers in developing the 

curriculum, preparing and using special curriculum materials, and understanding and 

appreciating the various techniques that stimulate and motivate students. 

2213 Instructional Staff Training. Activities associated with the professional development 

and training of instructional personnel. These include such activities as in-service 

training (including mentor teachers), workshops, conferences, demonstrations, and 

courses for college credit (tuition reimbursement), and other activities related to the 

ongoing growth and development of instructional personnel. Training that supports the 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
123 

use of technology for instruction should be included in this code (states may establish a 

subobject code for specific tracking of technology-related training costs). The 

incremental costs associated with providing substitute teachers in the classroom (while 

regular teachers attend training) should be captured in this function code. All costs 

should be charged to this code regardless of whether training services are provided 

internally or purchased from external vendors. 

2219 Other Improvement of Instruction Services. Activities for improving instruction other 

than those classified above. 

2220 Library/Media Services. Activities concerned with directing, managing, and supervising 

educational media services (e.g., supervisory personnel) as well as such activities as 

selecting, acquiring, preparing, cataloging, and circulating books and other printed 

materials; planning for the use of the library by students, teachers, and other members of the 

instructional staff; and guiding individuals in their use of library books, reference guides 

and materials, catalog materials, special collections, and other materials, whether 

maintained separately or as a part of an instructional materials center. These activities 

include developing and acquiring library materials and operating library facilities. 

Textbooks are not charged to this function but rather to the instruction function. (Used with 

all programs 100–900) 

2230 Instruction-Related Technology. This functional category encompasses all technology 

activities and services for the purpose of supporting instruction. These activities include 

expenditures for internal technology support as well as support provided by external 

vendors using operating funds. These activities include costs associated with the 

administration and supervision of technology personnel, systems planning and analysis, 

systems application development, systems operations, network support services, hardware 

maintenance and support services, and other technology-related costs that relate to the 

support of instructional activities. Specifically, costs associated with the operation and 

support of computer learning labs, media center computer labs, instructional technology 

centers, instructional networks, and similar operations should be captured in this code. 

(Used with all programs 100–900) 

Student Learning Centers. Activities concerned with supporting and maintaining labs 

and centers (outside the classroom) that are established to support the instructional 

environment. These labs and centers may be located in the library or in other locations 

but are not primarily dedicated to student-teacher learning. Labs or learning centers that 

are primarily dedicated to instruction should be coded to Instruction. 

Technology Service Supervision and Administration. Activities concerned with 

directing, managing, and supervising data-processing services. 

Systems Analysis and Planning. Activities concerned with searching for and 

evaluating alternatives for achieving defined objectives, based on judgment and, 

wherever possible, on quantitative methods. Where applicable, these activities pertain 
124 

to the development of data processing procedures or application to electronic dataprocessing equipment. 

Systems Application Development. Activities concerned with the preparation of a 

logical sequence of operations to be performed, either manually or electronically, in 

solving problems or processing data. These activities also involve preparing coded 

instructions and data for such sequences. 

Systems Operations. Activities concerned with scheduling, maintaining, and 

producing data. These activities include operating business machines, data preparation 

devices, and data-processing machines. 

Network Support. Services that support the networks used for instruction-related 

activities. 

Hardware Maintenance and Support 

Professional Development for Instruction-Focused Technology Personnel. Costs 

that are incurred as a result of acquiring knowledge and skills to support instructional 

technologies. 

Technology training for instructional staff should be reported in 2213 (Instructional 

Staff Training). 

2240 Academic Student Assessment. This function is inclusive of those services rendered for 

the academic assessment of the student. (Used with programs 100–400, 600, 700) 

2290 Other Support Services—Instructional Staff. Services supporting the instructional staff 

not properly classified elsewhere in the 2200 series. (Used with all programs 100–900) 

2300*

 Support Services—General Administration. Activities concerned with establishing and 

administering policy for operating the school district. 

2310 Board of Education. Activities of the elected body that has been created according to state 

law and vested with responsibilities for educational activities in a given administrative unit. 

Some examples of services to be included here are board secretary and clerk service. (Used 

with all programs 100–900). 

Supervision of Board of Education Services. Activities concerned with directing and 

managing the general operation of the Board of Education. These include the activities 

of the members of the Board of Education, but do not include any special activities 

defined in the other areas of responsibility described below. They also include any 

activities of the district performed in support of the school district meeting. Legal 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
125 

activities to interpret the laws and statutes and general liability situations are charged 

here, as are the activities of external auditors. 

Board Secretary/Clerk Services. The activities required to perform the duties of the 

Secretary or Clerk of the Board of Education. 

Board Treasurer Services. The activities required to perform the duties of the 

Treasurer of the Board of Education. 

Election Services. Services rendered in connection with any school system election, 

including elections of officers and bond elections. 

Tax Assessment and Collection Services. Services rendered in connection with tax 

assessment and collection. 

Staff Relations and Negotiations . Activities concerned with staff relations 

systemwide and the responsibilities for contractual negotiations with both instructional 

and non-instructional personnel. 

Other Board of Education Services. Board of Education services that cannot be 

classified under the preceding areas of responsibility. 

Legal Services. 

2320 Executive Administration. Activities associated with the overall general administration of 

or executive responsibility for the entire school district. (Used with all programs 100–900) 

Some typical services included in this function code follow: 

Office of the Superintendent. Activities performed by the superintendent and such 

assistants as deputy, associate, and assistant superintendents in generally directing and 

managing all affairs of the school district. These include all personnel and materials in 

the office of the chief executive officer. Activities of the offices of the deputy 

superintendents should be charged here, unless the activities can be placed properly into 

a service area. In this case, they would be charged to service area direction in that 

service area. 

Community Relations. Activities and programs developed and operated systemwide 

for bettering school-community relations. 

State and Federal Relations. Activities associated with developing and maintaining 

good relationships with state and federal officials. The activities associated with grant 

procurement are included. 

Other Executive Administration. Other general administrative services that cannot be 

recorded under the preceding categories. 
126 

2400* Support Services—School Administration. Activities concerned with overall 

administrative responsibility for a school. 

2410 Office of the Principal. Activities concerned with directing and managing the operation of 

a particular school. They include the activities performed by the principal, assistant 

principals, and other assistants while they supervise all operations of the school, evaluate 

the staff members of the school, assign duties to staff members, supervise and maintain the 

records of the school, and coordinate school instructional activities with those of the school 

district. These activities also include the work of clerical staff in support of the teaching 

and administrative duties. (Used with all programs 100–900) 

2490 Other Support Services—School Administration. Other school administration services. 

This function includes graduation expenditure and expenses and full-time department 

chairpersons. (Used with all programs 100–900) 

2500* Central Services. Activities that support other administrative and instructional functions 

including fiscal services, human resources, planning, and administrative information 

technology. 

2510 Fiscal Services. Activities concerned with the fiscal operations of the school district. This 

function includes budgeting, receiving and disbursing, financial and property accounting, 

payroll, inventory control, internal auditing, and funds managing. Fiscal services are 

inclusive of supervision of fiscal services, budgeting services, and payroll, internal audit, 

and general accounting functions. (Used with all programs 100–900) 

2520 Purchasing, Warehousing, and Distributing Services. Activities concerned with 

purchasing, receiving, storing, and distributing supplies, furniture, equipment, and materials 

used in schools or school system operations. (Used with all programs 100–900) 

2530 Printing, Publishing, and Duplicating Services. The activities of printing and publishing 

administrative publications such as annual reports, school directories, and manuals. 

Activities here also include centralized services for duplicating school materials and 

instruments such as school bulletins, newsletters, and notices. (Used with all programs 

100–900) 

2540 Planning, Research, Development, and Evaluation Services. Activities associated with 

conducting and managing systemwide programs of planning, research, development, and 

evaluation for a school system. (Used with all programs 100–900) 

Planning services include activities concerned with selecting or identifying the overall, 

long-range goals and priorities of the organization or program. They also involve 

formulating various courses of action needed to achieve these goals by identifying needs 

and the relative costs and benefits of each course of action. 

 

*Accounting codes that are necessary for the NCES reporting are noted with an asterisk (*). 
127 

Research services include activities concerned with the systematic study and 

investigation of the various aspects of education, undertaken to establish facts and 

principles. 

Development services include activities in the deliberate, evolving process of 

improving educational programs. 

Evaluation services include activities concerned with ascertaining or judging the value 

or amount of an action or an outcome. This is done through careful appraisal of 

previously specified data in light of the particular situation and the goals previously 

established. 

2560 Public Information Services. Activities concerned with writing, editing, and other 

preparation necessary to disseminate educational and administrative information to students, 

staff, managers, and the general public through direct mailing, the various news media, email, the Internet and web sites, and personal contact. The information services function 

code includes related supervision and internal and public information services. Technology 

that supports this code is included in 2580. (Used with all programs 100–900) 

2570 Personnel Services. Activities concerned with maintaining efficient personnel for the 

school system. It includes such activities as recruitment and placement, non-instructional 

staff training, staff transfers, in-service training, health services, and staff accounting. (Used 

with all programs 100–900) 

Supervision of Personnel Services. The activities of directing, managing, and 

supervising staff services. 

Recruitment and Placement. Activities concerned with employing and assigning 

personnel for the school district. 

Personnel Information. Services rendered in connection with the systematic recording 

and summarizing of information relating to staff members employed by the school 

district. 

Non-Instructional Personnel Training. Activities associated with the professional 

development and training of non-instructional personnel. These include such 

activities as in-service training, seminars and conferences, continuing professional 

education, courses for college credit (tuition reimbursement), and other activities 

related to the ongoing growth and development of non-instructional personnel. The 

incremental costs associated with providing temporary employees to perform job 

duties while regular employees attend training should be captured in this function 

code. All costs should be charged to this code regardless of whether training services 

are provided internally or purchased from external vendors. 
128 

Health Services. Activities concerned with medical, dental, and nursing services 

provided for school district employees. Included are physical examinations, referrals, 

and emergency care. 

Other Personnel Services. Personnel services that cannot be classified under the 

preceding functions. 

2580 Administrative Technology Services. Activities concerned with supporting the school 

district’s information technology systems, including supporting administrative networks, 

maintaining administrative information systems, and processing data for administrative 

and managerial purposes. These activities include expenditures for internal technology 

support, as well as support provided by external vendors using operating funds. These 

activities include costs associated with the administration and supervision of technology 

personnel, systems planning and analysis, systems application development, systems 

operations, network support services, hardware maintenance and support services, and 

other technology-related administrative costs. (Used with all programs 100–900) 

Technology Service Supervision and Administration. Activities concerned with 

directing, managing, and supervising data processing services. 

Systems Analysis and Planning. Activities concerned with searching for and 

evaluating alternatives for achieving defined objectives, based on judgment and, 

wherever possible, on quantitative methods. Where applicable, these activities pertain 

to the development of data processing procedures or application to electronic dataprocessing equipment. 

Systems Application Development. Activities concerned with the preparation of a 

logical sequence of operations to be performed, either manually or electronically, in 

solving problems or processing data. These activities also involve preparing coded 

instructions and data for such sequences. 

Systems Operations. Activities concerned with scheduling, maintaining, and 

producing data. These activities include operating business machines, data preparation 

devices, and data-processing machines. 

Network Support 

Hardware Maintenance and Support 

Professional Development Costs for Administrative Technology Personnel 

Other Technology Services. Activities concerned with data processing not described 

above.
129 

2590 Other Support Services—Central Services. Other support services to business not 

classified elsewhere in the 2500 series. (Used with all programs 100–900) 

2600* Operation and Maintenance of Plant. Activities concerned with keeping the physical 

plant open, comfortable, and safe for use and with keeping the grounds, buildings, and 

equipment in effective working condition and state of repair. These include the activities of 

maintaining safety in buildings, on the grounds, and in the vicinity of schools. 

2610 Operation of Buildings. Activities concerned with keeping the physical plant clean and 

ready for daily use. They include operating lighting and HVAC systems and doing minor 

repairs. Also included are the costs of building rental and property insurance. (Used with 

all programs 100–900) 

2620 Maintenance of Buildings. Activities associated with keeping buildings at an acceptable 

level of efficiency through repairs and preventative maintenance. (Used with all programs 

100–900) 

2630 Care and Upkeep of Grounds. Activities involved in maintaining and improving the land 

(but not the buildings). These include snow removal, landscaping, grounds maintenance, 

and the like. (Used with all programs 100–900) 

2640 Care and Upkeep of Equipment. Activities involved in maintaining equipment owned or 

used by the school district. They include such activities as servicing and repairing furniture, 

machines, and movable equipment. (Used with all programs 100–900) 

2650 Vehicle Operation and Maintenance (Other Than Student Transportation Vehicles). 

Activities involved in maintaining general purpose vehicles such as trucks, tractors, graders, 

and staff vehicles. These include such activities as repairing vehicles; replacing vehicle 

parts; and cleaning, painting, greasing, fueling, and inspecting vehicles for safety (i.e., 

preventive maintenance). (Used with all programs 100–900) 

2660 Security. Activities concerned with maintaining a secure environment for students and 

staff, whether they are in transit to or from school, on a campus or administrative facility, 

or participating in school-sponsored events. These include costs associated with security 

plan development and implementation, installation of security monitoring devices (e.g., 

cameras, metal detectors), security personnel (e.g., campus police, security guards), 

purchase of security vehicles and communication equipment, and related costs. Costs 

associated with in-service training related to school safety, drug and violence prevention 

training, and alternative schools should not be accounted for under this function code. 

(Used with all programs 100–900) 

2670 Safety. Activities concerned with maintaining a safe environment for students and staff, 

whether they are in transit to or from school, on a campus or administrative facility, or 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
130 

participating in school-sponsored events. These include costs associated with installing 

and monitoring school fire alarm systems and providing school crossing guards, as well 

as other costs incurred in an effort to ensure the basic safety of students and staff. Costs 

associated with in-service training related to school safety, drug and violence prevention 

training, and alternative schools should not be accounted for under this function code. 

(Used with all programs 100–900) 

2680 Other Operation and Maintenance of Plant. Operations and maintenance of plant 

services that cannot be classified elsewhere in the 2600 series. (Used with all programs 

100-900) 

2700* Student Transportation. Activities concerned with conveying students to and from 

school, as provided by state and federal law. This includes trips between home and school 

and trips to school activities. 

2710 Vehicle Operation. Activities involved in operating vehicles for student transportation, 

from the time the vehicles leave the point of storage until they return to the point of storage. 

These include driving buses or other student transportation vehicles. (Used with all 

programs 100–900) 

2720 Monitoring Services. Activities concerned with supervising students in the process of 

being transported between home and school and between school and school activities. Such 

supervision can occur while students are in transit and while they are being loaded and 

unloaded and it includes directing traffic at the loading stations. (Used with all programs 

100–900) 

2730 Vehicle Servicing and Maintenance. Activities involved in maintaining student 

transportation vehicles. These include repairing vehicle parts; replacing vehicle parts; and 

cleaning, painting, fueling, and inspecting vehicles for safety. (Used with programs 100–

400, 900) 

2790 Other Student Transportation Services. Student transportation services that cannot be 

classified elsewhere in the 2700 series. (Used with programs 100–400, 900) 

2900*

 Other Support Services. All other support services not classified elsewhere in the 2000 

series. (Used with all programs 100–900) 

3000 Operation of Noninstructional Services. Activities concerned with providing 

noninstructional services to students, staff, or the community. 

3100*

 Food Services Operations. Activities concerned with providing food to students and staff 

in a school or school district. This service area includes preparing and serving regular and 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
131 

incidental meals, lunches, or snacks in connection with school activities and food delivery. 

(Used with all programs 100–900) 

3200* Enterprise Operations. Activities that are financed and operated in a manner similar to 

private business enterprises where the stated intent is to finance or recover the costs 

primarily through user charges. Food services should not be charged here but rather to 

function 3100. One example could be the school district bookstore. (Used with all 

programs 100–900) 

3300* Community Services Operations. Activities concerned with providing community 

services to students, staff, or other community participants. Examples of this function 

would be offering parental training or operating a community swimming pool, a recreation 

program for the elderly, or a childcare center for working mothers. (Used only with 

program 800) 

4000* Facilities Acquisition and Construction. Activities concerned with acquiring land and 

buildings; remodeling buildings; constructing buildings and additions to buildings; initially 

installing or extending service systems and other built-in equipment; and improving sites. 

(Used with all programs 100–900) 

4100 Land Acquisition. Activities concerned with initially acquiring and improving land. 

4200 Land Improvement. Activities concerned with making permanent improvements to land, 

such as grading, fill, and environmental remediation. 

4300 Architecture and Engineering. The activities of architects and engineers related to 

acquiring and improving sites and improving buildings. Charges are made to this function 

only for those preliminary activities that may or may not result in additions to the school 

district’s property. Otherwise, charge these services to 4100, 4200, 4500, or 4600, as 

appropriate. 

4400 Educational Specifications Development. Activities concerned with preparing and 

interpreting descriptions of specific space requirements to be accommodated in a building. 

These specifications are interpreted to the architects and engineers in the early stages of 

blueprint development. 

4500 Building Acquisition and Construction. Activities concerned with buying or constructing 

buildings. 

4600 Site Improvement. Activities concerned with making nonpermanent improvements or 

enhancements to building sites. These improvements include fencing, walkways, tunnels, 

and temporary landscaping. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*).
132 

4700 Building Improvements. Activities concerned with building additions and with installing 

or extending service systems and other built-in equipment. 

4900 Other Facilities Acquisition and Construction. Facilities acquisition and construction 

activities that cannot be classified above. 

5000* Debt Service. Activities related to servicing the long-term debt of the school district, 

including payments of both principal and interest. This function should be used to account 

for bond interest payments, retirement of bonded debt (including current and advance 

refundings), capital lease payments, and other long-term notes. Interest on short-term notes 

or loans (repayable within one year of receiving the obligation) is charged to function 2513. 

The receipt and payment of principal on those loans are treated as adjustments to the 

balance sheet account 451. (Used with all programs 100–900) 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
133 

OBJECT

This classification is used to describe the service or commodity obtained as the result of a 

specific expenditure. The nine major object categories are further subdivided. The definitions of 

the object classes and selected sub-object categories follow: 

Code Description 

100* Personal Services—Salaries. Amounts paid to both permanent and temporary school 

district employees, including personnel substituting for those in permanent positions. This 

includes gross salary for personal services rendered while on the payroll of the school 

district. The third position in this group of objects has been left unused (i.e., 0) so that a job 

classification code can be inserted by the school district if desired. (Used with all functions 

except 5000, Debt Service) 

101 Salaries Paid to Teachers

102 Salaries Paid to Instructional Aides or Assistants

103 Salaries Paid to Substitute Teachers

110 Salaries of Regular Employees. Full-time, part-time, and prorated portions of the costs for 

work performed by permanent employees of the school district. 

111 Salaries of Regular Employees Paid to Teachers

112 Salaries of Regular Employees Paid to Instructional Aides and Assistants 

113 Salaries of Regular Employees Paid to Substitute Teachers 

120 Salaries of Temporary Employees. Full-time, part-time, and prorated portions of the 

costs for work performed by employees of the school district who are hired on a temporary 

or substitute basis. 

121 Salaries of Temporary Employees Paid to Teachers

122 Salaries of Temporary Employees Paid to Instructional Aides and Assistants 

123 Salaries of Temporary Employees Paid to Substitute Teachers 

130 Salaries for Overtime. Amounts paid to employees of the school district in either 

temporary or permanent positions for work performed in addition to the normal work period 

for which the employee is compensated under regular salaries and temporary salaries above. 

The terms of such payment for overtime is a matter of state and local regulation and 

interpretation. 

131 Salaries for Overtime Employees Paid to Teachers

132 Salaries for Overtime Employees Paid to Instructional Aides and Assistants 

133 Salaries for Overtime Employees Paid to Substitute Teachers 

140 Salaries for Sabbatical Leave. Amounts paid by the school district to employees on 

sabbatical leave. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
134 

141 Salaries for Sabbatical Leave Paid to Teachers

142 Salaries for Sabbatical Leave Paid to Instructional Aides and Assistants 

143 Salaries for Sabbatical Leave Paid to Substitute Teachers 

150 Additional Compensation Such as Bonuses, or Incentives.

151 Additional Compensation Paid to Teachers

152 Additional Compensation Paid to Instructional Aides and Assistants 

153 Additional Compensation Paid to Substitute Teachers 

200*

 Personal Services—Employee Benefits. Amounts paid by the school district on behalf of 

employees (amounts not included in gross salary but in addition to that amount). Such 

payments are fringe benefit payments and, although not paid directly to employees, 

nevertheless are part of the cost of personal services. The third position in this group of 

objects has been left unused (i.e., 0) so that a job classification code can be inserted by the 

school district if desired. (Used with all functions except 5000, Debt Service) 

201 Employee Benefits for Teachers

202 Employee Benefits for Instructional Aides or Assistants 

203 Employee Benefits for Substitute Teachers 

210 Group Insurance. Employer’s share of any insurance plan. 

211 Group Insurance for Teacher

212 Group Insurance for Instructional Aides or Assistants 

213 Group Insurance for Substitute Teachers 

220 Social Security Contributions. Employer’s share of social security paid by the school 

district. 

221 Social Security Payments for Teachers

222 Social Security Payments for Instructional Aides or Assistants 

223 Social Security Payments for Substitute Teachers 

230 Retirement Contributions. Employer’s share of any state or local employee retirement 

system paid by the school district, including the amount paid for employees assigned to 

federal programs. 

231 Retirement Contributions for Teachers

232 Retirement Contributions for Instructional Aides or Assistants 

233 Retirement Contributions for Substitute Teachers 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
135 

240* On-Behalf Payments. Payments made by the state or other governments on behalf of the 

school district that benefit active employees of the school district. These payments typically 

include state matching of the retirement contributions of school district personnel. An equal 

revenue amount should be recorded in account 2900, 3900, or 4900 depending on the 

source of the payment. 

241 On-Behalf Payments for Teachers

242 On-Behalf Payments for Instructional Aides or Assistants 

243 On-Behalf Payments for Substitute Teachers 

250 Tuition Reimbursement. Amounts reimbursed by the school district to any employee 

qualifying for tuition reimbursement on the basis of school district policy. 

251 Tuition Reimbursement for Teachers

252 Tuition Reimbursement for Instructional Aides or Assistants 

253 Tuition Reimbursement for Substitute Teachers 

260 Unemployment Compensation. Amounts paid by the school district to provide 

unemployment compensation for its employees. These charges should be distributed to the 

appropriate functions in accordance with the salary expenditures. 

261 Unemployment Compensation Paid for Teachers

262 Unemployment Compensation Paid for Instructional Aides or Assistants 

263 Unemployment Compensation Paid for Substitute Teachers 

270 Workers’ Compensation. Amounts paid by the school district to provide workers’ 

compensation insurance for its employees. These charges should be distributed to the 

appropriate functions in accordance with the salary budget or may be charged to function 

2310. 

271 Worker’s Compensation Paid for Teachers

272 Worker’s Compensation Paid for Instructional Aides or Assistants 

273 Worker’s Compensation for Substitute Teachers 

280 Health Benefits. Amounts paid by the school district to provide health benefits for its 

current employees or employees now retired for whom benefits are paid. These charges 

should be distributed to the appropriate functions in accordance with the related salary 

expenditures. 

281 Health Benefits Paid for Teachers

282 Health Benefits Paid for Instructional Aides or Assistants 

283 Health Benefits Paid for Substitute Teachers 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
136 

290 Other Employee Benefits. Employee benefits other than those classified above, including 

fringe benefits such as automobile allowances, housing or related supplements, moving 

expenses, and paid parking. These charges should be distributed to the appropriate 

functions in accordance with the related salary expenditures. 

291 Other Employee Benefits Paid for Teachers

292 Other Employee Benefits Paid for Instructional Aides or Assistants 

293 Other Employee Benefits for Substitute Teachers 

300* Purchased Professional and Technical Services. Services that by their nature can be 

performed only by persons or firms with specialized skills and knowledge. Although a 

product may or may not result from the transaction, the primary reason for the purchase is 

the service provided. Included are the services of architects, engineers, auditors, dentists, 

medical doctors, lawyers, consultants, teachers, and accountants. It is recommended that a 

separate account be established for each type of service provided to the school district. 

Services purchased from another school district or from other government sources should 

be coded to one of the object codes from 590 through 597. 

310 Official/Administrative Services. Services in support of the various policymaking and 

managerial activities of the school district. Included are management consulting activities 

oriented to general governance or business and financial management of the school district; 

school management support activities; and election services and tax assessing and collecting 

services. (Usually used with functions 2300, 2400, and 2500) 

320 Professional Educational Services. Services supporting the instructional program and its 

administration. Included are curriculum improvement services, assessment, counseling and 

guidance services, library and media support, and contracted instructional services. 

(Usually used with functions 1000, 2100, 2200, 2300, and 2400) 

330 Professional Employee Training and Development Services. Services supporting the 

professional development of school district personnel, including instructional and 

administrative employees. Included are course registration fees (that are not tuition 

reimbursement), charges from external vendors to conduct training courses (at either 

school district facilities or off-site), and other expenditures associated with training or 

professional development by third-party vendors. All expenditures should be captured in 

this account regardless of the type or intent of the training course or professional 

development activity. (Usually used with functions 1000 and 2000) 

340 Other Professional Services. Professional services other than educational services that 

support the operation of the school district. Included are medical doctors, lawyers, 

architects, auditors, accountants, therapists, audiologists, dieticians, editors, negotiations 

specialists, systems analysts, planners, and the like. (Usually used with function 2000) 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
137 

350 Technical Services. Services to the school district that are not regarded as professional, but 

that require basic scientific knowledge, manual skills, or both. Included are data processing 

services, purchasing and warehousing services, graphic arts, and the like. (Usually used 

with function 2000) 

351 Data Processing and Coding Services. Data entry, formatting, and processing services 

other than programming. (Usually used with functions 2110, Attendance and Social Work; 

2240, Academic Student Assessment; 2410, Office of the Principal; and 2500, Central 

Services)

352 Other Technical Services. Technical services other than data processing and related 

services. (Usually used with functions 1000–4000)

400* Purchased Property Services. Services purchased to operate, repair, maintain, and rent 

property owned or used by the school district. These services are performed by persons 

other than school district employees. Although a product may or may not result from the 

transaction, the primary reason for the purchase is the service provided. 

410 Utility Services. Expenditures for utility services other than energy services supplied by 

public or private organizations. Water and sewerage are included here. Telephone and 

telegraph are not included here but are classified under object 530. (Used with function 

2600) 

420 Cleaning Services. Services purchased to clean buildings (apart from services provided by 

school district employees), including, but not limited to, disposal services, snow plowing, 

custodial services, and lawn care services. (Used with function 2600) 

430 Repairs and Maintenance Services. Expenditures for repairs and maintenance services 

not provided directly by school district personnel. 

431 Non-Technology-Related Repairs and Maintenance. Contracts and agreements covering 

the upkeep of buildings and non-technology equipment. Costs for renovating and 

remodeling are not included here but are classified under object 450. 

432 Technology-Related Repairs and Maintenance. Expenditures for repairs and 

maintenance services for technology equipment that are not directly provided by school 

district personnel. This includes ongoing service agreements for technology hardware (e.g., 

personal computers and servers). (Used with functions 2230 and 2580) 

440 Rentals. Costs for renting or leasing land, buildings, equipment, and vehicles. 

441 Renting Land and Buildings. Expenditures for leasing or renting land and buildings for 

both temporary and long-range use by the school district. This includes bus and other 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
138 

vehicle rentals when operated by a local school district, lease purchase arrangements, and 

similar rental agreements. (Used with function 2610) 

442 Rental of Equipment and Vehicles. Expenditures for leasing or renting equipment or 

vehicles for both temporary and long-range use by the school district. This includes bus and 

other vehicle rental when operated by a local school district, lease-purchase arrangements, 

and similar rental agreements. This code excludes costs associated with the rental of 

computers or other technology-related equipment. These costs should be coded to 

expenditure object 443 as described below. 

443 Rentals of Computers and Related Equipment. Expenditures for leasing or renting 

computers and related equipment for both temporary and long-range use. 

450*

 Construction Services. Includes amounts for constructing, renovating, and remodeling 

buildings or infrastructure assets paid to contractors. This account should also be used to 

account for the costs of non-permanent site improvements such as fencing, walkways, and 

roads that are related to buildings and building sites. (Used only with function 4000) 

490 Other Purchased Property Services. Purchased property services that are not classified 

above. (Communication services are not included here, but should be included in object 

530) 

500*

 Other Purchased Services. Amounts paid for services rendered by organizations or 

personnel not on the payroll of the school district (separate from Professional and Technical 

Services or Property Services). Although a product may or may not result from the 

transaction, the primary reason for the purchase is the service provided. 

510 Student Transportation Services. Expenditures for transporting children to and from 

school and other activities. (Used only with function 2700) 

511* Student Transportation Purchased From Another School District Within the State. 

Amounts paid to other school districts within the state for transporting children to and from 

school and school-related events. These include payments to individuals who transport 

themselves or their own children or for reimbursement of transportation 

expenditure/expenses on public carriers. Expenditures for the rental of buses that are 

operated by personnel on the school district payroll are recorded not here but under object 

442. (Used only with function 2700) 

512* Student Transportation Purchased From Another School District Outside the State. 

Payments to other school districts outside the state for transporting children to and from 

school and school-related events. (Used only with function 2700) 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
139 

519 Student Transportation Purchased From Other Sources. Payments to persons or 

agencies other than school districts for transporting children to and from school and schoolrelated events. (Used only with function 2700) 

520 Insurance (Other Than Employee Benefits). Expenditures for all types of insurance 

coverage, including property, liability, and fidelity. Insurance for group health is not 

charged here but is recorded under object 200. (Used with functions 2310 or 2610) 

530 Communications. Services provided by persons or businesses to assist in transmitting and 

receiving messages or information. This category includes telephone and voice 

communication services, telephone, and voicemail; data communication services to 

establish or maintain computer-based communications, networking, and Internet services; 

video communications services to establish or maintain one-way or two-way video 

communications via satellite, cable, or other devices; postal communications services to 

establish or maintain postage machine rentals, postage, express delivery services, or 

couriers. (Usually used with functions 2230, 2320, or 2410) 

540 Advertising. Expenditures for announcements in professional publications, newspapers, or 

broadcasts over radio and television. These expenditures include advertising for such 

purposes as personnel recruitment, legal ads, new and used equipment, and sale of property. 

Costs for professional advertising or public relations services are not recorded here but are 

charged to object 340. (Usually used with functions 2300 or 2500) 

550 Printing and Binding. Expenditures for job printing and binding, usually according to 

specifications of the school district. This includes designing and printing forms and posters, 

as well as printing and binding school district publications. Preprinted standard forms are 

not charged here but are recorded under object 610. (Usually used with function 2530, but 

may be assigned to other functions) 

560 Tuition. Expenditures to reimburse other educational agencies for instructional services to 

students residing within the legal boundaries described for the paying school district. (Used 

only with function 1000) 

561* Tuition to Other School Districts Within the State. Tuition paid to other school districts 

within the state. 

562* Tuition to Other School Districts Outside the State. Tuition paid to other school districts 

outside the state. 

563* Tuition to Private Sources. Tuition paid to private schools. 

564* Tuition to Educational Service Agencies Within the State. Tuition paid to agencies such 

as regional educational service centers for educational services to students. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
140 

565* Tuition to Educational Service Agencies Outside the State. Tuition paid to agencies 

such as regional educational service centers for educational services to students. 

566* Tuition to Charter Schools. Tuition paid to charter schools for services provided in 

accordance with the established charter for that school. 

567*

 Tuition to School Districts for Voucher Payments. Tuition paid to school districts for 

students using a state or local voucher program. School districts and state departments of 

education should use this code for all payments made to school districts for voucher 

programs. 

569* Tuition—Other. Tuition paid to the state and other governmental organizations as 

reimbursement for providing specialized instructional services to students residing within 

the boundaries of the paying school district. 

 So-called reverse state aid payments, which arise out of education finance equalization 

efforts, are not coded here. Rather, these should be established on the balance sheet or 

statement of net assets at the time taxes are levied as Due To State Government. (These 

amounts are not shown as revenues to the school district.) 

570 Food Service Management. Expenditures for the operation of a local food service facility 

by other than employees of the school district. Included are contracted services, such as 

food preparation, associated with the food service operation. Direct expenditures by the 

school district for food, supplies, labor, and equipment would be charged to the appropriate 

object codes. (Used only with function 3100) 

580 Travel. Expenditures for transportation, meals, hotel, and other expenditure/expenses 

associated with staff travel for the school district. Payments for per diem in lieu of 

reimbursements for subsistence (room and board) also are charged here. (Used with all 

functions except 5000) 

590 Intereducational, Interagency Purchased Services. Purchased services other than 

those described above. Any interdistrict payments other than tuition or transportation 

should be classified here. This code identifies other payments for services made between 

a school district and other governmental entities. This code should be used so that all 

interdistrict payments can be eliminated when consolidating reports from multiple school 

districts at state and federal levels (when a question arises about whether to code such 

payments to the 300 series of objects or to this code). (Used primarily with function code 

2000) 

591* Services Purchased From Another School District or Educational Services Agency 

Within the State. Payments to another school district within the state for services 

rendered, other than tuition and transportation fees. Examples of such services are data 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
141 

processing, purchasing, nursing, and guidance. This code should be used so that all 

interdistrict payments can be eliminated when consolidating reports from multiple school 

districts at state and federal levels (when a question arises about whether to code such 

payments to the 300 series of objects or to this code). 

592* Services Purchased From Another School District or Educational Service Agency 

Outside the State. Payments to another school district outside the state for services 

rendered, other than tuition and transportation fees. Examples of such services are data 

processing, purchasing, nursing, and guidance. This code should be used so that all 

interdistrict payments can be eliminated when consolidating reports from multiple school 

districts at state and federal levels (when a question arises about whether to code such 

payments to the 300 series of objects or to this code). 

600*

 Supplies. Amounts paid for items that are consumed, are worn out, or have deteriorated 

through use or items that lose their identity through fabrication or incorporation into 

different or more complex units or substances. Refer to Appendix E for the criteria for 

distinguishing between a supply item and an equipment item. Equipment that has a cost 

lower than the school district’s capitalization threshold should be coded in this series 

instead of to a 700 series code. 

610 General Supplies. Expenditures for all supplies (other than those listed below) for the 

operation of a school district, including freight and cartage. 

A more thorough classification of supply expenditures is achieved by identifying the 

object with the function—for example, audiovisual supplies or classroom teaching 

supplies. (Used with all functions except 5000) 

620 Energy. Expenditures for energy, including gas, oil, coal, and gasoline, and for services 

received from public or private utility companies. 

621 Natural Gas. Expenditures for gas utility services from a private or public utility 

company. (Used with functions 1000, 2610, and 3100) 

622 Electricity. Expenditures for electric utility services from a private or public utility 

company. (Used with functions 1000, 2610, and 3100) 

623 Bottled Gas. Expenditures for bottled gas, such as propane gas received in tanks. (Used 

with functions 1000, 2610, and 3100) 

624 Oil. Expenditures for bulk oil normally used for heating. (Used with function 2610) 

625 Coal. Expenditures for raw coal normally used for heating. (Used with function 2610) 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*).
142 

626 Gasoline. Expenditures for gasoline purchased in bulk or periodically from a gasoline 

service station. (Used with functions 2650 and 2710) 

629 Other. Expenditures for energy that cannot be classified in one of the foregoing 

categories. 

630 Food. Expenditures for food used in the school food service program. Food used in 

instructional programs is charged under object 610. (Used only with function 3100) 

640 Books and Periodicals. Expenditures for books, textbooks, and periodicals prescribed 

and available for general use, including reference books. This category includes the cost 

of workbooks, textbook binding or repairs, and textbooks that are purchased to be resold 

or rented. Also recorded here are the costs of binding or other repairs to school library 

books. (Used with all functions except 5000) 

650 Supplies—Technology-related. Technology-related supplies include supplies that are 

typically used in conjunction with technology-related hardware or software. Some 

examples are diskettes, parallel cables, and monitor stands. (Used with all functions but 

primarily used with 2230 and 2580) 

700* Property. Expenditures for acquiring capital assets, including land, existing buildings, 

existing infrastructure assets, and equipment. 

710*

 Land and Land Improvements. Expenditures for the purchase of land and the 

improvements thereon. Purchases of air rights, mineral rights, and the like are included 

here. Also included are special assessments against the school district for capital 

improvements such as streets, curbs, and drains. Not included here, but generally charged 

to objects 450 or 340 as appropriate, are expenditures for improving sites and adjacent 

ways after acquisition by the school district. (Used with functions 4100, 4200, and 4600) 

720*

 Buildings. Expenditures for acquiring existing buildings. Included are expenditures for 

installment or lease payments (except interest) that have a terminal date and result in the 

acquisition of buildings, except payments to public school housing authorities or similar 

agencies. Expenditures for the contracted construction of buildings, for major permanent 

structural alterations, and for the initial or additional installation of heating and 

ventilating systems, fire protection systems, and other service systems in existing 

buildings are recorded under object 450. Buildings built and alterations performed by the 

school district’s own staff are charged to objects 100, 200, 610, and 730, as appropriate. 

This code is used with governmental funds only. (Used with function 4500 only) 

730*

 Equipment. Expenditures for the initial, additional, and replacement items of 

equipment, such as machinery, furniture and fixtures, and vehicles. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
143 

731 Machinery. Expenditures for equipment usually composed of a complex combination of 

parts (excluding vehicles). Examples are lathes, drill press, and printing presses. 

(Usually used with functions 1000 and 2600) 

732 Vehicles. Expenditures for equipment used to transport persons or objects. Examples are 

automobiles, trucks, buses, station wagons, and vans. (Usually used with functions 2650 

and 2700) 

733 Furniture and Fixtures. Expenditures for equipment used for sitting; as a support for 

writing and work activities; and as storage space for material items. (Used with all 

functions, except 5000) 

734 Technology-Related Hardware. Expenditures for technology-related equipment and 

technology infrastructure. These costs include those associated with the purchase of 

network equipment, servers, PCs, printers, other peripherals, and devices. Equipment 

that has a cost lower than the school district’s capitalization threshold should be coded to 

object code 650, Supplies—Technology-Related. (Used with all functions but primarily 

used with 2230 and 2580) 

735 Technology Software. Expenditures for purchased software used for educational or 

administrative purposes that exceed the capitalization threshold. Software costs that are 

below the school district’s capitalization threshold should be coded to object code 650, 

Supplies—Technology-Related. (Used with all functions but primarily used with 2230 

and 2580) 

739 Other Equipment. Expenditures for all other equipment not classified elsewhere in the 

730 object series. 

740* Infrastructure. Expenditures for purchased infrastructure assets by the school district. 

These items include water/sewer systems, roads, bridges, and other assets that have 

significantly longer useful lives than other capital assets. (Used with functions 4000 only 

but primarily used with functions 4200 and 4600) 

 

790 Depreciation. The portion of the cost of a capital asset that is charged as an expense 

during a particular period. In accounting for depreciation, the cost of a capital asset, less 

any salvage value, is apportioned over the estimated service life of such an asset, and 

each period is charged with a portion of such cost. Through this process, the cost of the 

asset is ultimately charged off as an expense. (Used with all functions, except 5000) 

800 Debt Service and Miscellaneous. Amounts paid for goods and services not otherwise 

classified above. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*).
144 

810* Dues and Fees. Expenditures or assessments for membership in professional or other 

organizations or payments to a paying agent for services rendered. (Used with functions 

1000 and 2000) 

820 Judgments Against the School District. Expenditures from current funds for all 

judgments (except as indicated below) against the school district that are not covered by 

liability insurance, but are of a type that might have been covered by insurance. Only 

amounts paid as the result of court decisions are recorded here. Judgments against the 

school district resulting from failure to pay bills or debt service are recorded under the 

appropriate expenditure accounts as though the bills or debt service had been paid when 

due. (Used only with function 5000) 

830 Debt-Related Expenditures/Expenses 

831* Redemption of Principal. Expenditures to retire bonds (including current and advance 

refundings) and long-term loans. (Used only with function 5000) 

832* Interest. Expenditures for interest on bonds or notes. (Used only with function 5000) 

833 Amortization of Bond Issuance and Other Debt-Related Costs. Expenses in 

connection with the amortization of bond and other debt issuance costs, including leasepurchase debt issuance costs. Included are amortized deferred gain and loss amounts in 

connection with the defeasance of bonds. This code is used in Proprietary and Fiduciary 

funds only. (Used only with function 5000) 

834 Amortization of Premium and Discount on Issuance of Bonds. Expenses amortized 

as debt premium and/or discount in connection with the issuance of debt. This account is 

used in Proprietary and Fiduciary funds only. 

An additional account (revenue object code 6200) has been established for accounting for 

the amortization of debt premiums such that districts may report premium and discount 

amortization separately as required in certain states (or where only credits may be 

reported for revenue codes and only debits for expenditure codes). However, account 834 

may be used to record all discount and premium amortization (reported as a contra 

revenue). (Used only with function 5000) 

890 Miscellaneous Expenditures. Amounts paid for goods or services not properly 

classified in one of the objects included above. 

900 Other Items. Used to classify transactions that are not properly recorded as 

expenditures/expenses but require control and reporting by the school district. 

 

*Account codes that are necessary for the NCES reporting are noted with an asterisk (*). 
145 

910 Fund Transfers Out. Includes all transactions conveying financial resources from one 

fund to another within the district. 

920 Payments to Escrow Agents for Defeasance of Debt. (Used only with function 5000) 

930 Net Decreases in the Fair Value of Investments. Losses recognized from the sale of 

investments or changes in the fair value of investments. Losses represent the excess of 

the cost or any other basis at the date of sale (or valuation) over sales value (or fair value). 

For financial reporting purposes, GASB Statement 31 requires that all investment 

income, including changes in the fair value of investments, be reported as revenue in the 

operating statement. 

This account has been established for investment losses so that districts may report gains 

or losses separately as required in certain states (or where only credits may be reported for 

revenue codes and only debits for expenditure codes). However, account 1530 may be 

used to record all investment gains or losses (reported as a contra revenue). 

931 Realized Losses on Investments. Losses recognized from the sale of investments. 

Losses represent the excess of the cost or any other basis at the date of sale over sales 

value. For financial reporting purposes, the net of all realized and unrealized investment 

gains and losses should be reported as a single line in the financial statements; however, 

this account and the following account may be used for internal tracking purposes. 

932 Unrealized Losses on Investments. Losses recognized from changes in the value of 

investments. Losses represent the excess of the cost or any other basis at the date of 

valuation over fair value. For financial reporting purposes, the net of all realized and 

unrealized investment gains and losses should be reported as a single line in the financial 

statements; however, this account and the previous account may be used for internal 

tracking purposes. 

940 Losses on the Sale of Capital Assets. The excess of book value of the capital assets sold 

over the amount received. This account is used in Proprietary and Fiduciary funds only and 

the statement of activities. Revenue account 5300 is used for Governmental funds. 

This account has been established for accounting for losses from capital asset sales such 

that districts may report gains or losses separately as required in certain states (or where 

only credits may be reported for revenue codes and only debits for expenditure codes). 

However, account 1930 may be used to record all gains or losses on these sales (reported 

as a contra revenue). 

950 Special Items. Used to classify special items in accordance with GASB Statement 34. 

Included are transactions or events within the control of the school district administration 

that are either unusual in nature or infrequent in occurrence. For some districts, this may 

include termination benefits resulting from workforce reductions or costs in connection with 

an early retirement program offered to all employees represented in one or more classes of 
146 

employees. Special items also include events that are not within the control of the district. 

In the governmental funds, these items should be separately captioned or disclosed. 

960 Extraordinary Items. Used to classify items in accordance with APB Opinion No. 30 that 

are transactions or events that are both unusual in nature and infrequent in occurrence. For 

some districts, this includes significant costs related to a natural disaster caused by fire, 

flood, tornado, hurricane, or hail storm or costs related to an environmental disaster. 

PROJECT/REPORTING

The project/reporting code permits school districts to accumulate expenditures to meet a variety 

of specialized reporting requirements at local, state, and federal levels. It is a three-digit code 

with the format 00X. The first two digits identify the particular funding source, authority, or 

expenditure purpose for which a special record or report is required. The third digit is available 

to identify particular projects and the fiscal year of the appropriation within that funding source. 

Code Description 

010–190 Local Projects. Expenditures that require specialized reporting and are funded from 

local sources. One example is a project funded by the local service club to provide 

intramural activities for students in the community. 

200–390 State Projects. Expenditures that require specialized reporting for categorically 

funded state programs. 

400–990 Federal Projects. Expenditures that require specialized reporting to the federal 

government directly or through the state. 

000 Non-Categorical. Expenditures that do not require specialized reporting. 

LEVEL OF INSTRUCTION

This classification permits expenditures to be segregated by instructional level. Many state 

departments of education differentiate elementary, secondary, and postsecondary costs so they 

can calculate interdistrict tuition rates, compute general state aid, or both. 

In the following definitions, grade span can be changed to age span when structuring a nongraded 

school or school district. 

Code Description 

10 Elementary. A school organization classified as elementary by state and local practice and 

composed of any span of grades from preprimary through eighth grade. 
147 

11 Pre-Kindergarten. A school organization composed entirely of any span of ages below 

kindergarten. This category is normally used for students identified as needing special 

services. 

12 Kindergarten. A school organization for children for the year immediately preceding the 

first grade. 

19 Other Elementary. A school organization composed of any span of grades not above 

grade eight except pre-kindergarten and kindergarten. 

20 Middle. A school organization composed of at least three grades, usually beginning with 

grade 5 or grade 6 or the equivalent. Most middle school organizations presume that a fouryear high school will follow the middle school. 

30 Secondary. A school organization comprising any span of grades beginning with the next 

grade following an elementary or middle school and ending with or below grade 12. 

31 Junior High. A secondary school organization intermediate between the elementary and 

senior high school, usually including grades 7, 8, and 9 (in a 6-3-3 plan) or grades 7 and 8 

(in a 6-2-4 plan). 

32 Senior High. A school organization offering the final years of high school work necessary 

for graduation and invariably preceded by a junior high or middle school. 

39 Other Secondary. For example, a grades 7–12 high school. 

40 Postsecondary. A school organization for adults and out-of-school youth (16 years of age 

or older who are not regularly enrolled in school) who have completed, interrupted, or not 

begun their formal education or for students attending an institution of higher education. 

41 Programs for Adult/Continuing. A program for adults and out-of-school youth (typically 

16 years of age and older who are not regularly enrolled in school) who have completed, 

interrupted, or not begun their formal education and are pursuing skills or knowledge in 

other than regularly prescribed courses. These include adult basic programs and other 

programs that have as their purpose the upgrading or retraining of occupational skills, the 

pursuit of special interests, or enrichment. 

42 Community/Junior College. An institution of higher education that usually offers the first 

two years of college instruction and frequently grants an associate degree, but does not grant 

a bachelor’s degree. It is an independently organized institution (public or nonpublic), an 

institution that is part of a school district, or an independently organized system of junior 

colleges. Junior colleges offer college transfer courses and programs; vocational, technical, 

and semiprofessional occupational programs; or general education programs. 
148 

OPERATIONAL UNIT

This classification is commonly used (1) as a way to identify attendance centers; (2) as a 

budgetary unit or cost center designator; (3) as a means of segregating costs by building 

structure; and (4) as a location code for payroll check distribution. 

SUBJECT MATTER

A series of classifications that define and describe subject curriculum can be found in the Staff 

Data Handbook: Elementary, Secondary, and Early Childhood Education: 2001 Edition (U.S. 

Department of Education 2001). 

JOB CLASSIFICATION

This classification enables school districts to break down expenditures for salaries and employee 

benefits by the employees’ job classification. (It should not be used with object codes 300–900.) 

This classification is used at least three ways in school accounting: (1) to classify payroll costs 

for personnel purposes; (2) to segregate certified and non-certified salaries and benefits; and (3) 

to accumulate payroll costs by bargaining unit for purposes of labor negotiations. These 

classifications can be found in appendix K of the Staff Data Handbook.
149 

CHAPTER 7: COST ACCOUNTING AND REPORTING FOR EDUCATIONAL 

PROGRAMS

The accounting structure for governmental financial reporting is based on the expenditure 

classifications of fund, function, and object. These elements are the foundation for recording and 

reporting the financial data for school districts. Although this level of reporting can be used for 

comparison of district and state information, the data needs of school board members, 

administrators, school patrons, special interest groups including employees and parents, state 

policymakers, the media, and the public extend beyond expenditure classifications to the school 

and program reporting levels. These groups may be regarded as the “data user groups” of the 

school district. 

THE EXPANDING NEED FOR GREATER DETAIL IN FINANCIAL REPORTING

Although the various school finance data user groups may focus on particular interests, they also 

require additional financial data describing the district and the schools within the district. State 

policymakers may need school and program financial data for several purposes: (1) as a basis for 

ensuring adequate and equitable funding of schools, including funding of various programs, and 

(2) for state accountability and assessment programs that relate school-level expenditures to 

student achievement scores or other effectiveness criteria. Parents are often concerned with 

financing of particular schools and programs. The media have a variety of interests, but 

frequently seek data relative to equitable funding among schools. School boards and 

administrators require financial data for internal management and for responses to the requests of 

other data users. 

Although the typical financial accounting system is not intended to provide program and 

complete school cost data, a reporting system that includes identifying direct and indirect costs 

attributable to schools and programs can be developed to provide this additional level of financial 

information. To generate complete and accurate information to the school and program levels, 

cost accounting procedures must be applied to an appropriately structured accounting system. 

CONCEPTS OF PROGRAM COST REPORTING BY SCHOOL

Statutory accounting and reporting requirements imposed on school districts beyond the fund, 

function, and object classifications may spring from legislative initiatives for accountability or 

from the need to provide differential funding for a particular set of programs. Such state 

requirements are likely to establish the framework for school and program reporting and 

therefore, might limit school districts’ local cost objectives. However, local systems may be 

designed to identify more discrete costs, such as those related to secondary science or 

mathematics programs, even though the state reporting element is an aggregate of grades 9 

through 12 regular education programs. 

In many districts, financial reporting for individual schools is a local budgetary management tool 

that focuses on the various types of expenditures that management has determined to control on a 

decentralized basis. These expenditures include certain salaries (budgeted on an average cost per 
150 

authorized position), substitutes, supplies, equipment, utilities, and field trips. However, sitebased budgeting often excludes some of the major costs of operating a school that are not within 

the control of the school principal. The resulting reports meet the purposes of internal 

management, but are of little use in public reporting to address issues of funding requirements 

and comparability among schools. Therefore, a reporting system that includes full costing of all 

operations for a school is recommended, including costs that are not controllable by school 

administrators and the allocation of costs incurred for schools but recorded centrally. An 

additional step in full costing of a school is the allocation of district administrative and school 

board costs. Since the provision of educational services through operation of schools is the only 

product of a school district, the allocation of these costs is necessary to full costing of the schools 

and their programs. These costs should be separately displayed as will be discussed further in 

this chapter. 

The functions outlined earlier in this handbook provide a detailed description of expenditures. 

Presenting the applicable functions for each school in a district or state provides interested parties 

with a wide array of uniform data. A shortcoming of public reporting of this data is that 

Instruction is one function with numerous support functions. This shortcoming could be reduced 

by including subfunctions composed of programs for exceptional students, vocational programs, 

adult programs, or other special programs. Using these subfunctions, however, presents 

problems relative to dividing teacher and other costs of classes that include students from more 

than one of these programs. Mainstream special education requirements, secondary and adult 

students in vocational education classes, and ESOL (English for Speakers of Other Languages) 

students in regular education classes are examples of these problems. 

Many districts take the position that reporting costs by functions is program reporting. In this 

context, program cost reports are taken directly from the accumulated transaction amounts 

without the application of cost accounting procedures. If the desired outcome is the full costing 

of schools and/or instructional programs, cost accounting procedures must be applied to the 

functional accounting. The function of Instruction as defined in this handbook is not intended to 

include all the costs necessary to provide instructional programs. Support functions must be 

considered in the determination of the full cost of instructional programs. This requires 

identifying support function costs with the instructional programs served (1) through an 

observable relationship, such as the district’s director of exceptional student education and the 

exceptional student education program, or (2) by a rational allocation, such as fiscal services 

allocated to all programs on the basis of full-time equivalent teachers of the various programs. 

In addition to the steps needed to display the full costs of instructional programs, school costs are 

not accurately represented without adjustments to recorded transactions. Such adjustments need 

to be made for costs that are centrally incurred but represent costs for all schools or specified 

schools. Further adjustments are needed for costs of services rendered by itinerant teachers or 

other shared personnel that might, for convenience, be recorded at a host school. 

Program costs should be reported at the school level with an aggregation of school reports for a 

district report. District reports can be aggregated for a state level-report that, in reality, is an 

aggregation of all school reports of the state. 
151 

ANALYSIS OF REPORTED COSTS

Full program costing requires that costs be accurately determined by a school prior to allocation 

to programs of the school. Each school has its own base of cost allocation factors owing to its 

unique combination of programs offered, students attending, and teachers employed by the 

school. These factors explain the variances reported in costs among schools. 

Cost data should be presented with additional information that is useful in analysis, such as the 

numbers of students in the various programs of each school, or the costs incurred relative to the 

revenues generated by programs or schools. Costs per student are likely to vary with the 

numbers of students in a school or the programs of a school. Other factors that will also have an 

impact include seniority or academic rank of teachers and other personnel and varying facilities 

operating costs. These factors increase in importance when the scale of analysis is narrowed to a 

few schools. 

THE PROGRAM COST STRUCTURE

The program cost reporting structure is likely to be based on an adaptation of the cost objectives 

stated in this handbook. For example: 

• Regular Education, Elementary 

• Regular Education, Middle/Junior 

• Regular Education, High School 

• Special Education 

• Alternative Education 

• Vocational Education, 6–12 

• Adult Education 

Such a program structure could be expanded to recognize higher cost programs within special 

education and vocational education. Costs for functions such as food services, student 

transportation, community services, prekindergarten early intervention, before and after school 

programs, and fee-supported programs should be accounted for by function or special project 

unless there is a compelling reason to establish these as programs in the structure or in the 

allocation of indirect costs to the programs. These costs should be presented as items in the 

reconciliation of the program cost report to the fund expenditures total. Separate cost reports 

should be prepared for the General Fund and for Special Revenue Funds as an aggregate (some 

Special Revenue Funds may not be appropriate for inclusion, e.g., Food Service). 

Other reconciling items to operating funds include expenditures for debt service and facilities. 
152 

ELEMENTS OF PROGRAM COSTS

Cost reporting has two central elements: 

• Identification of direct program costs 

• Attribution of indirect costs to programs on an appropriate basis 

Program costing is not accomplished solely by the day-to-day transactions as recorded on the 

school district’s records. In fact, such a transaction-based system is difficult and expensive to 

manage because many direct cost transactions involve more than one program and the attributed 

indirect costs would have to be adjusted several times during the fiscal year. Effective budgetary 

control, an essential management tool, would become an increasingly complex matter under such 

a system. Accurately recording transactions for some direct costs would pose a similar problem. 

A program structure that seeks to identify special education costs will be challenged to record 

payroll transactions for teachers when many special education students are members of regular 

education classes. There is a similar difficulty with teachers who teach classes composed of 

regular students and ESOL students. Cost reporting procedures can be applied to simplify the 

appropriate annual identification of teacher salaries with programs served. Indirect costs can be 

annually attributed to programs. 

Table 11 presents a sample school-level program cost report format. The columns under the 

heading “Direct” provide costs by object for the function “Instruction” in each program. The 

columns under the heading “School Indirect” represent each program’s allocation of support 

function costs recorded centrally for school services, such as centralized processing of media 

materials and certain custodial and maintenance costs. The column headed “District Indirect” 

includes each program’s allocation of support function costs that are district-level services, such 

as Administrative Technology. Note that the function amounts making up the total of “School 

Indirect” are displayed on the lower portion of the report. The report aggregating school reports 

provides a display of the function amounts included in the “District Indirect” column. 
153 

Table 11. Program Cost Report Format 

GENERAL FUND—SCHOOL PROGRAM COST REPORT SCHL—0041 A High School  ————————-----—----———————Direct Costs——------------------——————————— —————Program—------——— Category Number Salaries Benefits 

Purchased 

Services 

Materials 

& 

Supplies 

Other 

Expenses 

Capital 

Outlay 

School 

Indirect 

Reg. Ed., High 100 $245,858 $67,888 $22,091 $15,219 $2,855 $5,045 $190,145 

Alternative 400 393,810 115,091 34,770 23,955 4,840 7,940 330,474 Special Education 

200 135,821 38,948 27,137 5,854 1,638 1,940 95,187 

Voc. Ed. 6-12 300 92,369 24,459 6,371 4,389 1,028 1,455 57,928  $867,858 $246,386 $90,369 $49,417 $10,361 $16,380 $673,734 Transportation $85,323 School Indirect Costs are functionally distributed as reported below: 

2100 Student Support Services $108,084 2310 Board of Education $0 2510 Fiscal Services 2220 Library Services $48,294 2320 Executive Administration $0 2580 Administrative Tech

2212 Instruction & Curriculum  Development Services 

$0 2400 School Administration $177,953 2610 Operation of Buildin

2213 Instructional Staff Training $2,671 4000 Facilities Acquisition- 

 Construction 

$0 2630 Maintenance 
154 

USE OF EXISTING DATA SYSTEMS BY COST REPORTING SOFTWARE

In many cases, the information needed to produce accurate school program cost reports resides in 

the existing data systems of a district. Teacher salaries and days worked are captured in the 

payroll system. The ability to link teachers with programs may be found in student data systems 

that capture class schedules. Annual totals of other types of direct costs by school are contained 

in financial data files. Annual totals of support costs are captured by function for each school in 

financial data files. As noted earlier, some adjustments to school amounts are needed to reflect 

each school’s share of school costs that are recorded in a host account for practicality. 

Cost reporting software can be developed to interface with these existing systems to 

expeditiously identify teachers with schools and programs. This identification allows the 

software to allocate the teacher’s salary to schools and programs served and to compute an 

indirect cost attribution factor of full-time equivalent teacher by program. The cost reporting 

software can also interface with student data systems to compute full-time equivalent students by 

school and program for indirect cost attribution. Linking the teacher’s assigned classrooms and a 

district’s facilities file containing the square footage of classrooms can produce a space use 

attribution factor for indirect costs. 

DIRECT COSTS

In a school district setting, direct costs should be synonymous with the function Instruction. The 

major cost of Instruction is teacher compensation, which is identified to program through the 

analysis of programs taught by each teacher. Other objects of Instruction should be identified to 

a program by the financial accounting system, although in some instances, attribution factors 

should be used. These include substitute teachers who serve more than one program and paper 

for reproducing classroom materials. “Full-time equivalent teachers” is an appropriate basis for 

the attribution of substitute teachers as a direct cost to programs. “Full-time equivalent students” 

is appropriate for the attribution of reproduction paper as a direct cost to programs. 

INDIRECT COSTS

The annual totals of the various support functions are grouped in indirect cost pools for 

attribution to programs by attribution factors. Attribution factors must have a valid relationship 

to the support service function’s relative benefit to programs. For example, Student Support 

Services should be attributed to programs on the basis of the number of full-time equivalent 

students of each program relative to the full-time equivalent students of all programs. General 

Administration and School Administration functions should be attributed to each program on the 

basis of the number of full-time equivalent teachers of the program relative to the full-time 

equivalent teachers of all programs. Operation and Maintenance of Plant Services are more 

appropriately attributed to programs on the basis of the relative space used by the programs. 

The attribution factors suggested in the preceding paragraph are clearly not an exhaustive listing 

of valid factors. These factors of students, teachers, and space do recognize the causal 

relationship of the factor and the types of service to programs. These factors can be drawn from 
155 

existing databases and, therefore, are economical to generate. More important, these factors can 

be readily communicated to and understood by report users. 

Indirect cost pools can be allocated under the assumption that the indirect costs benefit only the 

instructional programs as indicated in the preceding paragraphs. Another school of thought is 

that some indirect costs also benefit other indirect costs and, therefore, a two-step process should 

be employed. A further refinement of this concept would use a set of simultaneous equations for 

reducing each pool to zero by allocating back and forth among programs and indirect cost pools. 

The greater precision of these refinements may be offset by the difficulties in communicating 

their use. 

The development of a set of attribution factors such as students, teachers, and space for each 

program in the program structure for each school constitutes the general attribution table. As the 

name implies, the general attribution table can accurately attribute costs that apply to all 

programs. Sets of expenditures that relate only to certain programs at certain schools must have 

separate attribution tables that include attribution factors for only those schools and programs. 

These special tables would be a subset of the factors included in the general attribution table. 

Examples of such sets of expenditures are those funded by state or federal grants that address 

specified schools and programs and administrative costs that are focused on selected programs. 

The cost reporting software must provide for selecting the appropriate schools and programs for 

each such special table. 

SUMMARY OF THE ANNUAL PROCESS

Phase I of the cost reporting process identifies teachers with programs by using the following 

information from district databases: (1) persons paid as teachers, the amount of compensation for 

the year, and the amount of time worked and (2) class schedules that provide the number of 

students in each program taught by each teacher. A report of “mismatches” of these data is used 

to input additional teachers for whom class schedules are not produced (physical education, art, 

music, etc.) or to correct data. A third source of data for this phase is the attachment of space 

used by the teacher with data drawn from the district facilities database. The outputs of Phase I 

are a file of teacher salaries by table for each school and program and the general attribution table 

of student, teacher, and space factors for each program at each school. 

Phase II of the program cost-reporting process is the determination of the schools and programs 

to define each special attribution table by specifying the schools and programs benefited by the 

particular categorical programs or special grants. The report preparer must enter these as subsets 

of the general attribution table. 

Phase III of the program cost reporting process is the input of cost data other than teachers’ 

salaries. The cost reporting software input formats include record keys for attribution table, fund, 

school, and control number so that district expenditure data files can be electronically accessed 

by a crosswalk interface. Data are input and computed by attribution table to maintain the 

integrity of attributed indirect costs. The public reports produced are an accumulation of the 

table results to fund totals for the General Fund and Special Revenue Funds. 
156 

Edit reports and a correction process are provided for each phase of processing. 

ANALYSIS OF COST REPORTS

The data in the system allow the option of generating analyses, such as cost per student for each 

program at each school or cost per student for any report element. Assuming that a program cost 

report would include objects of direct costs, plus indirect costs at the school level and indirect 

costs at the district level, a wealth of data could be presented on a per student or percentage basis. 

The introduction of a program revenue file could allow cost as a percentage of revenue analysis 

for each school and program.

Table 12 provides a sample of a cost analysis report that can be produced by school and by 

district. This report provides three types of analysis: cost as a percentage of revenue, cost per 

full-time equivalent student (FTE), and FTE student to teacher (Staff) ratio. 

Table 12. Cost Analysis Example 

Cost Analysis 

Schl—0000 School Board of __________ County 

 

 Total Total Total Cost Per Students - 

Program Direct School Program Student in toNumber ADM Costs Costs Costs ADM Staff 

100 Regular 

Education 

781.40 $2,277,806 $3,687,363 $4,004,190 $5,124 18.74 

200 Special 

Education 

232.58 1,282,638 1,862,601 1,989,715 8,290 10.66 

300 Vocational 

Education 

64.82 250,217 365,284 395,300 $5,834 13.39 

Totals 1,078.80 $3,810,661 $5,915,248 $6,389,205 

CONCLUSION

The demand for data is recognizable in every facet of our information age society. Public 

education must compete for support as one of many public programs and, in reality, one of all 

purposes for which consumer dollars can be spent. Program cost reporting adds to the workload 

for school district accounting personnel. Advances in technology and the development of 

electronic databases make the provision of program cost data a manageable task for most 

districts. 
157 

CHAPTER 8: ACTIVITY FUND GUIDELINES

Historically, little attention has been given to accounting for activity funds in school districts. 

The nature of activity funds, however, makes them especially vulnerable to error, misuse, and 

fraud. In addition, activity funds often total to large sums of money, especially when capturing 

the amounts that flow through an educational organization in the form of school board funds, 

student-generated funds, receipts and disbursements related to athletics, and the myriad cocurricular and extracurricular events sponsored by school districts today. As a result, this 

revision of this handbook recommends policies and procedures4 for improving controls over 

these funds and promotes capturing all student activity–related monies in the district’s financial 

records. Please note, however, that the guidelines in this chapter are minimum controls on which 

local school districts may expand. In addition, these guidelines are not generally viewed as 

mandated in any jurisdiction, so each state may have imposed greater or lesser controls than are 

suggested here.5

This chapter takes a total systems view that 

• defines and distinguishes types of activity funds and proper classification; 

• delineates controls for establishing and maintaining activity funds; 

• provides initial guidance on accounting for and reporting of activity funds, including 

new requirements emanating from GASB Statement No. 34; and 

• recommends policies and procedures based on current best practices for operating 

activity funds. 

TYPES OF ACTIVITY FUNDS AND PROPER CLASSIFICATION6

Activity funds are established to direct and account for monies used to support co-curricular and 

extra-curricular student activities. As a general rule, co-curricular activities are any kinds of 

school-related activities outside the regular classroom that directly add value to the formal or 

stated curriculum. Co-curricular activities involve a wide range of student clubs and 

organizations. Extra-curricular activities encompass a wide variety of other district-directed 

 

4

For an example of a well-constructed student activity funds operating manual, go to 

http://www.planning.leon.k12.fl.us/Procedures/603manual.htm. Sections in this chapter relating to general policies and controls 

are indebted to and follow closely from the Kansas State Department of Education’s guidelines found at 

http://www.ksde.org/leaf/actv_fnd.htm. 

5

Individual states may already have directive legislation and/or advisory guidelines for the treatment of activity funds. 

Consequently, see each state’s statutory requirements for accounting for activity fund monies. More generally, useful references 

related to activity fund accounting are Everett, Lows, and Johnson (1996) Financial and Managerial Accounting for School 

Administrators; Governmental Accounting Standards Board (2000) Guide to Implementation of GASB Statement 34 on Basic 

Financial Statements and Management’s Discussion and Analysis for State and Local Governments; Association of School 

Business Officials International (2000) GASB Statement 34: Implementation Recommendations for School Districts; Deloitte 

and Touche (2001) Twelve White Papers on Issues in Education Finance. 

6

Detailed account code structure/classification/definition, including new or revised codes, are found in chapter 4. 
158 

activities, typified by organized sports and other non-academic interscholastic competitions. The 

accounting structure should take into consideration that individual states may have their own 

classifications for co- and extra-curricular activities. For example, some states might choose to 

classify music and drama events, academic competitions such as debate, and so forth as cocurricular, whereas other states might classify these activities as extra-curricular. In either case, a 

system of classification for purposes of program cost accumulation and reporting is necessary. 

Activity funds are unique to school districts. Two classifications are commonly recognized: 

Student activity funds, which belong to the students and are used to support student organizations 

and clubs, and District activity funds, which belong to the school district and are used to support 

district programs. The distinction is based on the purpose of the funds, that is, the programs 

supported by the funds. The test rests in the definitions of each: 

• Student activity funds support activities that are based in student organizations. 

Students not only participate in the activities of the organization, but also are involved 

in managing and directing the organization’s activities. An important distinction is 

that disbursing monies from the student activity fund may be subject to approval by 

the student organization and its sponsor, rather than by the board of education (see 

table 13 for examples). 

Table 13. Examples of Authorized Student Activity Funds 

Art Club Drama Club 

Auto Club Foreign Language Club 

Cheerleaders Club Journalism Club 

Chorus Club Marching Band 

Class of 2xxx National Honor Society 

Class of 2xxx Pep Club 

Class of 2xxx Photography Club 

Debate Club Student Council 

• District activity funds belong to the district, are used to support its co-curricular and 

extra-curricular activities, and are administered by the school district. Approval for 

disbursing district activity fund monies, however, rests only with the school board. In 

other words, the district determines how district activity fund monies are spent and 

the district programs that receive support (see table 14). 

Table 14. Examples of Authorized District Activity Funds 

Athletics Music Concerts 

Band Uniforms School Plays 

Book Fair Special Field Trips 

Lyceums 

Although individual state laws may specify the accounting treatment for activity funds, 

distinguishing them in accordance with the definitions above suggests that student activity funds 

are fiduciary in nature whereas district activity funds represent district resources. Therefore, it is 
159 

recommended that student activity funds be classified as agency (fiduciary) funds and district 

activity funds be classified as special revenue funds. Student activity funds remain under the 

control of the school principal and are accounted for at the school site. District activity funds, in 

contrast, should be included with all other district funds and deposited in the district’s accounts. 

Again, these recommended fund classifications are appropriate within the definitions provided; 

individual state laws may dictate the use of other types of funds. 

Although a sharp distinction exists between student and district activity funds, accounting for all 

activity funds is the responsibility of the school district. All activity funds must be reported in 

the school district’s financial statements and are subject to the district’s audit(s). 

CONTROLS FOR ESTABLISHING AND MAINTAINING ACTIVITY FUNDS7

The dispersed nature of student activity funds and the multiple site collections for some district 

activity fund revenues dictate a need for orderly controls on all activity funds. These controls 

include establishing lines of authority and a set of policies to guide the operation of all activity 

funds. 

Lines of Authority 

Proper control begins with the appropriate recognition of lines of authority over all monies 

handled by the district. The local board of education should adopt a set of guidelines and 

regulations that includes the following minimum requirements (see figure 1): 

• Board of Education. The board of education should adopt policies to govern the 

establishment and operation of all activity funds. The district’s auditors should 

review these policies for sound accounting and reporting principles. 

• Superintendent. The superintendent should be directly responsible to the board of 

education for administering all board policies. 

• Chief Financial Officer. The chief financial officer should have overall 

responsibility for accounting for and reporting all funds, including district and student 

activity funds, to the board. The chief financial officer is also responsible for 

implementing and enforcing appropriate internal control procedures. 

• Principal. The principal at each school site should be designated the activity fund 

supervisor for that school building. The activity fund supervisor has overall 

responsibility for the operation of all activity funds, including collecting and 

depositing activity fund monies; approving disbursements of student activity fund 

monies; and adequately supervising all bookkeeping responsibilities. The activity 

fund supervisor should be a signatory to all disbursements, including checks drawn on 

the activity fund. 

 

7

These are minimum broad controls. Each state should construct a set of specific guidelines in accordance with statutory 

requirements because it is impossible to prepare a general set of guidelines that meets every state’s unique requirements. 
160 

• Sponsors. The sponsor of each student organization is responsible for supervising all 

activities of the organization, including approving student activity fund transactions. 

Sponsors should be employees of the district and under the direct control of the 

activity fund supervisor. 

FIGURE 1. LINES OF AUTHORITY FOR STUDENT ACTIVITY FUNDS

Sponsors

Principal

Sponsors

Principal

Sponsors

Principal

Sponsors

Principal

Sponsors

Principal

District Treasurer

Superintendent

Board of Education

General Policies for the Establishment and Operation of Activity Funds 

Policies relating to student and district activity funds should be in writing and distributed to all 

activity fund supervisors, sponsors, and accounting personnel. A useful set of general policies 

includes at least the following: 

• Each activity fund should be established by specific board of education approval. 

• All activity funds should be subject to sound internal control procedures. 

• All activity funds should be accounted for on the same fiscal year basis as all other 

school district funds. 

• All activity funds must be audited and subject to well-defined procedures for internal 

and external auditing. 

• All employees responsible for handling and recording activity fund monies should be 

bonded by the district. 

• One or more activity fund supervisors should be formally designated by the board of 

education. 

• Each activity fund supervisor should maintain a checking account for the attendance 

center. 

• Depositories for student activity funds should be approved by the board of education 

and be further subject to the same security requirements as all other board funds. 
161 

• All activity funds should operate on a cash basis, meaning that no commitments or 

indebtedness may be incurred unless the fund contains sufficient cash. 

• A system of purchase orders and vouchers should be applied to all activity funds that 

requires written authorization for payment and should be strictly enforced. 

• A system for receipting cash should be adopted that includes using pre-numbered 

receipt forms for recording cash and other negotiable instruments received. 

• All receipts should be deposited intact. That is, all receipts should be deposited in the 

form in which they are collected and should not be used for making change or 

disbursements of any kind. 

• All receipts should be deposited daily. Undeposited receipts should be well secured. 

• A system for disbursing funds that includes using pre-numbered checks and multiple 

original signatures (no signature stamps) should be adopted as the sole means for 

disbursing activity fund monies. 

• A perpetual inventory should be maintained on pre-numbered forms, receipts, and 

other documents to create an adequate audit trail. 

• Bank statements for activity funds should be reconciled as soon as they are received. 

• Using activity fund receipts to cash checks to accommodate individuals, to make any 

kind of loan, to pay any form of compensation directly to employees, or to extend 

credit should be strictly prohibited. 

• Monthly financial reports on all activity funds should be prepared and submitted to 

the administration and the board of education. A full reporting of activity funds 

should be included in the district’s annual financial statements. 

• Student activity fund monies should benefit those students who have contributed to 

the accumulation of such monies. 

• A board-approved process should be specified for all fundraising activities, and any 

fundraising event should require advance approval. 

Segregation of Duties Related to Activity Funds 

The volume of activity fund transactions and the amounts on deposit are substantial in most 

school districts. Because significant amounts of activity fund cash receipts are collected as 

currency, not checks, internal control procedures designed to safeguard monies collected should 

be especially emphasized. Although the foregoing general principles are helpful in addressing 

concerns about safeguards, additional attention should be given to segregating the duties related 

to activity funds. Specifically, three critical duties should be segregated for internal control 
162 

purposes: (1) signing checks, (2) maintaining fund accounting records, and (3) reconciling bank 

statements. 

The segregation of duties demands that more than one person be involved in satisfying 

accounting procedures. As a rule, although the school principal is appointed as activity fund 

supervisor, other people normally carry out the actual work. It is particularly important to 

identify, describe, and monitor the duties of the activity fund bookkeeper in relation to the 

segregation of duties. 

The activity fund bookkeeper is typically assigned the task of collecting activity fund monies. 

Associated tasks include preparing the deposit slip and depositing monies. In addition, 

maintaining the activity fund accounting records generally falls to this same person, as does 

preparing checks for disbursements. These tasks demand adequate training and require the 

bookkeeper to have a thorough knowledge of fund structure; the differences between district and 

student activity funds; and the process of accounting, auditing, and reporting. As described 

earlier, the activity fund bookkeeper should be bonded. 

The work of any person handling money should be subject to appropriate checks and balances. 

Signature controls are an important aspect of accounting procedures. Two signatures should be 

required on all checks that result in a disbursement from the activity fund. Recommended 

signatures are the principal of the attendance center and someone other than the activity fund 

bookkeeper. 

Reconciling accounting records for the activity fund is an additional important aspect of a system 

of checks and balances. A third person (someone other than the bookkeeper or activity fund 

supervisor) should be responsible for reconciling bank statements and verifying receipts and 

expenditures. Essential to this process are internal accounting controls over the activity fund 

cash collections. Adequate procedures should be established for completing an audit trail that 

creates sufficient documentary (physical) evidence for each step in the flow of transactions 

within the activity fund. These procedures include using pre-numbered forms and receipts, 

purchase orders and vouchers, and a perpetual inventory of pre-numbered forms and receipts and 

tickets; depositing receipts intact; and making timely deposits. State-specific statutory controls 

on disbursing student and district activity funds should be strictly observed. 

Preparation and Review of Monthly Activity Fund Reports 

A monthly report of cash receipts and disbursements to the activity fund should be prepared and 

reviewed by the activity fund supervisor and submitted to the school district office. Column 

headings should include the following: 

• Beginning cash balance, which should agree with the ending cash balance on the prior 

month’s report 

• Cash receipts 

• Cash disbursements 
163 

• Ending cash balance 

• Unpaid purchase orders 

• Unencumbered cash 

The activity fund bookkeeper also should prepare a monthly financial report for each student 

organization, showing the organization’s cash receipts and disbursements. These reports should 

be reviewed by the activity fund supervisor and submitted to the student organization’s sponsor. 

Each sponsor should then compare the report prepared by the activity fund bookkeeper with the 

sponsor’s records. Any discrepancies should be resolved immediately. Additionally, the school 

finance office should periodically perform internal audits of the reports and supporting records. 

Application of GASB Statement 34 to Activity Funds 

GASB Statement 34 made significant changes in financial reporting for all governments, 

including school districts. Chapters 4 and 5 discuss fully the new reporting structure established 

by this accounting standard and the specific requirements, including the presentation of 

governmentwide financial statements, fund financial statements, and the required supplementary 

information. The purpose of the governmentwide statements is to provide a broad overview of 

the entity as a whole. Because fiduciary fund resources are not available for use by the 

government, fiduciary activities are excluded from the entity-wide financial statements. In 

accordance with the new reporting model, fiduciary activities, including student activity funds, 

are reported only in the fund financial statements. The impact of Statement 34 on district and 

student activity funds is summarized below: 

• If student activity funds are classified as fiduciary (agency) funds as recommended, 

they are not reported in the governmentwide financial statements. Instead, these 

balances are reported only in the fund financial statements. 

• District activity funds that are classified as governmental (special revenue) funds are 

consolidated with all governmental activities in the governmentwide financial 

statements. District activity funds will also be presented in the governmental fund 

financial statements. 

• Fiduciary funds are presented in the fund financial statements by fund type. Student 

activity funds, as agency funds, report no operating activity and are, therefore, 

presented only in the statement of fiduciary fund net assets. 

Revenue From Enterprise and Alternative Sources 

Many school districts and individual school sites derive significant revenue from enterprise 

activities and alternative sources: vending machines, school stores, soft drink machines, class 

ring sales, and a wide variety of fundraising activities such as magazine sales, candy sales, and 

school pictures. In addition, large sums of money are generated through interscholastic sports in 

the form of gate receipts and other contributions. These revenues are typically associated with 

activities conducted at the school level that generate revenues to be used for the benefit of the 

school. In many instances, particular student organizations are in charge of one or more such 
164 

enterprise activities. In other instances, the district administers the revenues for its own 

programs. If a student organization is in charge of an enterprise activity, the money should be 

accounted for through that organization’s activity fund. If the district determines the use of the 

funds, the money should be accounted for with other district funds in the district’s accounts. 

However, in all instances, the funds should be recorded on the district’s books. 

School districts and student groups are also increasingly benefited by affiliated organizations that 

support curricular, co-curricular, and extra-curricular activities. Affiliated organizations include 

groups such as Parent-Teacher Associations (PTAs), Parent-Teacher Organizations (PTOs), 

school foundations, athletic booster clubs, and so on. Contributions by these groups often 

include supplies, materials, equipment, and even school facilities, such as weight training rooms. 

Specific board of education policies are needed to address these issues. In the case of activity 

funds derived from enterprise activities, board authorization to operate the activity is needed, and 

all funds should be accounted for in the district’s books. In the case of revenue from affiliated 

organizations, board authorization to receive such funds is needed. In some cases, owing to the 

requirements of GASB Statement 39 determining whether certain organizations are component 

units, these affiliated organizations may be reflected in the financial statements of the school 

district as discretely presented component units. (See chapter 5 for a discussion of Statement 

39.) Whether or not the organizations are included as component units, decisions regarding 

allocation of the donations should be made on the basis of whether the curricular or co-curricular 

program is the primary beneficiary, as well as on the basis of fundamental fairness in resource 

allocation. 

The following examples are illustrative of issues discussed in this section. 

• A high school chess club holds a fundraiser and raises $500, which is accounted for in 

an agency fund. The club uses $400 to buy supplies and club T-shirts. When the 

$500 in cash is deposited by the club sponsor or school administration, the district 

should debit the asset account, Cash in Bank, and credit a liability account, Due to 

Student Organizations, for $500 within the designated agency fund (for student 

activity funds). When the club spends $400 for supplies, an entry should be recorded 

to credit cash and debit the liability account. At year’s end, the district would reflect a 

$100 balance for the club in its agency fund. 

• A school district enters into a multiyear agreement with a soft drink company for 

vending machine services at all of its schools. Under the contract terms, the district 

will receive 10 percent of sales. In the current fiscal year, the district receives 

$10,000 for its portion of sales. If this payment represents an advance, a portion of it 

should be deferred on a prorated basis. Using the estimated proceeds from the 

contract, the district should budget the revenues within a special revenue fund during 

its normal budgeting process. The $10,000 payment should be recorded as Revenue 

from Enterprise Activities within the special revenue fund. 
165 

SUMMARY

There are two classifications of activity funds: district and student. It is recommended that 

district activity funds be classified as special revenue funds and student activity funds as agency 

(fiduciary) funds. 

As governments increasingly respond to the demands for fiscal and operational accountability, 

best practice dictates the creation of strong controls surrounding activity funds, including 

assurance that all transactions are recorded and reported in district financial records. 

Additionally, at a minimum, proper lines of authority combined with strong control practices, 

such as segregation of duties, multiple checks and balances, requirements for annual audits, and 

regular financial reporting, are the elements to protect against error and abuse. 
166 
167 

REFERENCES

American Institute of Certified Public Accountants, Statement on Auditing Standards No. 78, 

Consideration of Internal Control in a Financial Statement Audit: An Amendment to 

Statement on Auditing Standards No. 55. 

Association of School Business Officials International, GASB Statement No. 34: Implementation 

Recommendations for School Districts. Reston, VA: Association of School Business 

Officials International (2000). 

Deloitte and Touche (2001). Twelve White Papers on Issues in Education Finance. Unpublished 

manuscript. 

Everett, R.E., Lows, R.L., and Johnson, D.R. (1996). Financial and Managerial Accounting for 

School Administrators. Reston, VA: Association of School Business Officials 

International. 

Gauthier, Stephen J. (2001). Governmental Accounting, Authority and Financial Reporting. 

Government Finance Officers Association, ISBN 0-89125-219-3. 

Governmental Accounting Standards Board. (2002). Codification of Governmental Accounting 

and Financial Reporting Standards (Statement 34 Edition), as of June 30, 2002. 

Norwalk, CT. 

Governmental Accounting Standards Board. (2001). Guide to Implementation of GASB 

Statement 34 and Related Pronouncements: Questions and Answers. Norwalk, CT. 

Governmental Accounting Standards Board. (2000). Guide to Implementation of GASB 

Statement 34 on Basic Financial Statements—and Management’s Discussion and 

Analysis—for State and Local Governments: Questions and Answers. Norwalk, CT. 

Governmental Accounting Standards Board. (1999). Statement No. 34, Basic Financial 

Statements—and Management's Discussion and Analysis—for State and Local 

Governments. Norwalk, CT.

Miller, L. and McClure, M. (Year unknown). “Reliable School Budget Forecasts: Seven Tools 

That Work.” School Business Affairs, (Vol. and No. unknown). 

Osborne, D., and Gaebler, T. (1993). Reinventing Government. How the Entrepreneurial Spirit Is 

Transforming the Public Sector. New York: Plume. 

Renzulli, J.S. and Reis, S.M. (1997). The Schoolwide Enrichment Model (2nd ed.). Mansfield 

Center, CT: Creative Learning Press. 
168 

Reschovsky, A. and Imazeki, J. (1997). “The Development of School Finance Formulas to 

Guarantee the Provision of Adequate Education to Low-Income Students.” In W.J. 

Fowler, Jr. (Ed.), Developments in School Finance, 1997 (NCES 98–212). U.S. 

Department of Education, National Center for Education Statistics. Washington, DC: 

U.S. Government Printing Office. 

U.S. Department of Education, National Center for Education Statistics. (2001). Staff Data 

Handbook: Elementary, Secondary, and Early Childhood Education: 2001 Edition 

(NCES 2001–305). Washington, DC: U.S. Government Printing Office. 

U.S. Department of Education, Institute of Education Sciences. (1990). Financial Accounting for 

Local and State School Systems. Washington, DC: National Center for Education 

Statistics. 
169 

APPENDIX A: SUMMARY OF ACCOUNT CODE CHANGES
170 
171 

Fund Classification 

1990 

Code 

New 

Code Description 

 5 Permanent Funds 

5 6 Enterprise Funds 

6 7 Internal Service Funds 

7 Trust and Agency Funds were broken into 2 codes: 8 Trust Funds and 9 Agency Funds. 

8 General Fixed Assets was deleted. 

 8 Trust Funds was added. 

9 General Long-Term Debt was deleted. 

 9 Agency Funds was added. 

Balance Sheet Accounts 

1990 

Code 

New 

Code Description 

112 112 Unamortized Premiums on Investments is now restricted to short-term investments 

(originally restricted to long-term investments). 

113 113 Unamortized Discounts on Investments (Credit) is now restricted to short-term investments 

(originally restricted to long-term investments). 

115 115 Accrued Interest on Investments Purchased (Instructions for account entry were deleted.) 

122 122 Allowance for Uncollectible Taxes (Credit) (Title was changed from “Estimated Uncollectible 

Taxes” [Credit].) 

161 Bond Proceeds Receivable was deleted. 

 192 Deferred Expenditures/Expenses was added. 

 193 Capitalized Bond and Other Debt Issuance Costs was added. 

 194 Premium and Discount on Issuance of Bonds was added. 

200 200 Fixed Assets was changed to Capital Assets. 

211 211 Sites was changed to Land and Land Improvements, and the description was modified. 

222 222 Accumulated Depreciation on Site Improvements was modified. The last sentence, “The 

recording of depreciation is optional...,” was deleted. 

232 232 Accumulated Depreciation Buildings and Building Improvements was modified. The last 

sentence, “The recording of depreciation is optional...,” was deleted. 

251 271 Construction in Progress 

 251 Works of Art and Historical Treasures was added. 

 252 Accumulated Depreciation on Works of Art and Historical Collections was added. 

 261 Infrastructure was added. 

 262 Accumulated Depreciation on Infrastructure was added 

 271 Construction in Progress was added. 

300 All 300 level account codes, Budgeting Accounts and Other Debits, were deleted. 

400 400 Liabilities, Reserves, and Fund Balance was changed to Liabilities and Equity. 

442 442 Bonds Payable was changed to Bonds Payable—Current. 

 452 Lease Obligations—Current 

 472 Compensated Absences—Current 

 473 Accrued Annual Requirement Contribution Liability 

492 Due to Fiscal Agent was deleted 

 512 Accreted Interest was added. 

 513 Unamortized Losses on Debt Refundings was added. 

531 531 Lease Obligations was changed to Capital Lease Obligations. 

541 Unfunded Pension Liabilities was deleted. 

 551 Compensated Absences was added. 

 561 Arbitrage Rebate Liability was added. 

590 590 Other Long-Term Liabilities was modified. 

600 All 600 level Budgeting Accounts were deleted. 
172 

Balance Sheet Accounts 

1990 

Code 

New 

Code Description 

711 Investment in General Fixed Assets was deleted. 

 720 Designated Fund Balance was added. 

730 Reserved—Related Earnings was deleted. 

740 Unreserved—Retained Earnings was deleted. 

 740 Invested in Capital Assets, Net of Related Debt was added. 

 750 Restricted Net Assets was added. 

751 711 Reserve for Inventories 

752 712 Reserve for Prepaid Items was recoded 712 and the name was changed from Reserve for 

Prepaid Expenses. 

753 713 Reserve for Encumbrances 

760 714 Other Reserved-Fund Balance was recoded 714 and the name was changed from 

Reserved—Fund Balance 

 760 Unrestricted Net Assets was added. 

770 730 Unreserved—Fund Balance 

 

Revenue and Other Fund Sources 

1990 

Code 

New 

Code Description 

1320 Tuition From Other School Districts Within the State was broken into codes 1320 and 1321. 

 1320 Tuition From Other School Districts Within the State was Changed to Tuition From Other 

Government Sources Within the State. 

 1321 Tuition From Other School Districts Within the State was added. 

1330 Tuition From Other School Districts Outside the State was broken into codes 1330 and 1331. 

 1330 Tuition From Other School Districts Outside the State was changed to Tuition From Other 

Government Sources Outside the State. 

 1331 Tuition From School Districts Outside the State was added. 

1340 Tuition From Other Sources was replaced with codes 1340 and 1350 (below). 

 1340 Tuition From Other Private Sources (other than individuals) was added. 

 1350 Tuition From the State/Other School Districts for Student Voucher Programs was added. 

1420 Transportation Fees From Other School Districts Within the State was broken into codes 

1420 and 1421. 

 1420 Transportation Fees From Other Government Sources Within the State was expanded. 

 1421 Transportation Fees From Other School Districts Within the State was added. 

1430 Transportation Fees From Other School Districts Outside the State was broken into codes 

1430 and 1431. 

 1430 Transportation Fees From Other Government Sources Outside the State was expanded. 

 1431 Transportation Fees From Other School Districts Outside the State was added. 

1510 1510 Interest on Investments was modified to include interest on short-term investments only. 

1530 1530 Gains or Losses on Sale of Investments was modified to include gains and losses in the fair 

value of investments and broken into codes 1531 and 1532. 

 1531 Realized Gains (Losses) on Investments (from the sale of investments) was added. 

 1532 Unrealized Gains (Losses) on Investments (from recognized change in value of investments) 

was added. 

 1614 Food Service—Daily Sales—After School Programs was added. 

 1650 Food Service—Daily Sales—Summer Food Programs was added. 

1700 1700 Student Activities was modified to include only those revenues under the control of school or 

district personnel and was renamed District Activities. 

 1750 Revenue From Enterprise Activities was added. 

 1790 Other Activity Income was added. 

1920 1920 Contributions and Donations From Private Sources now includes on-behalf-of receipts from 
173 

Revenue and Other Fund Sources 

1990 

Code 

New 

Code Description 

private sources. 

5100 5100 Sales on Bonds was changed to Issuance of Bonds. 

5120 5120 Premium on the Issuance of Bonds was changed to Premium or Discount on the Issuance of 

Bonds to include the discount on the issuance of bonds. 

5130 5130 Accrued Interest was changed to Prepaid Interest. 

5200 5200 Interfund Transfers was changed to Fund Transfers In. 

5300 5300 Sales or Compensation for Loss of Fixed Assets was replaced by Proceeds From the 

Disposal of Real or Personal Property, which expanded this definition. 

 5400 Loan Proceeds was added. 

 5500 Capital Lease Proceeds was added. 

5600 Lease Purchases was deleted. 

 5600 Other Long-Term Debt Proceeds was added. 

 6000 Other Income Items was added. 

 6100 Capital Contributions (from donation or bequest) was added. 

 6200 Amortization of Premium on Issuance of Bonds was added. 

 6300 Special Items (unusual/infrequent items per GASB 34) was added. 

 6400 Extraordinary Items (special items per GASB 34) was added. 

Program Classification 

1990 

Code 

New 

Code Description 

200 200 Special Programs classifications: Detailed program codes were deleted and the terminology 

was updated. 

260 400 Bilingual programs for students for whom English is not their primary language was moved to 

program code 400, Other Instructional Programs—Elementary/Secondary. 

300 300 Vocational and Technical Programs classifications: Detailed program codes were updated. 

400 400 

Other Instructional Programs: The general heading has been retained, but the detailed 

school-sponsored activities have been moved to program 900. Other instructional programs 

now include Bilingual–ESOL programs and Alternative Education Programs for at-risk 

students. 

410 900 School-Sponsored Co-curricular Activities was moved and is now part of 900, Co-curricular 

and Extra-Curricular Activities. 

420 900 School-Sponsored Athletics was moved and is now part of 900, Co-Curricular and Extracurricular Activities. 

800 800 Community Services Programs: Detailed program codes were deleted and the terminology 

was updated. 

900 Enterprise Programs was deleted. 

 900 Co-Curricular and Extra-curricular Activities was created. 

Expenditure Function Classifications 

1990 

Codes 

New 

Code Description 

2110 2110 Detailed account codes under Attendance and Social Work Services were deleted, and the 

services were included in the general Attendance and Social Work Services listing. 

2120 2120 

Detailed account codes under Guidance Services were deleted, and the services were 

included in the general Guidance Services listings. 

2130 2130 Detailed account codes under Health Services were deleted, and the services were included 

in the general Health Services listings. 
174 

Expenditure Function Classifications 

1990 

Codes 

New 

Code Description 

2140 2140 Detailed account codes under Psychological Services were deleted, and the services were 

included in the general Psychological Services listings. 

2150 2150 Detailed account codes under Speech Pathology and Audiology Services were deleted, and 

the services were included in the general Speech Pathology and Audiology Services listings. 

 2160 Occupational Therapy Related Services was added. 

2200 2200 Support Services Instructional Staff was renamed Support Services—Instruction. 

2213 2213 The definition of Instructional Staff Training Services was expanded. 

2220 2220 Educational Media Services was renamed Library/Media Services, and the definition was 

modified to include only traditional library activities. 

2224 2230 Educational Television was incorporated into the new function 2230, Instruction-Related 

Technology. 

2225 2230 Computer-Assisted Instruction was incorporated into the new function 2230, InstructionRelated Technology. 

 2230 Instruction-Related Technology was created. This function includes all technology-related 

classroom support. 

 2240 Academic Student Assessment was added. 

2310 2310 

Detailed codes for the services listed under function 2310, Board of Education Services, 

were deleted; however, the list of services was retained. The definition was also expanded 

to include legal services. 

2320 2320 Detailed account codes under function 2320, Executive Administration Services, were 

deleted. The categories are included in the general function 2320 description. 

2500 2500 Functions 2500, Support Services—Business, and 2800, Central Services, were combined 

into 2500, Central Services. 

2510 2510 Detailed account codes under function 2510, Fiscal Services, were deleted. The categories 

are included in the general function 2510 description. 

2520 2520 Function 2520, Warehousing and Distributing Services, was combined in function 2520, 

Purchasing, Warehousing, and Distributing Services. 

2530 2520 Function 2530, Warehousing and Distributing Services, was combined in function 2520, 

Purchasing, Warehousing, and Distributing Services 

2535 2520 

Function 2535, Warehouse Inventory Adjustment, was deleted, and these services are now 

accounted for under the general function 2520, Purchasing, Warehousing, and Distributing 

Services. 

2540 2530 Printing, Publishing, and Duplicating Services 

 2540 Planning, Research, Development, and Evaluation Services was created from function 2810. 

 2560 Purchasing, Warehousing, and Distributing Services was created from function 2820 

(including functions 2821, 2822, 2823, 2824, and 2829). 

 2570 Staff Services was created from function 2830 (including functions 2831, 2832, 2834, 2835, 

and 2839). 

 2580 

Administrative Technology Services was created from function 2840, Data Processing 

Services (including sub-functions 2841, 2842, 2843, 2844, and 2849). The definition for the 

new function was expanded to include network support services, hardware maintenance and 

support services, and professional development costs for administrative technology 

personnel. 

 2590 Renamed Other Support Services—Central Services. 

2610 2600 Supervision of Operations and Maintenance of Plant was combined into the general function 

2600 Operations and Maintenance of Plant. 

2620 2610 Operation of Building Services 

 2620 Maintenance of Buildings was added. 

2660 2660 Function 2660, Security Services, was broken into function 2660, Security Services, and 

function 2670, Safety Services. 

 2670 Safety Services (See 1990 function 2660 above.) 
175 

Expenditure Function Classifications 

1990 

Codes 

New 

Code Description 

2710 2700 Supervision of Student Transportation Services Plant was combined into the general 2700 

function, Student Transportation Services. 

2720 2710 Vehicle Operation Services 

2730 2720 Monitoring Services 

2740 2730 Vehicle Servicing and Maintenance Services 

2800 2500 Function 2800, Support Services—Central, was combined with 2500, Support Services—

Business, to make 2500, Central Services. 

2810 2540 Planning, Research, Development, and Evaluation Services 

2820 2560 Information Services: Detailed account codes under function 2820, Information Services, 

were deleted. The categories are included in the general function 2560 description. 

2830 2570 Staff Services: Detailed account codes under function 2830, Staff Services, were deleted. 

The categories are included in the general function 2570 description. 

2840 2580 

Data Processing Services definition was expanded and moved to 2580. Detailed account 

codes under function 2840 were deleted. The categories are included in the general function 

2580 description. 

4200 4200 

Site Improvement Services were broken into 4200, Land Improvement, for permanent 

improvements to land and 4600, Site Improvement Services, for non-permanent 

improvements to building sites. 

4600 4700 Building Improvements Services was moved to 4700. 

5000 5000 Other Use was renamed Debt Services. 

5100 5000 Debt Service was combined into a broader Debt Service function. 

5200 5000 Fund Transfers were combined into a broader Debt Service function. 

Object Classification 

1990 

Code 

New 

Code Description 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 150 Additional Compensation such as Bonuses, or Incentive 

 

 

 

 

 

 

 

 
176 

Object Classification 

1990 

Code 

New 

Code Description 

 

 

 

 

 

 

 

240 250 Tuition Reimbursement 

 

 

 

 240 On-Behalf Payments was added. 

 

 

 

250 260 Unemployment Compensation 

 

 

 

260 270 Workers’ Compensation 

 

 

 

270 280 Health Benefits 

 

 

 

 

 

 

330 340 Other Professional Services 

 330 Professional—Employee Training and Development Services was added. 

340 350 Technical Services 

 351 Data Processing and Coding Services 

 352 Other Technical Services 

411 410 Water/Sewage Services were combined in the general 410 Utility Services. 

420 420 Detailed account codes under Cleaning Services (421, 422, 423, and 424) were deleted and 

the services were included in the general Cleaning Services listing. 

 431 Non-Technology-Related Repairs and Maintenance was added. 

 432 Technology-Related Repairs and Maintenance was added. 

442 442 Rental of Equipment and Vehicles was modified to exclude computer equipment. 

 443 Rental of Computers and Related Equipment was added. 

450 450 Construction Services included construction, renovation, and remodeling of infrastructure. 

530 530 Communications now includes Internet and other technology-related services and rentals. 

 566 Tuition to Charter Schools was added. 

 567 Tuition to School Districts for Voucher Payments was added. 

590 590 Miscellaneous Purchased Services was renamed Intereducational, Interagency Purchased 

Services. 

591 Services Purchased Locally was deleted. 

 
177 

Object Classification 

1990 

Code 

New 

Code Description 

592 591 Services Purchased From Another School District or Educational Services Agencies Within 

the State 

593 592 Services Purchased From Another School District or Educational Service Agency Outside 

the State 

610 610 General Supplies now includes computer software. 

 650 Supplies—Technology-Related was added. 

710 710 Land and Improvements: The restriction “Used with governmental funds only” was deleted. 

730 730 Equipment. The restriction “Used with governmental funds only” has been deleted. 

 734 Technology-Related Hardware was added. 

 735 Technology-Related Software was added. 

740 790 Depreciation was moved to 790, and the restriction “Used with governmental funds only” was 

deleted. 

 740 Infrastructure (assets that have significantly longer useful lives than other capital assets) was 

added. 

800 800 Other Object was renamed Debt Service and Miscellaneous. 

830 832 Interest 

 830 Debt-Related Expenditures/Expenses was added. 

 833 Amortization of Bond Issuance and Other Debt-Related Costs was added. 

 834 Amortization of Premium and Discount on Issuance of Bonds was added. 

840 Contingency (for budgeting purposes only) was deleted. 

900 900 Other Uses of Funds (governmental funds only) was renamed Other Items. 

910 831 Redemption of Principal 

920 Housing Authority Obligations was deleted. 

930 910 Funds Transfers was moved to object 910 and renamed Fund Transfers Out. 

940 920 Payments to Escrow Agents for Defeasance of Debt 

 930 Losses From Investments was added. 

 931 Realized Losses on Investments was added. 

 931 Unrealized Losses on Investments was added. 

 940 Losses on the Sale of Capital Assets was added. 

 950 Special Items was added. 

 960 Extraordinary Items was added. 
178 
179 

APPENDIX B: OTHER RESOURCES
180 
181 

OTHER RESOURCES

The following web sites and citations provide other information useful to identifying and 

describing federal reporting requirements and other reference material relevant to education 

finance in more detail. This publication contains references to web sites on the Internet. These 

references were current at the time of publication. 

Common Core of Data (CCD)—http://nces.ed.gov/ccd 

 CCD data files and documentation: http://nces.ed.gov/ccd/ccddata.html 

 Coordinator’s Corner (information on state CCD Data Coordinators): 

 http://nces.ed.gov/ccd/corner.html 

 Resources for CCD Data Coordinators such as survey forms and instructions: 

 http://nces.ed.gov/ccd/ccResources.html 

Department of Education federal program listings. (Programs specific to the Department of 

Education are in the 84.000 series; programs specific to the Department of Agriculture are in the 

10.000 series—specifically, the National School Lunch Program is currently coded as 10.555). 

All federal program codes are subject to periodic change. 

http://www.cfda.gov 

Census Bureau web site with school district finance data (F-33) 

http://www.census.gov/govs/www/school.html 

Financial Standards Accounting Board web site for establishing and improving standards of 

financial accounting and reporting http://www.fasb.org/ 

Government Financial Officers Association web site of state/provincial and local finance officers 

in the United States and Canada 

http://www.gfoa.org/ 

Governmental Accounting Standards Board web site of standards of state and local governmental 

accounting and financial reporting 

http://www.gasb.org/ 

NCES web site 

http://nces.ed.gov/ 

Title I web site maintained by the U.S. Department of Education, Office of Elementary and 

Secondary Education 

http://www.ed.gov/offices/OESE/CEP/ 
182 

American Institute of Certified Public Accountants, Statement on Auditing Standards No. 78, 

Consideration of Internal Control in a Financial Statement Audit: An Amendment to 

Statement on Auditing Standards No. 55. 

Association of School Business Officials International. (2000). GASB Statement No. 34: 

Implementation Recommendations for School Districts. Reston, VA: Association of 

School Business Officials International. 

Deloitte and Touche (2001). Twelve White Papers on Issues in Education Finance. Unpublished 

manuscript. 

Everett, R.E., Lows, R.L., and Johnson, D.R. (1996). Financial and Managerial Accounting for 

School Administrators. Reston, VA: Association of School Business Officials 

International. 

Gauthier, Stephen J. (2001). Governmental Accounting, Authority and Financial Reporting. 

Government Finance Officers Association, ISBN 0-89125-219-3. 

Governmental Accounting Standards Board. (2002). Codification of Governmental Accounting 

and Financial Reporting Standards (Statement 34 Edition), as of June 30, 2002. 

Norwalk, CT. 

Governmental Accounting Standards Board. (2001). Guide to Implementation of GASB 

Statement 34 and Related Pronouncements: Questions and Answers. Norwalk, CT. 

Governmental Accounting Standards Board. (2000). Guide to Implementation of GASB 

Statement 34 on Basic Financial Statements—and Management’s Discussion and 

Analysis—for State and Local Governments: Questions and Answers. Norwalk, CT. 

Governmental Accounting Standards Board. (1999). Statement No. 34, Basic Financial 

Statements—and Management's Discussion and Analysis—for State and Local 

Governments. Norwalk, CT.

Miller, L. and McClure, M. (Year unknown). “Reliable School Budget Forecasts: Seven Tools 

That Work.” School Business Affairs, (Vol. and No. unknown). 

Osborne, D. and Gaebler, T. (1993). Reinventing Government. How the Entrepreneurial Spirit Is 

Transforming the Public Sector. New York: Plume. 

Renzulli, J.S. and Reis, S.M. (1997). The Schoolwide Enrichment Model (2nd ed.). Mansfield 

Center, CT: Creative Learning Press. 

Reschovsky, A. and Imazeki, J. (1997). “The Development of School Finance Formulas to 

Guarantee the Provision of Adequate Education to Low-Income Students.” In W.J. 

Fowler, Jr. (Ed.), Developments in School Finance, 1997 (NCES 98–212). U.S. 

Department of Education, National Center for Education Statistics. Washington, DC: 

U.S. Government Printing Office. 
183 

U.S. Department of Education, National Center for Education Statistics. (2001). Staff Data 

Handbook: Elementary, Secondary, and Early Childhood Education: 2001 Edition 

(NCES 2001–305). Washington, DC: U.S. Government Printing Office. 

U.S. Department of Education, Institute of Education Sciences. (1990). Financial Accounting for 

Local and State School Systems. Washington, DC: National Center for Education 

Statistics. 
184 
185 

APPENDIX C: GLOSSARY OF ACRONYMS 
186 
187 

GLOSSARY OF ACRONYMS

Included in this appendix are acronyms used throughout this handbook. Following the acronym 

is the definition. 

AcSEC Accounting Standards Executive Committee 

ADA Average Daily Attendance 

ADM Average Daily Membership 

AICPA American Institute of Certified Public Accountants 

APB Accounting Principles Board 

ASBO Association of School Business Officials 

CAFR Comprehensive Annual Financial Report 

CCD Common Core of Data 

ESOL English for Speakers of Other Languages 

FASB Financial Accounting Standards Board 

FTE Full Time Equivalent 

GAAP Generally Accepted Accounting Principles 

GASB Governmental Accounting Standards Board 

GFOA Government Finance Officers Association 

GPFS General Purpose Financial Statements

HVAC Heating, Ventilating, and Air Conditioning 

IRS Internal Revenue Service 

K Kindergarten 

MD&A Management’s Discussion & Analysis 

NCES National Center for Education Statistics 
188 

NFES National Forum on Education Statistics 

NPEFS National Public Education Financial Survey 

PC Personal Computer 

PK Pre-Kindergarten 

PPB Program and Planning (“Programming”) Budgeting 

PTA Parent-Teacher Association

PTO Parent-Teacher Organization 

RSI Required Supplementary Information 

SAS Statement of Accounting Standards 

USDA United States Department of Agriculture 

ZBB Zero-Base Budgeting
189 

APPENDIX D: ILLUSTRATIVE FINANCIAL STATEMENTS FOR

AN INDEPENDENT SCHOOL DISTRICT
190 
191 

ILLUSTRATIVE FINANCIAL STATEMENTS FOR AN INDEPENDENT

SCHOOL DISTRICT

These illustrative statements provide examples of the basic financial statements (and a budgetary 

comparison schedule as required supplementary information) for a hypothetical independent 

school district. They are illustrative only and should not be considered authoritative. 

Management’s discussion and analysis, notes to financial statements, and other required contents 

are not presented; thus, this set of statements does not meet the minimum requirements for 

GAAP financial statements and required supplementary information. 

Exhibits 1 and 2 present alternative approaches for the level of detail displayed for governmental 

activities in the statement of activities. Exhibit 1 presents only the functional categories used in 

the fund financial statements. Exhibit 2 illustrates a higher level of program detail. Paragraph 40 

in Statement 34 states: “Governments are encouraged to provide data in the statement of 

activities at a more detailed level if the additional detail provides more useful information 

without significantly reducing readers’ ability to understand the statement.” 

Exhibits 1 through 12 are printed with permission from the following source, “Appendix 2: 

Illustrative Financial Statements, Illustration B: Independent School District from Guide to 

Implementation of GASB Statement 34 on Basic Financial Statements—and Management’s 

Discussion and Analysis—for State and Local Governments, copyright by Governmental 

Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116, 

U.S.A., is reprinted with permission. Complete copies of this document are available from the 

GASB.” 
192 

Exhibit Page 

Number Basic Financial Statements Number

1 Statement of Net Assets 193 

2 Statement of Activities (same level of detail as presented 

 in the fund financial statements) 194 

3 Statement of Activities (expanded level of detail) 195 

4 Balance Sheet—Governmental Funds 196 

5 Reconciliation of the Governmental Funds Balance Sheet 

 to the Statement of Net Assets 197 

6 Statement of Revenues, Expenditures, and Changes in 

 Fund Balances—Governmental Funds 198 

7 Reconciliation of the Governmental Funds Statement of 

 Revenues, Expenditures, and Changes in Fund Balances to 

 the Statement of Activities 199 

8 Statement of Net Assets—Proprietary Funds 200 

9 Statement of Revenues, Expenses, and Changes in Fund 

 Net Assets—Proprietary Funds 201 

10 Statement of Cash Flows—Proprietary Funds 202 

11 Statements of Fiduciary Net Assets and Changes in Fiduciary 

 Net Assets 203 

Required Supplementary Information 

 

12 Budgetary Comparison Schedule—General Fund 204
193 

Exhibit 1. Sample Independent School District Statement of Net Assets 

June 30, 2002 

 

 Governmental Business-type 

Activities Activities Total 

ASSETS 

Cash and cash equivalents $ 104,268,980 $ 5,971,032 $ 110,240,012 

Property taxes receivable (net) 12,182,730 — 12,182,730 

Due from other governments 19,968,336 1,268,411 21,236,747 

Other receivables 2,252,919 3,783 2,256,702 

Internal balances 442,539 (442,539) —

Inventories and prepaid expenses 1,537,230 1,572,376 3,109,606 

Capital assets: 

 Land 21,823,682 — 21,823,682 

 Buildings 262,202,141 — 262,202,141 

 Furniture and equipment 130,675,133 11,549,456 142,224,589 

 Less accumulated depreciation (98,176,725) (9,016,026) (107,192,751)

 Total capital assets, net of depreciation 316,524,231 2,533,430 319,057,661 

 Total assets 457,176,965 10,906,493 468,083,458 

LIABILITIES 

Accounts payable and other current liabilities 33,305,354 484,151 33,789,505 

Deferred revenues 3,117,910 521,035 3,638,945 

Long-term liabilities: 

 Portion due or payable within one year: 

 Bonds, capital leases, and contracts 13,446,974 — 13,446,974 

 Accrued interest 759,880 — 759,880 

 Special termination benefits and compensated absences 2,156,000 — 2,156,000 

 Claims and judgments 5,700,000 — 5,700,000 

 Portion due or payable after one year: 

 Bonds, capital leases, and contracts 70,958,588 — 70,958,588 

 Accrued interest 16,014,649 — 16,014,649 

 Special termination benefits and compensated absences 15,460,789 — 15,460,789 

 Claims and judgments 5,866,721 — 5,866,721 

 Total liabilities 166,786,865 1,005,186 167,792,051 

NET ASSETS (See Appendix 4, Exhibit 3B.) 

Invested in capital assets, net of related debt 216,104,020 2,533,430 218,637,450 

Restricted for: 

 Debt service 5,147,502 — 5,147,502 

 Campus activities 1,396,569 — 1,396,569 

Unrestricted 67,742,009 7,367,877 75,109,886 

Total net assets $ 290,390,100 $ 9,901,307 $ 300,291,407 
194 

Exhibit 2. Sample Independent School District Statements of Activities for the Year Ended Ju

 

  Program Revenues 

 

 Operating Capital 

 Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activities Governmental activities:  Instruction and instruction-related services $ 234,074,862 $ 5,336,661 $ 27,631,301 $ — $ (201,106,900)  Instructional and school leadership 33,579,907 — 3,783,490 — (29,796,417)  Support services—student-based 37,311,861 2,986,172 4,203,974 1,654,321 (28,467,394)  Administrative support services 9,365,149 — 1,055,183 — (8,309,966)  Support services—non-student-based 57,379,902 — 5,465,065 700,145 (51,214,692)  Community services 2,753,346 — 131,297 — (2,622,049)  Interest on long-term debt 5,969,465 — — — (5,969,465)  Depreciation—unallocated* 6,555,053 — — — (6,555,053)  Total governmental activities 386,989,545 8,322,833 42,270,310 2,354,466 (334,041,936) Business-type activities:  Food services 20,596,032 4,750,350 16,599,235 — — Total primary government $ 407,585,577 $ 13,073,183 $ 58,869,545 $ 2,354,466 (334,041,936)  General revenues:  Taxes:  Property taxes, levied for general purposes 154,108,322  Property taxes, levied for debt service 16,860,557  State aid—formula grants 176,265,211  Unrestricted investment earnings 7,397,103  Special item—gain on sale of unimproved land 367,341  Total general revenues and special items 354,998,534 

 Change in net assets 20,956,598 

 Net assets—beginning 269,433,502  Net assets—ending $ 290,390,100  *This amount excludes the depreciation that is included in the direct expenses of the various programs. 

This statement uses the functional categor

used for governmental funds in Exhibit 6. E

expanded details for gov
195 

Exhibit 3. Sample Independent School District Statement of Activities for Year Ended June 

 

 Program Revenues 

Net (Expense) R

 Changes in N

 Operating Capital 

Charges for Grants and Grants and Governmental Business-typ

Functions/Programs Expenses Services Contributions Contributions Activities Activities 

Governmental activities: 

 Instruction $ 220,993,099 $ 5,336,661 $ 25,973,423 $ — $(189,683,015) 

 Instructional resources and media services 6,421,372 — 690,782 — (5,730,590) 

 Curriculum and staff development 6,660,391 — 967,096 — (5,693,295)  Instructional leadership 9,630,019 — 2,648,443 — (6,981,576)  School leadership 23,949,888 — 1,135,047 — (22,814,841)  Guidance, counseling, and evaluation services 15,691,486 765,432 2,059,947 — (12,866,107) 

 Social work services 1,357,181 — 420,397 — (936,784)  Health services 4,074,485 — 630,596 — (3,443,889)  Student transportation 10,591,675 568,733 1,093,034 1,654,321 (7,275,587) 

 Extracurricular activities 5,597,034 1,652,007 — — (3,945,027)  General administration 9,365,149 — 1,055,183 — (8,309,966)  Plant maintenance and operations 49,841,126 — 3,825,545 — (46,015,581)  Security and monitoring services 5,182,416 — 1,093,013 700,145 (3,389,258)  Data processing services 2,356,359 — 546,507 — (1,809,852)  Community services 2,753,347 — 131,297 — (2,622,050)  Interest on long-term debt 5,969,465 — — — (5,969,465)  Depreciation—unallocated* 6,555,053 — — — (6,555,053)  Total governmental activities 386,989,545 8,322,833 42,270,310 2,354,466 (334,041,936) 

 Business-type activities:  Food services 20,596,032 4,750,350 16,599,235 — — $ Total primary government $ 407,585,577 $ 13,073,183 $ 58,869,545 $ 2,354,466 (334,041,936)  General revenues:  Taxes:  Property taxes, levied for general purposes 154,108,322  Property taxes, levied for debt service 16,860,557  State aid—formula grants 176,265,211  Unrestricted investment earnings 7,397,103 

Special item—gain on sale of unimproved land 367,341 

 Total general revenues and special items 354,998,534 

 Change in net assets 20,956,598 

 1,3

 Net assets—beginning 269,433,502  Net assets—ending $ 290,390,100 $ 

*This amount excludes the depreciation that is included in the direct expenses of the various programs.

See Exhibit 2 for an illustration of this statement usin

for governmental activities that are also presented in 

Exhibit 6. 
196 

Exhibit 4. Sample Independent School District Balance Sheet– 

Governmental Funds 

June 30, 2002 

 Total 

General Debt Service Other Governmental 

Fund Fund Funds Funds 

ASSETS 

Cash and cash equivalents $ 98,864,805 $ 3,294,850 $ 2,109,325 $ 104,268,980 

Property taxes receivable 15,179,756 2,702,625 — 17,882,381 

 Less allowance for uncollectible taxes (4,838,244) (861,407) — (5,699,651)

Due from other governments 15,105,826 — 4,862,510 19,968,336 

Accrued interest 504,757 — — 504,757 

Due from other funds 4,997,421 759,359 1,852,454 7,609,234 

Other receivables 1,218,640 20,695 508,827 1,748,162 

Inventories—supplies and materials 1,412,121 — — 1,412,121 

Other current assets 125,109 — — 125,109 

Total assets $ 132,570,191 $ 5,916,122 $ 9,333,116 $ 147,819,429 

 

LIABILITIES AND FUND BALANCES 

Liabilities: 

 Accounts payable and accrued liabilities $ 30,270,632 $ 8,740 $ 933,434 $ 31,212,806 

 Due to other funds 20,845,752 — 5,503,492 26,349,244 

 Due to other governments and agencies 243,128 — — 243,128 

 Due to student groups — — 256,183 256,183 

 Deferred revenue 12,283,000 1,774,202 1,243,438 15,300,640 

 Total liabilities 63,642,512 1,782,942 7,936,547 73,362,001 

 

Fund balances: 

 Reserved for: 

 Inventories 1,412,121 — — 1,412,121 

 Retirement of long-term debt — 4,133,180 — 4,133,180 

 Encumbrances 4,744,173 — — 4,744,173 

 Unreserved: 

 Designated 21,347,665 — — 21,347,665 

 Undesignated 41,423,720 — — 41,423,720 

 Undesignated, reported in special 

revenue funds — — 1,396,569 1,396,569 

 Total fund balances 68,927,679 4,133,180 1,396,569 74,457,428 

Total liabilities and fund balances $ 132,570,191 $ 5,916,122 $ 9,333,116 $ 147,819,429 

The Debt Service Fund does not meet the major fund percentage criteria in paragraph 76 and, therefore, is not required 

to be reported as a major fund. The School District voluntarily presents the fund separately as a major fund because of 

the public’s interest in the debt service activity of the District. 
197 

Exhibit 5. Sample Independent School District Reconciliation of the Governmental 

Funds Balance Sheet to the Statement of Net Assets 

Total fund balance—governmental funds (Exhibit 4) $ 74,457,428 

 

Amounts reported for governmental activities in the statement of net assets are 

different because: 

 

 Capital assets used in governmental activities are not financial resources and 

therefore are not reported as assets in governmental funds. The cost of the 

assets is $414,700,956, and the accumulated depreciation is $98,176,725. 316,524,231 

 

 Property taxes receivable will be collected this year, but are not available soon 

enough to pay for the current period's expenditures, and therefore are deferred in 

the funds. 12,182,730 

 

An internal service fund is used by the district's management to charge the 

costs of workers' compensation and unemployment claims to the individual 

funds. The assets and liabilities of the internal service fund are included with 

governmental activities. (See Exhibit 8.) 6,022,591 

 

 Long-term liabilities, including bonds payable, are not due and payable in the 

current period and therefore are not reported as liabilities in the funds. Longterm liabilities at year-end consist of: 

 

 Bonds payable $ 80,575,118 

 Accrued interest on the bonds 759,880 

 Capital leases payable 1,062,861 

 Contracts payable 2,767,583 

 Compensated absences (sick pay and vacations) 1,125,503 

 Special termination benefits payable 16,491,286 

In addition, in 1990, the district issued "capital 

appreciation" bonds. The accretion of interest on 

those bonds to date is: 16,014,649 (118,796,880) 

 

Total net assets—governmental activities (Exhibit 1) $290,390,100 

 
198 

Exhibit 6. Sample Independent School District–Statement of Revenues, Expenditures, 

and Changes in Fund Balances–Governmental Funds 

For the Year Ended June 30, 2000

 

 Total 

General Debt Service Other Governmental 

 Fund Fund Funds Funds 

REVENUES 

Property taxes $ 153,862,367 $ 16,589,425 $ — $ 170,451,792 

Tuition charges 1,110,720 — 4,225,941 5,336,661 

Fees and charges 2,347,009 — — 2,347,009 

State aid 190,373,996 — 6,135,833 196,509,829 

Federal aid 2,284,748 — 22,095,410 24,380,158 

Earnings on investments 7,077,388 194,926 124,789 7,397,103 

Miscellaneous 197,604 — 441,559 639,163 

 Total revenues 357,253,832 16,784,351 33,023,532 407,061,715 

 

EXPENDITURES 

Current: 

 Instruction and instruction-related services 206,958,475 — 25,236,202 232,194,677 

 Instructional and school leadership 31,485,279 — 1,825,705 33,310,984 

 Support services—student 34,010,001 — 3,003,049 37,013,050 

 Administrative support services 9,290,149 — — 9,290,149 

 Support services—non-student-based 55,615,563 — 1,308,415 56,923,978 

 Community services 1,691,107 — 1,040,189 2,731,296 

Debt service 

 Principal 1,143,185 12,171,263 212,498 13,526,946 

 Interest 395,733 3,723,442 292,170 4,411,345 

Capital outlay 3,277,003 — 708,327 3,985,330 

 Total expenditures 343,866,495 15,894,705 33,626,555 393,387,755 

 Excess (deficiency) of revenues over 

expenditures 13,387,337 889,646 (603,023) 13,673,960 

 

OTHER FINANCING SOURCES (USES) 

Capital leases — — 692,245 692,245 

SPECIAL ITEM 

Proceeds from sale of unimproved land 601,908 — — 601,908 

 Net change in fund balances 13,989,245 889,646 89,222 14,968,113 

Fund balances—July 1, 2001 54,938,434 3,243,534 1,307,347 59,489,315 

Fund balances—June 30, 2002 $ 68,927,679 $ 4,133,180 $ 1,396,569 $ 74,457,428 
199 

Exhibit 7. Sample Independent School District Reconciliation of the Governmental 

Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the 

Statement of Activities 

 

Total net change in fund balances—governmental funds (Exhibit 6) $ 14,968,113 

Amounts reported for governmental activities in the statement of activities are different because: 

 

 Capital outlays are reported in governmental funds as expenditures. However, in the statement of 

 activities, the cost of those assets is allocated over their estimated useful lives as depreciation 

 expense. This is the amount by which depreciation expense ($13,108,809) exceeds capital 

 outlays ($3,985,330) in the period. (9,123,479)

 

 Some of the capital assets acquired this year were financed with capital leases. The amount 

 financed by the leases is reported in the governmental funds as a source of financing. 

 On the other hand, the capital leases are not revenues in the statement of activities, 

 but rather constitute long-term liabilities in the statement of net assets. (692,245)

 

 Repayment of bond principal is an expenditure in the governmental funds, but the repayment 

 reduces long-term liabilities in the statement of net assets. 13,526,946 

 

 Because some property taxes will not be collected for several months after the district's fiscal 

 year ends, they are not considered "available" revenues and are deferred in the governmental funds. 

 Deferred tax revenues increased by this amount this year. 517,087 

 

 In the statement of activities, only the gain on the sale of the unimproved land is reported, whereas 

 in the governmental funds, the entire proceeds from the sale increase financial resources. 

 Thus, the change in net assets differs from the change in fund balances by the cost of the land sold. (234,567)

 

 In the statement of activities, certain operating expenses—compensated absences (sick pay and 

 vacations) and special termination benefits (early retirement)—are measured by the amounts earned 

 during the year. In the governmental funds, however, expenditures for these items are measured by the 

 amount of financial resources used (essentially, the amounts actually paid). This year, vacation and 

 sick leave earned ($327,280) exceeded the amounts used ($261,132) by $66,148. Special termination 

 benefits paid ($10,300,426) exceeded the amounts earned ($7,906,074) by $2,394,352. 2,328,204 

 

 Interest on long-term debt in the statement of activities differs from the amount reported in the 

 governmental funds because interest is recognized as an expenditure in the funds when it 

 is due, and thus requires the use of current financial resources. In the statement of activities, 

 however, interest expense is recognized as the interest accrues, regardless of when it is due. 

 The additional interest reported in the statement of activities is the net result of two factors. First, 

 accrued interest on bonds, leases, and contracts payable decreased by $43,380, and second, 

 $1,601,500 of additional accumulated interest was accreted on the district's "capital 

 appreciation" bonds. (1,558,120)

 

 An internal service fund is used by the district's management to charge the costs of 

 workers' compensation and unemployment claims to the individual funds. The net revenue 

 of the internal service fund is reported with governmental activities. (See Exhibit 9.) 1,224,659

 

Change in net assets of governmental activities (Exhibits 2 and 3) $ 20,956,598

 
200 

Exhibit 8. Sample Independent School District Statement of Net Assets Proprietary 

Funds 

 

June 30, 2002 

 Enterprise Internal 

Fund— Service Fund— 

Food Services Insurance 

ASSETS 

Current assets: 

 Cash and cash equivalents $ 5,971,032 $ —

 Due from other governments 1,268,411 —

 Due from other funds — 17,589,312 

 Other receivables 3,783 —

 Inventories—supplies and materials 1,572,376 —

 Total current assets 8,815,602 17,589,312 

Noncurrent assets: 

 Furniture and equipment 11,549,456 —

 Less accumulated depreciation (9,016,026) —

 Total noncurrent assets 2,533,430 —

 Total assets 11,349,032 17,589,312 

 

LIABILITIES 

Current liabilities: 

 Accounts payable and accrued liabilities 484,151 —

 Claims payable — 5,700,000 

 Due to other funds 442,539 —

 Deferred revenue 521,035 —

 Total current liabilities 1,447,725 5,700,000 

Long-term liabilities: 

 Claims payable — 5,866,721 

 Total liabilities 1,447,725 11,566,721 

 

NET ASSETS 

Invested in capital assets 2,533,430 —

Unrestricted 7,367,877 6,022,591 

Total net assets $ 9,901,307 $ 6,022,591 
201 

Exhibit 9. Sample Independent School District Statement of Revenues, Expenses, 

and Changes in Fund Net Assets Proprietary Funds 

 

For the Year Ended June 30, 2002 

 

 Enterprise Internal 

Fund— Service Fund— 

Food Services Insurance 

OPERATING REVENUES 

Food service sales $ 4,750,350 $ —

Charges to other funds — 23,864,586 

 Total operating revenues 4,750,350 23,864,586 

 

OPERATING EXPENSES 

Payroll costs 10,494,786 —

Professional and contract services 343,439 —

Supplies and materials 8,773,317 —

Depreciation 984,490 —

Other operating costs — 22,639,927 

 Total operating expenses 20,596,032 22,639,927 

 Operating income (loss) (15,845,682) 1,224,659 

 

NONOPERATING REVENUES (EXPENSES) 

Interest income 301,410 —

State matching and other 292,448 —

Grants—child nutrition program 16,306,787 —

 Total nonoperating revenue (expenses) 16,900,645 —

 Change in net assets 1,054,963 1,224,659 

Total net assets—July 1, 2001 8,846,344 4,797,932 

Total net assets—June 30, 2002 $ 9,901,307 $ 6,022,591 

 

Note: The district uses the internal service fund to charge its programs for workers' compensation and unemployment 

insurance. The Food Service enterprise fund is covered by the self-insurance program and is charged for its pro-rata 

share—approximately 3.8%—of the total cost of the program. Therefore, that percentage of the internal service fund's 

change in net assets should be allocated back to the enterprise fund so that the internal service fund "breaks even" with 

respect to internal charges. However, because the amount of this "look-back" adjustment for the enterprise fund is so 

small (less than one fourth of 1 percent of total expenses), no adjustment needs to be made and, consequently, no 

reconciliation is necessary. The entire amount of the change in net assets ($1,224,659) is allocated back to the major 

programs reported as governmental activities.
202 

Exhibit 10. Sample Independent School District Statement of Cash Flows–Proprietary 

Funds 

 

For the Year Ended June 30, 2002 

Enterprise Internal 

Fund— Service Fund— 

Food Services Insurance 

CASH FLOWS FROM OPERATING ACTIVITIES 

Received from user charges $ 4,851,104 $ — 

Received from assessments made to other funds — 22,639,927 

Payments to employees for services (10,494,786) —

Payments for workers' compensation and unemployment claims — (22,639,927) 

Payments to suppliers for goods and services (7,855,737) — 

 Net cash used by operating activities (13,499,419) 0 

 

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES 

Nonoperating grants received 14,914,368 — 

 

CASH FLOWS FROM CAPITAL AND RELATED FINANCING 

 ACTIVITIES 

Acquisition of capital assets (122,918) — 

 

CASH FLOWS FROM INVESTING ACTIVITIES 

Interest on investments 301,410 — 

 Net increase in cash and cash equivalents 1,593,441 — 

Cash and cash equivalents—July 1, 2001 4,380,184 — 

Cash and cash equivalents—June 30, 2002 $ 5,973,625 $ 0 

 

Reconciliation of operating income (loss) to net cash used 

 by operating activities: 

 Operating income (loss) $ (15,845,682) $ 1,224,659 

 Adjustments to reconcile operating income (loss) to net cash 

 used by operating activities: 

 Depreciation 984,490 — 

 Commodities used 1,684,867 — 

 Changes in assets and liabilities: 

 Receivables 100,754 (2,549,089) 

 Inventories 210,239 — 

 Accrued liabilities (371,455) 1,324,430 

 Deferred revenue (262,632) — 

Net cash used by operating activities $ (13,499,419) $ 0 

 

Noncash noncapital financing activities: 

During the year the district received $1,684,867 of food commodities from the U.S. Department of Agriculture.
203 

Exhibit 11. Sample Independent School District Statement of Fiduciary Net Assets 

 

June 30, 2002 

 

Privatepurpose 

 Trusts Agency Funds 

ASSETS 

Cash and cash equivalents $ 280,087 $ 101,959 

Due to other governments — 100,242 

Accrued interest 23,853 —

Due from other funds 321,026 1,272,211 

 Total assets 624,966 $ 1,474,412 

 

LIABILITIES 

Accounts payable 1,450 $ 14,911 

Due to student groups — 1,239,739 

Due to grantor agencies — 219,762 

 Total liabilities 1,450 $ 1,474,412 

 

NET ASSETS 

Reserved for scholarships 585,221 

Unreserved 38,295 

Total net assets $ 623,516 

 

 * * * 

Sample Independent School District 

Statement of Changes in Fiduciary Net Assets 

For Year Ended June 30, 2002

 

Privatepurpose 

 Trusts 

ADDITIONS 

Gifts and contributions $ 61,967 

 

DEDUCTIONS 

Scholarships awarded (36,644) 

 Change in net assets 98,611 

Net assets—July 1, 2001 598,193 

Net assets—June 30, 2002 $ 696,804 

 
204 

Exhibit 12. Required Supplementary Information Sample Independent School District 

Budgetary Comparison Schedule General Fund 

 

For the Year Ended June 30, 2002 

 Variance with 

 Final Budget— 

 

Budgeted Amounts Actual Positive 

 Original Final (Budgetary Basis) (Negative) 

REVENUES 

Local and intermediate sources $ 162,140,000 $ 162,140,000 $ 164,595,088 $ 2,455,088 

State program revenues 187,073,000 187,073,000 190,373,996 3,300,996 

Federal program revenues 2,137,500 2,250,000 2,284,748 34,748 

 Total revenues 351,350,500 351,463,000 357,253,832 5,790,832 

 

EXPENDITURES 

Current: 

 Instruction and instruction-related 

services 206,410,523 208,495,478 206,958,475 1,537,003 

 Instructional and school leadership 32,706,983 32,065,670 31,485,279 580,391 

 Support services—student 34,694,864 34,694,864 34,010,001 684,863 

 Administrative support services 9,627,845 9,627,845 9,290,149 337,696 

 Support services—non-studentbased 58,659,046 59,251,562 55,615,563 3,635,999 

 Community services 1,721,536 1,721,536 1,691,107 30,429 

Debt service 1,531,812 1,531,812 1,538,918 (7,106)

Capital outlay 4,059,000 4,059,000 3,277,003 781,997 

 Total expenditures 349,411,609 351,447,767 343,866,495 7,581,272 

 Excess (deficiency) of revenues 

over expenditures 1,938,891 15,233 13,387,337 13,372,104 

 

SPECIAL ITEM 

Proceeds from sale of unimproved land 610,000 610,000 601,908 (8,092)

 Net change in fund balances 2,548,891 625,233 13,989,245 13,364,012 

Fund balance—July 1, 2001 54,938,434 54,938,434 54,938,434 —

Fund balance—June 30, 2002 $ 57,487,325 $ 55,563,667 $ 68,927,679 $ 13,364,012 

This schedule is presented using the statement of revenues, expenditures, and changes in fund balances format. An 

illustration of a budgetary comparison schedule using a government’s budget document format is provided in Illustration 

A, Exhibit 12. Either format may be used.

The variance 

column is 

optional.
205 

APPENDIX E: CRITERIA FOR DISTINGUISHING 

EQUIPMENT FROM SUPPLY ITEMS
206 
207 

SUPPLIES AND EQUIPMENT

This appendix discusses the importance of distinguishing between supplies and equipment and 

suggests criteria for making that decision. 

REASONS FOR DISTINGUISHING BETWEEN SUPPLIES AND EQUIPMENT

Education agencies have found it useful to distinguish between supplies and equipment for 

several reasons: 

• The distinction may assist in deciding how to control or keep track of an item. For 

example, some funding programs require that all equipment items be inventoried 

annually. At the same time, many school districts will inventory certain items, 

regardless of whether they are equipment or whether the districts are required by law 

to do so. 

• The distinction may bear on insurance decisions. Supplies and movable equipment are 

usually insured as part of the contents of buildings, whereas built-in equipment is 

usually insured as part of the structure. 

• The distinction is important in identifying the funds with which to purchase a given 

item. For example, some funds, such as bond funds, typically cannot be used to 

purchase supplies, while other funds might exclude the purchase of equipment. 

• The distinction can affect calculations of cost of operations and cost per student. 

Although most school districts include expenditures for supplies in calculating current 

operating costs, many school districts treat equipment differently. Some include all 

expenditures for replacement equipment in the current operating cost total, excluding 

the cost of new and additional equipment. Others prorate the cost of all equipment 

over several years. In both cases, the incorrect classification of supplies or equipment 

items can affect the resulting cost calculations. 

• The distinction can affect the amount of State or Federal aid allocated to a school 

district. Several funding sources use per-student costs as part of their funding formula 

(see the preceding paragraph). Most funding programs limit the ways in which their 

funds may be spent, sometimes excluding either supplies or equipment from the list of 

eligible purchases. 

A school district can take two basic approaches to distinguish between supplies and equipment in 

the decision-making situations just mentioned: 

• Adopt a predetermined list of items, classifying each entry as either a supply or an 

equipment item. 

• Adopt a set of criteria to use in making its own classification of supply and equipment 

items. 
208 

Each approach is discussed in the following text. 

THE DISADVANTAGES OF A SUPPLY/EQUIPMENT LIST

State Departments of Education and School Districts maintain detailed lists of material items 

used in school district operations, identifying each entry as either a supply or an equipment item. 

These lists are helpful in many situations, but they have at least four limitations in financial 

reporting: 

• Various state and federal aid programs offer supply/equipment categorizations that 

conflict with one another. 

• Technological and philosophical changes in education continue at an ever-increasing 

pace. It is impractical to list and classify the thousands of materials and devices used 

in school districts today, particularly in the vocational education curricula. Therefore, 

without periodic updates, supply/equipment lists quickly become obsolete. 

• Classifications of certain items change because of changes in price or technology. For 

example, most school districts classified hand-held, mini-calculators as equipment 

several years ago when they cost over $100. Now that the price of these items has 

dropped to the $5 to $25 range, some school districts are changing the classification 

of these items to supplies; 

• Users tend to treat the lists as comprehensive and up-to-date, even when warned 

otherwise. 

For these reasons, developing a universally applicable and easily updateable supply/equipment 

list is impractical. Instead of presenting a list that might raise as many issues as it would propose 

to resolve, this guide suggests that the distinction between supplies and equipment can better be 

made through consistent, statewide application of uniform criteria. 

CRITERIA FOR DISTINGUISHING SUPPLY AND EQUIPMENT ITEMS

At one time, the federal accounting handbook contained lists of both supplies and equipment. 

Such lists can never be comprehensive or exhaustive and quickly become outdated. To resolve 

the need to differentiate supplies and equipment without exhaustive lists, the NCES has proposed 

a set of criteria for distinguishing equipment from supply items, listed in priority order. (See 

figure 2). At the first “no,” the item is declared to be a supply, not equipment. 

Equipment Items 

An equipment item is any instrument, machine, apparatus or set of articles that meets all of the 

following criteria: 

1. It retains its original shape, appearance, and character with use. 
209 

2. It does not lose its identity through fabrication or incorporation into a different or more 

complex unit or substance. 

3. It is nonexpendable; that is, if the item is damaged or some of its parts are lost or worn 

out, it is more feasible to repair the item than to replace it with an entirely new unit. 

4. Under normal conditions of use, including reasonable care and maintenance, it can be 

expected to serve its principal purpose for at least one year. 

Supply Items 

An item should be classified as a supply if it does not meet all the stated equipment criteria. 

DISTINGUISHING BETWEEN BUILT-IN AND MOVABLE EQUIPMENT

Should a school district find it useful to classify certain equipment into built-in and movable 

categories, and unless otherwise bound by federal, state, or local law, the following criteria 

should be used. 

A built-in equipment item meets these criteria: 

• It is an integral part of a building; that is, it is permanently fastened to the building, 

functions as a part of the building, and causes appreciable damage to the building if it 

is removed. 

• It is permanently attached to a site and functions as part of the site (except buildings 

or other structures). 

Built-in equipment may be incorporated into a building at the time the building is erected or at a 

later date. Built-in equipment is sometimes referred to as fixed equipment. 

Movable equipment consists of items that meet these criteria: 

• They are transportable from one location to another without appreciable damage or 

change to the location from which they are removed or to the location where they are 

installed. 

• They do not function as integral parts of the building or site and are not permanently 

fastened or attached to the building or site. 

A piece of equipment that is simply bolted or screwed to the floor, such as a heavy lathe or desk, 

and that can be moved as a unit once these fasteners have been removed, is movable equipment. 

The term movable refers to the permanency of installation and not to size or weight. 
210 

FIGURE 2. CRITERIA FOR DISTINGUISHING EQUIPMENT FROM SUPPLY ITEMS

Lasts more than one year 

Î no 

Ð yes 

Repair rather than replace 

Î no 

Ð yes 

Independent unit rather than 

being incorporated into 

another unit item 

Î no At the first 

 NO, the item is 

Ð yes declared 

 to be 

Cost of tagging and inventory SUPPLY. 

small percent of item cost 

Î no 

Ð yes 

Exceeds minimum dollar value 

mandated by state or other 

governmental unit (with due 

regard for group control of 

some items) 

Î no 

Ð yes 

 EQUIPMENT 

This diagram was conceived by James Bliss, Ph.D., Assistant Superintendent for Business Services, 

Grandview Consolidated School District, Grandview, Missouri, and Stuart Graf, CPA, of the American 

Institute for Certified Public Accountants (AICPA). 
211 

SELECTING THE LEVEL OF CONTROL FOR SUPPLIES AND EQUIPMENT

School district managers carry great responsibilities for stewardship of the funds and property of 

the school district. They are responsible for tracking and periodically reporting on the condition 

of these financial and physical resources. A major decision in devising methods for carrying out 

these responsibilities is selecting the level of control to be applied to various kinds of supplies 

and equipment. 

The level of control applied to any supply or equipment item can be thought of as the amount of 

time and effort spent in keeping track of the item and the amount of information kept about the 

condition and whereabouts of the item. The level of control applied to a supply or equipment 

item usually falls into one of three broad categories: 

1. Little or no control after purchase. Items in this category are of such little value that the 

cost of implementing procedures to safeguard them, monitor their use, or track their 

location and condition are not justifiable. Such items include staplers and wastebaskets. 

2. Group control. Items in this category are of little individual value but taken as a group 

are valuable enough to justify the cost of providing some type of control over their safety, 

use, location, and condition. Such items include chairs and school desks. 

3. Individual control. Items in this category are of sufficient value to justify applying 

control measures to each individual item. Such items usually include all relatively 

expensive pieces of equipment, although the minimum value of such equipment may vary 

with the school district. 

Selecting the level of control to apply to an item is a straightforward process. Often, certain kinds 

of control are required by law or standard practice. For example, a federal funding program might 

require that all items purchased from these funds be inventoried and reported on periodically. 

Similarly, some funding programs require that all items of a certain minimum value must be 

inventoried and reported on periodically. The school district may decide on its own to inventory 

certain kinds of items, regardless of their funding source, simply because these items or the 

inventory information are valuable to the school district. The level of control can range from an 

annual inventory to daily check-out from and return to a central storage room or station. When 

applied to a given item, the level should be based on the relative importance of the item to the 

overall operation of the school district and is usually in direct proportion to the item’s purchase, 

replacement, or repair cost. 

It is important to note that deciding how to control an item is relevant not only to equipment but 

also to certain stocks of supplies. For example, any large stock of supplies—such as instruction 

supplies, food, or custodial supplies—should be periodically counted and checked for damage, 

deterioration, and pilferage. Thus, the level-of-control issue applies to all tangible goods of any 

significant value to the school district.
212 
213 

INDEX
214 

A 

Access Controls .......................................36 

Accounting For and Control of Inventory.47 

Accounting for Commodities...................47 

Accounts Payable.............................57, 107 

Accreted Interest.....................................108 

Accrued Annual Requirement Contribution 

Liability ..............................................108 

Accrued Interest on Investments 

Purchased ...........................................103 

Accrued Interest Receivable. ...................46 

Accrued Salaries and Benefits.................108 

Accumulated Depreciation on Buildings 

and Building Improvements................106 

Accumulated Depreciation on 

Infrastructure ......................................106 

Accumulated Depreciation on Machinery 

and Equipment....................................106 

Accumulated Depreciation on Site 

Improvements.....................................106 

Accumulated Depreciation on Works of 

Art and Historical Collections.............106 

Adult/Continuing Education Programs ...100 

Advance Refunding..................................61 

Agency Funds...........................................95 

Allowance for Uncollectible Accounts 

Receivable (Credit).............................104 

Allowance for Uncollectible Loans 

(Credit) ...............................................104 

Allowance for Uncollectible Taxes 

(Credit) ...............................................104 

Amortization of Premium on Issuance of 

Bonds..................................................120 

Analysis of Cost Reports........................156 

Analysis of Reported Costs....................151 

Analytical Reviews ..................................37 

Application of GASB Statement 34 to 

Activity Funds....................................163 

Arbitrage Rebate Liability......................109 

Architecture and Engineering..................131 

Assets ...............................................42, 103 

Authorization and Approval ....................37 

B 

Balance Sheet Accounts.........................171 

Balance Sheets/Statement of Net Assets103 

Basic Financial Statements ......................78 

Basis of Capital Assets.............................49 

Blended Component Units.......................89 

Bonds .......................................................60 

Bonds Payable ........................................108 

Bonds Payable—Current ........................107 

Budgetary Approaches .............................15 

Budgets for Multiyear Construction 

Projects.................................................24 

Building Acquisition and Construction...131 

Building Improvements ..........................132 

Buildings and Building Improvements....106 

C 

Capital Asset Reporting. ..........................49 

Capital Assets...................................48, 105 

Capital Contributions..............................120 

Capital Lease Obligations .......................109 

Capital Lease Proceeds...........................120 

Capital Projects Funds .............................93 

Capitalization Thresholds, Estimated 

Useful Lives, and Depreciation 

Methods for Capital Assets..................50 

Capitalized Bond and Other Debt Issuance 

Costs...................................................105 

Cash and Investments...............................42 

Cash Forecasts .........................................22 

Cash in Bank ..........................................103 

Cash on Hand .........................................103 

Cash With Fiscal Agents.........................103 

Central Services......................................126 

Change Cash...........................................103 

Classification of Revenues.......................68 

Classifications of Expenditures..............121 

Classifications of Revenue and Other 

Financing Sources..............................111 

Co-curricular and Extra-curricular 

Activities ............................................101 

Common Types of Control Procedures....35 
215 

Community Services Operations.............131 

Community Services Programs...............100 

Community/Junior College Education 

Programs.............................................100 

Compensated Absences ...................57, 109 

Compensated Absences—Current. .........108 

Component Units .....................................87 

Concepts of Program Cost Reporting by 

School ................................................149 

Construction Contracts Payable ..............107 

Construction Contracts Payable— 

Retainage............................................107 

Construction in Progress.........................106 

Contracts Payable ...................................107 

Control Activities.....................................34 

Control Environment ...............................33 

Controls for Establishing and 

Maintaining Activity Funds ...............159 

Criteria for Distinguishing Supply and 

Equipment Items ................................208 

D 

Debt..........................................................58 

Debt Defeasance. .....................................62 

Debt Service ...........................................132 

Debt Service and Miscellaneous............143 

Debt Service Funds ..................................93 

Deferred Compensation and Pension 

Plans.....................................................58 

Deferred Expenditures/Expenses ............105 

Deferred Revenues..................................108 

Deposits..................................................105 

Deposits Payable.....................................108 

Depreciation Methods..............................52 

Depreciation of Infrastructure Assets.......56 

Designated Fund Balance........................110 

Designated, Unreserved Fund Balances...64 

Direct Costs............................................154 

Disclosures Relating to Donor-Restricted 

Endowments.........................................84 

Discretely Presented Component Units ...89 

Distinguishing Between Built-In and 

Movable Equipment...........................209 

District Activities....................................115 

Due From Federal Agencies.....................46 

Due From Other Governments or 

Agencies...............................................46 

Due From State. .......................................45 

Due to/From Other Funds ........................57 

E 

Educational Specifications Development131 

Elements of Program Costs....................152 

Enterprise Funds ......................................93 

Enterprise Operations .............................131 

Equipment Items ....................................208 

Estimated Useful Lives. ...........................51 

Expenditure Function Classifications ....173 

Expenses ..................................................71 

Extended Reviewing Committee 

Members ............................................. vii 

Extinguishment of Debt ...........................61 

Extraordinary Items ................................120 

F 

Facilities Acquisition and Construction ..131 

Federal Projects ......................................146 

Fiduciary Fund Financial Statements.......82 

Fiduciary Fund Types ...............................94 

Financial Forecasting and Planning .........21 

Financial Reporting and a System of 

Education Information ...........................5 

Financial Statement Elements..................42 

Financial Statement Presentation and 

Disclosure. ...........................................44 

Financial Statements ................................73 

Food Services .........................................114 

Food Services Operations.......................130 

Function .................................................121 

Fund Balance Forecasts ...........................23 

Fund Balance/Net Assets .........................62 

Fund Balances/Fund Net Asset..............109 

Fund Classification ................................171 

Fund Classifications.................................93 

Fund Financial Statements.................62, 81 

Fund Financial Statements—Reporting of 

Expenditures/Expenses ........................69 

Fund Structure..........................................30 

Fund Transfers In....................................119 
216 

G 

General Computer Controls .....................37 

General Fund ............................................93 

General Policies for the Establishment and 

Operation of Activity Funds ..............160 

General Revenues ....................................68 

Governmental Fund Financial Statements.81 

Governmental Fund Types........................93 

Governmental GAAP Hierarchy..............28 

Governmentwide Financial Statements ...79 

Governmentwide Financial Statements: 

Statement of Net Assets.......................65 

Governmentwide Reporting.....................67 

Governmentwide Statements—Reporting 

of Expenses ..........................................72 

Grants-in-Aid From the Federal Government 

Through Other Intermediate Agencies 119 

I 

Indirect Costs .........................................154 

Information and Communication.............34 

Information Committee Members.............vi 

Infrastructure ..........................................106 

Infrastructure Assets. ...............................54 

Instruction...............................................121 

Interest Payable.......................................108 

Interest Receivable on Investments.........103 

Interfund Accounts Payable ....................107 

Interfund Accounts Receivable ...............104 

Interfund Loans Payable .........................107 

Interfund Loans Receivable ....................104 

Intergovernmental Accounts Payable......107 

Intergovernmental Accounts Receivable.104 

Internal Control Structure ........................32 

Internal Service Funds ..............................94 

Inventories for Consumption ..................104 

Inventories for Resale .............................104 

Inventory ..................................................46 

Invested in Capital Assets, Net of Related 

Debt....................................................110 

Investment Income..................................113 

Investments.............................................103 

Investors and Creditors ............................11 

Issuance of Bonds...................................119 

J 

Job Classification...................................148 

Judgments Payable..................................107 

L 

Land Acquisition ....................................131 

Land and Land Improvements.................105 

Land Improvement..................................131 

Lease Obligations—Current ...................108 

Level of Instruction................................146 

Liabilities .........................................56, 107 

Line-Item Budgeting ................................15 

Lines of Authority..................................159 

Loan Proceeds.........................................120 

Loans Payable.................................107, 109 

Loans Receivable....................................104 

Local Projects.........................................146 

Long-Term Liabilities in Governmental 

Funds....................................................59 

Long-Term Liabilities in Proprietary and 

Fiduciary Funds....................................59 

M 

Machinery and Equipment......................106 

Major Changes and Chapter Highlights.....2 

Major Funds.............................................31 

Management’s Discussion & Analysis 

and Other RSI.......................................86 

Matured Bonds Payable ..........................107 

Measurement Focus and Basis of 

Accounting...........................................29 

N 

National Forum on Education Statistics, 

Core Finance Data Taskforce Membersvi 

Non-Categorical......................................146 

Non-Public School Programs.................100 

Note Disclosures ......................................82 

O 

Object.....................................................133 

Object Classification..............................175 

Objectives of Budgeting...........................14 

Operating Budget Responsibilities and 

Guidelines ............................................19 
217 

Operation and Maintenance of Plant.......129 

Operation of Noninstructional Services ..130 

Operational Unit.....................................148 

Other Accounts Receivable.....................104 

Other Current Assets...............................105 

Other Current Liabilities .........................108 

Other Facilities Acquisition and 

Construction .......................................132 

Other Financing Sources.........................119 

Other Instructional Programs—

Elementary/Secondary ........................100 

Other Issues Affecting Educational 

Entities .................................................38 

Other Long-Term Debt Proceeds............120 

Other Long-Term Liabilities ...................109 

Other Purchased Services .......................138 

Other Reserved Fund Balance.................109 

Other Resources .....................................181 

Other Revenue From Local Sources .......116 

Other Support Services ...........................130 

Other Types of Debt.................................60 

Outcome-Focused Budgeting...................19 

P 

Payroll Deductions and Withholdings.....108 

Pension Assets .........................................48 

Performance Budgeting............................16 

Permanent Funds......................................93 

Personal Services—Employee Benefits ..134 

Personal Services—Salaries....................133 

Petty Cash...............................................103 

Planning for Annual and Multiyear 

Construction and Grant Programs........23 

Premium and Discount on Issuance of 

Bonds..................................................105 

Preparation and Review of Monthly 

Activity Fund Reports........................162 

Preparation of Budget Guidelines............20 

Preparation of Construction Project Budgets 

and Related Financing..........................24 

Preparation of the Budget Calendar .........21 

Proceeds From the Disposal of Real or 

Personal Property................................120 

Program....................................................95 

Program and Planning (Programming) 

Budgeting (PPB) ..................................17 

Program Classification...........................173 

Program Revenues ...................................68 

Project/Reporting ...................................146 

Property..................................................142 

Property Taxes Receivable.......................45 

Proprietary Fund Financial Statements. ...82 

Proprietary Fund Types.............................93 

Purchased Professional and Technical 

Services ..............................................136 

Purchased Property Services...................137 

R 

Reasons for Distinguishing Between 

Supplies and Equipment ....................207 

Receivables ..............................................44 

Reconciliation and Comparison of Assets 

with Records ........................................36 

Recording of Long-Term Debt in Different 

Types of Funds.....................................59 

Regular Elementary/Secondary Education 

Programs ..............................................95 

Reporting Requirements ..........................55 

Required Disclosures for Capital Assets..83 

Required Disclosures for Long-Term 

Liabilities. ............................................84 

Reserve for Encumbrances......................109 

Reserve for Inventories ...........................109 

Reserve for Prepaid Items.......................109 

Reserved Fund Balances ..........................63 

Restricted Grants-in-Aid.................117, 118 

Restricted Grants-in-Aid Direct From 

the Federal Government......................119 

Restricted Grants-in-Aid From the Federal 

Government Through the State ...........119 

Restricted Net Assets..............................110 

Revenue and Other Fund Sources..........172 

Revenue for/on Behalf of the School 

District................................117, 118, 119 

Revenue From Community Services 

Activities ............................................116 

Revenue From Enterprise and Alternative 

Sources...............................................163 

Revenue From Federal Sources ..............118 

Revenue From Intermediate Sources.......117 

Revenue From Local Governmental Units 

Other Than School Districts................111 
218 

Revenue From Local Sources .................111 

Revenue From State Sources ..................118 

Revenue in Lieu of Taxes .......117, 118, 119 

Revenues..........................................65, 111 

Reviews of Output ...................................37 

Risk Assessment ......................................33 

S 

Salaries and Related Benefits Payable .....57 

Segment Disclosures................................84 

Segregation of Duties Related to 

Activity Funds....................................161 

Selecting the Level of Control for 

Supplies and Equipment ....................211 

Site Improvement ...................................131 

Site Improvements..................................105 

Site-Based Budgeting...............................18 

Special Revenue Funds.............................93 

Statement of Activities.............................81 

Statement of Net Assets...........................79 

Student Transportation............................130 

Summary of Significant Accounting 

Policies (Additional Disclosure 

Requirements)......................................82 

Supplies..................................................141 

Supplies and Equipment ........................207 

Supply Items ..........................................209 

Support Services.....................................121 

Support Services—General 

Administration....................................124 

Support Services—Instruction ................122 

Support Services—School 

Administration....................................126 

Support Services—Students....................121 

T 

Taxes Levied/Assessed by the School 

District................................................111 

Taxes Receivable....................................103 

Technology Assets. ..................................53 

The Disadvantages of a Supply/ 

Equipment List...................................208 

The Expanding Need for Greater Detail 

in Financial Reporting........................149 

The Program Cost Structure...................151 

Transactional Reviews .............................37 

Transportation Fees ................................113 

Trust Funds...............................................94 

Tuition....................................................113 

Types of Activity Funds and Proper 

Classification......................................157 

Types of Debt Instruments.......................60 

Types of Expenditures and Accounting 

Treatments............................................69 

U 

Unamortized Discounts on Investments 

(Credit) ...............................................103 

Unamortized Gains/Losses on Debt 

Refundings .........................................109 

Unamortized Premiums on Investments..103 

Unamortized Premiums on Issuance of 

Bonds..................................................107 

Undesignated, Unreserved Fund 

Balances. ..............................................64 

Unreserved Fund Balance .......................110 

Unreserved Fund Balances.......................64 

Unrestricted Grants-in-Aid .............117, 118 

Unrestricted Grants-in-Aid Direct From 

the Federal Government......................118 

Unrestricted Grants-in-Aid From the 

Federal Government Through the State118 

Unrestricted Net Assets...........................110 

Use of Existing Data Systems by Cost 

Reporting Software ............................154 

Users of School Finance Information ........9 

V 

Valuation of Infrastructure Assets ...........55 

Vocational and Technical Programs..........98 

W 

Warrants Payable....................................107 

Works of Art and Historical 

Treasures ......................................53, 106 

Z 

Zero-Based Budgeting .............................17